14 October 1999: further sales of wheat to Iraq

14.1 After Messrs Flugge, Rogers and Hogan visited Iraq in October 1999[653] AWB concluded two further contracts with the Iraqi Grain Board for the sale of wheat to Iraq. These became known as contracts A4821 and A4822. Both were dated 14 October 1999.

Contract A4821

14.2 Contract A4821 was for the sale of 25,000 tonnes of wheat, to be shipped to Iraq in November-December 1999. An offer had been made during the AWB delegation's discussions with the IGB in October 1999.[654] The sale was subsequently confirmed in a facsimile from Mr Emons to the IGB dated 11 October 1999.[655]

14.3 A short-form contract dated 14 October 1999 was prepared for the sale.[656] It was signed by Mr Emons on behalf of AWB. A copy was also signed in due course on behalf of the IGB.

14.4 This contract was treated as a contract under phase IV of the Oil-for-Food Programme.[657] As a consequence, the wheat was shipped on CIF free out terms and sold for a CIF free out price.

14.5 There was no inland transportation fee payable by AWB in respect of this contract. The AWB short-form contract[658] did not contain any reference to 'discharge costs' or an obligation on AWB to pay such costs.[659]

14.6 UN approval was sought in an application dated 29 October 1999.[660] The application was accompanied by a copy of both the AWB short-form contract[661] and the IGB long-form contract.[662] Approval was not granted until 10 January 2000.[663] The report[664] that accompanied the approval indicated that the 'checking officer' had been Ms Johnston. The terms of the AWB short-form contract subsequently assumed some significance in relation to Ms Johnston's inquiries into what became known as the 'Canadian complaint'.[665]

14.7 The wheat was shipped to Iraq on the Pretty Lady II in March 2000[666], together with another parcel of approximately 20,000 tonnes remaining under an earlier contract, A4334, dated 24 December 1998.[667] The wheat under that contract had also been sold by AWB to the IGB on CIF free out terms.[668]

14.8 Although both parcels were shipped on the Pretty Lady II under contracts in respect of which no inland transportation fees were payable, AWB nevertheless paid inland transportation fees of US$12 per tonne on the shipment. The fees were paid by AWB Chartering to Tse Yu Hong Metal Limited for payment on to Alia.[669] This was pursuant to the arrangement AWB then had in place to pay inland transportation fees to Alia through shipowners.[670] The total amount paid was US$565,541.76.[671] Of this, US$315,000 was for the wheat shipped under contract A4821.

14.9 The inland transportation fees paid to Tse Yu Hong Metal Limited were included by AWB Chartering in its invoice to the AWB Pool for 'freight'.[672] Accordingly, the cost of the inland transportation fees for both parcels was ultimately borne by the AWB Pool.

14.10 Because the contract price (under contracts A4821 and A4334) was a CIF free out price and contained no inland transportation fee component, the AWB Pool was not reimbursed from the UN escrow account for the inland transportation fees paid in respect of both these parcels. As a result, the AWB Pool bore the cost of the inland transportation fees from the profit it otherwise derived from those sales.

14.11 AWB Chartering also paid Tse Yu Hong Metal Limited an administration support fee of US$0.20 per tonne in respect of the two parcels shipped on the Pretty Lady II. The amount paid was US$9,425.70.[673] This was as part of the arrangement AWB then had in place to pay inland transportation fees via Ronly Holdings Limited or its nominee.[674] The payment was unnecessary: no inland transportation fee should have been paid in respect of either parcel on the Pretty Lady II in the first place.

14.12 In September 2000 AWB Chartering obtained reimbursement from the AWB Pool for all the administration support fees it had paid to Tse Yu Hong Metal Limited, including in relation to the shipment on the Pretty Lady II.[675] Accordingly, the AWB Pool also ultimately bore the cost of these administration support fees, among them the fees unnecessarily paid in respect of this shipment.

14.13 The Pool paid a sum of US$574,967.46 to AWB Chartering to reimburse it for moneys it paid for inland transport fees to Iraq and commission to Ronly. Neither AWB nor AWB Chartering had any contractual obligation to make such payments; nor were they entitled to charge the pool for moneys AWB Chartering wrongly disbursed.

