AWB v Flugge & Geary (AWB case)

The Victorian Supreme Court decision in ASIC v Flugge & Geary [2016] VSC 779 brings to an end the litigation relating to AWB Limited (AWB) arising out of the Cole Oil for Food Inquiry in 2005.

See related case notes here.

Justice Robson found that Flugge did breach his duties as a director under s 180(1) of the Act, by failing to make adequate enquiries about the propriety of the payment of inland transportation fees and as a consequence, failing to stop AWB engaging in improper conduct in paying the inland transportation fees.

UPDATE 10 April 2017: Former Chair Flugge  was fined $50,000 for his breach of s 180 of the Corporations Act and disqualified as a director for five years.

Justice Robson found that Geary did not breach his duties.

UPDATE 21 February 2017: ASIC has announced that it has lodged an application in the Victorian Court of Appeal for leave to appeal from a judgment of the Supreme Court dismissing ASIC’s proceeding against Mr Peter Geary, the former Group General Manager Trading for AWB Ltd.

UPDATE 30 April 2018: The Victorian Court of Appeal has dismissed ASIC’s appeal against the Geary judgment.

ASIC alleged that AWB’s officers breached their duties under the Corporations Act in connection with AWB’s contracts for the sale of wheat to Iraq following the Gulf War under the United Nations (UN) Oil-for-Food Program. ASIC alleged the price was inflated to contain payments for purported inland transportation fees which were made to Alia, a Jordanian company partly owned by the
Iraqi Ministry of Transport. ASIC alleged the payment of the inland transportation fee was a sham and a means by which Iraq could obtain internationally traded currencies. ASIC alleged that the payments of the fee to Iraq by AWB was contrary to UN sanctions.

Flugge was the chairman of AWB in the period 1999 until March 2002. Geary was an executive of AWB during the period 1999 to 2003.

ASIC’s case against Flugge was that he knew that AWB was acting contrary to UN sanctions in paying the inland transportation fees and using moneys obtained from the UN escrow account to do so, or alternatively, that if he did not know, that he was put on sufficient notice such that he ought to have made enquiries which would have alerted him to the breaches of UN sanctions.

ASIC alleged that Geary, who was a senior executive in AWB, knew of the relevant transaction and knew that it was contrary to UN sanctions but failed to stop it, or alternatively ought to have known and failed to stop it.

ASIC also alleged that Geary knew of, or ought to have known of, the payment of the inland transportation fees and failed to stop them.

Justice Robson also found that it had not been established that Mr Flugge knew that AWB was making payments to Iraq contrary to UN sanctions and, therefore, was not satisfied that he had breached s181 of the Act.

The Court will hold a hearing about penalties in respect of Mr Flugge on 16 February 2017.

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