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18.1 In April 2000, Mr Lindberg was appointed Chief Executive Officer of AWB, following the retirement of Mr Rogers.[1383] Upon joining AWB, it became apparent to Mr Lindberg:
that the extended transition period during which the restructuring arrangements for the privatisation were formulated by Government, industry and the Wheat Board had the effect of impeding the development of the organisation in many respects.[1384]
Mr Lindberg set out to remedy this. Amongst the tasks that Mr Lindberg perceived he had when he arrived at AWB were to develop a strategic, commercial and diversified growth agenda for the company and to list it on the Australian Stock Exchange, to build the capability (systems, processes, people and controls) that would support this growth agenda and to deal with a number of high level policy issues. [1385]
18.2 Mr Lindberg decided to implement a number of changes within AWB, including to senior personnel within the management team, in order to achieve these tasks. For the purpose of determining what changes were necessary, Mr Lindberg interviewed the top 50 to 60 managers within AWB. He also spoke with the Chairman and a significant number of stakeholders.[1386]
18.3 Mr Officer's evidence was that during his interview with Mr Lindberg, he informed Mr Lindberg of various matters including matters relating to AWB's business with Iraq:
I told him [Mr Lindberg] about my role and those in my [Global Sales & Marketing] Group. I explained the state of our Group performance and the fact that we were well ahead of targets for that year. I gave him a summary of the important issues affecting the Group and how the Group was travelling with its important customers. This would have included Iraq as one of AWB's important customers. I believe I told him about the general operation of the Oil-for-Food Program and how that was being operated. I also believe that I explained to him the important changes that had occurred with AWB's standard contracts in Iraq.[1387]
18.4 Mr Emons' evidence was:
When Mr Lindberg took over at the AWB, he interviewed the majority of the middle management of the organisation-broad-ranging chat lasting perhaps an hour or so. He was seeking opinion about the organisation, personnel, resources, and, in my case, issues within the market place, opportunities, et cetera-very broad range. I brought up the issue there, the discussion about the methodology of some of our trades, highlighting Iraq as particularly one of them, and what we were doing in that market and the problems that we were having at that time, which was the considerable demurrage. [1388]
18.5 Mr Emons said that during his discussion with Mr Lindberg he referred to the payment of trucking fees[1389] , that AWB had been instructed by IGB to pay these fees[1390] and that the inland transportation fee was set by the Iraqis.[1391] He could not recall explaining to Mr Lindberg 'the methodology in terms of Alia paying Iraq'. [1392]
18.6 Mr Lindberg's evidence was that he became aware of the Oil-for-Food Programme at meetings of the Corporate Risk Committee in 2000. [1393] He was told at these meetings that a trucking cost was incorporated into AWB's contracts with Iraq and that all contracts were approved by the United Nations. [1394] At this time, he did not know of the mechanism by which AWB ensured that delivery occurred [1395] or who was paying for it. [1396] He was unaware of the details of the tenders and the contracts.[1397]
18.7 On 5 June 2000, Mr Lindberg announced a restructure of the AWB's executive team. Mr Lindberg decided to make these changes, having formed the belief that:
the incumbent management team could not effectively lead the transformation [of AWB] required.[1398]
The details of Mr Lindberg's restructure were set out in his note entitled 'AWB Limited Organisation Restructure'. [1399] Regarding the International Sales and Marketing Division, Mr Lindberg wrote in his note:
Equally I am concerned to ensure that our core business activities of international grain marketing and trading have the necessary sharp professional and commercial edge to provide the highest returns to our growers through the operation of the 'single desk'. Our grower services activities need to be better linked into our growers' needs and also what is happening in the marketplace. This will ensure that we have the right mix of grower and market driven products and services. I have created the new role of Group General Manager Trading, with overall responsibility for both our grower and customer trading interface to bring this about.
As a result of these major changes and others represented in the Organisation Chart in the Attachment, a number of new positions are created, a number of current positions become redundant and roles/responsibilities and reporting relationships alter.
Staff in redundant roles have been advised and will be leaving the organisation accordingly. Those people are Michael Tighe, Nick Dimopoulos, Ron Storey, Ted Laskie, Joanne Martin, Nigel Officer and Peter McKeown. [1400]
Mr Goodacre and Mr Ingleby were the only two members of the then existing executive team to be retained. [1401] Mr Goodacre was appointed by Mr Lindberg to this newly created position of Group General Manager Trading. Mr Ingleby remained as Chief Financial Officer.