Contract A4822

14.14 Contract A4822 was for the sale of a further 200,000 tonnes of wheat.

14.15 The offer of this wheat was dated 11 October 1999 and was made in a facsimile from Mr Borlase to the IGB.[676] The offer provided:

The cargo will be discharged free into truck to all silos within all Governates of Iraq at the average rate of 3000 metric tonnes per weather working day of 24 consecutive hours. The discharge cost will be a maximum of USD12.00 and shall by paid by Seller's to the nominated Maritime agents in Iraq.[677]

14.16 The offer was accepted by facsimile dated 17 October 1999. AWB was asked to postpone submitting this contract to the UN 661 Committee for its approval until it (AWB) received further notice from the IGB.[678] On 20 October 1999 the IGB asked that the contract not be submitted to the 661 Committee until the end of that month.[679]

14.17 The price offered by AWB was expressed as a 'CIF Free in Truck' price.[680] It was exactly US$12 per tonne more than the price payable by the IGB under contract A4821.

14.18 A short-form contract[681] and a long-form contract[682] were prepared. On 27 October 1999 AWB faxed to the IGB a copy of the short-form contracts for both A4821 and A4822.[683] Mr Borlase advised the IGB that contract A4821 had been submitted for UN approval but contract A4822 had been held back in accordance with the IGB's faxed instructions of 20 October 1999.[684] On 15 November 1999 the IGB returned a signed copy of the short-form contract.[685]

14.19 The shipment clause in the AWB short-form contract was in the same terms as the corresponding clause in the short-form contracts for contracts A4653 to A4655. It provided:

The cargo will be discharged Free into Truck to all silos within all Governates of Iraq at the average rate of 3,000 metric tons per weather working day of 24 consecutive hours. The discharge cost will be a maximum of USD12.00 and shall by paid by Sellers to the nominated Maritime Agents in Iraq. This clause is subject to UN approval of the Iraq distribution plan.[686]

14.20 On 29 October 1999 Mr Borlase forwarded to Ms Watson of the Department of Foreign Affairs and Trade a copy of both the AWB short-form contract and the IGB long-form contract with a request that DFAT forward the documentation to the United Nations on 1 November 1999.[687] The 661 Committee approval was issued on 7 December 1999.[688] It was accompanied by the customs officer's report that identified Ms Johnston as the reporting officer.[689]

14.21 The Australian permanent mission to the United Nations received the approval on 9 December 1999. That day Ms Moules sent a copy of the approval by facsimile to DFAT in Canberra and to Mr Snowball in AWB's New York office.[690] In her facsimile to Mr Snowball, Ms Moules advised that the application for approval of contract A4821 was still before the United Nations, having been 'indirectly caught up' by some 'larger legal problem in the UN' 'concerning the legality or otherwise of making contracts null and void'.[691]

14.22 The wheat shipped in fulfilment of contract A4822 was shipped from Australia between 16 March and 16 April 2000.[692] An inland transportation fee was paid by AWB Chartering in respect of each of the shipments to Tse Yu Hong Metal Limited for payment to Alia.[693] The cost of the inland transportation fee paid by AWB Chartering was recovered from the AWB Pool as part of the freight.[694]

14.23 For all but the last shipment under contract A4822, the amount of the inland transportation fee paid by AWB Chartering was calculated at US$12 per tonne shipped. This was consistent with the 'discharge cost' appearing in the short-form contract. The AWB Pool was effectively reimbursed this cost from the escrow account through the addition of the inland transportation fee to the price payable by the IGB for each of these shipments.

14.24 For the last shipment under this contract, however, the inland transportation fee paid by AWB Chartering was calculated at US$15 per tonne.[695] This was notwithstanding the provision in the contract that the 'discharge cost' would be a maximum of US$12 per tonne.[696] Accordingly, AWB bore an additional cost of US$3 per tonne in respect of this last shipment, for which it obtained no reimbursement.

Contracts for the indirect supply of wheat to Iraq: the Russian trade

14.25 In December 1999 AWB concluded three further contracts for the sale of wheat destined for Iraq. These contracts were not made with the IGB; instead, they were concluded with traders who purchased Australian wheat from AWB in order to fill contracts the traders had earlier concluded with the IGB.[697] These earlier underlying contracts had been made by IGB as part of a deliberate policy of the Iraq Government allocating a certain proportion of its purchases under the Oil-for-Food Programme to companies in countries sympathetic to it and its attempts to remove the UN sanctions. The Russian Federation was a favoured country.

