~Australian+Government+Crest/$FILE/image001.jpg)
17.1 Following the appointment of Mr Yousif Abdul-Rahman as Director General of IGB in early 2000, IGB implemented a significant change in the discharging and testing procedures of AWB's wheat shipments to Iraq in March 2000.[1120] The introduction and operation of these new procedures resulted in delays in the berthing and discharge of AWB's vessels at Umm Qasr.
At the same time, the Iraqis were experiencing a reduction in the rate at which cargoes could be discharged at Umm Qasr, resulting in further delays both to the berthing of AWB's vessels and the discharge of wheat from them.
17.2 These problems were exacerbated by the large quantity of wheat being shipped by AWB to Iraq and the bunching of shipments within the AWB shipping program. In a report prepared following his visit to Iraq in May 2000, Mr Emons observed:
For the 1999/2000 season the AWB has sold a record 2.4 million tonnes to Iraq. This business has been conducted direct to the IGB and two Russian companies. As a consequence of this tonnage being sold AWB has shipped what is in effect 98% of the supply of wheat to Iraq.
The facility at Umm Qasr has been under intense pressure from the AWB shipment program. This volume has coincided with a change of Director General of the IGB on 1 January 2000 and a dramatic decline in discharge capacity since mid February 2000.[1121]
17.3 As a result of these delays, AWB Chartering was incurring demurrage to the owners of the ships it was chartering. It was facing an increasing demurrage bill. From early 2000, these delays and their financial consequences began to be of concern to AWB and the AWB Pool.
Under the terms of its contracts, IGB was not liable to reimburse AWB for the demurrage or any other costs that AWB incurred as a result of these delays. This demurrage and other costs had to be borne by AWB or the AWB Pool from its profit.
17.4 In negotiating its contracts with IGB and determining the price at which it was prepared to sell its wheat, AWB included an allowance for the demurrage that it anticipated might be incurred in respect of the shipments made under that contract.[1122] There was however from early 2000 onwards a concern within AWB and the AWB Pool that, with these increased delays in the berthing and discharge of AWB vessels and associated increased demurrage, this allowance may not be sufficient.
In those circumstances, from early 2000 onwards there was an issue within the AWB Group as to who within the Group should bear the increasing cost of this demurrage. The issue was whether these costs should be borne by AWB Chartering[1123] (which chartered the vessels and had to bear the cost initially) or by the AWB Pool (through the arrangements that it had with AWB Chartering pursuant to which AWB Chartering provided the vessels it chartered for the carriage of Pool wheat), or whether they should be shared between them.[1124]
17.5 Delegations from AWB visited Iraq in April 2000 and again in May 2000 to discuss the delays in discharge with representatives of IGB. Other topics discussed with IGB during these trips included the inland transportation fee and the possibility of future sales to Iraq. These discussions are examined in this chapter.
17.6 In October 2000, a delegation from AWB (headed by Mr Stott) visited Iraq and had discussions with the Minister for Trade and representatives of IGB in relation to amongst other topics the continued delays in the discharge of AWB's vessels. That visit and the discussions that took place during it are considered in Chapter 19. The delays to AWB's vessels and the reduction in the rate of discharge were also said to be the reason for Mr Stott's exchange with Ms Drake-Brockman (from DFAT) in late October and early November 2000, following Mr Stott's return from his visit to Iraq in October 2000. This exchange and the circumstances in which it occurred are examined in detail in Chapter 20.
17.7 In April 2000 Messrs Emons, Watson and Laskie travelled to the Middle East, including Jordan and Iraq.[1125] During their visit, they met with Mr Al Absi from Alia in Jordan. They also travelled to Iraq and there had discussions with both the Iraqi Minister for Trade and representatives of IGB.
17.8 On 4 April 2000 Mr Emons sent an email to Mr Watson in preparation for their forthcoming trip in which he wrote:
Couple of issues before we take off for Iraq at the weekend.
1. We need to clarify when we get to Baghdad that the fee on the new contract is USD 15 and that the method of payment remains the same to Alia etc and in what amounts. This is an increase on the last phase which was USD12 you will recall. I suspect we will be confronted with proposals that will be complicated but we will cross that bridge when we get to it. For your information I had a discussion with Trevor Flugge last week to discuss some of the finer points of the trucking fee. He is happy for us to carry on in fact he is determined that we should be accommodating to the Iraqi's so that our business does not come under threat from our US or CWB freinds.
2. With the above in mind we need to take with us a list of vessels paid so far and vessels scheduled to load. I have asked [Mr Owens] for a UN payment schedule for Friday before we depart.[1126] [emphasis added]
17.9 By this time, Mr Flugge knew, from his discussions with Mr Emons (referred to in Mr Emons' email of 4 April 2000) of the finer points of the payment of the inland transportation fees.[1127] In particular, Mr Flugge knew of AWB's payment of the inland transportation fee, that the fee had been set by IGB, of the mechanism for that payment of that fee (namely that the payments were being made to Alia and via Ronly and other shipowners), that IGB had nominated Alia as the recipient of the fee and that the payments to Alia were payments to Iraq. Moreover, in those discussions, Mr Flugge urged Mr Emons to be accommodating to the Iraqis, including by accommodating Iraq's demands concerning the inland transportation fees.
17.10 On 5 April 2000, Mr Emons sent a facsimile to IGB advising of a change in his travel commitments.[1128] In that facsimile he also wrote:
'Our Chairman has asked me to discuss with you while I am in Baghdad the issue of the position of the United Nations on trucking fee and also future phases of the Food for Oil program.'[1129]
In this instance Mr Emons used Mr Flugge's name without consulting him in order to add importance to his request.
17.11 Initially, the Director General of IGB, Mr Abdul-Rahman, was not available to meet with Mr Emons on the dates that had been proposed. On 7 April 2000, Mr Emons sent a facsimile to IGB advising of his decision to defer his proposed meeting for that reason, although Mr Emons stated he was nevertheless still planning to meet with the transport company in Jordan.[1130]
Mr Emons wrote:
For good order we had wished to discuss the following issues:
1. We had hoped to discuss at our meeting the issue of the payment of the trucking fee. You will be aware of the restrictions that the UN has placed on such payments and as you are aware this now means that we must halt further payments. We have endeavoured to meet the requirements of the IGB but without direct consultation we are now restricted to the accepted methods of payment to be used. We had hoped that we could discuss personally with your good selves this issue due to its sensitivity however if you would prefer we can discuss with the UN as to the appropriate method for paying for the trucking fee ? Please respond by Monday 10th April so an alternative action can be undertaken that does not result in the delay of vessels.
2. We had also wished to discuss the demand by IGB for the inclusion of delivery to Iraq Governates and additional quality requirements over and above those agreed at the time of time of contract negotiation. If this remains a demand of IGB in the Letter of Credit then AWB will be obligated to hold IGB liable for insurance costs and other relevant costs for such a clause and as such we seek a relevant increase in contract price. Please confirm by return that this is in order. If this is not forthcoming all shipments must be halted as IGB will be considered to be in default of contract terms as previously agreed. We would hope that this does not become an issue as it has not previously been a hindrance to our trade.[1131] [emphasis added]
17.12 Mr Emons gave evidence of his motivation for sending this facsimile:
Q: Mr Emons, you seem to be drawing direct attention to the fact that the payments that were being made were outside the UN sanctions; is that right?
A: To give you some background, as you can tell by the tone of this fax, we were getting very frustrated with the lack of response from Rahman. He was actively avoiding taking our phone calls. He changed the dates of our arrivals. He wouldn't be available. He was just being, shall we say, uncooperative. So we took it upon our selves to send this fax, which was basically, as you can tell, fairly threatening, suggesting that we would have to halt the payments of the trucking fee for the reasons discussed there and, if he wasn't in a mood to talk to us, then we would take that action.
The Commissioner: It wasn't just halting the payments for trucking fees; it was going to the United Nations about it?
A: Exactly. There was a direct threat there. As I say, it wasn't very subtle, but at that stage of the relationship subtlety had rather disappeared.
Mr Agius: Quite directly, you were using the fact of the illegality as a threat.
A: Quite; correct.
Q: You knew at that time, from the evidence you've given to this point-I think we can infer-that the Iraqis were imposing similar conditions on other traders.
A: That's correct.
Q: And if you wanted to trade with Iraq-that is, export goods to Iraq-you had to pay such a fee. So what you were threatening was the reporting in effect of the whole system?
A: Correct. Mr Agius, to put it in context, I mean, AWB had two choices: we either complied with the IGB's requirements under their contract; or we allowed the wheat market to disappear altogether to other companies. We wouldn't allow that to happen without taking some action against the Iraqis, and this is where the suggestion would come through, that we would make the UN aware completely of the trucking arrangements for everybody. Therefore, hopefully, we might be able to have a more reasonable response.[1132]
17.13 Mr Emons had discussed this course of action with his colleagues in the International Sales and Marketing Division and his manager, Mr Officer.[1133]
17.14 From the date of this email, 7 April 2000, there can be no suggestion by AWB that:
a. it believed that the inland transportation fee had been approved by the United Nations;
b. it believed that the inland transportation fee was a payment to a legitimate transport company for transport services;
c. it did not know that the inland transportation fee was a payment to Iraq; and
d. it did not believe that the inland transportation fee was prohibited by the UN sanctions.
17.15 It is clear that Mr Emons was threatening IGB with exposure to the United Nations as a lever to force it to the negotiating table to deal with the demurrage problem. This much was confirmed by later evidence from Mr Emons:
Q: There are some fairly solid threats in that fax, Mr Emons. Did you ever follow up on them?
A: Well, thankfully, Mr Rahman decided he would meet us, and hence our trip to Baghdad.
…
Mr Agius: May I take it, then, that you never followed through on the threats of going to the UN about the trucking fee and the manner of payment?
A: Of course not, no.
The Commissioner: Did you get a written reply, do you know?
A: No, I didn't. I think the only reply I got was 'Welcome me to your country'.[1134]
17.16 Mr Emons was able to arrange to meet with representatives from IGB during the April visit, although as events turned out not the Director General, Mr Abdul-Rahman.
17.17 Mr Emons concluded his facsimile to Mr Abdul-Rahman of 7 April 2000 by stating:
I will forward to you a copy of the letter from our Chairman to the Minister which we would ask you to forward to Minister Saleh.[1135]
17.18 Included amongst the documents produced by AWB was a letter purporting to be from Mr Flugge to Minister Saleh.[1136] The letter, which is not signed or dated, began:
May I take this opportunity during the visit by AWB to Baghdad to pass my personal good wishes to you and your family and to thank the Government and people of Iraq on behalf of Australian wheat farmers for the continued trade with Australia.[1137]
After recounting a message that is said to have been conveyed to the Australian Government following his visit to Baghdad in October 1999, the letter continued:
While in Baghdad I will ask AWB to discuss the recent communication from United Nations concerning trucking fees. As you are aware, both the Canadian and American Governments have raised this issue with the United Nations. It is out intention to remain committed to the terms of trade agreed between IGB and AWB. The Australian government supports this commitment to our trade.[1138]
17.19 Mr Flugge's evidence was that he had never seen this letter before[1139] and did not arrange for it to be drafted.[1140] He did not recall any discussions with Mr Emons on that topic[1141], although conceded that he may have had one.[1142] He could not rule it out.[1143] He submitted that his travel arrangements meant he could not have signed the letter.[1144]
17.20 However, Mr Emons' evidence was that he left it for Mr Flugge's signature and later collected it. It was delivered by Mr Laskie to Minister Saleh in Baghdad on 15 April 2000.[1145] The letter is an endorsement by the Chairman, Mr Flugge, of the arrangements previously made between IGB and AWB, which included the payment of a fee to Iraq via Alia.
