Plaintiff v Defendant

Plaintiff v Defendant - [2016] VSC 779 - VSC 2016 case summary — Zoe

[84]

The reference to 'pool return wheat' was a reference to arrangements by which Growers and others sold wheat to a single purchaser which would then negotiate the sale of that wheat overseas. At the times relevant to these proceedings that purchaser, or pool company, was AWBI. The pool company would take the amounts it received from sales of wheat of a particular grade and divide the returns (net of costs) rateable among those who had supplied the grain that was sold. These arrangements were often referred to as 'Single Desk' selling arrangements. There was to be a single seller of Australian wheat in overseas markets and thus no competition between sellers of Australian wheat in those markets.

...

Regulation of wheat marketing

Since the end of World War 2 there has been a series of federal Acts dealing with aspects of the marketing of wheat. (There had been earlier federal legislation affecting the wheat industry but the War of 1939-45 marks a convenient point at which to begin reference to past legislation.) As originally enacted, the 1989 Act provided a very different regime for the marketing of wheat from that provided by it at the times relevant to this matter. The Australian Wheat Board, a statutory corporation tracing its roots to the Wheat Industry Stabilization Act 1948 (Cth), played a central role in the marketing scheme for which the 1989 Act originally provided. As enacted, the 1989 Act provided for the Australian Wheat Board to control the export of wheat. By s 57, as it then stood, export of wheat, without the Board's consent, was forbidden.

In 1997 and 1998, significant changes were made to the 1989 Act and the scheme for which it provided. The Explanatory Memorandum and the Wheat Marketing Legislation Amendment Bill 1998 (by which the second part of these changes were made) described their purpose as being to 'restructure' the Australian Wheat Board 'from a statutory marketing authority to a grower owned company.' From 1 July 1999, there were to be three grower-owned companies involved in the marketing of wheat - AWB, AWBI and a third company undertaking domestic trading of grains and other non-pool commercial activities not handled by AWB. A Wheat Export Authority was to control export of wheat and to monitor the performance of AWBI in relation to the export of wheat.

...

AWBI and the Act

AWBI does not owe its existence to the Act; is a company limited by shares incorporated under the Corporations Law. To a very great extent, its powers, and the powers and obligations of its organs, are regulated by the applicable companies legislation. So, for example, at the time of the events giving rise to this appeal, its board of directors owed duties to its sole shareholder, AWB. The content of those duties was to be found in the Corporations Law (Vict) and the considerable body of judge-made law affecting directors' duties. The central duty of the board of AWBI was to observe its constitution and to pursue the interests of the company as expressed in that document. As a wholly owned subsidiary of AWB those duties would, no doubt, have required the board of AWBI to pursue the interests of its parent (and thus, its parent's shareholders) to the extent that those interests were compatible with other obligations of AWBI. In fact the interests of the two companies coincided. The constituent documents of both AWB and AWBI required that AWBI seek to maximise returns to those who sold wheat into AWB wheat marketing pools.

[86]

The Australian Wheat Board was established as a statutory authority by Wheat Acquisition Regulations contained in the National Security Act 1939 (Cth). It continued in existence as a Government controlled marketing authority under successive legislation until 1 July 1999.

In 1989, the Government established the Wheat Industry Fund imposing compulsory levies on wheat sales. This fund was held and managed by the Australian Wheat Board and by July 1999 was approximately $600 million.

In June 1998, the assets and liabilities of the statutory authority (other than the Wheat Industry Fund) were transferred to AWB and AWBI, then wholly subsidiaries of the statutory authority.

In July 1999, the Wheat Industry Fund was transferred to AWB and B Class Shares were issued to the holders of units in that fund. A Class Shares were issued to persons who met the definition of 'grower' in AWB's constitution. Upon the issue of these A Class and B Class Shares, AWB became a grower-owned and controlled corporation.

As part of the restructure, Government guarantees of borrowing for the pools ceased and AWB commenced directly financing pooling and commercial activities using its own capital and credit enhancement.

OPERATION OF THE NATIONAL POOL

AWBI was established as separate wholly owned subsidiary of AWB and is responsible for the operation of the National Pool on behalf of growers who deliver to it through the Single Desk. AWBI's responsibility is to maximise net pool returns for growers who sell wheat into the National Pool, by securing, developing and maintaining export markets for wheat and minimising costs as far as practicable.

The Single Desk is established under the Wheat Marketing Act in which AWBI is appointed as the sole marketer of Australian export bulk wheat. The performance of AWBI is monitored by the Wheat Export Authority, a Commonwealth Government statutory authority. ...

The operation of the Single Desk was recently reviewed in the NCP Review of the Wheat Marketing Act, which reported in December 2000. The Government responded to this review in early 2001 by retaining the existing arrangements under which AWBI is responsible for the operation of the Single Desk. The Single Desk legislation is not scheduled to be reviewed under NCP guidelines until 2010, although there will be a review of the performance of AWBI in managing the Single Desk in 2004.

...

In operating the National Pool, AWBI utilises a number of services provided by AWB. The provision of these services is covered by a Service Agreement that details the nature of the services and sets out the manner in which AWB is to be compensated for providing them. ...[14]

[448]

I refer to our discussions and thought for good order sake, that I would drop you a line to re-affirm the points of agreement that were reached

- Ronly or a company to be nominated to assist AWB in facilitating the payment of Inland Trucking fees within Iraq, to the nominated trucking company

- Trucking Fee to be remitted to the nominated trucking account upon receipt of trucking fee from AWB

- Total cargo approx. 1.5 million metric tons

- Shipment period March - July 00

- Where required, Ronly or a company to be nominated will also arrange to pay freight to Owners nominated by AWB, in the execution of AWB shipments to Iraq. Such freight to be remitted to Owners, upon receipt from such freight from AWB.