14.26 AWB sold wheat to these traders on the terms-other than price-on which the IGB had agreed to purchase the wheat under the underlying contracts. The traders purchased the wheat from AWB at a price per tonne that was slightly less than the price payable by the IGB under the underlying contracts. The traders thus made a profit from the difference between the purchase price and the sale price.[698]

14.27 AWB sold the wheat to the traders on a 'CIF FOT to silo all governerates' basis. Inland transportation fees were payable in respect of each shipment. The transportation fee was included in the wheat price. This was the basis on which the IGB had agreed to purchase the wheat under its underlying contracts. It was also the basis on which AWB sold wheat to the IGB directly during this phase of the Oil-for-Food Programme.

14.28 The traders received payment for the wheat pursuant to letters of credit established in their favour by the IGB, drawn on the UN escrow account. AWB was paid by the traders pursuant to 'back-to-back' letters of credit the traders established in AWB's favour, for the slightly lower price payable under AWB's contract.

14.29 In its final report, the Independent Inquiry Committee did not record the sales AWB made to these traders in calculating the inland transportation fees paid by AWB during the Oil-for-Food Programme.[699]

14.30 None of the contracts between AWB and the traders was submitted to the United Nations for its approval. Nor were they submitted to DFAT.[700] AWB relied on approvals the 661 Committee had issued for the underlying contracts with the IGB.[701] It was on the basis of these approvals that AWB sought and obtained, under r. 13CA of the Customs (Prohibited Exports) Regulations, permission to export from Australia the wheat shipped under each of these contracts.[702]

Contract A4908

14.31 On 2 December 1999 AWB agreed to sell to Commodity Specialists Company (CSC), a company based in Minneapolis, 100,000 tonnes of wheat.[703] The contract was negotiated, booked and authorised by Mr Borlase[704], under the supervision of Mr Emons.[705] A written contract was prepared, embodying the terms of the agreement.[706] It was signed by Mr Emons. It became known as contract A4908.

United Nations Approval

14.32 The wheat sold under contract A4908 was shipped to Iraq in two shipments, each leaving Australia in March 2000.[707] The wheat was shipped pursuant to approvals that had been obtained from the UN 661 Committee by the Russian Federation in October 1999[708] on behalf of ZAO Concern Interrosagro.[709] These were UN approval numbers 600400 and 600401. A copy of the approvals was provided by CSC to AWB on 1 February 2000.[710] It was also against these approvals that the two shipments were declared to DFAT for the purposes of obtaining permission to export the wheat from Australia under r. 13CA of the Customs (Prohibited Exports) Regulations.[711] Because of its reliance on these earlier approvals, AWB did not provide a copy of its contract with CSC to DFAT, either for the purposes of submission to the United Nations or for obtaining permission under r. 13CA.

Inland transportation fees

14.33 Clause 6 of contract A4908 provided:

6. PRICES

USD 150.00 per tonne CIF FOT to silo at all governates of Iraq via Umm Qasr port.

This price includes a fee of USD12.00 per tonne to be paid directly by Sellers to Grain Board of Iraq advised account, for each shipment at latest 3 days prior to the arrival of each shipment.[712]

A clause to similar effect appeared in AWB's export sales note.[713]

14.34 This contract clause makes clear that AWB knew that the US$12.00 per tonne was a 'fee' that was going to the 'Grain Board of Iraq'. Any pretence that the 'fee' was for a 'discharge' cost or was a payment to a transportation company was dropped.

14.35 AWB Chartering paid inland transportation fees of US$12 per tonne in respect of both shipments under this contract.[714] The inland transportation fees for the first shipment were paid directly to Alia[715]; those for the second shipment were paid to Tse Yu Hong Metal Limited for payment on to Alia.[716] AWB Chartering was reimbursed the cost of these fees by the AWB Pool. The AWB Pool in turn obtained reimbursement of the cost of these fees from the proceeds of sale drawn from the back-to-back letter of credit established in AWB's favour by CSC.

