The Court of Appeal dismissed an appeal by ASIC in proceedings brought against Peter Geary, a former officer of the Australian Wheat Board. The proceedings related to payments made by AWB to the Iraqi government in contravention of UN Resolutions.

ASIC v Geary [2018] VSCA 103

In 2015, ASIC brought civil penalty proceedings against Trevor Flugge (a former chairman) and Peter Geary (a former officer) in relation to payments made by Australian Wheat Board Limited (AWB) to the Iraqi government. Many of the payments were referable to ‘inland transportation fees’ included in contracts for the supply of wheat by AWB to Iraq. It came to be accepted that the inland transportation fee was a ‘sham’ or ‘device’ used to circumvent resolutions imposed by the UN to restrict the Iraqi government’s access to foreign currency.

ASIC’s case against Flugge and Geary turned, in large part, on their knowledge of the sham nature of the inland transportation fee. At first instance, Robson J held that Flugge breached s 180 of the Corporations Act 2001 (Cth) by failing to make enquiries as to the propriety of the fees. ASIC’s claims against Geary were dismissed entirely.

In a joint judgment, the Court of Appeal dismissed ASIC’s appeal against the trial judge’s findings in respect of Geary.

The Court’s judgment is important not for its contribution to the law relating to officers’ statutory duties but for its analysis, and ultimately its rejection, of ASIC’s contentions as to Geary’s knowledge. The judgment demonstrates the difficulties that may arise in seeking to establish an individual’s knowledge, particularly where knowledge is sought to be attributed to a senior officer in a large organisation.

This note considers the Court’s analysis of the following issues relevant to Geary’s liability:

  1. application of the rule in Jones v Dunkel in respect of documents said to contain ‘red flags’;
  2. the trial judge’s finding that there was a ‘prevailing view’ that the inland transportation fee was approved by the UN; and
  3. Geary’s knowledge of the ‘sham’ nature of the inland transportation fee and his alleged failure to investigate.

This note also considers the Court’s important observations on the approach to be taken by an appellate court in reviewing a trial judge’s findings as to inferences (for example, as to knowledge) drawn from primary facts.

  1. Alleged failure to properly apply Jones v Dunkel

The first ground of appeal considered by the Court concerned ASIC’s contention that the trial judge erred in failing to properly apply the principle in Jones v Dunkel. ASIC argued that by reason of Geary’s failure to give evidence, the Court should more confidently and readily infer that Geary read and understood a number of documents containing ‘red flags’.

One such red flag was said to be contained in a trip report attached to an email sent on 7 February 2001 (the Trip Report). Importantly, the email was sent to a large group of people within AWB and was not specifically addressed to Geary. The alleged red flag was contained not in the body of the email but on the 4th page of the attached report. ASIC argued that the following passage, extracted at [245], clearly put the reader on notice that the inland transportation fee was a sham:

“We believe the increase in trucking fee and addition of the service charge is a mechanism of extracting more dollars from the escrow account.”

The trial judge accepted that by reason of Geary’s decision not to give evidence, the principle in Jones v Dunkel was enlivened. As a result, it was open to his Honour to more readily infer that Geary read the Trip Report, including the sentence extracted above. Importantly, his Honour noted that he was not obliged to draw the inference. In the circumstances, his Honour declined to do so because he did not feel ‘actual persuasion’ that Geary had read and absorbed the Trip Report.

The Court of Appeal concluded that the trial judge’s analysis of the issue was unimpeachable. In rejecting the proposed ground of appeal, the Court had regard to Geary’s position within AWB and the fact that the email was sent to a large number of people within the organisation.

At [256], the Court observed that it was open to Geary to rely on the summary of the Trip Report contained in the body of the email and to assume that if the attachment included something of concern, the matter would be raised by someone else within the organisation.

The analysis of the trial judge, affirmed by the Court of Appeal, is an important reminder that even if the principle in Jones v Dunkel is engaged, the court will not draw an inference unless it feels ‘actual persuasion’ on the evidence.

  1. A prevailing view that the inland transportation fee was approved by the UN

ASIC contended that the trial judge erred in finding that there was a prevailing view within AWB that the UN had approved the inland transportation fee. The trial judge’s finding as to the prevailing view was crucial to his Honour’s broader conclusion that ASIC failed to establish that Geary knew that the inland transportation fee was a sham.