It is agreed Ronly or a company to be advised, will provide administration support and will issue required invoices to AWB upon sailing of each vessel for trucking and where required freight.

It is understood that Ronly or a company to be nominated will not be responsible for the payment of either trucking fees or freight unless same received from AWB.

It is agreed that AWB will pay a fee of USD 0.20 Per Metric Ton, to Ronly or a company to advised in the execution of the above contract.

I would ask that you issue me an invoice periodically for shipments effected to cover the above fee and that such should be kept separate to any trucking or freight invoices.

I trust that the above in line with your understanding of the agreement that we reached. If there are any questions or anything that I have left out, please do not hesitate to let me know.

If you are going to use the services of another company to perform the above, then please let me know, together with their banking details.

I will advise you in due course the banking details of the trucking company as they tend to change the banking details from time to time.

I expect that I will place a couple of our existing contracts with Owners via you or the company that will be used. However I will revert on this point in the near future. As discussed, if this happens, then we will need back to back c/ps on terms, freight rates etc and in order to efficiently manage the contracts, AWB would need a side letter to act as 'managers'.

As advised, we can discuss this later.

Thanks again for your assistance in this matter.

[689]

Iraq - Inland Trucking:

During our review we found a number of email records that related to Iraq. These records contained indicators of integrity risks or red flags. We conducted a review of the Iraq dealings. The main aspect of these findings is the state of mind, knowledge and involvement of AWB employees.

Mr Watson informed us that approximately two years ago a UN tender for 'Free on Truck' was in place. IGB (Iraq Grain Board) would pay the trucking fee to AWB together with the C and F value. AWB would remit the trucking fee to the Jordanian trucking company transporting the grain.

AWB received information that apparently originated from the AWB New York Office that the UN were asking about the payment to the trucking company. The information was that the Canadians had asked for an inquiry into the arrangements.

Mr Watson informed us that this raised concerns at AWB about future sales to Iraq. There was AWB management pressure to maintain the sales to Iraq. He advised that Mr Emons and Officer wanted to find ways to avoid attracting the attention of the UN.

We were informed by Mr Aucher and Owen of Trade Finance that they were approached by Mr Emons to assist in structuring payments. They declined to have anything to do with it.

The next solution to the situation was to have the shipping company's owner make the payments to the trucking company on behalf of AWB. Mr Watson approached some ship companies such as SANKO who refused to conduct the payment. He stated that they advised him that they did not wish to break UN laws. One company asked why AWB did not wish to make the payments themselves. Mr Watson then approached another company who did make the payments. This company made two payments to the Jordanian trucking company. They withdrew from making any other payments to the trucking company after inquiries were made by the Singapore Monetary Authority for suspicion of money laundering. AWB were asked to support the transactions with a letter.

Ronly then provided the mechanism to make the payments to the trucking company. Two methods were utilised. The first was that AWB make two payments, one to Ronly for the trucking fees and the second to the ship owner for the freight. The second method was to make a single payment to Ronly. Ronly would then make two payments one to the ship owner and the other to the Jordanian trucking company. Mr Watson authorised the payments to Ronly. These payments were made through a Liechtenstein company. Mr Watson said that there was concern that payments made by Ronly in the UK would attract UN interest. Ronly for its part in the transactions received a payment per metric tonne (20 cents). We were informed that Ronly held the full amounts of these payments in their accounts for 20 days or more.

Mr Emons was the one who spoke to Mr Watson about the structure of the payments in the first instance. It was Officer who instructed him to conduct the payments through the shipping companies and then through Ronly. Mr Watson arranged the trucking payments as part of the freight.

The payment of the freight is paid at 90% until the confirmation of the letter of credit came through then the final 10% is paid. There has recently been an issue with the payments as to whether AWB has paid the full amount. Iraq has claimed that only 90% has been paid. Mr Watson informed us that the Iraq systems are poor. The death of the Iraqi official responsible for the grain contracts, a person known as Zuhair, may have affected the Iraq knowledge of the payments.

There are a number of red flags that the employees were faced with in relation to these payments. This type of arrangement could be misinterpreted as a money laundering process. There were a number of clear warning signs in relation to these transactions that were not fully explored by AWB in legal or commercial terms. For example the issue of trying to use ship owners to make payments on behalf of AWB potentially damaged the reputation of AWB as would the attempt to disguise the transactions.

The current management have removed this payment process through Ronly. There has been a recent increase in the trucking cost to $45MT. This appears to be high. There may be a risk that this money is being diverted to other purposes. There may be a risk to AWB of excessive trucking fees.

