21 November 2000: introduction of the 10 per cent after-sales-service fee

The first references to 'after-sales service'

AWB's early donations to Iraq

21.1 Notwithstanding the United Nations sanctions regime, AWB had a history of supplying equipment to the Iraqis, including equipment for the testing of its cargoes and the expeditious discharge of its ships.

For example, on 31 March 1998, Mr Emons sent a telex to the then Director General of the IGB, Mr Zuhair Daoud, advising him that the AWB would like to donate a laptop computer to the IGB, and that Mr Flugge would present it on his forthcoming visit to Iraq.[2095]

21.2 On 12 August 1998, Mr Emons sent a telex to Mr Daoud:

2. Following the visit by Mr John Bunn and Mr Peter Hart to your wonderful country they have determined a list of small items required for your grain testing. There are numerous pieces in this list with a total cost less than USD5000 which we will be happy to donate with your agreement.

3. We would appreciate your approval for Mr Domonic Hogan and Mr Peter Hart to visit you week commencing 5th September or if you prefer week. commencing 12th. They would bring the lab equipment with them, they would like discuss how we can further help with your requirements for equipment that you need. please confirm your agreement to these dates. [2096]

21.3 In November 1999, consideration was again given to laboratory equipment being sent to Iraq. On 5 November 1999, Mr Matheson, who was then employed in AWB Market Promotions, 2097] sent an email to Ms Hania Ghannoum at Austrade headed 'lab equipment':

Sorry about the confusion.

We have resolved that we will send the equipment direct to the Iraqi embassy.

Apparently they have already been advised that we will send it direct to them, as we have successfully done previously.

So thanks for your interest, but it appears a lot less difficult for us to do it this way and not have to worry about any other people needing to be involved.[2098]

21.4 On 7 November 1999, Ms Ghannoum forwarded that email to Mr Ayman Ayyash,[2099] the manager of Austrade's office in Amman, Jordan .[2100]

Mr Ayyash in turn provided the email to Mr Ian Russell, 2101] Australia's then Ambassador to Jordan. The copy of the email provided to Mr Russell bore a note from Mr Ayyash which read:

Dear Ian

This is an email from AWB informing us that they will be sending lab Equipment to Iraqi Embassy. They wanted us to pass the equipment to the Iraqi embassy, but we refused until they send us details of the equipment and after DFAT approval.

It seems they decided to send the equipment directly, I believe this action is a breach of UN sanctions.^[2102]

21.5 On 8 November 1999, Mr Russell sent the copy of the email including Mr Ayyash's note to Mr Simon Twisk with the note: 'This is very odd. Can we discuss pls'. 2103] Mr Twisk was at that time stationed at the Australian Mission in Amman as Second Secretary Policy.[2104]

The same day, Mr Russell sent an email message to Ms Drake-Brockman[2105] in Canberra. Mr Russell recommended that action be taken by DFAT to make AWB aware that its intention to provide laboratory equipment to Iraq and its action in apparently previously doing so could contravene UN sanctions.[2106] Mr Russell's email was copied to Mr Bowker, Ms Moules (at the Australian Mission to the United Nations) and Mr Twisk.

21.6 On 9 November 1999, Mr Russell received a note from Mr Grenenger recounting a conversation he had had with Mr Emons about the supply of this laboratory equipment to Iraq.[2107] Mr Grenenger wrote:

Using the pretext of seeking feedback on the AWB's recent visit to Iraq I called Mark Aemons, Iraq desk officer with the AWB in Melbourne. As the discussion progressed, Mark indicated that the AWB had in the past sent 'a couple of donations' of educational materials such as books, journals and teaching aids covering the wheat industry. In addition, a small amount of laboratory monitoring equipment for the grain sector was donated by the AWB, but Mark didn't say when or how they were sent-and I didn't press the issue.[2108]

21.7 Mr Grenenger recorded that he had advised Mr Emons that in the future AWB should notify DFAT of any material or equipment it intended to send to Iraq, as technically they were exports and DFAT was required to notify the United Nations of any exports to Iraq. He had explained to Mr Emons that under the United Nations sanctions regime the Sanctions Committee must approve all exports of materials and equipment to Iraq, and DFAT would only issue a permission to export those materials and equipment once Sanctions Committee approval had been granted.[2109]

Mr Grenenger continued:

I asked if the AWB had any plans to send more equipment or materials to Iraq. Mark indicated that the AWB, as a result of the recent visit, had considered sending some wheat laboratory testing equipment but those plans have been put on hold.