17.21 On 10 April 2000, Mr Emons sent a facsimile to Mr Abdul-Rahman at IGB advising:
I have arranged to meet with the trucking company in Jordan on our way into Baghdad. I hope to re arrange the method by which we deal with the trucking. I will then be able to pass this information to your office while I am in Baghdad.
We would prefer that in the meantime that the IGB did not communicate with AWB directly on this issue until these discussions have taken place.
We trust we have your understanding on this issue.[1146]
17.22 Mr Emons explained his thinking when he wrote this email:
Q: In the first paragraph you indicated an intention to meet with the trucking company in Jordan on your way to Baghdad, so you were going to be there before you met with the director-general of the grain board, and you spoke of hoping to rearrange the method by which you deal with trucking. What was the background to that?
A: Well, we weren't happy with the way the trucking fee was taking place. Because of the problems we were having with discharge, it obviously wasn't working. We needed to discuss it with them to see if we could resolve some issues.
Q: Issues about the method of payment?
A: No, issues like the delaying of payment. While we might have been paying the shipowner, the shipowner was taking an extraordinarily long time to pay the Alia company, and thus was delaying the discharge potentially.
Q: There were complaints from the ISCWT of payments not having been received by it.
A: Exactly, yes.
Q: Was that on your list of things to discuss with --
A: That was one of the things, yes.
Q: -- Alia in Jordan?
A: In Jordan, yes.
Q: Did you intend at that time to have any discussions with Alia about the actual provision of trucking by Alia?
A: We would have discussed trucking, but not the provision of trucking by Alia. We would discuss the-in fact, if I recall, we did discuss trucking in the broadest context and the problems of the lack of trucks and asked them to see if they could find some explanation for us to give back to Melbourne.[1147]
17.23 As to why he did not want IGB to communicate directly with AWB in relation to these issues, Mr Emons said:
A: We were very concerned at one stage that information was being leaked to our competitors about the nature of our operations. We were starting to get questions asked on the phone, whatever, from different people. We weren't sure where the source of information was. We were pretty sure that it was coming from the IGB itself. We didn't want any, shall we say, controversial documents sent to the AWB-ie, we didn't want documents from Rahman himself making demands of some sort or other. Purely it was a way of trying to contain what he was doing.
Q: You didn't want Mr Rahman corresponding with the AWB?
A: Not until we'd spoken with him.
Q: I just don't quite follow as to why you wouldn't want that to happen?
A: Well, as I explained, we had a suspicion that Rahman was talking to a number of traders, particularly Russian traders. He had a very close relationship with the Russian ambassador, who was in Baghdad. There seemed to be a lot of information passing to those Russian traders about our business. We were concerned about the nature of his communications to us and we wanted to discuss that with him.[1148]
17.24 On 14 April 2000, the delegation from AWB met with Mr Othman Al Absi, General Manager of Alia, in Jordan. This was prior to travelling to Iraq to meet with the representatives of IGB. They met with Mr Al Absi initially at their hotel and then again later that same afternoon for coffee. That second meeting lasted for about an hour.[1149]
During their meeting, there was a discussion with Mr Al Absi on a range of issues, mainly relating to the vessel discharge problems at Umm Qasr.[1150]
17.25 In his statement, Mr Laskie said that during their meeting he asked Mr Al Absi how the road trucking program was proceeding and was told that it was not the trucking program that was the problem. Rather, he was told that AWB needed representation at the port, and that Mr Al Absi was keen to appoint a representative to look after AWB's interests. Mr Al Absi described the representative as a 'protective agent' and said to Mr Laskie that he felt that it would speed up discharge.[1151]
Mr Laskie could not recall if Alia was appointed protective agent at that time[1152], although he did recall that there was a discussion during their meeting about the possible appointment of Alia as the protective agent.[1153] There was also a discussion at that time about the indicative costs of such an appointment, which Mr Laskie recalled to be 'in the region of cents per ton of wheat'.[1154]
17.26 Mr Watson also had discussions with Mr Al Absi during this visit, in particular in relation to logistical issues concerning the discharge port and the discharge of the wheat at Umm Qasr.[1155] It was this discussion that led to the AWB's appointment of Alia as its protective agent[1156], to look after the interests of vessels carrying AWB wheat upon their arrival at Umm Qasr.[1157] The terms of that appointment were reduced to writing on 17 April 2000. They are set out later in this chapter. The appointment of Alia as AWB's protective agent was authorised by Mr Officer.[1158] According to Mr Watson, the object of these negotiations and Alia's appointment was as set out in his email dated 16 April 2000 reporting on the trip[1159], namely to turn AWB's vessels around quickly, to process and follow up the documents enabling payment of funds to AWB by the United Nations and to attend to a number of other services. In a subsequent email dated 29 May 2000, Mr Watson stated that Alia had been employed as protective agent 'to handle admin and logistical issues at Umm Qasr'.[1160] In that same email, Mr Watson wrote that Alia had been appointed protective agent in Iraq 'at the suggestion of IGB'.[1161] Mr Watson explained how this arose in his evidence on 6 January 2006.[1162]
Mr Emons confirmed that this agreement was negotiated by Mr Watson. Mr Emons' evidence as to the circumstances in which Alia was appointed was:
A: The background, as I understand it, was that the chartering division felt that they needed a protective agent at Umm Qasr, and obviously, having already started dealing with Alia, they had the qualifications to look after the interests of our vessels at arrival and to undertake the necessary activities that protective agents do at ports of arrival.[1163]
17.27 Mr Al Absi's evidence was to the effect that he recalled meeting with Messrs Emons and Watson at about the time that the protective agency agreement was entered into with AWB. He said that the discussions with them related only to the protective agency agreement and delays at the port and demurrage. He did not recall either Mr Emons or Mr Watson asking him whether Alia provided the trucking at Umm Qasr. He was not asked anything about whether Alia had the capacity to provide trucks to transport wheat out of Umm Qasr. This is consistent with the knowledge of AWB that Alia was in fact not providing trucking services. Mr Al Absi also confirmed to this Inquiry that Alia was not providing any trucking services at that time and did not provide any transportation until after the incursion into Iraq in March 2003[1164] and AWB and Alia entered into an Agency and Transportation Agreement in October 2003.[1165]
17.28 The following day, 15 April 2000, Messrs Emons, Watson and Laskie travelled to Iraq and there met with Mr Daoud (the former Director General of IGB) and Ms Moona (the Assistant to the Director General).[1166] The delegation was unable to meet with the new Director General of IGB, Mr Abdul-Rahman, who (the delegation was told) was travelling, and replaced by Mr Daoud for these meetings.[1167]
The meetings with IGB were completed within the day and Mr Emons and his delegation returned to Jordan on 16 April 2000, arriving there that afternoon.[1168]
17.29 Following his return to Jordan, Mr Watson sent an email to Mr Officer (copied to Mr Cowan in AWB Chartering) dated 16 April 2000 reporting on the previous day's meetings with IGB, which he described as 'productive'.[1169]
17.30 Mr Watson reported that all berths at Umm Qasr were available to AWB vessels and that 'AWB have priority now and for the future'.[1170] He also reported that 'Umm Qasr being kept for AWB cargoes as this clearly the more effective port for both AWB/IGB'.[1171] Mr Watson went on to advise that there was a new process for testing at Umm Qasr 'whereby vessels are being tested with samples having to be sent to Baghdad which causing around 48 hrs delay'.[1172] This test could only take place at the berth and Mr Watson reported that he was seeing whether it could be carried out on the wheat whilst the vessel was still at the anchorage waiting to berth in order to save time.[1173]
17.31 Mr Watson also reported that there was a problem in that some vessels were infested with live insects, causing a further 5 to 6 days at the berth, due to the need to fumigate the cargo.[1174] He suggested that the probable cause of this problem was that whilst cargo was fumigated in Australia, this killed any insects but not the eggs in the cargo. During the voyage the eggs were hatching.[1175] Mr Watson indicated that he was seeing if this extra fumigation could be done at the anchorage at Umm Qasr before the vessels berthed in order to save time. He also posited that an alternative and better solution would be 'to do better job at load port'.[1176] As to the consequences of these delays, Mr Watson suggested that the time required to fumigate the cargo in Iraq should be to the account of the AWB Pool and not AWB Chartering or owners as it was 'clearly cargo problem'. This was an issue that Mr Watson noted would need to be discussed further.[1177]
17.32 Mr Watson concluded his email:
- Am in the process of appointing a protective agent at discharge port to do following
- turn the vessels around quickly
- process/follow up the documents enabling payment of funds to AWB by UN
- a number of other services, which I am currently finalising all designed to assist us.
IGB (Zuhair and the Minister) went to great lengths to say how much they appreciate Australian wheat/shipping program/ AWB and fully receptive to the issues that we raised with them (delays on discharge/delays on payment etc.) and have confirmed they will do all they can to rectify and assist us.
Canada-def not in their good books.[1178]
17.33 In a later email dated 29 May 2000 and sent by Mr Watson to Mr Officer during his subsequent visit to Jordan and Iraq, Mr Watson summarised the topics discussed at the meeting with IGB during this earlier visit in April 2000 in the following terms:
During this visit
- issues of quality discussed (fungal staining/insect infestation/rodent contamination and higher moisture than (99)).
- logistical issues, relating to testing/fumigation and discharge rates
- lack of phostoxin tablets onboard all vessels, causing delay when infestation discovered-requiring treatment, before discharge, approx 5 further days.[1179]
17.34 Alia was appointed protective agent for AWB vessels discharging at Umm Qasr, by a Letter of Appointment dated 17 April 2000 signed by Mr Watson as Chartering Manager of AWB Limited.[1180]
This document set out the obligations upon Alia. They were to:
3) … liaise with all vessels and will report to AWB vessels on berthing prospects and any other reports which may assist to arrange the quick turnaround of the vessel at the port.
4) Attend the vessel's on arrival at the Port and assist the Master to prepare the vessel to discharge
5) Exercise due diligence in co-ordinating with the Iraqi Port Authorities for securing berthing arrangements in such a manner that the highest capacity gateways are allocated for all AWB vessels in order to ensure highest discharge turnover and secure the quickest despatch whenever such is feasible.
6) Expedite the follow up of samples which are normally taken to Al-Taji Laboratories for examination and testing to ensure receiving of results from appropriate authorities within 48 hours. Furthermore to explore all possibilities of seeking alternative solutions and methods to ensure quickest results to avoid any delay to vessel's discharge.
7) Follow up documentation process with COTECHNA INSPECTION at the various locations to arrange release of relevant confirmation of Arrival and confirmation of cargo discharged to the appropriate authorities to enabling smooth and expedient negotiation of shipping and banking documentation
8) Provide from time to time or upon request material or any other report on port conditions prevailing at Umm Qasr and provide any recommendations that could improve discharging formalities and procedure at Umm Qasr.[1181]
17.35 The Letter of Appointment provided that Alia was to be paid US$9,000 per ship inclusive of all assistance, fees, services, communications and tasks. This fee was to be paid in two instalments. The first instalment of US$6,000 was to be paid upon the vessel's departure from the load port and against relevant invoice from Alia. The second instalment of US$3,000 was to be paid upon receipt of all amounts due to AWB against the vessel.[1182]
17.36 According to Mr Watson, the services that Alia provided included arranging for the provision of fuel and fresh water to the vessels (where this was AWB's responsibility), liaising with AWB in relation to the discharge of the vessels and the resolution of problems as they arose. Alia also provided daily reports in relation to discharge operations within the port generally, delays to the berthing of AWB's vessels, the testing of AWB wheat and notification of any shortages.[1183]
17.37 Alia's appointment as AWB's protective agent was from 17 April 2000.[1184] It was not for a fixed period. The Letter of Appointment provided that Alia's appointment could be terminated by either party upon two month's written notice.[1185]
17.38 The Letter of Appointment contained the details of the person who was to be the protective agent at Umm Qasr, namely Mr Varoojan Kirikor.[1186] AWB had previously had communications in late November 1999 with Mr Kirikor on behalf of ISCWT.[1187]
17.39 It is to be observed that AWB thought it appropriate to document its appointment of Alia as a protective agent and the terms of its arrangement with Alia (including Alia's obligations thereunder), notwithstanding that the amount payable to Alia as protective agent was of the order of a few cents per tonne of the wheat shipped under each shipment. This is to be contrasted with the absence of any similar agreement and the complete lack of any documentation at all, in relation to the services associated with the markedly more substantial inland transportation fees that AWB was also paying to Alia at this time.