[1214]

No doubt an opinion that a state of facts exists may be held according to indefinite gradations of certainty; and this has led to attempts to define exactly the certainty required by the law for various purposes. Fortunately, however, at common law no third standard of persuasion was definitely developed. Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters 'reasonable satisfaction' should not be produced by inexact proofs, indefinite testimony, or indirect inferences. Everyone must feel that, when, for instance, the issue is on which of two dates an admitted occurrence took place, a satisfactory conclusion may be reached on materials of a kind that would not satisfy any sound and prudent judgment if the question was whether some act had been done involving grave moral delinquency. Thus, Mellish LJ says: 'No doubt the court is bound to see that a case of fraud is clearly proved, but on the question at what time the persons who have been guilty of that fraud commenced it, the court is to draw reasonable inferences from their conduct'... In the same way, in dealing with the question in what county the publication of a criminal libel had taken place, Best J. said: 'I admit, where presumption is attempted to be raised, as to the corpus delicti, that it ought to be strong and cogent; but in a part of the case relating merely to the question of venue, leaving the body of the offence untouched, I would act on as slight grounds of presumption as would satisfy me in the most trifling cause that can be tried in Westminster Hall...' It is often said that such an issue as fraud must be proved 'clearly', 'unequivocally', 'strictly' or 'with certainty'... This does not mean that some standard of persuasion is fixed intermediate between the satisfaction beyond reasonable doubt required upon a criminal inquest and the reasonable satisfaction which in a civil issue may, not must, be based on a preponderance of probability. It means that the nature of the issue necessarily affects the process by which reasonable satisfaction is attained. When, in a civil proceeding, a question arises whether a crime has been committed, the standard of persuasion is, according to the better opinion, the same as upon other civil issues ... But, consistently with this opinion, weight is given to the presumption of innocence and exactness of proof is expected.

[1219]

It follows that proceedings for recovery of pecuniary penalties under the Act are civil proceedings. Accordingly, s 140 of the Evidence Act 1995 (Cth) requires the Court in such proceedings to apply the civil standard of proof on the balance of probabilities. In arriving at a conclusion of satisfaction that a case has been proved on the balance of probabilities, s 140(2) of the Evidence Act provides:

(2) Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:

(a) the nature of the cause of action or defence; and

(b) the nature of the subject-matter of the proceeding; and

(c) the gravity of the matters alleged.

The mandatory considerations which s 140(2) specifies reflect a legislative intention that a court must be mindful of the forensic context in forming an opinion as to its satisfaction about matters in evidence. Ordinarily, the more serious the consequences of what is contested in the litigation, the more a court will have regard to the strength and weakness of evidence before it in coming to a conclusion.

Even though he spoke of the common law position, Dixon J's classic discussion in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 361-363 of how the civil standard of proof operates appositely expresses the considerations which s 140(2) of the Evidence Act now requires a court to take into account. Dixon J emphasised that when the law requires proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. He pointed out that a mere mechanical comparison of probabilities independent of any belief in its reality, cannot justify the finding of a fact. But he recognised that: [their honours continue to quote the passage copied above at paragraph 862]

Dixon J also pointed out that the standard of persuasion, whether one is applying the relevant standard of proof on the balance of probabilities or beyond reasonable doubt, is always whether the affirmative of the allegation has been made out to the reasonable satisfaction of the tribunal. He said that the nature of the issue necessarily affected the process by which reasonable satisfaction was attained. And, so, he concluded that in a civil proceeding, when a question arose whether a crime had been committed, the standard of persuasion was the same as upon other civil issues. But he added, weight must be given to the presumption of innocence and exactness of proof must be expected

[1229]

Disputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly had been led. Principles governing the onus the standard of proof must faithfully be applied. And there are cases where demonstration that other evidence could have been, but was not, called may properly be taken into account in determining whether a party has proved its case to the requisite standard. But both the circumstances in which that may be done and the way in which absence of evidence may be taken to account are confined by known and accepted principles which do not permit the course taken by the Court of Appeal of discounting the cogency of the evidence tendered by ASIC.

Lord Mansfield's dictum in Blatch v Archer that '[i]t is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced and in the power of the other to have contradicted' is not to be understood as countenancing any departure from any of these rules. Indeed, in Blatch v Archer itself, Lord Mansfield concluded that the maxim was not engaged for 'it would have been very improper to have called' the person whose account of events was not available to the court.

This Court's decision in Jones v Dunkel is a particular and vivid example of the principles that govern how the demonstration that other evidence could have been called, but was not, may be used. The essential facts of the case, though well known, should be restated. The personal representative of a driver who had died in a collision with another vehicle brought an action for damages on her behalf and on behalf of the deceased driver's dependents. The plaintiff's case depended on demonstration that the other driver's negligence was a cause of the accident. The plaintiff sought to demonstrate negligence by having the tribunal of fact (in that case a jury) infer from facts concerning the road and the two vehicles involved that the collision had occurred when the defendant's vehicle was on the wrong side of the road. One of the defendants, the surviving driver, did not give evidence at the trial. The Court divided about whether the inference which the plaintiff sought to have the jury draw about where the collision occurred was an inference that was open on the evidence. But the Court held 'that any inference favourable to the plaintiff for which there was ground in the evidence might be more confidently drawn where a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness by the defendant and the evidence provides no sufficient explanation of his absence.'

[1233]

Then, I think, his Honour should, when the juryman asked his question, have given an answer in accord with the general principles as stated in Wigmore on Evidence 3rd ed. (1940) vol. 2, s. 285, p. 162 as follows: 'The failure to bring before the tribunal some circumstance, document, or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so, and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavourable to the party. These inferences, to be sure, cannot fairly be made except upon certain conditions; and they are also open always to explanation by circumstances which made some other hypothesis a more natural one than the party's fear of exposure. But the propriety of such an inference in general is not doubted.'