Again, I noted the requirement for Sanctions Committee approval and asked that the AWB notify DFAT if it does decide to send the equipment. I explained that such equipment was most likely included on the UN Distribution List and Sanctions Committee approval was probably a formality-although I stressed that the equipment would have to be on the Distribution List to obtain approval.

Mark seemed very relaxed about everything and agreed to notify DFAT of any future AWB exports of equipment or materials to Iraq. [2110]

21.8 On 11 November 1999, Mr Twisk sent an email to Mr Grenenger, responding to his note.[2111] The email was also copied to Mr Bowker and Mr Russell. In his email, Mr Twisk advised:

Sanctions also allow exports for humanitarian needs, outside of oil-for-food, provided that these are either donations or are paid in cash, and go through the Sanctions Committee. In fact, AWB did, for example, in late 1997 donate a bobcat tractor to Iraq for wheathandling, after approval by the Sanctions Committee.

In this most recent case, the lab equipment would not fall under oil-for-food simply because it was a donation for which payment from the oil-for-food account would not be required, but it could still be exported if approved by the Sanctions Committee (under the no objection provisions for materials and supplies for essential civilian needs under para 20 of Res 687), just as was the bobcat tractor.[2112]

21.9 AWB's proposed donation of laboratory equipment did not proceed at that time.

April 2000: the provision of equipment as an after-sales service

21.10 In April 2000, Messrs Emons, Watson and Laskie travelled to the Middle East and visited Baghdad, where they met with the Iraq Minister for Trade and representatives of the IGB.[2113] During the course of those discussions, Mr Emons had promised to supply the IGB with laboratory equipment as 'after-sales service'.[2114]

21.11 On 30 April 2000, Mr Watson forwarded to Mr Emons a telex that AWB Chartering had received from the IGB, addressed to Mr Emons.[2115] It was headed 'After sales service'. After referring to the promise to supply laboratory equipment that Mr Emons made during discussions on 15 April 2000, the telex set out a list of the particular equipment that the IGB required and sought confirmation from Mr Emons as to when it would be shipped.[2116] All of the equipment listed in this telex appears to have been capable of being used for the testing of the quality of wheat.

In that time, consideration was also being given within the AWB to a proposal that AWB donate to the IGB two Grain Vacs to assist in speed up the discharge of wheat at Umm Qasr.[2117] By early May 2000, the number of Grain Vacs that AWB was considering donating had increased to eight.[2118]

AWB's further discussions in Iraq in May 2000

21.12 Mr Emons and Mr Watson visited Iraq again in May 2000.[2119] In an email that Mr Watson sent to Mr Officer from Iraq on 29 May 2000,[2120] Mr Watson identified a number of current issues, including, 'AWB has been approached by IGB to provide "after sales service".'[2121]

Under the heading 'Current action plan', Mr Watson included amongst the matters requiring attention 'Determine what "after sales service required" i.e. equipment/cash (Board approval may be required for this)'.[2122]

21.13 During this visit, Mr Emons and Mr Watson were informed that the Iraqis were experiencing delays in obtaining equipment (including spare parts) for the discharge of cargoes at Umm Qasr. They offered to undertake inquiries to ascertain the cause of these delays and to try and assist in expediting delivery of this equipment.[2123]

During their discussions, Mr Emons and Mr Watson were also asked to supply bobcats to the IGB to assist in the discharge operations.[2124] AWB agreed to this request[2125] and, as a result, its earlier proposal to donate Grain Vacs was changed to a proposal to donate eight bobcats.[2126]

21.14 On 27 June 2000, the IGB set a telex to AWB advising that it was still waiting on advice of the shipment of the promised laboratory equipment.[2127] Mr Borlase replied by facsimile that day, advising that AWB was still in the process of organising the equipment.[2128]

By that time, AWB had procured approximately $20,500 worth of laboratory equipment.[2129] However there were concerns about its export to Iraq.[2130] Mr Hart (a chemist with Agrifood Technology, a subsidiary of AWB) took some of the equipment with him and gave it to the IGB when he later visited Iraq in July 2000.[2131] Some of the remaining equipment could be used for micro biological procedures and AWB did not wish to send it without approval.