17.40 The absence of any such agreement and of any documents recording or evidencing such an agreement makes plain that:
If there had been an agreement between AWB and Alia to provide transportation services within Iraq or if those at AWB had genuinely thought that AWB had such an agreement with AWB and that the inland transportation fees were paid in return for the provision of such services by Alia to AWB under such an agreement, that agreement would have been documented, as AWB did with the protective agency agreement in April 2000, and as AWB did in October 2003 when AWB was forced by the Coalition Provisional Authority (CPA) and World Food Programme to honour the bargain apparent in the terms of its written contracts and arrange for the inland transportation of the wheat within Iraq.
17.41 This circumstance, namely the absence of any documentation that would support any claim by AWB that it had an agreement with Alia to transport wheat within Iraq, is corroborative of AWB's understanding of the relationship, exemplified in Mr Emons' email to Mr Officer on 4 November 1999:
To date IGB have not advised the trucking co to whom payment should be made. We have been approached by a company in Jordan but our response has been to ask for confirmation from IGB before discussing further.
We are not responsible for trucking in Iraq only the payment. Payment to us occurs as per existing contract after UN inspectors cert is issued at discharge.
When I see Zuhair at the end of Nov I hope to clear a number of the details up.[1188] [emphasis added]
17.42 In the course of discussions with representatives of IGB during his visit in April 2000, Mr Emons promised that AWB would assist the Iraqis by supplying laboratory equipment.[1189] This equipment was for use in the testing of the quality of the wheat.
17.43 After the AWB delegation's meeting with the Minister for Trade and representatives of IGB, Mr Laskie was introduced to one of IGB's technical people. They discussed a number of technical problems that IGB had experienced with the testing of the wheat. According to Mr Laskie, IGB seemed to lack testing equipment, which was slowing the results at the port and thereby in turn slowing discharge. Mr Laskie indicated that AWB would support the process with some new testing equipment and, if necessary, technical expertise.[1190]
17.44 On 30 April 2000, Mr Watson forwarded to Mr Emons a telex that AWB Chartering had received from IGB addressed to Mr Emons.[1191] It was headed 'After Sales Service'. After referring to Mr Emons' promise in April to supply IGB with laboratory equipment as after sale service, the telex listed the equipment required by IGB and sought Mr Emons' confirmation as to when it would be shipped. All of the equipment listed in the telex appeared to be capable of being used for the testing of the quality of wheat.
17.45 In April 2000, consideration was also being given by AWB to a proposal to donate to IGB, at a cost to AWB of $126,740.39, two Grain Vacs[1192] to assist with the discharge of wheat at Umm Qasr.[1193]
17.46 On 28 April 2000, Mr Borlase sent a facsimile to Mr Grenenger at DFAT[1194] advising him of this proposal and the reason behind it:
In recent months AWB has facilitated a very comprehensive shipping program in order to meet contractual requirements. This has translated into a regular stream of vessels leaving Australian shores with the result being long waiting times at Umm Qasr and great costs to the charters involved. An added humanitarian cost is the wheat can not be discharged at an appropriate rate affecting the distribution chain to the Iraqi people.
To assist the discharging process AWB would like to take the action of donating the Grain Vacs which will be utilised at Umm Qasr to speed up the discharging process.[1195]
17.47 Mr Borlase advised Mr Grenenger that AWB intended to load this machinery 'on the next available vessel expected to berth at an Australian port a week from this notification' and sought DFAT's assistance in providing an export permit for this equipment, or verifying with the relevant authorities that AWB was able to export this machinery to Iraq.[1196]
17.48 On 8 May 2000 Mr Watson reported in an email to Mr Officer that he had instigated a small core team (Mr Cowan and Mr Richardson):
… to look into the Iraqi program from an AWB big picture perspective and to provide thoughts on an overal strategy.[1197]
This core team was to report to Mr Emons (from International Sales and Marketing), Ms Scales (from AWB Pool) and Mr Watson (from AWB Chartering) amongst others. The intention was to provide a strategy to address a number of issues including:
phostoxin tablets, fumigation, costs, demurrage and payments to AWB which are being incurred under the Iraqi Program.[1198]
17.49 On 11 May 2000, Mr Borlase sent another facsimile to Mr Grenenger.[1199] This was in similar terms to Mr Borlase's earlier facsimile of 28 April 2000, except that it stated that AWB now wished to donate eight Grain Vacs at a cost of $257,272 (or $32,159 each). Again, the assistance of DFAT was sought in the provision of an export permit or verification with the relevant authorities that AWB was able to export this equipment to Iraq. Mr Borlase's facsimile was accompanied by specifications of the equipment that AWB intended to purchase and donate. Mr Borlase advised that AWB intended to load this machinery 'over an eight week period which coordinates with the next available vessels in our Iraq shipping program. The next vessel is due on 26th June 2000'.[1200]
Mr Borlase's facsimile concluded:
It would be appreciated if the situation could be expedited as Grain Board of Iraq has expressed genuine concern at discharge and distribution at Umm Qasr.[1201]
17.50 The proposed donation of these eight Grain Vacs by AWB did not proceed. It was replaced by a proposal to donate to IGB bobcats instead, to assist in the discharge of the wheat. This change was a result of a request for bobcats made by representatives of IGB in meetings with Messrs Emons and Watson in May 2000.
17.51 The potential exposure to AWB financially of the demurrage incurred in respect of Umm Qasr was considered by the Small Executive Management Group at a meeting on 23 May 2000.[1202]
17.52 The demurrage at that time was estimated to be 'potentially a $10m problem'.[1203] Mr Ingleby raised the issue of whose problem it was-AWB's or the Pool's. The forecast of the demurrage bill until that time was between US$6 million and US$7 million. It was reported that provision had been made in the Pool's chartering contract with AWB Chartering of about US$1.5 million.
The issue is that AWB(I) [the Pool] must make these sales to move the wheat out of Australia. Chartering made a contract based on certain unloading expectations in Iraq as done by the selling agent (Global Sales & Marketing), thus unloading provisions have not been made and hence there is some 'greyness' as to whether chartering can claim back against AWB(I) as it as not met the terms of this sale.
This is where we are at the moment. Hence potential exposure to Limited is an additional US$5½ to US$6.
How much of this is claimable back from AWB(I) is what is in contention.[1204]
17.53 This issue was discussed again at the meeting of the Small Executive Management Group on 30 May 2000. The minutes of that meeting record:
[Mr Ingleby] reported that the situation with Chartering has worsened and it has been confirmed that we do not have a written contract between I [the Pool] and Chartering. Mark Emons and Michael Watson both still in Iraq trying to resolve the situation.
….
This issue is summarised in the CEO Report going to the Board.
….
As there is no contract, it is extremely difficult to allocate the responsibility. AL confirmed that the Board must be informed. MT has changed his position regarding proportioning of liability between (I) [the Pool] and L [AWBL]. PJI reported that Peter Geary is driving this matter in order to have the issues resolved. The issue will be making sure this is all done on a commercial basis.
AL: this highlights an issue of management.[1205]
17.54 On 24 May 2000, during a trip to Greece, Mr Watson sent an email to Mr Officer[1206] in which he offered some comments on the Iraq program and AWB's ongoing concerns regarding demurrage:
- There is no formal agreement between Pool/Chartering for Ira[q] there has never been the need. It is understood that Chartering will look after demurrage at discharge port, should there be congestion etc or variance in discharge rates etc.
We have allowed some USD 1-1.50 apprx for demurrage and have on some of the contracts played around with discharge rates with Owners to provide some further buffer for days used. The above has been as a result of experience gained over the past 4 years.[1207]
17.55 Mr Watson also referred to the problems with insect infestation and delays caused by the need to fumigate. He wrote:
- Chartering has taken action to try and mitigate the expenses currently being incurred,
- initially by the appointment of a protective agents which has already assisted in speeding up the discharge process and I believe the payment by the UN to AWB.
- The present shipping program has been slowed to further assist in reducing the number of vessels at discharge ports
- Arranging for the testing and fumigation of the cargo at anchor in Umm Qasr
- Arranging for supply of phostoxin tablets to be placed onboard those vessels which sailed from Australia with no tablets.[1208]
and
… Both Mark E and myself are travelling to Iraq to meet both the protective agents and IGB to see what further action can be taken to increase the turnaround of the vessels which clearly is the most positive manner in which to reduce the demurrage exposure
In conclusion, whilst the Pool may wish to wash their hands of this matter, is it clear that the ships used are not at fault, as such the Pool has a responsibility to cover costs incurred as a result of their supplying poor cargo which clearly outside areas of Chartering, the Ship Owner and the ships themselves.
Chartering wishes to be placed back into the same financial position as would have been the case, should the cargo have been of sound specification and fumigation in a manner to kill all insects and eggs.[1209]
17.56 Five days later, on 29 May 2000 following his arrival in Jordan and shortly prior to his meetings with both Alia and IGB, Mr Watson described in an email to Mr Officer the then current position and action plan in the following terms:
Current
- There is no formal agreement between Pool/Chartering, for Iraq
- Chartering has worked on the terms of the MOU and IGB/AWB agreed terms and conditions as per the UN Contract. UN Contract does not allow for payment of demurrage/despatch, i.e. no transfer of funds, with exception of trucking fees, as agreed in the contract and approved by UN security council
MOU provides for 3000 mt discharge rate per vessel
- Current discharge rate does not meet the terms of the MOU
- AWB has been approached by IGB to provide 'after sales service'
Current Action Plan
- Determine amount and severity of quality issues
- Determine best possible performance of discharge rates at Umm Qasr
- Determine if any further equipment required to assist discharge rates
- Determine what 'after sales service required' i.e. equipment/cash (Board approval may be required for this)
- Present options to IGB to
(a) slow present shipping period (upto August)
(b) IGB to contribute towards current projected demurrage expense.[1210] [emphasis added]
17.57 It seems from this email that Mr Watson was suggesting that the approval of contracts which referred specifically to a 'discharge cost of up to US$12.00' by the United Nations was an indication that the payment of inland transportation fee referable to those contracts had thereby been approved. The email is silent as to whether the mechanism for payment had been approved and whether payment of such a fee in US dollars to the Iraqis had been approved. Neither had been approved. Further, the recipient of the email, Mr Officer, knew that the payment of trucking fees to Iraq had not been approved by the United Nations, as did Mr Watson.[1211]
17.58 The following day Mr Officer circulated a copy of this email from Mr Watson within AWB with the following message:
Please see attached messages from Mark Emons/Michael Watson. We hope to be in a position to report a more positive scenario post their visit to Baghdad. Iraqis are acutely aware of our concerns on demurrage, changed testing procedures, etc and have given full commitment to rectify the situation. These issues will be pursued rigorously by AWB this week in Baghdad. As far as references by IGB to quality problems are concerned, we have indicated that we need hard facts etc. In any event, the key issue is to speed up discharge/maximise unloading potential and improve substantially on the current worst case demurrage scenario which everybody is focusing on.[1212]
17.59 Mr Officer's email was sent to Messrs Ingleby, Tighe, Dimopoulos, Owen, Cowan, Laskie and to Ms Catherine Hale. Mr Emons and Mr Watson were also copied in.[1213] Further copies of this email were also sent later that same day to Mr Snowball and Mr Geary and then by Mr Geary to Ms Scales and Mr Richardson.[1214]
17.60 Mr Geary's evidence was that he may have 'skimmed' the email, but did not read it in detail.[1215] His evidence was that others within AWB were more interested in the issues raised in the email.[1216] He forwarded it to Mr Richardson and Ms Scales.
