ASIC v Lindberg Case Analysis - 2017 Business and Corporation Law

This report provides a detailed analysis of the ASIC v Lindberg case, a landmark legal battle involving the former managing director of AWB Limited. The case centered on allegations of breaching duties under the Corporations Act 2001, specifically concerning the company's dealings related to the UN's Oil for Food Program in Iraq. The report examines the facts of the case, including the alleged violations of UN resolutions through improper payments and inflated wheat prices. It outlines the specific duties and responsibilities that were breached by the managing director, leading to the court's decision to impose pecuniary penalties and a disqualification order. The analysis highlights the court's findings, the seriousness of the violations, and the implications for corporate governance and the responsibilities of company directors. The report also discusses the penalties imposed and the legal precedents cited, emphasizing the importance of diligent performance of duties and adherence to ethical standards in business operations. The case serves as a crucial example of how breaches of duty can result in severe consequences.

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Contents
Introduction......................................................................................................................................3
Discussion of the Case.....................................................................................................................3
Duties/ Responsibilities Breached...................................................................................................5
Court’s Decision..............................................................................................................................7
Conclusion.......................................................................................................................................8
References......................................................................................................................................10

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Introduction
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 [2012] 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

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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

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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 [2012] 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

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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).

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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.
Court’s Decision
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

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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).

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Conclusion
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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References
Adams, M.A. (2012) Australian Corporate Governance. [Online] The University of Hong Kong.
Available from: http://www.law.hku.hk/aiifl/wp-content/uploads/2012/05/ppt-
AusCorpGovernance-ADAMS-12Oct.pdf [Accessed on: 13/08/17]
Austin, R., and Reynolds, C. (2012) Minter Ellison Alert | ASIC v Lindberg – more on the duty of
care and diligence. [Online] MinterEllison. Available from:
http://www.minterellison.com/publications/asic-v-lindberg/ [Accessed on: 13/08/17]
Austlii. (2017a) Australian Securities & Investments Commission [ASIC] v Lindberg [2012] VSC
332 (9 August 2012). [Online] Austlii. Available from:
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/vic/VSC/2012/332.html?
stem=0&synonyms=0&query=Lindberg [Accessed on: 13/08/17]
Austlii. (2017b) Corporations Act 2001. [Online] Austlii. Available from:
http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/ [Accessed on: 13/08/17]
Cassidy, J. (2006) Concise Corporations Law. 5th ed. NSW: The Federation Press.
Donovan, S. (2012) Lindberg fined $100k over AWB Iraq kick-backs. [Online] ABC. Available
from: http://www.abc.net.au/worldtoday/content/2012/s3564108.htm [Accessed on: 13/08/17]
Federal Register of Legislation. (2017) Corporations Act 2001. [Online] Federal Register of
Legislation. Available from: https://www.legislation.gov.au/Details/C2013C00605 [Accessed
on: 13/08/17]

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ICNL. (2017) Corporations Act 2001. [Online] ICNL. Available from:
http://www.icnl.org/research/library/files/Australia/Corps2001Vol4WD02.pdf [Accessed on:
13/08/17]
Jacobson, D. (2012a) ASIC v Lindberg (AWB) Update. [Online] BrightLaw. Available from:
https://www.brightlaw.com.au/asic-v-lindberg-awb-update/ [Accessed on: 13/08/17]
Jacobson, D. (2012b) ASIC v Lindberg: AWB Penalty. [Online] BrightLaw. Available from:
https://www.brightlaw.com.au/asic-v-lindberg-awb-penalty/ [Accessed on: 13/08/17]
Jade. (2017) ASIC v Lindberg [2012] VSC 332; 91 ACSR 640. [Online] Jade. Available from:
https://jade.io/article/269532 [Accessed on: 13/08/17]
WIPO. (2015) Corporations Act 2001. [Online] WIPO. Available from:
http://www.wipo.int/wipolex/en/text.jsp?file_id=370817 [Accessed on: 13/08/17]
Wyld, R. (2012) An Update From Australia – AWB Wheat Kickbacks To Iraq Result In
Sentences. [Online] FCPA Professor LLP. Available from:
http://fcpaprofessor.com/category/andrew-lindberg/ [Accessed on: 13/08/17]