Negotiation of the letter of credit

14.36 The contract provided for payment to be made by a confirmed irrevocable sight letter of credit to be established by the buyer (CSC) and advised through and confirmed by an Australian bank acceptable to AWB (as seller) for an amount equal to the full CIF value of the shipment, payable to one of AWB's US dollar accounts in New York.[717]

14.37 On 28 December 1999 CSC advised of its receipt from the IGB of the IGB letter of credit (presumably in favour of CSC) and asked AWB whether any amendments were required.[718] Mr Lister replied on 29 December 1999, enclosing a copy of the most recent letter of credit AWB had received from the IGB, together with a copy of the required amendments.[719] Mr Lister wrote:

Your attention is particularly drawn to the amendments regarding the end destination of the goods after discharge at Umm Qasr which we were able to get deleted as we have no control of these goods and UN inspectors role is based on arrival of vessel at disport-no further.[720]

14.38 Later that same day CSC sent a fax to AWB, inquiring in relation to the amendments AWB had sought to the letter of credit:

4) Please advise why the following was deleted on your LC:

'FOT to silo at all provinces as mentioned below via Um Qaser port'

'then by trucks to final destination CIF FOT to silo at all Iraqi provinces … Thi-Qar'

'only from Um Qaser to CIF Iraqi Provinces listed above'

This shipment was sold CIF all Iraqi provinces-

wouldn't it be necessary to just delete CMR document and prepare statement that goods will be delivered to all Iraqi provinces?[721]

14.39 Mr Lister replied on 30 December 1999:

4. F.O.T. to silo etc:

Without going into a lengthy diatribe on this matter we/our bankers were initially concerned with not only the two incoterms included in the L/Credit but in regards to where the control / payment mechanism is triggered by the United Nations secretary designee.

After much discussion and given that the standardized confirmation by U.N. inspector is dependent only on the arrival of the exported goods in Iraq we were able to convince IGB to delete any reference to the final destination of these goods to the various named provinces from the letter of credit as long as it remained in our contract of sale.

I am confident that given our previous arrangements with IGB that you should have no difficulty getting these amendments processed and to offer extra comfort to you the amendments that we have requested over our recent letters of credit under the U.N. / B.N.P. facility are invariably always the same-it would appear that nobody at the I.G.B. worries about amending their letter of credit application that they present to the Central Bank of Iraq. We just have to be tolerant with them as it all works out in the end and they never refuse to arrange all the amendments.[722]

14.40 Although an amended letter of credit was subsequently produced by the IGB, it was not in the terms proposed by AWB. On 29 February 2000 CSC sent a facsimile to Mr Lister in which it asked whether AWB would be prepared to accept what was being proposed.[723] Mr Lister replied on 1 March 2000[724]:

Thanks your facsimile dated 29 February 2000.

Contents of same have been noted and I share your frustrations as to what direction this is taking. It would appear that in the change of operational personnel at the Grain Board of Iraq that the ongoing problems with regards to the free from live and dead inspects and fungus spots clausing are now accompanied by their need to make unnecessary references in the L/Credit to the end destination (i.e. governates/provinces etc).

We had a long and protracted exchange of messages when the trucking issue/end destination was first included in our contracts/credits with our direct business back in October 1999 and we argued (successfully) that as far as the United Nations designees role in this exercise was that they would only issue the standard confirmation based on the vessel arriving and discharging at Umm Qaser.

What transpired after that was entirely in the hands of the trucking company/I.G.B. as to what governates and provinces were serviced and distribution of tonnage which was after the sign off/approval and beyond the role of the U.N. Inspectorate at Umm Qasr.[725] [emphasis added]

14.41 On 6 March 2000 CSC sent a facsimile to AWB, providing a copy of two telexes CSC had received from the IGB and asking[726], 'Please advise what approach we should use regarding the "CIF F.O.T. to silo to all governerates of Iraq"'.[727] The first telex[728] was relevant to CSC's request of Mr Lister. It read:

… Would like to clarify to you that as we already agree with correspondent bank (BNP) to remain the condition of (CIF F.O.T. to silo to all governerates of Iraq) and you should pay the transport charges like other companies contracted with also AWB Limited. So we can not delete this condition.

And be advised that Cotecna report is for the purpose of payment of shipment valu and will be when we receive the wheat in Umm Quser port, we confirm that the vessel not discharge unless you pay the transport charges.

So you are kindly requested to coordinate with Iraqi State Co. for Water Transport-Basrs … Att. Mr Warojan Fax 00873761226137.[729]

14.42 Mr Lister replied on 7 March 2000[730]:

Thanks your facsimile dated 06 March and contents of same have been noted.

