AWB class action

On 27 April 2010, the Federal Court of Australia approved the settlement of the AWB class action for $39.5 million, which is the fourth largest settlement in Australian shareholder class action history. The only larger settlements have been the Aristocrat class action, Multiplex class action and GIO class action, which were all conducted by Maurice Blackburn.

The settlement provided compensation to almost 1,300 eligible shareholders including many retail investors and self-managed superannuation funds and also some of Australia's large financial institutions.

The action

The AWB class action was commenced by Maurice Blackburn on 17 April 2007 on instructions from John & Kaye Watson, who are former wheat farmers and AWB shareholders.  The class action was conducted on behalf of AWB shareholders who bought shares between 11 March 2002 and 13 January 2006 and who continued to hold AWB shares at the close of business on 13 January 2006.

The class action related to AWB's involvement in what became known as the Oil-for-Food kickback scandal that led to the Cole Inquiry during 2006.  It was alleged that in relation to a series of wheat export contracts between 1999 and 2003, AWB paid more than $200 million in "transport fees" and "surcharges" to a front company which then funneled the funds to the Saddam Hussein regime.  It was alleged that these payments were concealed from the Department of Foreign Affairs & Trade and the United Nations, and that if the true nature of the kickback payments had been known, the UN sanctions regime and adoptive Australian law would have prevented AWB from exporting its wheat to the lucrative Iraqi market under the relevant contracts.

It was alleged that AWB breached its continuous disclosure obligations under the Corporations Act 2001 (Cth) and the ASX Listing Rules by failing to disclose the nature of the kickback payments, and that AWB engaged in misleading or deceptive conduct.

AWB's share price fell dramatically after the disclosure of the kickback arrangements during the Cole Inquiry in early 2006.  The Watsons alleged that they and other AWB shareholders suffered loss because the kickback arrangements damaged AWB's commercial reputation, resulted in AWB's exports to the lucrative Iraq market being disrupted and, most importantly, jeopardised AWB's entitlement to operate the single desk wheat export system, which was a statutory monopoly on bulk wheat exports from Australia.

The trial and settlement

When first confronted by the kickback allegations in late 2005 and throughout the Cole Inquiry in 2006, AWB had always strenuously denied that it knew that the payments to the front company were being funneled to the Saddam Hussein regime.  These denials continued from the commencement of the class action in April 2007 until, on the eve of the trial, AWB finally admitted that it knew the true nature of the kickback payments.

The trial commenced on 10 February 2010 with the Watsons' barrister outlining the nature and strength of the evidence against AWB.  However, after only three days of the trial an agreement was reached in relation to the $39.5 million settlement.

On 19 February 2010 the Federal Court ordered participating shareholders to verify their claims, and on 27 April 2010 the Federal Court made formal orders approving the settlement and appointing Maurice Blackburn as administrators of the settlement scheme.  Eligible shareholders received their compensation in late August 2010.