This is plain common sense. If authority be needed, two passages from R. v. Burdett may be cited. Abbott C.J. said: 'No person is to be required to explain or contradict, until enough has been proved to warrant a reasonable and just conclusion against him, in the absence of explanation or contradiction; but when such proof has been given, and the nature of the case is such as to admit of explanation or contradiction, if the conclusion to which the proof tends be untrue, and the accused offers no explanation or contradiction; can human reason do otherwise than adopt the conclusion to which the proof tends? The premises may lead more or less strongly to the conclusion, and care must be taken not to draw the conclusion hastily; but in matters that regard the conduct of men, the certainty of mathematical demonstration cannot be required or expected.' And Best J. said: 'Nor is it necessary that the fact not proved should be established by irrefragable inference. It is enough, if its existence be highly probable, particularly if the opposite party has it in his power to rebut it by evidence, and yet offers none; for then we have something like an admission that the presumption is just.'

As Wigmore points out..., exactly the same principles apply when a party, who is capable of testifying, fails to give evidence as in a case where any other available witness is not called. Unless a party's failure to give evidence be explained, it may lead rationally to an inference that his evidence would not help his case.

[1494]

Paragraph 17 of the statement of claim pleads '[i]n compliance with Australia's obligations as alleged in paragraph 15 above, or alternatively in response to the United Nations' call upon its member states alleged in paragraph 16 above, the Commonwealth Parliament inter alia passed into law regulation 13CA of the Customs (Prohibited Exports) Regulations 1958 (Cth) (Customs Regulation).' That pleading does not require the Court to enforce or adjudicate upon obligations that have not been enacted. The allegation is simply that the Australian Parliament enacted a law in compliance with Australia's obligations under the UN charter, or in response to or in the context of the UN resolutions. It matters not for the purposes of these proceedings whether, as a matter of international law, Australia was actually obliged to do so. The fact is that it did, and did so in the context that the UN had called on Australia to prevent payments being made to Iraq.

Paragraph 48(c) of the statement of claim pleads that Flugge knew that the United Nations had called on Australia to act in accordance with the UN Resolutions. That allegation does not require the Court to enforce or adjudicate upon obligations that have not been enacted. Rather, the Court is asked to determine that Flugge had knowledge of a particular fact.

Paragraph 49 (a) of the statement of claim pleads that Flugge failed to take reasonable steps to ensure that when AWB was selling and exporting wheat to Iraq and obtaining payments from the UN escrow account, AWB was not engaging in conduct that the UN Resolutions had called on member states to prevent. In other words, Flugge had a duty to ensure AWB was not engaging in highly unethical and improper conduct that, if revealed, would cause substantial damage to AWB. The Court is being asked to determine that Flugge had a duty to take reasonable steps to ensure AWB was not engaging in conduct that the UN Resolutions had called on member states to prevent. The Court is not asked to determine that AWB was 'engaging in breaches' of the UN resolutions. It is quite wrong to suggest that ASIC's pleaded case requires the Court to make that determination.

[1509]

In these circumstances consideration of questions of act of State and the decision of Fuller CJ in Underhill is better conducted by reference to more recent examination of those questions. And, as will be explained, neither what was said in the Spycatcher Case nor the decision of Fuller CJ in Underhill should be understood as establishing as a general and universally applicable rule that Australian courts may not be required (or do not have or may not exercise jurisdiction) to form a view about the lawfulness of conduct that occurred outside Australia by reference to foreign law.

It should be emphasised that it follows that there will be occasions when to decide the issues that must be determined in a matter an Australian court must state its conclusions about the legality of the conduct of a foreign government or persons through whom such a government has acted. The present case is an example of an occasion of that kind.

The dictum of Fuller CJ was stated in absolute and universal terms. It is a dictum often associated with the expression 'act of State.' But both the dictum, and the phrase 'act of State', must not be permitted to distract attention from the need to identify the issues that arise in each case at a more particular level than is achieved by applying a single, allembracing formula. Thus, as has now been pointed out in successive editions of Dicey and Morris, the result to which the dictum of Fuller CJ would point is often a result dictated by the application of ordinary rules governing the choice of law. So, for example, there could be no recovery by an action brought in this country in tort for the governmental seizure of property in a foreign country if the law of the place where the alleged tort was committed permitted that seizure. Whether the acts of which complaint was made in such a case were tortious would be determined by reference to the law of the place where the alleged tort was committed. And other circumstances in which the dictum might be thought to be engaged will more appropriately require the application of wellestablished rules about foreign states immunity. As F A Mann has cogently argued, issues like those considered in Buttes Gas and in Sabbatino are better approached at a more particular level of inquiry than the level of generality reflected in the dictum of Fuller CJ and in references to international comity and the conduct by the executive branch of foreign relations. Rather, as Mann has correctly said, 'the Courts are free to consider and pronounce an opinion upon the exercises of sovereign power by a foreign Government, if the consideration of those acts of a foreign Government only constitutes a preliminary to the decision of a question ... which in itself is subject to the competency of the Court of law.' The fact that the decision of a foreign official is called into question does not of itself prevent the courts from considering the issue. Here, the question of the lawfulness of the appellant's removal from Solomon Islands, although effected by the Solomon Islands Government, was 'a preliminary' to the decision whether a stay should be granted. The primary judge was not right to conclude that '[i]t is not for this court to express an opinion on these decisions made by the Solomon Islands government.'