At trial, ASIC called a number of witnesses from AWB. Unhelpfully for ASIC, the oral evidence was almost uniformly to the effect that there was a strong belief, amounting to a prevailing view, that the UN had approved the payment of the inland transportation fee. At [297], the Court described the oral evidence on the issue as ‘clear and emphatic.’

ASIC sought to controvert the oral evidence by relying on a number of emails received by Geary and others (including the email attaching the Trip Report) which were said to contain ‘red flags’. ASIC invited the court to infer from the emails that senior management at AWB understood that the inland transportation fee was merely a sham or device to circumvent the UN Resolutions.

In relation to the documents relied on by ASIC, the Court observed at [291]:

  • that many contained little more than one relevant sentence;
  • some were expressed in vague terms; and
  • they may have been one of hundreds or thousands of documents passing within the organisation.

Further, the AWB witnesses offered explanations for the documents that were consistent with the prevailing view. The Court concluded that in the circumstances it was open for the trial judge to accept the explanations offered by the AWB witnesses and his Honour was not bound to accept the connotations for which ASIC contended.

More generally, the Court characterised ASIC’s documentary case against Geary, at [291], as:

“…an invitation to trawl through a vast body of emails, in an effort to overcome the oral evidence of almost all the AWB witnesses ASIC called during the trial which, if accepted, was largely exculpatory of Geary.”

  1. Geary’s knowledge of the sham and failure to investigate

Separately, ASIC sought to challenge the trial judge’s failure to find that Geary had knowledge of wrongdoing concerning the inland transportation fee. This ground of appeal was closely related to the ground concerning the ‘prevailing view’ as it relied on many of the same documents and red flags.

Based in part on the Court’s conclusions discussed above, the Court held that ASIC failed to establish that Geary knew, at the relevant time, that the inland transportation fee was a sham or device.

After conducting a thorough review of the evidence,[1] their Honours were also not satisfied that Geary knew, or even had reason to believe, that the inland transportation fee was not approved by the UN, or that the manner of its implementation had not been approved.

As noted, ASIC argued that even if Geary did not know that the inland transportation fee was a sham, his failure to investigate the fee constituted a breach of ss 180 and 181 of the Corporations Act. In rejecting this alternative ground, the Court of Appeal emphasised that:

  • AWB’s trade with Iraq was heavily scrutinised by the Department of Foreign Affairs and Trade and the UN; and
  • at the relevant time, Geary was Manager of the National Pool and had far wider responsibilities than just trade with Iraq.

The Court of Appeal noted that Geary’s duties did not extend to investigating compliance with UN Resolutions and that he ‘was not required to audit the auditors.’

Their Honours considered that the trial judge’s approach of asking ‘whether a reasonable person in Geary’s position would have acted any differently’ was correct.

Further, the Court saw no reason to interfere with the trial judge’s finding that a reasonable person in Geary’s position would not have foreseen any risk of harm to AWB from continuing to make the trucking payments. That conclusion necessarily followed from the fact that a reasonable person would have thought that inland transportation fee payments were approved by the UN.

  1. Appellate review of primary facts and inferences

In addition to considering ASIC’s individual grounds of appeal, the Court made some important general observations on the nature of its task in reviewing factual findings of a trial judge.

The Court cited Robinson Helicopter Company Inc v McDermott (2016) 331 ALR 550 (Robinson Helicopter) in which the High Court held at [43], that a court of appeal should not interfere with a trial judge’s findings of fact unless the findings are:

  • demonstrated to be wrong by incontrovertible facts or uncontested testimony;
  • glaringly improbable; or
  • contrary to compelling inferences.

As demonstrated by the recent judgment of the Victorian Court of Appeal in Jovanovic v Magri [2017] VSCA 373, a divergence of opinion has emerged as to the application of the Robinson Helicopter principles. On one view, the principles apply generally to the review of factual findings by a trial judge. On the other, the principle is limited to the review of findings of primary fact and does not apply to the review of inferences to be drawn from those facts.[2]

The Court observed at [223] that an appellate court is generally in as good a position as the trial court to consider whether particular inferences should be drawn from established facts. Accordingly, the ‘strictness with which Robinson Helicopter approaches findings of primary fact is not applicable to purely inferential reasoning.’

The approach adopted by their Honours is significant in that it appears to confine Robinson Helicopter to factual challenges based substantially on the credibility of witnesses who testified at trial.