Boy, it’s suddenly gotten busy. Two challenges to SSOMA . One to MC(IP)A. Bell’s hearing next week on mental health. A taste of Victoria’s glorious Chartered future. But those are pending matters. Decided matters still drip through and make little splash. Today, the Victorian Supreme Court issued judgment in Trevor Flugge’s Charter challenge, Re AWB Limited  VSC 473. Flugge won, but the Charter point wasn’t considered.
Flugge’s case and its demise follows directly from these conclusions of the Cole report into the Australian Wheat Boad’s role in the Oil-for-Food scandal:
I]n my view:
- Mr Flugge might have been either reckless, or intentionally dishonest, and might have failed to exercise his powers or discharge his duties either in good faith in the best interests of AWB or for a proper purpose and therefore might have committed an offence against s 184(1) of the Corporations Act 2001
- Mr Flugge might have dishonestly used his position and been reckless as to whether the use of his position may have resulted in Iraq or an Iraqi entity directly or indirectly gaining an advantage and therefore might have committed an offence against s 184(2) of the Corporations Act 2001
- Mr Flugge might have failed to exercise his powers and discharge his duties in the best interests of AWB and for a proper purpose and therefore might have contravened s 181 of the Corporations Act 2001
- Mr Flugge might have failed to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in AWB’s circumstances and occupied the office held by, and had the same responsibilities within the corporation, as Mr Flugge and therefore might have contravened s 180 of the Corporations Act 2001.
It is a serious matter for an officer of a public corporation such as AWB to authorise the corporation to enter into agreements in breach of statutory duties that the officer owes to the corporation, particularly where the officer acts intentionally, dishonestly or recklessly in breach of those duties.
I recommend that this matter be referred to the Task Force for consideration of whether proceedings under sections 180, 181 and 184 of the Corporations Act 2001 be instituted against Mr Flugge.
I note that section 1317K of the Corporations Act 2001 imposes a six year limitation period for the commencement of proceedings arising from contraventions of civil penalty provisions. Accordingly, the referral to ASIC should only be in relation to the conduct of Mr Flugge that occurred from 2001 onwards
The key nuance is that Cole’s findings supported both ‘civil penalty’ proceedings (which can attract disqualification and ‘pecuniary penalties’) and criminal proceedings (which can attract fines and prison.) While the concept of a civil penalty proceedings was initially conceived as an alternative to criminal prosecution, the scheme was eventually changed to allow criminal proceedings to go ahead even though civil proceedings were in place or had concluded. The reverse couldn’t occur, unless the civil proceeding failed.
In the case of Flugge and four other directors against whom Cole recommended both civil and criminal proceedings, ASIC said that it would do the civil proceedings first, because of the civil statute of limitations. (By coincidence, one of the relevant contracts commenced on 20th December 2001, meaning that the six year cut-off was 19th December 2007. If Coghlan’s ridiculous decision in BAE Systems Australia is correct, then that starting-point, weeks before the Charter’s full commencement, would have barred the Charter from the case. That’s a point wasn’t resolved here.)
What was argued was that the serial procedings were unfair to the defendants, mainly because they would have to choose between revealing their defences (including possibly testifying) in the civil proceedings (which will feed handy information for the criminal prosecutions) or not doing so, possibly harming their civil defence. There is a provision barring the use of evidence adduced by the defendant in civil proceedings in the later criminal ones. But, like the other Charter case involving overlapping proceedings – Bongiorno’s concern about the coercive questioning regime operating in parallel with a criminal prosecution – the bar doesn’t extend to ‘derivative’ information.
Flugge et al argued that the civil proceedings ought to be stayed until the criminal matters are resolved. This would, of course, solve ASIC’s statute of limitations problem, but ASIC nevertheless resisted the stay. The question of whether or not a stay should be granted turned on a 1982 case, McMahon v Gould, which set out an ‘interests of justice’ test that gave priority to the right of ‘plaintiffs’ to pursue whatever actions they want. But later authorities suggested that the balance should shift in favour of a stay, in particular because of the potential for defendants in civil proceedings to have to testify (or otherwise defend themselves), thus undermining their right to silence in a later criminal matters. The Charter was thrown into this mess of precedents as follows: Continue reading