17.61 In May 2000 Messrs Emons and Watson again travelled to Jordan and Iraq to meet with representatives of Alia and IGB. This was in conjunction with their trip to London[1217] to meet representatives of Ronly[1218] and Mr Watson's visit to Greece.[1219]
17.62 The itinerary for this trip was:
17.63 In a second email which Mr Watson sent to Mr Officer (and copied to Ms Hale) on 29 May 2000[1221], Mr Watson reported the outcome of the meetings that had taken place in Jordan earlier that day:
Met with Transport Co/Protective Agent and also Iraqi Trade Commissioner
1) Delay in discharge started to occur on/about 15/2/00 due introduction of testing procedure by Director General as a result of quality on cargoes received
(Hard facts to be clarified from IGB)
2) Fumigation also required due to infestation of cargo by live insects
3) March-trucks dispatched to Egypt to collect cargoes thereby reducing discharging capacity at Umm Qasr
4) Minister instructed that all trucks return to Umm Qasr effective 21 May
5) 5th berth being prepared to facilitate discharge-time of which to be clarified whilst in Iraq
6) Iraq claim that more cranes required to aid discharge, but protective agents at port suggest that evacuvators faulty, due to lack of spares and maintenance due to extreme weather conditions (heat/dust)
7) New Director General together with AWB protective agent visited Umm Qasr to determine reasons for delay at first hand
8) Minister has confirmed purchase of Viagan vacuvators under UN Food for Oil Program-immediate delivery sought, we will clarify timing
9) Currently 39 vacuvators being used 24 hrs p/day, will clarify if all being used in a 24 hr period given (6) above
10) Protective agent looking at prospect using mobile vacuvators into barges for vessel's waiting. AWB to seek confirmation from IGB this respect.
11) Clearly, information to date indicates that provided discharge rates can be increased, then current demurrage projection overstated and focus is on achieving this
12) Provided balance of contract can be extended to allow shipment upto August, this will further facilitate financial return to AWB
13) Protective agents have finalised 'agreement' with Cotechna agents to expedite final documentation to UN
14) Protective agents have arranged meeting between AWB/Director General inland transportation, Iraq together with IGB in Baghdad.[1222]
The paragraphs numbered 3), 4) and 14) above make clear that inland transportation was the responsibility of 'Director General, inland transportation, Iraq' and not Alia. Mr Watson conceded that this was also his understanding.[1223]
17.64 A copy of this email was circulated on 30 May 2000 by Mr Officer's personal assistant (Ms Wilson) to Messrs Ingleby, Tighe, Dimopoulos, Owen, Cowan, Mr Laskie and to Ms Hale.[1224] A copy of the email was also forwarded to Mr Snowball and Mr Geary later that same day and then by Mr Geary to Ms Scales and Mr Richardson on 31 May 2000.[1225]
17.65 Whilst Mr Geary admitted that the paragraphs numbered 3) and 4) in this email indicated that the Iraqi Minister was controlling the availability of trucks at Umm Qasr[1226], he denied that these paragraphs indicated this to him at the time he received the email.[1227] He could not recall reading the email.[1228] In any event he said that this was a matter for International Sales and Marketing[1229] and the AWB Pool.[1230]
17.66 On 31 May 2000, the AWB delegation met with the Director General of IGB, Mr Abdul-Rahman, Ms Moona, Dr Obeidy, a technical representative and a representative from Engineering.[1231] The former Director General of IGB, Mr Zuhair Daoud, also met with the delegation later in the day.
17.67 Mr Emons and Mr Watson sent an email to Mr Officer on 1 June 2000 (the day after the meetings) reporting on their outcome.[1232] A copy of that email is reproduced as Figure 16.1 in Appendix 16.
17.68 Mr Emons also subsequently prepared a file note dated 13 June 2000 reporting on his discussions with IGB during these meetings on 31 May 2000.[1233] A copy of that file note is reproduced as Figure 16.2 in Appendix 16. Mr Emons said that, upon his return to Australia, he gave a copy of this file note to Mr Officer.[1234]
17.69 According to Mr Emons' file note of 13 June 2000, the purpose of this visit to Iraq and the meetings with IGB was:
1. To discuss/resolve ongoing discharge problems at Umm Qasr.
2. Discuss future needs (Phase 8) under UN Food for Oil program.[1235]
In relation to the first of these topics, Mr Emons and Mr Watson noted in their email to Mr Officer that the:
IGB fully acknowledge the build up of vessels at Umm Qasr and delay being incurred and have advised as follows to the reasons why this has occurred.[1236]
The email then listed a number of reasons for the delays.
17.70 It is apparent from the reports of these meetings with IGB that there were two principal causes for the delays.
17.71 In their email, Messrs Emons and Watson observed that the anticipated average discharge rate for each of the four berths at Umm Qasr was not currently being achieved due to:
a) lack of spare parts
b) lack of maintenance
c) damage to 4th arm of silo berth.[1238]
17.72 In his file note of 13 June 2000, Mr Emons wrote:
During the first round of meetings AWB highlighted the sudden downturn in discharge rates at Umm Qasr. In reply IGB admitted that the discharge rate had been effected significantly by damage to the 4th gantry of the silo. After further discussion it was admitted that maintenance and spare parts for the Vigan vacuators was causing further delays. IGB highlighted that they had placed an order before the UN for the supply of 4 permanent and 12 mobile vacuators but this had been delayed/refused by the UN.
…..
AWB also undertook to seek clarification through AWB New York of the reasons for the delay in approval of the discharging equipment.[1239]
17.73 In their email of 1 June 2000, Messrs Emons and Watson reported on a number of matters associated with the provision of equipment to the IGB. They recorded:
In relation to the last point, Messrs Emons and Watson reported that the Director General of IGB (Mr Abdul-Rahman) had:
personally taken charge and will be visiting Umm Qasr on weekly basis at the instruction of the Minister to ensure ongoing action.[1246]
17.74 During these meetings, AWB's assistance was also sought by IGB in supplying bobcats to assist in discharge operations.[1247] AWB agreed to this request[1248] and, as has already been observed, substituted the bobcats for vacuvators that it had been earlier considering as a donation.
17.75 Neither the email from Messrs Emons and Watson of 1 June 2000 nor Mr Emons' subsequent file note of 13 June 2000 record that there was any suggestion made in the course of their meetings with IGB in May 2000 that the reduced rates of discharge then being experienced at Umm Qasr were in any way attributable to a lack of trucks or transportation to remove the cargo from the berth.
Indeed, their email of 1 June 2000 was to the contrary. In it, Messrs Emons and Watson reported that:
Trucks are available to met increased discharge rate.[1249]
This becomes of significance when considering the evidence of Mr Stott.
17.76 During these meetings with IGB, there was also a discussion about possible compensation or reimbursement to AWB of the increased demurrage being experienced at that time.
17.77 In their email of 1 June 2000, Messrs Emons and Watson wrote:
IGB fully prepared to assist in some form of compensation in future contracts, either by reduction of trucking fee or increase in prices and have asked for supply of a further 1 million tons.[1250] [emphasis added]
17.78 Mr Emons addressed this topic in more detail in his file note dated 13 June 2000:
During discussion with IGB the AWB proposed that a method of recovering the cost of demurrage would be to hold part or all of the trucking fee or as an alternative there could be a reduction for future contracts. Discussion to a degree took place however it was clear that the option of AWB holding part or all of the trucking fee would not be acceptable to the Minister (and therefore the Regime). It became clear that there was some confusion in the IGB as to the amount of trucking due, with explanations that the rate on the AWB contracts was different to that charged to some Russians, Thai and Algerian companies. Comment was made that the Minister had proposed to increase the trucking fee to USD 18 per tonne for phase 8 contracts but at the time of the meeting no approval had been received from the President.
The former Director General for IGB and now advisor to the Minister Salah Dr Zuhair joined us for lunch. He had been well briefed prior to joining us from his immediate comments on the discharge problems. He opened with the comment that although the AWB was suffering some immediate problems which was recognised by Iraq we had enjoyed periods of considerable earnings of dispatch. His comment on Trucking cost, made privately away from the main group as we departed the restaurant, was that he had advised the Minister to consider reducing costs but if this did occur there could be a considerable increase in the costs of the 'after sales service' required.[1251] [emphasis added]
17.79 It is apparent from these two documents that it was well understood by each of Mr Watson and Mr Emons that the so called 'trucking fee' was a guise for fees payable to Iraq. Both documents spoke of compensation to AWB for future delays in discharge being met by 'reduction of trucking fees or increases in prices'. The former option would not be possible if the trucking fees were the true cost of trucking. Nor would it be possible if the fee was a genuine fee negotiated with and paid to the supposed trucking company in Jordan, Alia. Similarly, Mr Emons' note that Dr Zuhair's 'comment on Trucking cost… was that he had advised the Minister to consider reducing costs but if this did occur there could be a considerable increase in the costs of the 'after sales service' required' is explicable only on the basis of an understanding that each of the 'trucking fees' and 'after sales service costs' were methods of paying funds or providing goods to Iraq.
17.80 Mr Emons' references (within the extract from his file note quoted above) to the confusion in IGB as to the amount of the trucking fees due by AWB, to the potentially different rates charged to Russian, Thai and Algerian companies from the fees paid by AWB and to the purposed increase in the trucking fee which was at that time still awaiting the approval of the President further demonstrate that the inland transportation fee ('trucking fee') was an Iraqi levy not related to the cost of transport.
17.81 Upon his return to Melbourne, Mr Watson prepared a memorandum dated 13 June 2000 dealing with the issue of increased demurrage including his meetings in Iraq in May. The report was addressed to Mr Geary, Ms Scales, Mr Richardson and Mr Emons. It was copied to Mr Beaumont.[1252]
17.82 In his memorandum, Mr Watson referred to the delays caused by the introduction of testing procedures for cargoes at the discharge berth (3 to 5 days), fumigation and the absence of phostoxin tablets on board many vessels[1253], and that:
Discharge rates at Umm Qasr adversely effected due to lack of maintenance, spares, damage to silo berth and lack of equipment.[1254]
He concluded that:
Significant demurrage expense has been incurred to date and is further projected on [deleted] mt.
Demurrage has been incurred mainly due to a result of testing procedures and fumigation required by the Receivers due to their concern over cargo quality related issues. This has resulted in delay and has had a compounding effect on other vessels which regardless of cargo issues or not.[1255]
Later in the memorandum, he also concluded:
1) The discharge rates at Umm Qasr have been adversely effected due
- lack of maintenance, lack of spares and lack of equipment
- change in Director General and Management team at IGB
- introduction of new testing procedures
- fumigation
- lack of cargo at the front end of the shipping program
- delay in restarting shipments, resulting in bunching
- Cargo only being shipped from the South and East of Australian Ports
All the above contribute to the current demurrage expense.[1256]
17.83 Mr Watson summarised the action that had been taken to date in relation to these delays and reduced rates of discharge:
Action to date
- Appointment of protective agent at Umm Qasr to oversee and report on actual facts at the port.