In his facsimile to the IGB on 27 June 2000, Mr Borlase also advised that AWB had ordered the bobcats which had been discussed during the May 2000 visit, that it was hoped to ship them to Iraq on the next available vessel, and that the application for this shipment to Iraq was still with the United Nations for its approval.[2132]

21.15 That approval was granted in July 2000.[2133] The bobcats were shipped from Australia on 9 August 2000[2134] and delivered to the IGB in September 2000.[2135] In an email dated 10 May 2001, Mr Hogan reported having observed the bobcats being used during a further visit to Iraq at that time.[2136]

21.16 Prior to September 2000, AWB had assisted the IGB with the donation of equipment. From time to time, this was characterised as after sale service. Much of the impetus for the supply of this equipment in 2000 was that it would also be of benefit to AWB, by speeding up the rate of discharge of wheat from its vessels and thereby reducing its demurrage bill.

Negotiation of a further sale

Early offers for a new contract

21.17 On 21 September 2000, Mr Hogan emailed the IGB offering to sell 300,000 tonnes of wheat for shipment January to March 2001.[2137] The offer was expressed to be 'Free in Truck all Governates of Iraq, only'. The price offered by AWB was a 'CIF free in truck to silo all Governerates of Iraq via Umm Qasr port' price. The price offered included US$14 per tonne for the trucking fee.

AWB's offer of 21 September 2000 was not accepted by the IGB.[2138]

21.18 On 5 October 2000, Mr Hogan sent a further email to the IGB setting out the terms of a further offer for 300,000 tonnes of wheat.[2139] Mr Hogan noted that since his earlier offer of 21 September 2000, the market had firmed significantly. As a result, the price at which AWB was prepared to sell this parcel had risen from that offered on 21 September 2000. Apart from that increase in price, the terms of the offer remained the same as AWB's earlier offer.

The October 2000 visit

21.19 In October 2000, Mr Hogan and Mr Stott travelled to the Middle East and there met with representatives of the IGB in Baghdad. This visit is discussed in Chapter 19.

Following this visit, Mr Hogan prepared a report on the discussions that had taken place with representatives of the IGB in relation to possible future business.[2140] These discussions included both AWB supplying the Russian trade with wheat for sale to the IGB[2141] and the possible sale of the 300,000 tonnes of wheat directly to the IGB.

In his report, Mr Hogan recorded that the IGB had refused AWB's 'last offer' for the sale of 300,000 tonnes and advised that it would seek supply from an alternate source. He noted, 'AWB were under the impression that we would be given another opportunity to re-offer this business'.[2142] Mr Hogan also recorded that the market was firmer than when the July 2000 contracts were concluded. He set out in detail the components of his suggested offer price, which included an allowance of US$14 per tonne for 'trucking'.[2143]

21.20 It was in the context of their discussions with the IGB regarding new and future business that Mr Hogan and Mr Stott were also made aware of proposed increases in the trucking fee for the next phase of the Oil-for-Food Programme.[2144] Mr Hogan recorded in his report of this visit that they were informed that, from phase IX of the Programme, 'Iraq will be increasing the trucking fee to USD 35.00 for shipments to Umm Qaser and 5% of contract price for other ports'.[2145] Phase IX negotiations were not due to take place until late December 2000 or early January 2001.[2146] There was no mention or any reason or justification for this proposed increase.[2147]

Resumption of negotiations following the October visit

21.21 On 20 October 2000, Mr Stott sent a facsimile to the Iraqi Minister of Trade referring to AWB's inability to conclude a sale of wheat at the price that the IGB had sought during his recent visit to Iraq.[2148]

21.22 On 25 October 2000, the IGB sent an email to Mr Stott thanking him for his letter to the Minister and requesting that he inform the IGB of the lowest price at which AWB could supply 300,000 tonnes directly to the IGB.[2149] The email called for two offers, each for a different specification of wheat. It concluded:

prices for above two offers should includ inland transport charges equil to US$(25) per metric ton and payment will be effected either in euro or any ecceptable europoean currency.

