A landmark penalty judgment was handed by the Supreme Court Judge of Victoria, Robson J, on 09th Aug, 2012 when the Australian Securities and Investments Commission, herein referred to as ASIC, initiated legal proceedings against Andrew Lindberg, herein referred to as Lindberg. The matter was initiated as Lindberg was the previous managing director of the company AWB Limited and the ASIC had made a claim that Lindberg had not fulfilled the duties contained in the Corporations Act, 2001. The full citation of the case was ASIC v Lindberg  VSC 332, where the penalty judgment was given by the court after the decision was attained to settle down the proceedings (Jade, 2017). Due to the breaching the provisions of governing commonwealth act, the judgment restated the pecuniary penalties and the disqualification order imposition (Jacobson, 2012a).
The discussion which has been carried in the ensuing parts cover the facts of this case, along with the duties which were breached and finally the decision given in this matter has been covered, before concluding the entire discussion.
Discussion of the Case
ASIC v Lindberg was a highly publicized case where the allegations were laid against the violations which were undertaken by the company AWB. These were carried for the resolutions of United Nations, herein referred to as UN, which were undertaken with Iraq. The resolution called on the UN’s member states, herein referred to as UNMS, for preventing the sale of any kind of commodity to Iraq and this had some exceptions, drawn from humanitarian basis and the exception included food material. An attempt was made through this resolution to deny the hard currency to the regime of Iraq. Oil for Food Program, herein referred to as OFP, had the responsibility of undertaking the sanction which led to the proceeds from the sale of petroleum products of Iraq being placed under the UN’s escrow account. The release of funds from this account was only allowed for the commodities which were permitted, including the food material. AWB was a huge supplier of wheat to Iraq as per the OFP (Austlii, 2017a).
There were two key matters on the basis of which the violation of the UN resolution had been claimed. The first and the foremost one was related to the 10% payment made as being the trucking fee which was related to the contracts of wheat undertaken with Alia. Alia was an intermediary company which was passing on this fee to the Iraqi government and so, the hard currency was obtained by the government. This was in addition to the fact that the payment being received by AWB was designed in a manner so as to reimburse such payments. Hence, through this entire transaction, the money held in the UN escrow account was being made use for such purposes which were restricted under it (Austin and Reynolds, 2012).
The other violation claimed was regarding the contract undertaken between the company, i.e., AWB and Tigris. Tigris was a third party and the purpose of this contract was the recovery of outstanding $8 million which was related to the shipment of wheat to Iraq. AWB had inflated the prices of wheat under OFP contracts. This again hampered the purpose of the UN resolution as the money from the escrow account was being used for the purpose different from payment for permitted commodities. These contracts had the valid approval of UN; though, this approval was taken without the UN being given the knowledge regarding the purpose or the increase in the prices. The contract of Tigris and AWB had been portrayed wrongly as debt payment recovery by AWB to Tigris as being the service fee, and the commission payment by Tigris to AWB as being the success fee. Different investigations were asked to be carried on under the OFP for the activities which were undertaken by AWB and included in this was the Project Rose, in addition to the external investigation of the UN Independent Inquiry Committee. Project rose was the AWB’s internal investigation (Austin and Reynolds, 2012).
All this was undertaken with the proceedings which were brought against Lindberg by ASIC as he had violated his obligation of working in good faith. A lot of delays were encountered and related applications were filed and this included the application by the ASIC to modify the statement of claim. Once this was done, a long process was started by the parties in the late parts of 2009 to negotiate on the actions’ settlement. Apart from Lindberg, ASIC also started the proceedings against the chief financial officer of the company, Peter Ingleby. Though, this is a different matter which was dealt in ASIC v Ingleby  VSC 339 (Wyld, 2012).
Duties/ Responsibilities Breached
The declaration of contravention made by the court in this case was accepted by both ASIC and Lindberg. These violations were made for four different matters which were limited and the facts were agreed between the parties. The first one was related to the Lindberg’s failure in carrying out the needed enquiries in the debt recovery matter related to Tigris for such a high value. This was particularly because the money was used from the escrow account and the prices were inflated, and this was done without the knowledge or the approval by UN. The second ground on which Lindberg faulted was informing the AWB’s board about Project Rose only regarding the examination of documents which the company had, and about the interviews conducted with the present employees of the company. The information about the previous employees of the company being not interviewed, even when they had substantial information in this matter, resulted in Lindberg’s fault (Austin and Reynolds, 2012).