[1941]

Our REFTEL reported on information which the office of the Iraq Program (OIP) drew to the mission's attention earlier this year concerning possible irregularities in the way the AWB may have received payment for wheat supplied to Iraq under the Oil-for-Food program. You will recall that the possible irregularity had been drawn to OIP's attention by a third country (whose identity the OIP was not at liberty to reveal), the third country claiming to have been told by the Iraqi Grain Board that the AWB had concluded contracts involving irregular payment methods. We noted your response (REFTEL).

2. Austrade Commissioner in Washington (Nicholas) has advised that in a routine meeting with the OIP late last week, the OIP (Johnston, Chief, Contracts Processing Section) again raised the matter. Johnston noted that the third country which claims it has failed to secure contracts with the Iraqi Grain Board on the grounds that it is not prepared to enter into contracts involving irregular payment methods (methods which, it claims, the AWB has been involved in) remained concerned about the matter.

3. Johnston mentioned to Nicholas an additional point which the OIP had not previously raised with the Mission. The customs area of OIP had recently noticed that the standard contract used by the AWB and the Iraqi Grain Board contained a paragraph which implied additional conditions were attached to the contract, but not included in the paper submitted to the UN. The relevant paragraph is the one at the end of the one-page standard contract used by the AWB/Iraqi Grain Board and reads as follows: 'All other terms and conditions as per AWB Limited and Grain Board of Iraq standard terms and conditions for Australian wheat of which the parties admit they have knowledge and notice, to apply to this contract where not inconsistent with the above'.

4. While the 'standard terms and conditions' are doubtless just that (i.e. 'standard'), Johnston asked Nicholas if it would be possible to obtain a copy of the 'standard terms and conditions' as, strictly speaking, this was required for the UN's customs clearance process (although it had not previously been picked up by the OIP). We followed-up separately with Johnston on this point, who confirmed that, irrespective of the third country issue, the OIP having now noticed this paragraph in the AWB/Iraqi Grain Board contract, is legally obliged to clarify it.

5. Nicholas had a meeting on 9 March with visiting AWB Ltd Chairman (Flugge) and AWB Ltd New York office vice chairman (Snowball) (the meeting having been arranged prior to Austrade's meeting with OIP). At the 9 March meeting, Nicholas took the opportunity to advise the AWB of the information which OIP had drawn to his attention. AWB said this was not an issue, but undertook to consult with their headquarters and provide a response. Based on discussions we subsequently had with Nicholas and AWB's New York Office, we understand AWB's preference is that follow-up discussions be pursued with DFAT, but with Austrade kept in the loop.

6. While all indications from the AWB are, as expected, that the concerns of the OIP and the third country have no basis, until we are able to provide a formal reassurance of this, there will remain a question mark over the matter from the point of view of both the OIP and the third country referred to above. The fact that the OIP has recently picked up what they see as a potentially anomalous element of the AWB/Iraqi Grain Board contract confirms that a formal response (from UNNY to OIP) including a copy of the 'standard terms and conditions', will be needed to clarify the matter.

7. If for any reason it is not possible to provide a copy of the 'standard terms and conditions', we/AWB would still need to provide some assurance to the OIP as to their contents (i.e. something more than the reference in the paragraph in question to conditions applying 'where not inconsistent with the above'), though we assume that for legal reasons we would need to be cautious about any undertaking to provide assurances concerning business contracts.

8. Please note that Nicholas is reporting separately to Austrade Canberra on his meetings with OIP and AWB, noting the understanding regarding follow-up discussions as referred to in para 5 above.

[2000]

To Mr John Almstrom

From Ms Felicity Johnston

Date: 13 January 2000

Subject Irregularity in Iraqi contracting

Further to your note to Mr Seven of 4 January, on 23 December I confirmed to Mr Berne Saunders at the Canadian permanent mission that money should not be paid to a Government of Iraq bank account in Jordan for transport costs of wheat within Iraq. The details of the bank account concerned are not available. The supplied was advised that notification of the banking details would be available upon signature of the contract. I suggested that the supplier could perhaps appease the Grain Board of Iraq by offering to accept a lower value per metric ton for delivery of the goods to Umm Qasr and that lower value could equate to the $700,000 transportation cost quoted by the Grain Board of Iraq. The supplier followed this course of action and has not been awarded the contract.

Mr Saunders stated that the grain board of Iraq has indicated that similar arrangements were made with the Australian wheat board in relation to a recent large contract and with various suppliers from Thailand.

QC 4988 was issued 5 January 2000 in relation to an Australian Wheat Board contract for 25,000 metric tons of wheat. If the same "transport costs" are applied to this contract, the Grain Board of Iraq will benefit by $350,000. There is no evidence of any irregular financial activity associated with this application.

I have spoken to Ms Bronte Moules at the Australian permanent mission. Without indicating my source, I have asked her to enquire at the Australian permanent mission. Without indicating my source, I have asked her to enquire, discreetly, at a senior level, within the Australian Grain Board if any financial arrangements have been made outside the BNP Iraq account with the Government of Iraq.

I have made no approach to the permanent Mission of Thailand. I note that this Mission has not submitted, to date, an application for export of wheat to Iraq. Applications from the permanent mission of Thailand fall into two categories, rice and medical supplies.

I will report on Ms Moule's findings when she reverts.