Pls confirm by Monday 30/10/2000.[2150]

21.23 Mr Stott forwarded a copy of this email on to 'Desks', Mr Jones and Ms Scales, stating, 'Peter/Sarah, This is a very interesting development given the Russian shorts that exist'.[2151]

Ms Scales gave evidence that she did not query this email and in particular the inland transport charge or increase in inland transport charge proposed. The inland transportation fee nominated represented a substantial increase both on the inland transportation fees of between US$12 and US$15 per tonne that had been payable by AWB on its earlier contracts under phases VI to VIII and on the fee of US$14 per tonne contemplated by AWB at the time of Messrs Stott and Hogan's visit to Iraq in October 2000.[2152]

21.24 This email was received by Mr Stott two days before he instructed Mr Hogan to draft a letter to DFAT seeking advice as to a proposal to introduce a performance incentive scheme with the transport provider in Jordan,[2153] and which culminated in Mr Stott's facsimile to DFAT of 30 October 2000 and DFAT's reply of 2 November 2000.[2154]

On the same day that Mr Stott sent the final version of his facsimile to DFAT, namely 30 October 2000, Mr Hogan sent a facsimile to the IGB setting out the terms of an offer from AWB in response to the the IGB's invitation of 25 October 2000.[2155]

Mr Hogan's facsimile accompanying AWB's offer referred to 'Transport Charge is USD 25.00 per tonne, via Umm Qaser to all Governates, Iraq'.[2156] consistent with the IGB's advice in its email of 25 October 2000.[2157] This 'Transport Charge' was included in the price offered by AWB.

The price which AWB offered was US$10 tonne greater than the price Mr Hogan had suggested as being an appropriate price in his trip report. This corresponded closely with the increase in the inland transportation fee nominated in the IGB's email of 25 October 2000 (US$25 per tonne) from that contemplated at the time of the October visit (US$14 per tonne).

21.25 According to Mr Hogan, at about 11.30pm (AEST) on 1 November 2000, he received by telephone a further bid from the IGB. In addition to the price for the wheat, the bid included US$25 tonne for the transport fee plus a 'handling fee' which was to be 10 per cent of the total contract price, that is the price for the wheat plus the transport fee. This was the first time Mr Hogan had heard of this new 'handling fee'.[2158] This new impost had not been mentioned in either the October visit with Mr Stott or the subsequent correspondence. Mr Hogan recorded the request for the new fee in a contemporaneous note.[2159] He also recorded in the note that he was to respond to the bid within two hours.

Mr Hogan said in evidence that he was not prepared to confirm the change in the contract proposed by the IGB (by reason of the addition of the 10 per cent handling fee) without the authorisation of his manager, Mr Stott. He believed that he obtained that authorisation from Mr Stott prior to finalising the contract with the IGB.[2160] As Mr Hogan went on to say:

After all, I could not confirm a contract without first obtaining approval or authorisation from upper management especially if there were any major changes to the terms and conditions like the Inland Transport fees rising so substantially.[2161]

This was especially so where the inland transportation fee-which was being increased to include the 10 per cent handling fee-required an upfront payment by AWB and hence created an exposure.[2162] According to Mr Hogan, he would not have simply accepted the addition of the 10 per cent loading without first confirming this with Mr Stott.[2163] Mr Hogan also said that, before concluding this contract, he would have discussed the prices 'and possibly the new terms with staff members from the AWB Pool'.[2164]

Mr Hogan was not aware whether the approval of a contract of this magnitude was within the limit of Mr Stott's authority or whether Mr Stott discussed it with his superiors.[2165]

21.26 Although Mr Hogan said that it was common practice to contact Mr Snowball in AWB's New York office regarding any contract terms or issues that appeared inconsistent with the Oil-for-Food Programme, he could not recall whether he approached the New York office for clarification of the new 10 per cent handling fee and increase in transport fees.[2166]

There is no evidence that Mr Hogan did raise this with Mr Snowball or any one else at the New York Office, although Mr Hogan did include Mr Snowball as a recipient of his email of 1 . 09 am on 2 November 2000 advising that the contract had been concluded.[2167]

21.27 Mr Snowball could not recall receiving Mr Hogan's email of 2 November 2000.[2168] Nor could he recall Mr Hogan contacting him in November 2000 to ask whether the contract terms agreed by AWB with the IGB had been approved by the UN.[2169] His evidence was:

I don't recall him ringing me. I think, if I remember rightly, there was very little correspondence between August 2000 and February 2001 with respect to Iraq and myself in the US office, and I would think it would be quite improbable. I don't know for sure, but I don't think he would have rung me. [2170]