- Agent to also assist with Cotechna to process delivery documents for expedient payment to AWB
- Testing of cargo now conducted at anchor, whilst waiting for berth
- Change in fumigation process at load port, to kill eggs. Results not yet known
- Fumigation, where required to be conducted at the anchor, whilst waiting for berth, where feasible and provided phostoxin onboard
- System now in place [to] ensure that all vessel's sail with phostoxin tablets on board
- Shipping program slowed to allow backlog of vessels to complete discharge
- AWB exploring prospect of providing spare parts and supplying other equipment, including the hire of mobile vacuvators to assist in increasing discharge rates at Umm Qasr.[1257]
17.84 Again, there was no suggestion within this memorandum that any of the delays that were being experienced with the discharge of cargoes at Umm Qasr at this time were in any way attributable to a lack of trucks or transportation at the port to receive the cargo.
17.85 One of the topics that was discussed during the AWB delegation's visit to Iraq in May 2000 was 'after sales service'.
Indeed, the issue was raised by IGB shortly prior to the arrival of Mr Emons and Mr Watson in Iraq, in a telex from Mr Abdul-Rahman to AWB dated 25 May 2000. It was headed 'After Sale Service' and expressed hope that AWB would be cooperative with IGB in facilitating and developing the work of IGB by supplying a '[bobcat] for Umm Qasser silo'.[1258]
17.86 In his email to Mr Officer from Iraq on 29 May 2000[1259], Mr Watson included amongst the current issues:
- AWB has been approached by IGB to provide 'after sales service'[1260]
Under the heading 'Current Action Plan', Mr Watson also included amongst the matters requiring attention:
- Determine what 'after sales service required' i.e. equipment/cash (Board approval may be required for this)[1261]
17.87 In their email report of 1 June 2000, Mr Emons and Mr Watson recounted the substance of their discussions regarding spare parts, in the terms that have already been examined.[1262] As a consequence of those discussions, AWB also changed its earlier proposal to donate Grain Vacs to a donation of eight bobcats.
Before the arrangements to substitute the bobcats for the Grain Vacs could be concluded, AWB received a telex from IGB on 27 June 2000 stating:
WE CONFIRM OUR PREVIOUS TLXS AS WE ARE STILL WAITING ADVISE US SHIPMENT POSITION OF A.M LAB. EQUIPMENT.[1263]
17.88 Mr Borlase replied by facsimile that day. He referred to AWB's agreement to provide equipment to IGB to assist in the discharge process in the following terms:
Laboratory & Bobcat Equipment
AWB is currently in the process of organising laboratory equipment to further assist IGB in testing all future wheat cargos of all origins.
AWB have also ordered bobcats to be placed upon the next available vessel leaving Australia, which we anticipate will speed up the discharging process resulting in quicker supply of wheat to people of Iraq. The application to export the bobcat is presently with United Nations. We expect to have UN approval by the end of this week with permission to export documentation following.[1264]
17.89 The following day, 28 June 2000, Mr Matheson[1265] sent an e-mail to Mr Emons confirming he had acquired the required laboratory equipment and requested written authority to send it to Jordan.[1266]
17.90 On 30 June 2000, Mr Hart, a chemist with Agrifood Technology, a subsidiary of AWB, sent an email to Mr Hogan stating that AWB had not provided any equipment to IGB for microbiological testing yet, however $20,500 worth of equipment had been purchased and this equipment was waiting to be sent to Iraq.[1267] Mr Hart noted that
there is currently some concern surrounding this equipment in so far as it almost certainly contravenes UN restrictions.[1268]
Mr Hogan wrote a note on a hard copy of this email:
How do we get equipment in. I assume reagents are problem. Speak with IGB regarding this issue.[1269]
17.91 Mr Hart took some of the equipment with him and gave it to IGB when he visited Iraq in July 2000.[1270] Some of the remaining equipment could be used for micro biological procedures and AWB did not wish to send it without approval.
17.92 On 30 June 2000, Mr Borlase sent a facsimile to Mr Grenenger at DFAT:
Since our last correspondence we have had some minor changes to our pending donation of Grain Vacs. The Grain Board of Iraq have now indicated the discharging process at Umm Qasr would be better served by using Bobcats instead of Grain Vacs.
…..
To assist in the discharging process AWB like to take the action of donating 8 Bobcats which will be utilised at Umm Qasr and in particular for the purpose of moving wheat in the bottom of the ships hull resulting in a more rapid discharge.[1271]
17.93 The cost to AWB of this donation was still $257,272 or $32,159 per piece of equipment. This was the same figure that had been given in Mr Borlase's earlier facsimile to DFAT of 11 May 2000, despite the fact that the equipment being donated had changed from Grain Vacs to bobcats.
17.94 Mr Borlase again sought the assistance of DFAT in the provision of an export permit or verification with the relevant authorities that AWB was able to export the bobcats to Iraq. Mr Grenenger was advised that AWB intended to load this machinery over an eight week period 'which coordinates with the next available vessels in our Iraq shipping program'.[1272] Mr Borlase concluded:
It would be appreciated if the situation could be expedited as Grain Board of Iraq has expressed genuine concern at discharge rates at Umm Qasr consequently affecting distribution of food to the people of Iraq.[1273]
17.95 Following receipt of Mr Borlase's facsimile of 30 June 2000, Ms Penny Holliday from the Australian Mission to the United Nations sent a facsimile to Mr Verne Kulyk in the United Nations Office of the Iraq Programme (OIP) advising that AWB wished to withdraw its application to donate grain vacs and that in consultation with IGB, AWB had decided to donate eight bobcats.[1274] Ms Holiday concluded her facsimile by seeking the OIP's advice on how to proceed with the application.
17.96 On 4 July 2000, Mr Borlase circulated widely within AWB[1275] an email headed 'Iraq Update'[1276] which in which he noted:
Donation of 8 bobcats currently with UN. New York office trying to get answer from US. MED liasing with DFAT. Bobcats will hopefully speed up discharge .[1277]
17.97 On 24 July 2000, Mr Borlase sent an email to Mr Hogan:
We are donating $20k of laboratory equipment, however need UN approval. I haven't approached DFAT or UN for this to date as waiting to get approval for Bobcats first before hammering them on Lab equipment.[1278]
17.98 In the meantime, in June 2000, part of a shipment of wheat on board the Pacific Champ was rejected by Iraq part way through its discharge at Umm Qasr, as a result of concerns as to its quality. Initially e-coli was said to have been detected in the wheat in two of the vessel's holds.[1279] It was later said that the portion of the shipment was rejected because of concerns about the quality of the wheat, the Iraqis having discovered fungal stained grain and black point.[1280] Under the terms of the contract between the AWB and IGB, the wheat was to be free of fungus and insect infestations.[1281]
17.99 The rejection of part of this shipment gave rise to a number of problems for AWB. The remaining wheat on board the vessel could not be discharged in Iraq. In her then condition, the vessel was not able to sail beyond the Gulf. Accordingly, an alternate market had to be found for the sale of this wheat in the Gulf. AWB was also concerned about its reputation.
17.100 This incident gave rise to concerns within AWB as to the terms of its contracts with IGB and whether they could be changed. For instance, on 10 July 2000 Ms Scales wrote in an email addressed to Mr Jones the following comment directed to Mr Snowball:
We cannot continue to do business into Iraq under current cak terms and conditions i.e. quality/weights final at discharge port … (standard grain trade terms are: quality/weight final at load port) … Surely, we can get the UN to change the terms and conditions to Load port … or get UN inspectors based in Australia stamping each vsl or get Iraq inspectors in Australia etc etc …
Anyway plenty to talk about with the UN Head honchos.[1282]
Mr Snowball took up these concerns up with the Australian Mission to the United Nations in an attempt to enlist the Mission's assistance in addressing these issues with the United Nations Office of the Iraq Programme.[1283]
17.101 This incident also raised the possibility of similar quality results occurring in relation to other shipments of wheat (including those that had already left Australia and from the same sources as this shipment), and the need for a strategy if a claim like this occurred again in the future.[1284]
17.102 On 10 July 2000, Mr Jones addressed the issues raised by Ms Scales in an email he sent to Mr Geary and Ms Scales and headed 'Iraq'. He wrote:
With the Iraq issues still brewing AWB(I) highlights the following as those requiring resolve.[1285]
There was then listed eleven points under the heading 'Short Term (Current Contract)' and a further three points under the heading 'Long Term (any future contracts)'.
Apart from reference to the recent shipment that had been rejected in part for quality concerns, the short term issues listed by Mr Jones included:
4. Protective Agent: Please provide details of the protective agent in Iraq and who is managing the internal freight logistics.
5. Ronly: What is Ronly Holdings involvement in the process i.e. chartering services
6. Demurrage: Vessel delays are causing huge demurrage bills thereby reducing the attractiveness of the market. In the short term we need to work out a solution that ensures vessels are discharged.[1286]
When asked whether he had ever received a reply to question 4 above Mr Jones said:
A: I was told that Alia was responsible for delivering the grain to all governorates of Iraq after delivery by the vessel.
Q: Who told you that?
A: Well, I can't-it is that long ago I can't specifically remember, but it would have been somebody in marketing, potentially Charles Stott or Dominic Hogan or maybe someone from the pool, like Sarah Scales or maybe even Peter Geary.[1287]
17.103 Amongst the long term issues listed by Mr Jones was:
3. The dem/des [demurrage/despatch] term in the contract also may need reviewing.[1288]
17.104 Mr Jones concluded his email with some suggestions:
We need to resolve the current contract issues as a matter of urgency and before we begin to negotiate any further contracts. Once the current issues have been resolved the terms that we sell to Iraq will need to be reviewed prior to writing further contracts.
AWB should have the upper hand into this market, so lets position ourselves to ensure we don't lose our power.
Please provide your strategy for the short term and long term as soon as possible.[1289]
Accompanying Mr Jones' email was a copy of Mr Borlase's market brief.[1290]
17.105 Amongst the topics addressed in that market brief was 'Demurrage and Discharge'.[1291]
Since February 2000 AWB has scheduled a comprehensive shipping program to meet contractual requirements. The maximum discharge rate achieved at Umm Qasr over a period of time is about 14,000 tonnes per day over 4 berths. As a result of the discharge rate vessels have bunched at discharge port with AWB incurring considerable demurrage. Contracts with IGB do not have a clause that covers dispatch or demurrage.
Complicating the discharge rate is most vessels are tested at the pilot station and retested again on the berth. Samples are tested in Baghdad hence delays often occur whilst waiting for results.[1292]
17.106 A number of issues were listed under the heading 'Summary of Issues' in this market brief. These included the rejection of part of the recent shipment and the possibility both of this re-occurring on other vessels which have similar quality grain and future shipments. They also included the method of testing 'at the pilot station and again at berth where vessels stay until results returned from Baghdad delaying discharge'. Under this heading the market brief recorded:
17.107 The inland transportation fee was also identified as an issue under this heading in the market brief. This was in the following terms:
The emphasised words in the passage above, particularly the reference to the 'current mechanism of payment', betray an understanding that the 'trucking fee' was not a payment to the trucking company for services, but rather a payment to IGB 'via transport company/s in Jordan'.
17.108 Ms Scales acknowledged this in her evidence concerning this market brief:
Q: Would you have read that?
A: Possibly, yes.
Q: It is likely you would have read it, isn't it?
A: Yes-the brief, yes.
Q: Well, you will recall the earlier email from Mr Hogan speaking of the problem in terms of finding a mechanism for payment, and this now speaks of a current mechanism of payment being via transport companies in Jordan?
A: Yes.