[2186]

Whatever the effect of such words found buried within the body of a report, the important fact is that Flugge was in Tokyo on or about 7 February 2001.[1141] Moreover, there is simply no evidence from which it may be concluded that Flugge ever received or read the relevant Iraq trip report.

Ms Goode gave evidence generally that, given the passage of time, the likelihood of her remembering events such as the Iraq trip email were poor.[1142]

Further, Ms Goode stated that she followed a procedure whereby she would initially read Flugge's emails, and, if she felt he 'needed' to see any of them, she would print them out and leave copies in Flugge's office.[1143]

She said that 'because of [Flugge]'s position as chairman', she would 'briefly skim the subject matter' before sending the email to him and would omit matters which were 'very mundane or some things that were relatively unimportant.'[1144]

Ms Goode said that she 'marked for [Flugge's] attention' only those emails or documents which 'he would definitely need to see.'[1145]

Ms Goode's evidence supports a strong inference that Flugge did not receive the email or the trip report dated 7 February 2001.

Ms Goode could not recognise or recollect the Iraq trip report or email.[1146]

Further, she was unable to recall the capacity in which she received the email. She was unsure whether she received it as part of her role with Mr Fuller or Flugge and said 'I'm not sure why they would have sent it to me.'[1147]

Most significantly, in terms of the inference to be drawn that the email was not directed to Flugge and that he would not have received it, Ms Goode's evidence of practice was that:

(a) first, to her knowledge the email concerned an operational matter and that, accordingly, operational matters such as those contained in the email would not, in practice, be directed to Flugge in an email.

(b) second, Flugge would receive briefings on matters such as those contained in the email[1148] directly from management[1149] and not in an email directed to a large number of recipients.[1150]

(c) third, in practice if an email were directed to Flugge it would have included his email address in the 'to' field of the email, which is not the case in the 7 February 2001 email.

(d) fourth, that in her memory and in practice, her email address, as Flugge's personal assistant, would have been in the carbon copy or 'cc' field of the email,[1151] which is not the case in the 7 February 2001 email.

The Court cannot be satisfied in view of the evidence that Flugge did, as ASIC alleges, receive the email from Borlase attaching the trip report.

Notably, Borlase was not called by ASIC. Nor was his absence explained. A Jones v Dunkel inference ought to apply.

[2196]

(d) From 2001 until the single desk was abolished in July 2008, around 90% of all bulk wheat exported from Australia was exported by AWBI under the single desk or equivalent arrangements. The single desk ensured that AWB was able to sell Australia's wheat crop at premium prices into world markets that were distorted by the high levels of subsidies by the governments of other exporting nations. In 2002, a study of AWB National Pool prices by Econtech found that, as the single desk manager, AWB achieved on average a premium of $13 per tonne on National Pool export sales. It also ensured that AWB did not face any competition in the international wheat markets from any other source in Australia. Australia is one of the largest wheat producers and exporters in the world. The AWB single desk facilitated the export of up to 17 million tonnes of wheat valued at up to $5 billion annually.

(e) Managing exports through the single desk marketing system also enabled AWB to deliver value other than simple market premiums. This value related to research and development, logistics capacity and efficiency, superior information, economies of scope and scale, integration of the value chain, strong customer relationships, continuity of supply, consistent quality, reliable performance and effective risk management.

(f) The single desk achieved a level of international market power that individual growers in Australia could not achieve.

(g) The value to AWB of the single desk also included a variety of indirect benefits including:

a benefit due to reduced financing costs for the activities of AWB and its subsidiary AWB Harvest Finance Ltd;

a likely benefit due to the economies of scope between AWB's operations as manager of the single desk and its other grain trading operations such as its domestic trading operations;

a likely benefit due to increased profitability of AWB's harvest financing operations; and

a likely benefit due to AWB achieving supra-competitive profits through the self-supply of inputs used in the wheat export supply chain.

[2203]

Trade with Iraq worth as much as US$470 million per annum was forfeited following the decision by the Iraqi Government in 2006 to suspend purchases of AWB wheat during the Inquiry into Certain Australian Companies in relation to the United Nations Oil-for-Food Programme conducted by Commissioner the Hon Terence RH Cole AO, RFD, QC (Cole Inquiry).

On 20 December 2006, the United States Department of Agriculture (USDA) announced the immediate suspension and debarment of AWB and its affiliates from participating in US government programs and contracting with the US government. In a letter dated 28 November 2005 from Lindberg on behalf of AWB to Deputy Prime Minister Vaile, Lindberg referred to a previous decision by the USDA to so suspend AWB (which decision had been reversed with the assistance of the Australian government) and acknowledged that the suspension had caused significant problems for AWB.

The revelation that AWB had engaged in the very conduct which the UN Resolutions called on member states to prevent resulted in the resignation of Lindberg as Managing director in 2006, the departures of Charles Stott (Stott) (resigned on 15 June 2006), Paul Ingleby (Ingleby) (redundant on 30 October 2006), James Cooper (Cooper) (resigned on 15 April 2006) and Peter Geary (Geary) (redundant on 3 November 2006), substantially harmed AWB employee morale and led to an increase in voluntary turnover requiring a workforce re-engagement programme being implemented within AWB.

AWB incurred significant costs associated with the Cole Inquiry. For the 2006 financial year, AWB reported costs of $23.7 million associated with the Cole Inquiry in its accounts and a further $6.6 million in the 2007 financial year.