21.28 Mr Stott agreed that he had been called by Mr Hogan in relation to the bid.[2171] He said he separately contacted both his supervisor, Mr Goodacre, and the then Pool Manager, Mr Geary, to confirm the bid was acceptable.[2172] He said that he informed them of the specific trucking fee incorporated in the proposed contract.[2173] Mr Stott claimed that his principal concern with the new fee was not its quantum but that 'the UN had knowledge and approved that particular escalation or that contract with the trucking fee in it'.[2174] Mr Stott claimed to have told Messrs Geary and Goodacre that the contract would not proceed until AWB received documentary evidence of United Nations approval.[2175] Mr Stott said he had a specific recollection of his conversation with Mr Geary.[2176]

Mr Goodacre could not recall any conversation concerning the trucking fee. Mr Geary's senior counsel said that he was instructed that Mr Geary had 'no recollection whatsoever of the conversation'.[2177]

Conclusion of the sale and imposition of the 10 per cent after-sales-service fee

21.29 On 2 November 2000 (at 1.08 am) Mr Hogan circulated an email within AWB headed 'Iraq-confirmed sale'.[2178] Amongst the recipients of this email were Ms Scales[2179] and Messrs Stott, Hughes, Jones, Borlase, Snowball and Lister.

21.30 In this email, Mr Hogan confirmed the terms of the sale, which was concluded in US dollars with the price in Euro to be fixed later than same day. His email also provided a breakdown of the US dollar price which AWB had agreed to accept. That price was US$10 per tonne less than AWB's offer of 30 October 2000. Amongst the components of the price breakdown was 'Trucking Cost = USD25.00'.[2180]

Mr Hogan also reported on the imposition of the 10 per cent 'handling fee':

** 10% will be added to px [price] and included into trucking fee-i.e. IGB will confirm USD [deleted] and T/Fee will be USD44.50 …. this has been approved by UN (as per IGB-I will get this in writing) [2181]

This later came to be referred to as the 10 per cent after-sales-service fee.

As a result of the addition of this further 10 per cent, the final price which AWB was to receive was higher than the price that AWB had indicated it was willing to accept in its offer of 30 October 2000, as was the amount of the inland transportation fee that AWB had agreed to pay.

21.31 Mr Hogan never did get confirmation in writing of the United Nations approval of this additional 10 per cent, or its inclusion in the trucking fee.[2182]

21.32 Later on the afternoon of 2 November 2000 Mr Hogan sent an email to Mr Doug Alvares (in the AWB Treasury) advising him of details of the sale.[2183] This was to enlist his assistance in converting the agreed free in truck price (including the increased inland transportation fee) in US dollars into Euro, and in preparation for a 'hook up' with the IGB later that day for the purpose of discussing the exchange rate conversion.

Mr Hogan noted in his email:

Contract with IRAQ includes (UN approved) in land trucking fee (USD44.50)-which is paid out by AWB(I) to AWB (Limited-Chartering)-who pay to Jordanian Trucking Co on BOL (i.e. 50,000 x 68.50 = USD3,425,000 or 40,000 x 71.40 = USD2,856,000) I am confirming with Buyer if this is to remain in USD i.e. we recv full amount in Euro (USD [deleted] ) and pay out USD to truckers. [2184]

As events turned out, the inland transportation fees for the shipments made under this contract were not paid in US dollars but were paid in the currency of the contract, namely Deutschemarks.

21.33 At 3.31 pm, Mr Hogan sent an email to the IGB advising:

I will be contacting you this morning to discuss the Euro conversion.

With previous business concluded with IRAQ, AWB has always received an invitation to offer, which lists the conditions of the offer.

For good orders sake, could you please forward the conditions especially regarding the UN approved Trucking fee and percentage increase. [2185]

21.34 At 6 . 09 pm, Mr Hogan sent to the IGB an email[2186] and facsimile[2187] in the same terms confirming the terms of the sale that had been concluded earlier that day, including the price now converted to deutschemarks.[2188] Neither the facsimile nor email referred to the inland transportation fee, the amount of that fee or the inclusion within that fee of the additional 10 per cent. The price at which the wheat was to be sold, however, continued to be described as 'CIF, Free in truck to silo to all governerates of Iraq via Umm Quasr port'.[2189]

21.35 At 6.20 pm, the IGB sent an email to Mr Hogan headed 'wheat contract'[2190] which did refer to the increased inland transportation fee.[2191] It read:

… we coNfirm booking 300,000 MT + -5% at USD [deleted] PM CIF IRAQ via um qaser all governarates including 44.5 inland transportation to be paid to the water transport co. The above prices will be converted to Deutch Mark at rate of 2.28. Total value of contract will be DEM [deleted]. All other terms and conditions as per our contract for phase NO. ( 8) with you ,contract will faxed to you today.[2192] [emphasis added]

The contractual documents

21.36 After the price had been converted to deutschemarks, a short-form contract was prepared within AWB. It was dated 2 November 2000 and signed by Mr Hogan.[2193] Except for the date, price and period of shipment, it was in the same terms as AWB's short-form contracts since February 2000.