1. I understand that our Mr Mark Emons has been discussing these issues with Moiz and in a nutshell his comments to me (to answer your query) is that we do not wish for there to be any reference in our ([deleted] L/C) letter of credit with regards to the governates / provinces-we fought a long and protracted battle with IGB to have this excluded from our L/Cs with IGB and do not consider that same needs to form part of our L/Cs. Once the vessel has arrived and discharged and standardized confirmation is issued by the U.N. Inspectorate what happens to the goods after that is strictly beyond our / your control and as such should not impinge on L/C requirements.[731]

14.43 On 14 March 2000 CSC faxed to AWB two further telexes it had received from the IGB.[732] The first telex referred to the first shipment of the wheat under this contract: 'Pls advise us in details regarding inland transport charges of a.m. vessel as the transfer should be before five days of arrival vessel …'[733] The second telex repeated what had been said in the IGB's telex that accompanied CSC's fax of 6 March 2000:

RY tlx d'd 9/3/2000

Would like to inform you that we can not amend L/C as you requested in above tlx as CBI already agree with correspondent bank (BNP) to remain the condition of (CIF F.O.T. to silo to all governerates of Iraq) and you should pay the transport charges like other companies contracted with also AWB Limited …[734]

CSC asked of AWB, 'Please advise your comments'.[735]

14.44 Mr Lister responded on 15 March 2000:

Thanks your facsimile dated 14 March and contents of same have been noted.

I have also passed a copy of same to our Mr Mark Emons and suggested that he needs to call Moiz and discuss this matter further.

I am completely at loss with the lame brain excuse given you by the Grain Board of Iraq with regards to their non-ability to change as the Central Bank has already agreed with BNP-if they request CBI to amend the L/C then BNP will surely act on those instructions-they did for AWB direct business-where is the difference.

We pushed long and hard to get this same terminology removed from the letter of credit(s) that we had with our IGB direct business and pointed out to them that (A) how could we have two incoterms obviously at variance with each other-i.e. you either have CIF or FOT not both and (B) we successfully argued that after they initially set up our LCs they had firstly one of the requirements being trucking consignment notes for tonnage delivered to all of the various governates and provinces (what a nightmare that would have been if I had not deleted said clause) and secondly that the trigger for payment is solely based on the U.N. Inspectorate issuing the standardized confirmation for the cargo at the port of Umm Qasr-not at various provinces as this can not be monitored and is strictly out of the U.N. / our / your control.

I do not see any harm in you mentioning that it has been removed from our L/Cs and given that your / our L/C is basically back to back we would greatly appreciate them reviewing the situation and assisting you / AWB in finalizing this matter as it could inevitably cause problems for both you / AWB maintaining their current programme.

I feel the problem is still related to the new changes in personnel at the IGB and a lack of understanding as to how the process works …

Do you feel that mentioning that AWB are pushing you for the amendments to our L/Credit would help your cause ??[736]

14.45 On 27 March 2000 AWB received from Rabobank a copy of the letter of credit that had been established by CSC.[737] Relevantly, that letter of credit:

•  identified the price per tonne in terms 'CIF all Iraqi governorates via Um-Qaser'
  
•  described the final destination as 'CIF all Iraqi governorates. A declaration from beneficiary stating that the goods will be delivered to all Iraqi governorates is required'.[738]

14.46 By facsimile to CSC dated 27 March 2000, Mr Lister asked that these provisions be amended so that both the price per tonne and the destination were described as 'CIF Um-Qaser'.[739] These requests were again rejected by the IGB. In a telex dated 26 March 2000[740], which CSC copied to AWB on 27 March 2000[741], the IGB said of these amendments:

But we can not delete the following:

- all Iraqi governerates via Umm Quser

- final destination CIF all Iraqi governerates

As these procedures agreed upon with U.N.S.C 661.

- regarding procedure of wheat delivery to all Iraqi governerates is inserted in all L/Cs.[742]

14.47 With a view to resolving this impasse, AWB sought to approach the IGB directly to obtain its agreement to its proposed changes.[743] In particular, Mr Emons was to discuss the matter with the IGB during a forthcoming visit.

14.48 Mr Lister repeated AWB's position regarding these provisions of the letter of credit in a facsimile to CSC dated 6 April 2000:

We cannot / will not mention or refer to the Iraqi governorates / provinces and when Mark [Emons] goes into Baghdad next Monday he will be stressing same to our buyers.