Q: This reinforces, doesn't it, the strong inference that these transport fees were actually being paid to the IGB?
A: Well, yes, on the face of it, it does.[1295]
17.109 Mr Borlase, the author of that document, also reluctantly acknowledged that this inference could be drawn from the documents.[1296] By June 2000, he was aware that the mechanism for payment of the trucking fee to IGB was via the transport company in Jordan.[1297] He learned this in general discussion around the marketing desk and correspondence (including telexes) that he had seen from IGB in late 1999 or the beginning of 2000.[1298] Although Mr Borlase suggested in his evidence that at the time he did not appreciate that the inland transportation fees paid by AWB were being received by Iraqis-and that he did not have knowledge of this until his February 2001 trip-that evidence is not accepted. He knew that IGB was setting the fee.[1299] In December 1999, he had prepared the contracts with Savas Grain & Commodities Limited and Commodity Specialists Company which expressly provided in clause 6 for the payment by AWB of US$12 per tonne inland transportation fee to 'Grain Board of Iraq advised account'.[1300] He was also aware of AWB's use of Ronly, in particular that it was 'used a conduit to pay the trucking component'.[1301] He did not ask why it was used. He was not told why. Mr Borlase conceded that it seemed odd with the benefit of hindsight, but said that he did not think it odd at the time; he put this down to his inexperience at that time.[1302]
17.110 Mr Geary could not recall Mr Jones' email or the market brief attached to it; nor could he recall providing any response to Mr Jones.[1303] He also denied understanding in 2000 that the inland transportation fee was fixed by IGB.[1304] This evidence can not be accepted. It is likely that Mr Geary read the email and the attached market brief and would have therefore appreciated that the inland transportation fee was a payment to Iraq. This email not only raised important issues concerning the operation of the Pool (for which Mr Geary was then responsible) but also sought from the addressees their short term and long term strategies for resolving 'current contract issues' which Mr Jones thought needed urgent resolution. It is unlikely that Mr Geary would have ignored so explicit a request for information. Indeed, Mr Geary acknowledged that he would have looked at matters that might be relevant the national Pool.[1305] Further, the terms of the email were clear. The emphasised passage quoted earlier did not refer to Alia setting the 'trucking fee' but characterised Alia as being only the 'current mechanism' for the payment of that fee. In this context, the reference to IGB foreshadowing a reduction in the inland transportation fee plainly indicated that it was IGB who in fact determined the amount of that fee. Lastly, Mr Geary was a poor witness and his evidence should be treated with caution unless contrary to his interest or independently confirmed. Mr Geary had also previously read on 24 June 1999[1306] Mr Hogan's trip report[1307] which indicated that a possible method of payment of the inland transportation fees was via ship owners. That report indicated that United Nations sanctions would be breached, which of course would only be so if the fee was a payment to Iraq.[1308]
17.111 On 10 July 2000, following receipt of Ms Scales' email of that date, Mr Snowball contacted Ms Moules at the Australian Mission to discuss IGB's rejection of part of the shipment from the Pacific Champ. Mr Snowball advised that AWB was treating the matter very seriously and that a team from AWB was visiting Iraq to discuss the matter with IGB representatives in an effort to reverse IGB's decision that part of this shipment was unfit for consumption. Mr Snowball asked if the United Nations could do anything to pressure Iraq to accept the wheat.
17.112 Later that day, Ms Moules sent a cable to DFAT referring to Mr Snowball's approach and the issues raised by him. Ms Moules noted:
In response to AWB's queries we have explained that there is little the UN can do in cases where Iraqi purchasers do not accept goods (even when repeat tests by the UN's independent inspection agents show the goods as being fit for consumption), but that consideration could be given to the Australian government's Registering concern with Iraq over this latest development.
…
Snowball accepted the limitations on the capacity of the UN and Australian government to change the GBI's decision, but asked that the Australian government do all it could to assist. He commented that if a trend were to develop whereby AWB's shipments to Iraq were routinely rejected AWB might have to reconsider whether the risks involved in trading under the Oil-for-Food Program made such trade worthwhile, noting that the Canadian Wheat Board had 'had its fingers burnt'.
4. Snowball then asked if the UN or the Australian Government could provide assistance with some difficulties AWB was having with the terms and conditions of its contracts with the GBI. Snowball said that the terms and conditions (which we understand have been the basis for the AWB/GBI contracts at least since the beginning of AWB's trade with Iraq under the Oil-for-Food Program) 'clearly favoured Iraq', and AWB wanted to try to re-negotiate these terms. He asked if the UN Secretariat could bring pressure to bear on Iraq to change the terms and conditions. We explained the neither the UN nor the Australian Government could get involved in this aspect of trade under the Oil-for-Food Program. Negotiation of contracts was a commercial matter between suppliers and Iraqi purchasers.[1309]
17.113 Following his conversation with Ms Moules, Mr Snowball reported to Ms Scales in an email dated 11 July 2000:
The UN's stance on this oil for food program is: Iraq agrees to a contract for supply of wheat from Australia. This is a commercial agreement and has no involvement from UN. UN will not arbitrate/influence the terms and conditions of the contract as long as there is no threat of the oil money being used for things like purchasing weapons. The UN secretariat has a responsibility to execute the Oil for Food programme, but their role is centred around ensuring the goods Iraq purchases are for humanitarian food/medicine and that there are funds from the sale of oil to pay for the goods. An important part of this is inspection of goods at specific points of entry into Iraq.
UN is not permitted to operate an inspection procedure at loadport under the current oil for food program.
UN has inspected/tested the Pacific Champ twice and both times has confirmed the wheat is fit for human consumption. However Iraq has decided the remaining tonnage cannot be accepted. The UN can not force Iraq to accept the wheat. Iraq can take the vessel off the berth, UN have no control over this. The vessel can come and go from Umm Qasr without UN control.
Iraq is in total control here. Unfortunately, I think the only influence AWB may have with the UN is at a policy level with the UN Security Council via the Australian Government. I have spoken to the UN mission today and they will be following this up with Canberra again. The UN do not want to see the Oil for Food Program fail, so it will be in their best interests to encourage Australian wheat supply wherever possible. The UN knows there is no quality issue, and that Iraq is only playing games to attempt to force the eventual removal of sanctions.
AWB as a supplier should have some leverage given that the Iraqi's have to come to us for the bulk of their wheat supply (refer Stu's comments).
AWB has put contract terms and conditions in place with Iraq, and the responsibility rests with AWB to change them. AWB is the only supplier bending to Iraq's needs. Stu has also provided some information on Tradigrain's use of SGS for inspection.[1310]
17.114 On 11 July 2000 Ms Moules sent an email to Mr Greneger at DFAT advising that Mr Snowball had telephoned her again that morning to ask if she had a response to AWB's request for Australian Government assistance in addressing the Iraqi rejection of AWB wheat-'a rather eager follow up call given that he'd only made the request yesterday'. Ms Moules reported:
I asked Snowball if he could clarify whether AWB wanted the Australian Government to raise with Iraq specifically the issue of GBI's rejection of wheat, noting that this appeared to differ from AWB's past preferences for dealing with the Iraqi authorities. Snowball said he would check on this and get back to me.[1311]
17.115 Due to the seriousness of IGB's claims of contamination of part of the Pacific Champ shipment and the problems that this was causing, AWB proposed that a technical and marketing delegation be sent to Baghdad immediately to discuss quality issues with IGB's technical staff. That proposal was conveyed by Mr Borlase in a facsimile to Mr Abdul-Rahman on 27 June 2000.[1312] Mr Borlase proposed that Mr Hogan and Mr Hart would travel to Iraq for this purpose.
17.116 The visit took place in mid July 2000. A 'team' comprising Mr Hogan, Mr Hart, Mr McCullum and Mr Watson travelled to Iraq and met with the Minister, Mr Abdul-Rahman, Mr Daoud and various technical personnel.[1313]
17.117 On 17 July 2000, Mr Watson sent an email to Mr Rowland reporting on the outcome of the visit.[1314] The email was circulated by Mr Rowland to Messrs Geary, Stott, Beaumont, Lister, Tyas, Jones and Gomersall, Ms Scales and the 'Middle East Account Managers' later that day.[1315] A copy of that email is reproduced as Figure 16.3 in Appendix 16.
17.118 The purpose of the meeting was, according to Mr Watson's report:
- Discuss various technical issues relating to quality of cargo
- testing procedure of cargo
- rejection of 14,000 mt loaded on board Pacific Champ
- Chartering issues, relating to discharge rates/balance of shipments under current phase/equipment at discharge port
- If feasible travel to Umm Qasr to see the port.[1316]
17.119 In relation to delays, Mr Watson reported that 4 berths were currently in use for AWB vessels and:
- silo berth being dredged to increase depth at berth to excess 12 m, maintenance work being carried out to increase discharge rate to excess 10,000 per day, hoping to achieve about 12,000 mt p/day. Silo berth expected to be operational on/about 20 July.
- 5 berth being activated, as yet no discharge equipment available and order has already been placed to Vigan for equipment, UN approval required for the purchase.[1317]
17.120 During this trip, Mr Hogan and Mr Watson were able to travel to Umm Qasr and visit the port. Mr Watson reported his observations of the discharge of a vessel:
- Mobile vacuvators used on each of the vessels, 6 vacuvators for each vessel, discharging 3 holds
- Vacuvators of small type and look in need of repairs
- Discharge rate slows at cargo is reduced in each hold, and very slow when about 2000 mt left in the hold as necessary for cargo to be manually shovelled into the centre of the holds, hence need for bobcats to assist in moving the cargo into the centre of holds.[1318]
Mr Watson concluded his report:
Conclusion
- Equipment is an issue and the ongoing maintenance/spares etc.
- Sample collection and testing thereof, needs to be reviewed as clearly this does have an impact on discharging terms
- hatch sealing tape needs to be placed on each vessel at load port together with phostoxin tablets
- Fumigation procedure needs to be reviewed as potential loss of 6 days at discharge port, due to need to fumigate, this may improve once weather in Iraq becomes cooler
- Bob cats should be sent soonest to assist discharge operation[1319]
17.121 Mr Hogan's evidence was to similar effect. According to Mr Hogan, during this trip, he identified four issues in relation the discharge of grain at Iraq and that were causing delays.[1320] These were the outdated equipment at the port; the difficulty in cleaning the hatch bottoms (the offer of bobcats was an attempt to ameliorate this issue); the testing of the grain; and the discovery of infestations of the wheat and the consequences of dealing with them.[1321]
17.122 Lack of trucks was not a cause of the delays to discharge. Based on his observations during his visit to Umm Qasr, Mr Watson reported:
- No shortage of trucks apparent, around 1000 trucks waiting at the port
- railway also in use.[1322]
Similarly, Mr Hogan did not attribute any delays at this time to a lack of trucks.[1323]
17.123 On 20 July 2000, Ms Holliday from the Australian Mission to the United Nations sent an email to Messrs Bowker and Cuddihy at DFAT, copied to Ms Moules notifying them that the Mission had been informed that AWB's proposed donation of eight bobcats had been approved by the United Nations.[1324] Ms Moules subsequently sent a message to Messrs Bowker and Cuddihy stating that the approval notice should be received within the week and that AWB should be able to move forward with their preparations to ship the bobcats.[1325]
17.124 On 21 July 2000, Mr Cuddihy faxed Mr Borlase attaching an email from the Australian Mission stating that DFAT could not issue a permission to export prior to seeing the actual approval paperwork from the Office of Iraq Programme (OIP).