The AWB short-form contract contained no reference to any 'discharge cost' or inland transportation fee or to any obligation on the part of AWB to pay either. It also contained no reference to the additional 10 per cent after-sales-service fee that had been imposed by the IGB, to any obligation to pay that fee, or its inclusion within the inland transportation fee.

It was not apparent from the terms of the short-form contract that the price payable to AWB included reimbursement of either the inland transportation fee or the additional 10 per cent included as part of the inland transportation fee. The only hint of any obligation consistent with the payment of the inland transportation fee was the reference to the cargo having to be discharged 'Free into Truck to all silos within all Governates of Iraq', and the description of the price as a 'CIF Free in Truck' price.[2194]

21.37 The IGB produced a long-form contract in respect of this sale.[2195] It also contained no mention of the inland transportation fee, of the additional 10 per cent, of the inclusion of that additional 10 per cent in the inland transportation fee, of AWB's agreement to pay these fees, or of the inclusion of the inland transportation fee including this additional 10 per cent as a component of the price payable by the IGB to AWB.

21.38 Despite the absence of any reference in either the short-form or long-form contract to the additional 10 per cent and its incorporation into the inland transportation fee, the imposition of this additional 10 per cent fee and its inclusion both as part of the price payable by the IGB and as part of the inland transportation fee payable by AWB were recorded in the annotations made by Mr Lister on the cover of his file for this contract[2196] and were clearly recognised within AWB, at least by those responsible for the execution of the contract.

UN approval of the contract

21.39 By facsimile dated 2 November 2000, Mr Hogan sent to Ms Courtney[2197] at DFAT a completed 'Notification to ship goods to Iraq' for lodgement with the United Nations.[2198] That was accompanied by a copy of both AWB's short-form contract signed by Mr Hogan[2199] and the IGB long-form contract.[2200] Neither document referred to the inland transportation fee or additional 10 per cent after-sales-service fee or AWB's agreement to pay these fees or their inclusion as a component of the price.

21.40 The application for the approval of the 661 Committee was submitted to the United Nations by the Australian Mission on 8 November 2000.[2201] The approval was subsequently issued on 2 January 2001.[2202] Ms Felicity Johnston was the 'check officer'.[2203]

A copy of the United Nations approval (together with the Customs Officer's report and a copy of the application) was sent by Mr Grenenger of DFAT to Mr Borlase on 5 January 2001.[2204]

Mr Stott's claim of an Iraqi deception

21.41 Mr Stott gave evidence that he and AWB were the victims of a deception perpetrated by the Iraqis and AWB staff. His evidence was that he instructed Mr Hogan, whilst Mr Hogan was in Baghdad in November 2000, that:

I will accept the $45 or $44.50 as a trucking fee, but you have to show me-the IGB has to present me with proof that this is indeed approved by the UN, and I need that in writing.[2205]

He said that Mr Hogan (and later, possibly, Mr Hughes) provided that written confirmation after Mr Hogan's return.[2206] Mr Stott gave evidence that he was shown the Iraqi version of the finalised contract which he believed had been sent by Iraq to the United Nations and that version expressly showed the US$44.50 payment for inland freight on its face.[2207] During his evidence, Mr Stott was shown by Counsel Assisting the document produced by AWB to the Inquiry purporting to be the actual contract with the IGB that was provided to DFAT and the United Nations.[2208] Mr Stott said he had never previously seen that document and that the one he had been provided with 'had the Iraq freight component detailed in it separately at $44 or $45 a tonne'.[2209] Mr Stott said the copy he had seen also had the Iraqi Wheat Board seals upon it,[2210] that it was produced to him by Mr Hogan,[2211] or possibly by Mr Hughes,[2212] and that he was told by the marketing team, in relation to the document he had been shown, that 'the Iraqis have sent a copy to us that they have sent to the UN'.[2213]

Mr Stott claimed he saw the contract that explicitly identified the trucking fee to the United Nations on or about 2 November 2000[2214] because he had required written confirmation in order to approve the transaction. His evidence was that after seeing this contract he was assured that the trucking fee and the 10 per cent handling or after-sales-service fee had UN approval.