We require to issue our invoice strictly showing 'CIF Free out Um-Qaser port' as per initial L/credit.[744]

Conclusion

14.49 Whilst the price at which AWB sold its wheat under its contract A4908 with CSC was expressed to be 'CIF FOT to silo all governates of Iraq via Umm Qasr port', AWB did not regard itself as being contractually bound to arrange for the delivery of the wheat shipped to the silos or otherwise beyond the port. So much is apparent from Mr Lister's attempts to amend the letter of credit for the payment of the wheat sold by deleting any reference to such an obligation. As Mr Lister wrote in his facsimile of 7 March 2000[745], 'what happens to the wheat once the vessel has arrived and it has been discharged is strictly beyond the control of AWB and even CSC'.[746]

14.50 Moreover, it was the Iraqis (whether it be the IGB or the Iraqi State Company for Water Transport[747]) who were not only responsible for the discharge and transportation of the wheat on arrival in Umm Qasr but whom AWB viewed as being responsible. This was so notwithstanding that, in relation to the shipments made under this contract, there was no contractual relationship between AWB and the IGB.

14.51 The only obligation on AWB under the terms of its contract with CSC was as seller to pay the fee of US$12 per tonne to the 'Grain Board of Iraq advised account' at least three days prior to the arrival of each shipment, as provided for by clause 6 of the contract. There can be little doubt from the plain terms of clause 6 that this fee was to be paid to the Iraqis: it was to be paid to their nominated account. The fee was paid by AWB to Alia in respect of both shipments under this contract as the IGB advised account (consistent with clause 6), not because Alia had contracted to transport the wheat within Iraq or because AWB had, under the terms of its contract with CSC, contractually assumed that obligation and employed the services of Alia to discharge that obligation. So much is apparent from Mr Lister's attempts to amend the terms of the letter of credit in the way he did.

Contracts A4906 and A4907

14.52 In December 1999 AWB concluded the sale of 125,000 tonnes of wheat to Savas Grain and Commodities Ltd (Savas Grain). This sale was split between two contracts, A4906 and A4907, both dated 14 December 1999.

14.53 In the negotiation and execution of both of these contracts, AWB corresponded with Mr de Spoelberch and Mr Lossev.

Contract A4906

14.54 Contract A4906[748] was for the sale of 100,000 tonnes.[749] This contract was booked and authorised by Mr Borlase.[750]

14.55 The wheat sold under this contract was shipped by AWB in two shipments, leaving Australia on 21 and 24 February 2000.[751]

14.56 The shipments were made pursuant to an approval obtained from the UN 661 Committee by the Russian Federation on 14 September 1999[752] on behalf of JSC 'International Economic Cooperation' of Moscow.[753] This was UN approval number 600020. The General Manager of Savas Grain, Mr Lossev, was also Vice President of JSC 'International Economic Cooperation'.[754] This approval was subsequently extended.[755]

14.57 AWB sought and obtained from DFAT permission to export these two shipments from Australia to Iraq under r. 13CA of the Customs (Prohibited Exports) Regulations, relying on this UN approval.[756]

14.58 Because of its reliance on this earlier approval the United Nations had issued to the Russian Federation, AWB did not provide to DFAT a copy of its contract with Savas Grain for the purposes of submission to the United Nations or to obtain permission to export under r. 13CA.

14.59 Clause 6 of the contract was in the same terms as clause 6 of contract A4908. It provided:

6. PRICES

USD [deleted] per tonne CIF FOT to silo at all governates of Iraq via Umm Qasr port.

This price includes a fee of USD12.00 per tonne to be paid directly by Seller to Grain Board of Iraq advised account, for each shipment at latest 3 days prior to the arrival of each shipment.[757]

14.60 On 24 February 2000 the IGB sent a telex to Savas Grain, referring to the two shipments under this contract (which at that stage were loading) and inquiring, 'Also advise us in details regarding inland transport charges as transfer of in land transport charges should be before five days of arrival vessels'.[758] Savas Grain faxed a copy of this telex to Mr Emons with a request that AWB prepare a response and fax it back to Savas Grain for forwarding to the IGB.[759]

14.61 AWB Chartering paid the inland transportation fees in respect of both shipments under contract A4906. The fee payable was calculated at US$12 per tonne, consistent with clause 6 of the contract. It was paid in two instalments.[760] The first instalment, of 90 per cent of the total amount payable, was paid by AWB Chartering to Alia directly on 3 March 2000[761] and 10 March 2000.[762] The documents produced by AWB to this Inquiry do not show whether the second instalment, the remaining 10 per cent, was paid or, if so, when.[763] There is no reason for it not to have been paid, and it is assumed that it was paid.