17.125 On 28 July 2000, the OIP issued an approval notice in respect of the bobcats. This was tied to an existing UN approval of an earlier wheat contract (contract A4972).[1326] That approval earlier was to expire on 31 August 2000 (as would the approval for the bobcats). There was a concern within AWB that this did not leave enough time to ship the bobcats to Iraq and that an extension of the approval expiry date may be required. Ms Moules faxed the approval documents to Mr Snowball.[1327]
17.126 On 30 July 2000, Mr Cuddihy emailed Ms Moules, Mr Bowker and Ms Holliday in relation to the likelihood of AWB seeking an extension from the United Nations in relation to the shipment of bobcats. He informed them that AWB was considering applying for an extension and that:
Based on their assumption that the 30 August deadline refers to the bill of lading date, rather than the date of delivery, they think they will have enough time to complete the shipment. However, they'll get back to me tomorrow if they change their mind.
…
I'm inclined to agree that we should apply for an extension regardless, but I guess we have to be guided by what the AWB want.[1328]
17.127 On 31 July 2000, Mr Borlase faxed Mr Cuddihy attaching the UN approval documents and requested a Permission to Export for the eight bobcats.[1329] Later that day, DFAT issued a permission to export the eight bobcats to Iraq before 31 August 2000.[1330]
17.128 On 2 August 2000, Ms Moules sent a letter to Ms Johnston at the OIP seeking an extension of the UN approval for the export of the bobcats.[1331]
17.129 On 9 August 2000, the bobcats were shipped on board an AWB chartered vessel which was also loaded with wheat bound for Iraq.[1332] On 14 August 2000, Mr Hogan informed IGB in a facsimile that the bobcats had been loaded and shipped and were expected to arrive Umm Qasr by 3 September 2000.[1333]
17.130 On 4 September 2000, Mr Hogan sent an email to Mr Snowball informing him that the vessel on which the bobcats had been loaded had arrived in the Gulf but had not been permitted to berth as the inspectors at MIS stated that the eight bobcats on board did not have a United Nations approval certificate. Mr Hogan asked Mr Snowball to 'contact the UN mission and get this vessel accepted'.[1334]
17.131 On 5 September 2000, Mr Alexander of AWB sent a facsimile to the master of the vessel on which the bobcats were loaded attaching the United Nations approval certificate in relation to wheat, phostoxin FOC and eight bobcats aboard his vessel.[1335]
17.132 The bobcats were eventually delivered to IGB in September 2000. In an email dated 10 May 2001 in which Mr Hogan reported on discussions he had recently had in Iraq, he observed:
Bobcats Being used-very appreciative and increasing discharge times.[1336]
17.133 The concern within AWB in relation to the increasing demurrage and the financial effect of this is recorded in the Chief Financial Officer's report within the Minutes of the Executive Management Group Meeting for 18 July 2000.[1337]
This month Chartering has raised an additional provision of AUD $4.0M (bringing the total provision to AUD$6.0M) in relation to demurrage expenses associated with the Iraqi shipment program. Chartering has reached an interim resolution with AWB(I) whereby AWB(I)'s exposure would be capped at USD$6.9M. Total forecast demurrage expenses are currently AUD$13.9M. An assessment will be made during the month on whether Chartering needs to take up the additional AUD$1.0M shortfall
….
PJI [Mr Ingleby] stated that Chartering need to review their numbers as they don't seem to know what they are doing re costs etc. PG [Mr Geary] stated that poor risk management has added to the significant problems with Iraq. PJI stated that Chartering was the biggest problem-not looking financially healthy. PJI stated he would be meeting with Michael Watson re his recent visit to Iraq-Michael Watson was writing a report on this visit. There were also significant contract execution issues that need to be addressed. RB stated a new system was coming on line which should assist in improving processes in Chartering. AL stated that AWB should consider commissioning Arthur Andersen to review Chartering and put forward recommendations for improving this section of the company. PJI to give this review due consideration and discuss this with relevant personnel.[1338]
17.134 There was also recorded in those Minutes under the heading Commercial Operations Report:
Chartering-Michael Watson was currently in Iraq and would be going to the port in the next few days to identify and hopefully resolve the issues. A report will be provided at the Board meeting.
….
Ronly-A meeting with Ronly is due to be held on 18th July. AL and RB stated there have been significant changes and this now no longer appears to fit with AWB's global strategy. The deal has also changed from what it was originally and this is a JV from which AWB would appear not to be make a profit.[1339]
17.135 The reference to 'Ronly' in the foregoing passage was a reference to discussions that AWB had entered into with Ronly Holdings Limited (Ronly), a grain trader based in England, with a view to the establishment of a joint venture. Ronly was also at that time assisting AWB by acting (through its Liechtenstein nominee, Tse Yu Hong Metal Limited) as a conduit for the payment of inland transportation fees to Alia on AWB's behalf. This use of this method for the payment of inland transportation fees and the circumstances in which it came to an end are discussed in more detail in Chapter 18.
17.136 Mr Stott also provided an update on Iraq Shipping at this meeting, which was reported in the following terms:
CS reported on problems/issues re the Iraq shipping situation after which discussions took place on same.
Some of the problems associated with this include: over-estimated production rate at discharge port (27,000 but actual 14,000); quality problem. Some of the solutions include: representation was made to the Minister on Pacific Champ (unsuccessful)-the vessel was rejected and sold as distressed cargo to Sharja ; SWAT team in Iraq to resolve the situation. Rex Lister's managing the program on a go forward basis; written confirmations between groups re who is doing what, when and how etc. ; dem/des accruals/provisions in accounts ; manage the situation.[1340]
17.137 At the same meeting Mr Stott reported on his proposed new structure for International Marketing. Following a discussion at the meeting this new structure was approved.[1341]
17.138 On 31 July 2000, Mr Stott sent an email to Mr Snowball (copied to others within AWB) in which he wrote:
We need to have a chat about Iraq. We have a number of contractual problems that need to be sorted and many of these involve the UN. For example:
The Iraq contractual arrangements have got to the stage where they are almost inoperative and we urgently need to fix them. Let's discuss tactics, before we talk to any external parties. Suggest we urgently arrange a phone hook up to discuss.[1342]
17.139 The second dot point makes clear that Mr Stott was aware of restrictions on the payment of moneys to Iraq.
17.140 The observation in relation to AWB having to finance the freight on shipment until it was paid from the proceeds of the sale of the wheat applied equally to the inland transportation fees that AWB was at that time paying before the cargo had been discharged, and which AWB or the AWB Pool was having to fund until such time as the proceeds of the sale of the shipment were received under the letter of credit drawn on the United Nations escrow account.
17.141 The possibility of AWB maintaining a despatch/demurrage account with IGB mentioned in the second dot point of Mr Stott's email of 31 July 2000 was subsequently taken up by AWB with DFAT. This topic has already been briefly touched upon in Chapter 12.
17.142 On 7 August 2000, Mr Hogan sent a facsimile to Mr Bowker (at DFAT)[1343] in which he advised Mr Bowker that AWB was in the process of reviewing its wheat contracts with Iraq and had identified several conditions which were non commercial and hindering its ability to conduct cost effective business with Iraq. Mr Hogan continued:
Consequently, we would like to investigate the possibility of changing several terms, and we seek your advice as to whether these changes would be accepted by the United Nations.[1344]
The particular terms sought to be changed were those identified by Mr Stott in his email to Mr Snowball.[1345] These included a desire to change the contract terms to 'weight and quality final at load port', as per international trading terms and conditions. They also included the reintroduction of despatch and demurrage. Mr Hogan wrote:
Iraq does not guarantee discharge rates at Umm Qaser, nor do they pay demurrage/dispatch at the discharge port. The despatch/demurrage condition has been removed due to the sanctions, whereby direct payments to Iraq are no longer possible. The commercial implications of a 'no despatch/no demurrage' contract is that Iraq have no requirement or incentive to discharge vessels in a timely and efficient manner, and consequently AWB Limited is incurring substantial demurrage bills.
AWB Limited would like to reintroduce despatch and demurrage into the Iraq contract. Any despatch earned by Iraq could be held in an account controlled by AWB Limited, and these funds could be utilised annually to supply grain handling equipment and technical training.[1346] [emphasis added]
Mr Hogan also stated that AWB would like to submit only one contract signed by both the seller and buyer to the United Nations, rather than the then existing arrangement of submitting a contract from each of the seller and buyer with inconsistent terms. He stated that 'The UN 986 procedures, require the submission of a separate contract from each party.'[1347]
Mr Hogan's facsimile followed a conversation that he had had with Mr Bowker that afternoon. According to Mr Hogan, he had discussed the demurrage/despatch issue in that conversation.[1348] Mr Hogan is also likely to have informed Mr Bowker in that conversation that AWB was looking to negotiate with IGB.[1349]
17.143 Whilst Mr Bowker had no recollection of having received the facsimile from Mr Hogan, it nevertheless appears that he referred it to Ms Courtney, who at the time was a Director level officer assigned to the Middle East Section as a 'Special Projects' officer.[1350] Either Mr Bowker or Ms Courtney sought advice from the DFAT Legal Branch in relation to AWB's proposals.
17.144 In the meantime, Mr Hogan sent an email to Mr Paul Jamieson (in AWB Trading) on 18 August 2000, on the topic of 'Iraq despatch/demurrage':
In regards to Iraq despatch/demurrage.
Current contracts are being monitored extremely closely with groups from ME Desk, Contract Admin, AWB(I) and AWB Chartering meeting weekly to plan vessels and manage risk exposures.
Vessels on existing contracts are evenly spread so that there is no congestion at the port of Umm Qaser.
The 1 million tonne contract (due to commence Oct 2000) does not include a despatch/demurrage clause and the same procedures will be implemented. Vessels will be evenly spread to manage this risk. We have also declined to offer additional tonnage for November-Janaury supply, as this could create logistical congestion.
8 Bobcats have been supplied by AWB Limited to assist with the scraping of vessel holds, a job which is currently performed by manual labour. The productivity of this labour force diminishes when the temperatures exceeds 50 degrees Celcius. The bobcats will increase the discharge rates.
…
AWB Limited have approached DFAT to investigate the legalities of implementing a despactch/demurrage account, which will add an incentive for the Grain Board of Iraq to increase discharge rates.[1351]
17.145 On 28 August 2000 Mr Hogan received a facsimile from Ms Courtney in response to his earlier facsimile of 7 August 2000.[1352] Ms Courtney's facsimile was accompanied by:
… an internal [DFAT] minute commenting on the questions you put to DFAT in respect of the contracts to supply wheat to Iraq and possible changes to methodology which would be consistent with sanctions. DFAT's comments were prepared in consultation with Attorney General's.[1353]
In her facsimile, Ms Courtney advised that she had left the minute in its internal form 'as I think it will give you an informal steer as to possibilities' and that in that form the attached minute was for Mr Hogan's 'informal guidance and background only'.[1354] Ms Courtney went on to say that should AWB wish to use the advice in a formal way, then DFAT would need to provide an 'edited form of the document, as you can appreciate.'[1355]
Ms Courtney also said that DFAT's understanding was that AWB wished to deal directly with IGB to negotiate 'those possibilities that should be consistent with the oil-for-food provisions' but that should AWB wish DFAT speak to the Australian mission to the United Nations in New York or have the mission 'run administrative options past the Secretariat and/or Sanctions Committee', DFAT would be 'happy to discuss this further with you'.[1356]
17.146 The accompanying minute had been prepared by Ms Gabrielle Simm, in the DFAT Legal Branch.[1357] It was addressed to Mr Bowker and dated 25 August 2000. It began:
I refer the request of the Australian Wheat Board (AWB) for advice on possibility of making certain changes to their contracts to supply wheat to Iraq. The AWB seeks to make certain changes which would render the contracts more commercially beneficial from their point of view, and has requested advice as to whether their proposed changes would be consistent with the UN sanctions regime against Iraq. I note that AWB has requested this Department not to verify this advice with our post at UNNY, as the AWB has recently raised these and related question with the UN Treasury officials (O.UN9314 refers) and they are apparently a sensitive issue. I have discussed this advice with Ben Olbourne of the Office of International Law, Attorney-General's Department, and have incorporated his comments.[1358]
17.147 Ms Simm noted in her minute that her advice related only to the UN sanctions against Iraq; that she had not seen the contracts between AWB and IGB; and that she was not providing any advice on the terms of AWB's contracts with IGB. The minute then went on to provide Ms Simm's advice on four topics, namely time at which contract terms weight and quality of shipments are final, proposal to establish a trust account as an incentive for Iraq to unload shipments on time, delays of payments to AWB and requirement for two contracts with inconsistent terms.