Lindberg’s third fault was the information which he failed to pass to the company’s board that the debt of Tigris had been recovered by increasing the wheat prices in the OFP contracts, along with the fact that there had been a wrong description of the commission and the success fee. And the last point of fault of Lindberg was not informing the company’s board till Sep 2005 that he had attained the knowledge in Feb 2005 by Independent Inquiry Committee of the UN that the company Alia was being used by the government of Iraq as a source to channel the funds and that in reality, there had been no exemption given to AWB in the matter of trucking fee. The fourth fault also included the non disclosure regarding the inclusion of 10% as kickback in the prices of the contract (Austin and Reynolds, 2012).
In the matter of the situations which have been highlighted in this segment, Lindberg accepted that there had been a contravention of section 180(1) of the Corporations Act, 2001. As per this section, the company directors and officers are required to make use of their powers and the given authorizes in diligent and careful manner (Federal Register of Legislation, 2017). It is mandatory that the power and duties be used in a manner as would have been done by a reasonable individual who had the same position, powers, duties and office as the officer or director in question (Austlii, 2017b). Where the conditions laid down in this section are not undertaken, section 1317E imposes civil penalties on the contravening parties (Cassidy, 2006). And through this section, the court has the power of making a declaration of contravention (WIPO, 2015, 2017). Once a declaration of contravention has been made, the ASIC gets the power of seeking pecuniary penalties based on section 1317G, or they can opt for the disqualification order as per section 206C (ICNL, 2017).
Lindberg was not only the MD but was also the company’s CEO and so the duties stated above were applicable on him. Yet, there was a failure on his part in undertaking his obligations and using his powers in a diligent and careful manner. Any reasonable individual would have undertaken the needed care in the given situation, had they been the MD or the CEO of the company and had the powers and duties of Lindberg. The parties reached an agreement regarding the violations; however, this did not include any deliberate wrongdoing, dishonesty or any ounce of moral turpitude (Donovan, 2012). Coupled with this, the parties agreed to the lack of causal link between the harm which was suffered and the Lindberg’s violations. Lindberg, throughout the case, monitored and supervised the events (Austin and Reynolds, 2012).
Lindberg and ASIC amicably reached a decision that the imposition of penalty of $100,000 would be sufficient for the undertaken violations (Adams, 2012). And this was followed by a disqualification order imposed on him, which was set to end on 14th Sep, 2012 (Jacobson, 2012b). The reason for imposing pecuniary penalties was given to be the seriousness of the violations.
In order to give the legal validity to the amicably decided penalties and disqualification, a court order was sought out by the ASIC. Robson J had to decide if the violations which had been claimed by the parties had the required seriousness to award both the disqualification order and the pecuniary penalty. It was not at all doubted by Justice Robson that there had been a violation of section 180(1) and he also upheld that Lindberg had been negligent in the matter of performance of the duties by being the director and the officer of the company. The court also agreed on the absence of dishonesty, deliberate wrongdoing and moral turpitude in the conduct of Lindberg. Though, there was a clear failure in performance of duties by Lindberg and any reasonable person in Lindberg’s place would have undertaken care. Holding the significance of section 180, Robson J held the violation of this section by Lindberg (Austin and Reynolds, 2012).
Robson J, in the matter of penalties stated that there was seriousness in the violations of Lindberg which required the imposition of the penalties which had been amicably decided between ASIC and Lindberg. Robson J also stated that these penalties were within the range which is permissible, even when it was on the upper side of this range. Robson J referred to ASIC v Donovan (1998) 28 ACSR 500 for deciding upon the seriousness of the matter. And the casual link between the harm suffered by the company and the violation by Lindberg was due to lack of the three, i.e., dishonesty, deliberate wrongdoing and moral turpitude (Austin and Reynolds, 2012).
However, the admission by Lindberg, along with the fact that he knew that this matter was quite serious, owing to his vast experience, resulted in this admission as being of significant nature. Reference was made by the court to the previous authorities for the disqualification orders and the pecuniary penalties to not be for the only reason of protection of the general public; but also the acting as a specific and general deterrent. After considering all these reasons, the mutually decided upon disqualification orders and the pecuniary penalties were agreed by Justice Robson and an order giving legality to the same was passed (Austin and Reynolds, 2012).
The discussion carried on here clearly signifies the matter which was put before the court in ASIC v Lindberg, where the ex-MD of the company, after violating his duties laid down under the Corporations Act, agreed to be punished. This punishment not only included him being disqualified from being the director of the company for a specified time period, but also led to the imposition of pecuniary penalties on him. The acts undertaken by him were such that allowed the purpose of the UN resolutions to be discarded. Cases like these act as a guidance and even a warning to the directors and officers of the companies in the nation, to diligently undertake their work. And in case the same is not done, they can also be asked to pay penalties like Lindberg.
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