21.42 No document as described by Mr Stott has been produced by AWB. No one else from AWB claims to have seen it, and both Mr Hogan[2215] and Mr Hughes[2216] deny any knowledge of it. Mr Stott had not previously mentioned the existence of the document he says he was shown to anyone other than, possibly, his lawyers.[2217] He specifically acknowledged he had not told the IIC, the Project Rose team or Mr Lindberg of it, had not included it in his statement to the Inquiry, and had not sought to include it in a supplementary statement.[2218] Mr Stott claimed that, up to the date of his evidence on 14 February 2006, he had never made any inquiry or search for the alleged document because he had assumed it was in the files and had already been produced to the Inquiry.[2219] He later stated that he had asked for 'all the files that approvals had gone to the UN for the previous contracts', that he had received them but that he could not find the document.[2220] He did not explain why he then did not make specific enquiry for it. He also could not adequately explain why being told orally by the Iraqis that they had UN approval was unacceptable, but that being told in writing by them would be acceptable.[2221] He accepted the document he was allegedly shown had no marking upon it to show it had been seen by the United Nations.[2222] Mr Stott also could not explain why he had not mentioned this document in his evidence six days earlier[2223] when its production (if genuine) would have exonerated AWB. His version does not explain why Mr Hogan, had he concocted a false document with Iraq, would place the true copy on the file rather than the false copy which exonerated him. He further could not explain why Mr Hogan in his February 2001 trip report[2224] would have raised concerns that the handling fee or after-sales-service fee was being used to siphon funds from the escrow account to Iraq when, according to Mr Stott, he had concocted this false document to prevent AWB finding out that very fact.

21.43 Mr Stott alleges he told Mr Goodacre of the escalation of fees and his requirement that proof of United Nations approval be obtained on the night the contract was negotiated.[2225] I reject that evidence. Mr Stott accepted that if he had wanted to be assured of United Nations approval a better course would have been to expressly ask the United Nations, or DFAT, or include the new fees in the copies of the contracts submitted by AWB, but he did not think to do so.[2226] Mr Stott alleges that he told Messrs Geary and Goodacre of the document he had seen when they were discussing the Arthur Andersen report in December 2000.[2227] He does not recall showing the contract he says he saw to any of them. It may well be thought that, in the face of allegations that AWB had been paying money to Iraq without the knowledge of the United Nations, the very first thing Mr Stott would have done upon hearing the allegations was go to the files and produce the evidence he believed to exist that would show the United Nations had full knowledge of the fees being paid.

21.44 On the material before me, Mr Stott's detailed account of having been shown a contract that referred to the trucking fee of US$44.50 was a deliberate fabrication. I am satisfied no such document exists or ever existed.

Payment of the increased inland transportation fee by two instalments

21.45 Due to the significant increase in the inland transportation fee payable under this contract, AWB asked the IGB to allow it to pay the fee for each shipment in two instalments. The first instalment was to be payable before the vessel's arrival at Umm Qasr. The second instalment was to be payable only after AWB had received the proceeds for that shipment from the United Nations escrow account.

21.46 The IGB agreed to this proposal.[2228] That agreement was conveyed in a telex dated 15 November 2000 headed 'Inland Transportation Charges':

After carefully studied your proposall of transfering the land transport charges we ask you to accept the following

1-Transfer partial amount of DM 31.92 equal to USD 14.00 (fourteen dollars) before the arrival of the vessel to Umm Qaser Port following the same procedure of Ph 6 and 7 contracts

2-The balance amount of D.M 69.54 equal to USD 30.50 tobe transfered within one week after receiving the value of the cargo to the account nominated by us

Pls confirm.[2229]

21.47 There subsequently appeared to be some uncertainty about this proposal, as a result of which there were some further exchanges between AWB and the IGB. These commenced with a telex dated 20 November 2000 from the IGB to AWB headed 'Inland Transportation Charges' which read:

We confirm our tlx ddt [dated] 15/11/2000

Pls be advised that we re check the instruction which confirm that the total amount of inland transportation charges should be transfered before vessels arrival to Um Qaser port.