14.62 AWB Chartering was fully reimbursed by the AWB Pool for the cost of the inland transportation fees payable. This was through the 'freight' AWB Chartering charged the pool for the carriage of these two shipments to Iraq.[764]

Contract A4907

14.63 Contract A4907[765] was for the sale of 20,575 tonnes[766] for delivery at Umm Qasr. This contract was also booked and authorised by Mr Borlase.[767]

14.64 The contract was for the balance of the purchase of wheat that remained unfulfilled under two earlier contracts under phase V of the Oil-for-Food Programme[768], being the contracts the subject of UN approval numbers 50071[769] and 50173.[770] Both of these approvals had been obtained by the Russian Federation.

14.65 Savas Grain advised AWB on 9 December 1999 that 'the payment of USD12 per mton for inland transportation is not required'.[771] Contract A4907 did not require payment of any fee.[772]

14.66 AWB was also advised in a facsimile of 9 December 1999 that the price for the sale of wheat under contract A4907 was 'CIF Free Out Umm Qasr port'.[773] The price at which the wheat was sold by AWB to Savas Grain was exactly US$12 per tonne less than the 'CIF FOT to silo all governates of Iraq' price payable under contract A4906.[774]

14.67 Because of its reliance on the approvals the UN 661 Committee had issued to the Russian Federation, AWB did not provide a copy of this contract with Savas Grain to DFAT, either for the purposes of submitting it to the United Nations or for obtaining from DFAT permission to export the wheat from Australia pursuant to r. 13CA of the Customs (Prohibited Exports) Regulations.

14.68 AWB shipped 20,506.97 tonnes under contract A4907.[775] It was shipped on the same vessel as one of the shipments under contract A4822.

14.69 Although no inland transportation fees were payable in respect of the wheat shipped under contract A4907, on 31 March 2000 AWB Chartering paid inland transportation fees equivalent to US$12 per tonne for all the wheat carried on board that ship (including that portion referable to contract A4907).[776] The fees were paid to Tse Yu Hong Metal Limited for payment on to Alia.[777]

14.70 This payment was made at the same time and in conjunction with the payment made by AWB Chartering in respect of the wheat shipped on board the Pretty Lady II under contracts A4821 and A4334. This was notwithstanding that no inland transportation fees were payable under those two contracts either.[778]

14.71 AWB Chartering was reimbursed by the AWB Pool for the cost of the inland transportation fees paid to Tse Yu Hong Metal Limited in respect of the wheat shipped under contract A4907. This was as part of the 'freight' that AWB Chartering invoiced the pool for its carriage to Iraq.[779]

14.72 Since the inland transportation fee did not form part of the price and thereby payment that the AWB Pool received for the wheat sold and shipped under contract A4907[780], the pool ultimately bore the cost of this inland transportation fee as a reduction in the profit it otherwise would have earned on the sale.

14.73 AWB Chartering also paid Tse Yu Hong Metal Limited an administration support fee of US$0.20 per tonne in respect of the wheat shipped under contract A4907.[781] This payment was unnecessary: no inland transportation fee should have been paid in respect of that portion of the wheat shipped on that vessel referable to contract A4907. The amount of this administration support fee paid by AWB Chartering to Tse Yu Hong Metal Limited for this shipment under contract A4907 was US$4,101.39. This was paid at the same time that AWB Chartering paid the administration support fees for the shipment under contract A4821 on the Pretty Lady II.[782]

14.74 AWB Chartering obtained reimbursement from the AWB Pool for the cost of the administration support fee it paid in respect of this shipment under contract A4907.[783] Accordingly, it was the AWB Pool that ultimately bore the cost of this administration support fee, which ought not to have been paid at all.[784]

Conclusion

14.75 The AWB Pool paid US$250,185.03 to AWB Chartering to reimburse it for moneys it paid for inland transport fees to Iraq and commission to Tse Yu Hong Metal Limited for commission. Neither AWB nor AWB Chartering had any contractual obligation to make such payments; nor were they entitled to charge the pool for monies AWB Chartering wrongly disbursed.

Notes