In addition to costs associated with the Cole Inquiry, AWB incurred substantial costs in responding to investigations and litigation arising out of the revelation that AWB had engaged in the very conduct which the UN Resolutions called on member states to prevent. In the 2008 financial year, those costs were $13.4 million. In the 2009 financial year those costs were $18.6 million. In the half year ended 31 March 2010, those costs were $6.525 million.

AWB was required to undertake significant remedial work to improve, and restore investor confidence in, its governance practices, internal reporting structures, corporate practices and international marketing activities; namely:

(a) During 2006, KPMG was engaged by AWB to consider the current governance, internal reporting structures and practices of AWB which engagement resulted in a report by KPMG recommending fundamental changes to corporate practices within AWB including changes to promote ethical and responsible decision making within the Board and executive management of AWB; and

(b) During 2006, PWC was engaged by AWB to conduct a review into AWB's international marketing activities.

[2333]

1737 ASIC submits that on 2 April 1998 Flugge wrote the letter to the Honourable Tim Fischer, Minister for Trade discussed at paragraph [](#_Ref4687872 > Iraq UN Food for Oil payments

In New York the Chairman met with the United Nations Treasurer to discuss the issue of late payments for sales made to Iraq under the Oil for Food Program and the allocation of bank fees to the vendor.

On the latter issue, the UN claim that this provision had always been a condition of the MOU and that contracts needed to include provision for fees to be paid by the vendor. The UN officials stated that contracts needed to include provision for fees to be paid by the vendor. The UN officials stated that they had on numerous occasions made the Iraqis aware that contracts negotiated with the Iraq Government under phase 8 of the program (November 2000) would need to include this provision.

Discussion was also held on the potential for the UN to diversify the number of banks it would allow to provide letters of credit. The UN recognised the difficulties that were being experienced with the current arrangements (ie all LCs going through BNP) and indicated that this was being reviewed. ...

The Chairman acknowledged that in past months we have seen a significant improvement in payment times but raise the fact that times could still be improved and extended an invitation to work with the UN to continue to improve this process. Unfortunately, the Treasurer didn't offer too much assistance or hope in this area. Her view was that the UN Treasury processed documents as fast as possible but that the timing issue was out of the hands of the UN Treasury and BNP.

It appears that while the UN processes vast quantities of contracts under the program of varying complexity (of which AWB's are relatively simple), they are concerned that if they "prioritise" contract processing to deal with simpler ones first they will be accused of favouring one country/company over another. The Chairman raised with representatives from the Australian Mission to the UN that this perception could be easily overcome by focusing on commodities and/or making simple administrative changes to stream line the processes not based on country or company. The mission agreed and will continue to take this issue up with the UN.

[2423]

The notion that the Director had no duty to obtain independent advice for the appellant after Christmas 1976 rests on the assumption that the Director's duty to obtain independent legal advice for the appellant was broken once and for all at the expiration of a reasonable period after 23 April 1973 or, at all events, came to an end on the termination of the guardianship on 7 March 1975. However, the terms of the duty which the Director owed to the appellant demonstrate that it was a duty which continued until 22 May 1980. It was a general duty to take such steps as were necessary to obtain independent legal advice for the appellant so as to avoid the loss which would arise if the appellant did not pursue any rights which he had in respect of his injury. No doubt the failure to carry out the duty within a reasonable period constituted a breach. But it is impossible to accept that the rights and liabilities of the appellant and the Director were fixed once and for all upon the expiration of that period even though it expired during the period of the guardianship. The distinction between a duty which is broken once and for all on a particular day and a duty which is a continuing one despite its breach is never easy to draw. But here the particular duty to obtain independent legal advice arose out of the more general duty of the Director to care for the welfare of the appellant. Moreover, it arose out of the guardianship and out of circumstances which occurred during the course of the guardianship. That being so, the better view is that it was a continuing duty to avoid economic loss to the appellant as the result of his injury occurring during the guardianship rather than a duty to obtain advice within a reasonable period or by 7 March 1975. Once the Director became charged with the duty, it continued to bind him until it was performed or discharged. It did not end on the day when the appellant was discharged from the Director's custody and care. The duty, having arisen during the period of the Director's guardianship, continued while it could be fulfilled. Consequently, the duty of the Director was still operative as at 22 May 1980. His failure to fulfil it before that date was a cause of the loss which the appellant suffered on that date, notwithstanding that the appellant, of his own motion, sought legal advice in 1976.

[2534]

Involved in all this is the conception of 'acting honestly in the discharge of the duties of the office of a director.' The Full Court in Byrne v Baker has attributed the source of the language used in s 124(1) (formerly s. 107(1)) to the judgment of Romer J in Re City Equitable Fire Insurance Co Ltd, a judgment which in turn refers to the language of Lindley, MR in Lagunas Nitrate Co v Lagunas Syndicate, 'act honestly for the benefit of the company they represent.' This is the language it has become customary to use in respect of a director's duty in the exercise of his powers or position. 'They must exercise their discretion bona fide in what they consider - not what a Court may consider - is in the interest of the company, and not for any collateral purpose.' (per Lord Greene, M.R., in Smith v Fawcett.) The company in this passage means the company as a whole. This background to the language of the section appears to justify the conclusion, first, that the section is not concerned with the conduct of a director in relation to creditors or other persons dealing with or concerned with the company or anybody else but the company itself; secondly, that it is concerned with the performance of his fiduciary duty to the company; and, thirdly, that to 'act honestly' refers to acting bona fide in the interests of the company in the performance of the functions attaching to the office of director. A breach of the obligation to act bona fide in the interests of the company involves a consciousness that what is being done is not in the interests of the company, and deliberate conduct in disregard of that knowledge. This constitutes the element of mens rea in the criminal offence created by the statute. If the term 'fraud' is applicable in this situation, it is only so in the sense of a 'fraud on the power.' In effect, the common law obligation in respect of acting honestly, as with the common law obligation to act with due diligence has been made a statutory duty, and failure to perform it, provided there is the proper mental element, has been made a criminal offence.