17.148 It was the second of those four topics that dealt with the proposal contained in Mr Stott's email of 31 July 2000. In relation to that topic, after identifying the various UN Security Council resolutions that control the ability to make payments to Iraq and summarising their effect[1359], Ms Simm provided the following advice on AWB's proposal:
8. The AWB states that it currently incurs substantial demurrage bills due to delays in unloading wheat shipments at the Iraqi port of Umm Qaser. It proposes establishing a type of trust account, controlled by the AWB and held for the benefit of Iraq, into which the AWB would pay despatch (a bonus where shipments are unloaded ahead of time) and presumably, although it does not state this, demurrage (a fine when shipments are unloaded late). The AWB proposes to use these funds to provide grain handling equipment and technical training to Iraq.
9. The proposal to establish a type of trust account for Iraq controlled by the AWB would breach UN sanctions. Money paid to Iraq must be paid into an escrow account established by SCR 707 and 712 or in accordance with SCR 986. The sale or supply of grain handling equipment is prima facie prohibited by SCR 661 OP 3(a) and (b) and would need to be approved by the 661 sanctions committee.
10. It may be possible to negotiate with the UN to introduce some form of incentive for timely unloading of shipments into the contracts for provision of wheat to Iraq. One way would be to approach the UN to make incentive payments out of the escrow account, rather than setting up a new trust account controlled by the AWB, which would breach current UN sanctions.[1360]
Ms Simm subsequently summarised her advice on this issue in the following terms:
14. The AWB's proposal to establish a trust account for Iraq as an incentive to unload shipments more quickly breaches current UN sanctions against Iraq. It may be possible to discuss with the UN Treasury other methods of encouraging Iraq to unload wheat shipments more quickly without breaching the sanctions regime, for example, an incentive payments scheme operating within the escrow account.[1361]
17.149 At the top of Ms Courtney's facsimile to Mr Hogan, there is a manuscript note from Mr Stott to Mr Hogan stating 'we need to set up a phone hook up'.[1362] It is dated 31 August 2000. Mr Hogan thought that he and Mr Stott may have had a telephone hook up with DFAT on this issue at about this time.[1363] He did not give any evidence as to what was discussed during any such hook up, save that it concerned this issue of despatch and demurrage and that there was no discussion of the inland transportation fees at that time. Ms Courtney could not recall having any discussion with AWB in relation to this minute or issue.[1364] Neither could Mr Bowker.[1365]
17.150 On 13 September 2000, Mr Hogan sent a facsimile to Ms Courtney (DFAT) stating:
As mentioned in August, AWB Limited wanted to examine the current United Nations payment mechanism for vessels that discharge at Umm Qaser, Iraq. Our objective is to reduce the time taken from the completion of vessel discharge to the time actual payment is received by AWB Limited.
AWB Limited would like to be advised, why this payment mechanism takes an extreme amount of time.
….
We are confident that DFAT would support AWB's view that these delays are excessive, given the frequency and volume of Australian wheat contracts executed under the UNSCR986 Oil for Food program since December 1996.
We would appreciate DFAT's assistance in determining the cause of these excessive payment delays, with a view to improving the system and reducing the cost for the Australian growers.[1366]
17.151 There was no mention in this facsimile of Mr Stott's earlier demurrage/despatch proposal.
17.152 As at August 2000, the clear and unequivocal advice from DFAT to AWB was that AWB could not reintroduce liability for demurrage and despatch under its contracts with IGB and manage those payments by a scheme along the lines proposed by Mr Stott in his email of 31 July 2000. To do so would contravene UN sanctions. Mr Hogan recognised as much.[1367] If demurrage/despatch was to be payable as between AWB and IGB, then it would have to be either operated though the United Nations escrow account[1368] or dealt with in some other way.
17.153 This possibility of a demurrage/despatch account was raised again by Mr Stott and Mr Hogan when they visited Iraq in October 2000. This is examined in Chapter 19. It also arose in the context of Mr Stott's correspondence with DFAT in October and November 2000, following that trip (including in relation to the draft letter that Mr Hogan prepared for Mr Stott at that time). This is examined in Chapter 20.
17.154 Phase VIII of the Oil-for-Food Programme commenced on 9 June 2000 and operated until 5 December 2000.[1369]
17.155 IGB had issued a wheat tender for phase VIII, clause 10 of which was in the following terms:
10-Price
CIF F.O.T to silo to all governerates of Iraq. Cost of discharge at Umm Quser and land transport will be USD (14) per metric ton to be paid to the Land Transport Company. For more details contact Iraqi Maritimes in Basrah. Iraqi State Co. for Water Transport-Basrah.[1370]
This was in similar terms to clause 10 of IGB's wheat tenders for the earlier phases VI and VII of the Oil-for-Food Programme.
17.156 This 'cost of discharge at Umm Quser and land transport' of US$14 per tonne was a slight reduction from the US$15 per tonne charge that had been imposed during phase VII[1371] and was in accordance with the reduction in the trucking fee that the IGB had informed Mr Emons and Mr Watson of during their visit to Iraq in May 2000.
17.157 On 16 July 2000, AWB concluded a further sale of 1 million tonnes of wheat to IGB. This sale, which was part of phase VIII of the Oil-for-Food Programme, was split into three contracts, known as AWB contracts A0265, A0266 and A0267. Each contract was on substantially identical terms.[1372]
As with AWB's contracts under phases VI and VII, the price at which the wheat was sold under these three contracts was expressed to be 'CIF Free in Truck price per tonne'.
17.158 An Export Sales Note prepared within AWB for each of contracts A2065, A0266 and A0267 stated:
Export Contract Comment: Terms as per contract A4970.[1373]
This was a reference to the contract that AWB had concluded with IGB in January 2000.[1374]
The Export Sales Note recorded these contracts as having been booked by Mr Hogan and authorised by Mr Borlase.[1375]
17.159 A short-form contract was prepared for each of contracts A0265, A0266 and A0267. Each of these short-form contracts was in similar terms to AWB's last contracts with IGB, namely contracts A4970, A4971 and A4972. All of these short-form contracts was signed on AWB's behalf by Mr Stott. The short-form contracts did not contain any reference to the payment of a 'discharge cost'[1376], or to any inland transportation fee, or obligation to pay that fee, or the amount of that fee.
17.160 Long form contracts were prepared by IGB in respect of each of these three contracts.[1377] These were in similar terms to IGB's long-form contracts for its earlier contracts under phases VI and VII. They were each countersigned by Mr Hogan on behalf of AWB. Like the long-form contracts under phases VI and VII, the long-form contract for each of contracts A0265, A0266 and A0267 contained no reference to the inland transportation fee, the amount of that fee or AWB's obligation to pay it. As with the long-form contracts for the preceding two phases, the price was described as 'C/F F.O.T. to silo to all governerates of Iraq via Umm Quser port'
17.161 The contracts were forwarded by Mr Hogan to Ms Courtney at DFAT on 14 August 2000 for submission to the United Nations for its approval.[1378] The signed copies of both the long and short-form contracts were received by the United Nations.[1379] That approval was issued for each of the contracts on 31 August 2000.[1380] Each approval was dated 29 August 2000. Copies of these approvals were sent by the Australian Mission to DFAT in Canberra on 7 September 2000.[1381] Ms Courtney in turn sent the approvals to Mr Hogan on 8 September 2000.[1382]
17.162 Despite the absence of any reference to it in both the long and short-form contracts, an inland transportation fee of US$14 per tonne was paid in respect of each of the shipments made by AWB under these three contracts A0265, A0266 and A0267. The fee for each shipment was paid in full prior to the vessel's arrival at Umm Qasr and calculated by reference to the quantity of wheat shipped. All of the inland transportation fees for shipments under these three contracts were paid by AWB Chartering to Alia directly.
[1120] Ex 253, AWB.5076.0360.
[1121] Ex 438, AWB.0176.0024.
[1122] In 2000 AWB included an allowance of between US$1 and US$1.50 per tonne (Ex 251, AWB.5107.0012 _R).
[1123] And thereby AWB Limited of which AWB Chartering was a division or AWB Australia under which AWB Chartering entered into a number of its charters.
[1124] For example there is a discussion of these issues in the minutes of the Small Executive Management Group meeting dated 23 May 2000, Ex 20, WST.0002.0014 at 0015 and 30 May 2000, Ex 20, WST.0002.0021.
[1125] This visit coincided with the arrival of the Prima II, a capesize vessel that had been used by AWB for the shipment of wheat under its contract A4822 with IGB. The wheat was transhipped from the Prima II at Dubai onto three smaller panamax vessels for the final leg of the carriage to Umm Qasr. This was the first occasion that a cape size vessel had been used for shipments to Iraq and was considered an innovative process at the time (Ex 791, WST.0037.0001 at 0006, para. 33). The use of this vessel for this shipment was reported in the trade press at the time (Ex 1509, AWB.0136.0185).
[1126] Ex 127, AWB.0138.0349.
[1127] Mr Emons' evidence was that the discussion that he was referring to in his email of 4 April 2000 was a discussion he had had with Mr Flugge regarding complications attending the trucking fee, which included the execution of the payments through Alia and problems relating to discharge (T 1940.13). By the time of that discussion, Mr Flugge (according to Mr Emons) knew what the trucking mechanism was (T 1940.37). Mr Emons had told Mr Flugge that the trucking fee had been imposed by IGB (T 1941.19), that contractually AWB was obliged to deliver wheat to all governorates in Iraq (T 1941.30) but that despite that appearance in the contract, AWB had not actually contracted physically to deliver the wheat (T 1941.36-42). He also told Mr Flugge that IGB had nominated Alia as the recipient of the inland transportation fee (T 1941.44). According to Mr Emons, his discussion with Mr Flugge also encompassed the delays that AWB was experiencing receiving money from the United Nations and the problems that those delays were causing (T 1942.13). Mr Emons assured Mr Flugge the problems then under consideration were in hand (T 1943.6). Mr Flugge stated that he could not recall having such a discussion with Mr Emons (T 3492.37-T 3493.17). Nevertheless, Mr Emons' evidence of this discussion should be preferred. His email to Mr Watson of 4 April 2000 is a contemporaneous record of his discussions with Mr Flugge. There is no reason for Mr Emons to have exaggerated or distorted what had been said. Moreover, when interviewed by Mr Quennell in April 2004, Mr Flugge recalled 'Effectively we paid money back to IGB then they did inland transport-we paid it back through Ronly-they paid Alia Transport. I remember discussions with Emons-in contract-yes we can do this-never detailed discussion-not issue for board-management issue.' (Ex 1287, AWB.0468.0012). Mr Flugge's recollection was broadly consistent with Mr Emons' conversation.
[1128] Ex 129, AWB.0136.0466.
~Previous+page/$FILE/page_prev.gif)
~Volume+contents/$FILE/table.gif)
~Next+page/$FILE/page_next.gif)