In February, Victoria’s Court of Appeal overturned a decision preventing the Australian Securities and Investments Commission (ASIC) from bringing a second set of civil penalty proceedings against former AWB Ltd Managing Director, Mr Andrew Lindberg. ASIC brought its appeal after failed attempts to include new allegations with related subject matter into the first set of proceedings.

In a unanimous decision, the Court of Appeal found that the primary judge’s decision to halt the second case was wrong and gave insufficient attention to the public interest in the adjudication of allegations of significant wrongdoing in the conduct of an Australian company’s foreign business (Australian Securities and Investments Commission v Lindberg (No.2) (2010) 265 ALR 517).

Background

In December 2007, ASIC brought civil penalty proceedings against Mr Lindberg for breaches of directors’ duties as a director and officer of AWB Ltd (AWB) arising out of alleged payments of fees to the former government of Iraq. ASIC alleged that the payments were bribes to facilitate the sale of wheat by AWB to the Iraqi Grain Board (IGB) and the purpose of the fees paid by AWB was to allow the government of Iraq to obtain internationally traded currency in circumvention of United Nations (UN) sanctions.

Mr Lindberg was the Managing Director of AWB from 2000. ASIC alleged that by February 2001 he knew, or ought to have known, that the fees were bribes to enable the Iraqi government to obtain currency in contravention of the UN sanctions. ASIC claimed Mr Lindberg breached his duty by authorising, permitting or assisting the AWB to enter the relevant contracts.

Further allegations were made in relation to other contracts with inflated prices to facilitate a claim by the IGB for delivery of contaminated wheat and to help another entity to recover a debt owed to it by the IGB. ASIC alleged that Mr Lindberg breached his duty by causing or permitting these things to occur.

The first proceeding was concerned with breaches of duties during the period 2000 to 2002.

In May 2009, ASIC applied to amend its claim to include new allegations of breaches by Mr Lindberg after March 2003. These breaches related to Mr Lindberg’s duty to the AWB Board of Directors in falsely assuring it that AWB had acted properly and seeking to explain away allegations of AWB wrongdoing in response to the progressive laying bare of AWB’s misconduct by its competitors and the findings of the UN’s Independent Inquiry Committee into allegations of corruption and fraud in the UN Oil- For-Food Programme. This application was refused, as were further applications by ASIC in June and August 2009 to amend its statement of claim.

In November 2009, ASIC commenced a second set of proceedings which included the further allegations that the primary judge had refused to permit ASIC to include in the first proceeding. Mr Lindberg sought an order that the second proceeding be permanently stayed.

The primary judge granted the order on the basis that:

1. the second proceeding constituted an abuse of the court’s process as it would require an adjournment of the first proceeding and would deny Mr Lindberg the benefit of the court’s decision on the amendment application. Such a result would bring the administration of justice into disrepute,

2. Mr Lindberg had established an Anshun estoppel even though the first proceeding had not been determined, and

3. ASIC had acted unreasonably in failing to incorporate the allegations from the second proceedings into the first proceeding because ASIC had all material evidence that it relied upon to support the second proceeding as early as December 2007 and this evidence was disclosed in the Report of the Inquiry into certain Australian companies in relation to the UN Oil-for-Food Programme.

Judgment

ASIC successfully appealed this decision and the Court of Appeal made findings that:

  1.  There was a substantial distinction between the two sets of proceedings as the allegations of breach made by ASIC involved distinct types of wrongdoing and the alleged knowledge of the respondent raised in the first proceeding depended upon ASIC proving Mr Lindberg knew the true nature of the AWB payments at or prior to 2003, while the second proceeding was not limited in this way. On this basis, the degree of overlap between the proceedings was quite modest,
  2.  ASIC’s conduct was not unreasonable as:
  1.  ASIC’s evidence clearly demonstrated that it had properly employed its limited resources in establishing the existence of evidence founding the first proceeding. This was appropriate as these causes of action were at risk of becoming statute-barred,
  2.  ASIC’s failure to include allegations in relation to post-2003 conduct in the first proceeding was based upon the need to make decisions about its investigative priorities and the effective deployment of its limited investigative resources,
  3.  It is clearly in the public interest, and wholly consistent with ASIC’s statutory obligations, to make decisions about the commencement of civil proceedings with care. While ASIC is not subject to a duty of fairness akin to prosecutorial fairness, it is obliged to act as a model litigant. For this reason, it would have been quite improper to include the post- 2003 allegations in its pleadings without satisfying itself, by proper investigation, that such a case would be made out on admissible evidence,
  1.  When addressing ASIC’s application to amend its statement of claim, the primary judge was required to consider whether he had the power to permit amendments and, if so, whether that power should be exercised,
  2.  In contrast, Mr Lindberg’s stay application raised very different issues and the primary judge was required to consider whether the second proceeding could properly be characterised as an abuse of process. The grant of a permanent stay should only occur in exceptional circumstances and the fact that the first proceeding would need to be adjourned for up to 12 months fell far short of the prejudice that would need to be established before a permanent stay would be justified.