[2550]

Section 181(1) of the Corporations Act requires a director or other officer of a corporation to exercise his or her powers and discharge his or her duties in good faith in the best interests of the corporation, and for a proper purpose. In Chew v R, Malcolm CJ summarised the requirements of that duty as being that directors (1) must exercise their powers in the interests of the company, and must not misuse or abuse their power; (2) must avoid conflict between their personal interests and those of the company; (3) must not take advantage of their position to make secret profits; and (4) must not misappropriate the company's assets for themselves.

The case law is divided as to whether a contravention of s 181(1)(a) of the Corporations Act requires that it be established that a director engaged deliberately in conduct which he or she knew was not in the company's best interests: for example, _Forge v Australian Securities and Investments Commissio_n McColl JA (with whom Handley and Santow JJA agreed); Holyoake Industries at [150], varied on appeal on another point in V-Flow. In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3), the Court of Appeal of the Supreme Court of Western Australia unanimously held that the corresponding general law duty to act in good faith in the company's best interests was subjective and would be complied with if directors honestly believed they acted in the company's best interests: ... The alternative view is that a contravention of that limb of s 181 can be established if the law objectively considers that what the director did was improper, even if the director subjectively believed that he or she was acting in the company's best interests: see, for example, Australian Growth Resources Corporation Pty Ltd v Van Reesema per King CJ; Mernda Developments Pty Ltd (in liq) v Alamanda Property Investments No 2 Pty Ltd. The difference in those approaches does not seem to me to be material for the purposes of this case. The section may be contravened if a director promotes his or her personal interest in a situation where there is a conflict or real or substantial possibility of a conflict between those interests and the company's interests: Adler; Parker.

A contravention of s 181(1)(b) may also be established if a director does not exercise his or her powers for the purpose for which they were conferred or exercised them for an improper purpose, and the bulk of authority indicates that question is to be determined objectively: Permanent Building Society (in liq) v Wheeler per Ipp J (with whom Malcolm CJ and Seaman J agreed); Adler; Parker. In Westpac Banking Corporation, the majority held that whether a director acts for an improper purpose, for the purposes of the corresponding general law duty, is determined objectively involving an assessment by the Court of what was reasonable in the circumstances: per Lee AJA, and per Drummond AJA. By contrast, Carr AJA held that the test whether directors had acted for an improper purpose was primarily subjective, although a decision would be voidable if directors acted in good faith for a purpose that was beyond their powers or for a collateral purpose.

[2709]

During 1995/1996 BHP agreed to provide USD 5m worth of Australian wheat to the IGB as a gesture of good faith in view of BHP's desire to enter the Iraqi oil market.

AWB shipped the wheat on board MV Ikan Sempat in Jan. 1996 and were paid by BHP Petroleum.

IGB have acknowledged the outstanding debt owed to BHP who subsequently assigned their rights to Tigris Petroleum. The current debt including interest stands at some USD 8.8m.

AWB has always acknowledged that it would assist in this debt recovery process. This issue has been raised by AWB personnel with the Minister of Trade, HE Mohamed Medhi Saleh on a few occasions since the debt became due on 26 January 2001. The Minister has always acknowledged this debt.

AWB has agreed to pay IGB USD 6 per tonne on approximately 300 000mt under Contract Number A1111/A1112 as settlement for the 'iron filings' quality issues amounting to some USD1.8m. AWB raised the possibility of settlement of this quality claim by AWB paying Tigris as settlement of the Iraqi debt to Tigris. UN Regulations prohibit direct payment of funds to Iraq whilst Iraq is under UN sanctions. The IGB has recently invited representatives from AWB and Tigris to visit Baghdad to discuss this issue.

Furthermore, AWB today received a communication from the Iraq Charges de Affaires (attached) quoting the Iraqi Foreign Minister stating 'as regards to the statements by Australian Foreign Minister claiming that Australia owes Iraq USD 500m, this is not true as the amount pending is only around USD8.8m in favour of Australia/Tigris Petroleum Corporation Pty Ltd representing value of a quantity of wheat shipped in 1996 plus interest until 30th Jan 2002.'

...

Actions, Approvals

1. ISM request AWB Legal to review the file attached and to advise CRRC if ISM is authorised to negotiate with IGB/Tigris the settlement of the Iraqi debt to Tigris. Specifically it would involve AWB I paying monies to Tigris Petroleum subject to all the correct paperwork being received from both IGB and Tigris. Advice to go to CRRC for meeting Thursday 19 Sept 2002.

2. ME Desk/Government Relations to devise the most appropriate strategy for liaising with the Australian Government in relation to the latest advice from Charge de Affaires. This will need to be done quickly if we are to gain political mileage from it.

3. ME Desk to prepare a letter to HE Medhi Saleh from Andrew Lindberg alerting him to our concern over the recent correspondence and seeking his reconfirmation of the Australian debt.

At a glance

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