Pls act accordingly.[2230]

21.48 On 5 December 2000, Mr Hogan sent an email to the IGB headed 'Inland transport Charges' in which he wrote:

AWB confirms that inland transport charges of DM 31.92 (USD 14.00 PMT) will be paid upon completion of vessel loading, with balance payable upon receipt of UN payment.[2231]

Mr Hogan forwarded a copy of that email to Mr Watson (copied also to Messrs Cowan (in AWB Chartering) and Mr Alvares (in AWB Treasury) on the same day with the following message:

Michael,

Pls note that the new Iraq contract (1st November 2000-300,000 Tonnes) has a break up of the inland transport charges.

AWB will pay DM 31.92 (USD14.00) upon loading

Balance-AWB will pay DM 69.54 (USD 30.50) upon rect [receipt] of payment from UN. (exchange DM = 2.28)[2232]

21.49 On 11 January 2001, the IGB sent an email to AWB in response to Mr Hogan's email of 5 December 2000 again confirming its agreement to the payment of the inland transportation fees under this contract in two instalments:

pls be advised that we accept that inland transport charges of USD (14.00) pmt equivalent in (D.M) will be paid upon completion of vessel loading and before arrival of the vessel to Umm Qaser perts and the balance of USD 30.50 pmt equivalent in (DM) upon receipt shipment value to be rimitted to the account of our commercial office … in Amman.[2233]

The inland transportation fee including the 10 per cent surcharge was to be paid to the IGB, as the phrase 'our commercial office' makes clear.

Shipments under contract A0430

21.50 The wheat sold by AWB under contract A0430 was shipped to Iraq under eight shipments[2234] which left Australia between 5 March and 12 April 2001.

For each of these shipments, the inland transportation fees were paid to Alia in deutschemarks and in two instalments in accordance with the agreement that had been reached between the IGB and AWB.[2235]

The first instalment for all eight shipments was requested from AWB Treasury on 26 April 2001 and remitted to Alia on 1 May 2001.[2236] The total amount paid was DM 10,054,797.45 (which was equivalent to approximately US$4.4 million).

The second instalment of the inland transportation fees payable in respect of these shipments (totalling DM 21,541,769.60[2237] or approximately US$9.49 million) was paid to Alia individually per shipment between 5 June and 14 August 2001.[2238]

21.51 The inland transportation fees (including the additional 10 per cent) paid by AWB under contract A0430 amounted to approximately 26.17 per cent of the CIF free out price that was otherwise payable by the IGB for these sales.[2239] This represented a significant increase upon the inland transportation fees that had been payable under AWB's previous contracts with the IGB, which ranged between 8.4 per cent and 10.56 per cent of the CIF free out price.

21.52 AWB entered into three forward exchange contracts for the purposes of this contract, under which AWB forward sold the deutschemarks that it expected to receive upon completion of the sale for US dollars.[2240] Out of the total amount that AWB expected to receive, DM 31,198,950 was reserved 'for the payment to Jordanian Trucking Co.'[2241]

Further discussion of the supply of laboratory equipment

21.53 There were further communications between AWB and the IGB in relation to the supply of laboratory equipment between February and April 2001.

However this was no longer in the context of AWB providing after-sales service to the IGB. It was instead suggested by the IGB that this equipment be supplied by AWB as compensation for supplying wheat that did not comply with the IGB's specification.[2242] This change is not surprising bearing in mind that AWB had, by the time these requests were made, already commenced paying the 10 per cent after-sales-service fee that had been incorporated into the inland transport fee with effect from contract A0430.

21.54 On 10 May 2001, in giving an update of discussions with the IGB, Mr Hogan wrote:

Technical: Minister has requested Bunker equipment (2 x 200 loaders), Laboratory equipment and Training courses in Oz. All other suppliers supplying equipment-putting pressure on AWB to supply.[2243]

However, despite the IGB's several requests, no laboratory equipment was provided by AWB at that time.

21.55 In September 2001, the provision of testing equipment and grain handling equipment was again raised in communications between AWB and the IGB. This culminated in March 2002 with AWB shipping a twenty foot container of laboratory equipment to Iraq, on the same vessel carrying a shipment of wheat.[2244] At the same time, AWB also shipped two forty foot containers and two forty foot flat racks loaded with grain handling equipment for the IGB on another vessel.[2245] These were due to be discharged and delivered in Umm Qasr in April 2002.

Notes