18.8 The organisational structure of AWB as at June 2000, following Mr Lindberg's changes, is reproduced as Figure 11.4 in Appendix 11.
18.9 On 5 June 2000, Mr Nigel Officer met with Mr Lindberg and was presented with a letter advising that, as a result of the decision to restructure AWB, his position had been made redundant, effective from the close of business that day. The letter also indicated that Mr Officer's organisational responsibilities were to cease on that date, with his employment with AWB to cease on 9 June 2000.[1402]
18.10 On 30 June 2000, Mr Officer entered into a Deed of Release with AWB in relation to the termination of his employment.[1403] Clause 8 of that Deed provided:
8. AWB acknowledges that it (by its Board and Chief Executive Officer) authorised agency payments during the period 15 December 1999 to 9 June 2000 to overseas agents for sales. [1404]
Clause 8 was included in the Deed at Mr Officer's insistence. His evidence was that his concern was focused primarily on the legality of the payment of agency fees in Pakistan (notwithstanding the review that had been earlier undertaken of AWB's arrangements in that market), but also on how the payment of the Iraq transport costs might be characterised.[1405] Mr Officer said that although initially he did not think of the payment of the inland transportation fees as 'facilitation payments', by June 2000:
I began to realise that the payments may be questionable as a matter of law.[1406]
Mr Lindberg approved the Deed of Release based upon advice that he had received from legal and human resources. [1407]
Notwithstanding the terms of clause 8, the AWB Board was not informed of its inclusion in the Deed. Nor was the Board's approval of the Deed sought. [1408]
18.11 Mr Lindberg's evidence was that whilst he did not inform the Board of the release, he did discuss it with the Chairman, Mr Flugge, and with Mr Goodacre. [1409] When asked what aspect of the release he discussed with Mr Flugge, Mr Lindberg said:
Well, I discussed why Mr Officer was seeking the release and I raised the matter of agency arrangements. He said that he believed that was a matter for management, but, as I described it to him, didn't see there was any difficulty.[1410]
18.12 Mr Flugge disputed Mr Lindberg's evidence. He said that he never saw the Deed of Release. He did not believe that he gave any authorisation for the clause regarding authorised agency payments to be inserted. [1411]
18.13 Mr Goodacre's evidence was that he was not aware that Mr Officer had signed a Deed of Release with AWB at the time.[1412] He said that he did not see the Deed [1413] ; nor was he aware that there were negotiations going on between Mr Officer and AWB to have the clause included in the Deed.[1414]
18.14 Mr Lindberg's understanding of the clause was:
that there were agency payments authorised by the board and chief executive. There may have been other agency payments that weren't, but this covered the ones that were.[1415]
Mr Lindberg could not explain why acknowledgement was required for payments that had been authorised by the Board and the Chief Executive.[1416] Nor could Mr Lindberg confirm whether there were other agency payments that had not been authorised by the Board. [1417]
18.15 In his new role as Group General Manager of Trading, Mr Goodacre was the person to whom the General Manager of International Sales and Marketing, the General Manager of AWBA (Domestic Trading) and General Manager of Grower Services were to report.[1418] At the time of Mr Goodacre's appointment, each of these positions was vacant.
18.16 Following Mr Officer's departure, Mr Goodacre took over responsibility for the International Sales and Marketing Division until he found a replacement to head that Division.[1419] In June 2000, Mr Goodacre recruited Mr Stott to that position. [1420] Mr Stott, who was with BHP Petroleum Limited at that time, had previously been employed with the Australian Wheat Board, including in the sales and marketing division during the 1990s. Mr Stott had considerable experience as a manager in the Middle East markets.
18.17 In June 2000, Mr Emons had a conversation with Mr Lindberg in which Mr Lindberg advised Mr Emons of the imminent termination of the employment of a number of executives and that he would be manager of International Sales. [1421] Following the departure of Mr Officer from AWB, Mr Emons held the title of Acting General Manager of the International Sales and Marketing Division for a few weeks. During that time, Mr Emons reported to Mr Goodacre. [1422]
18.18 Shortly after Mr Goodacre's appointment, Mr Emons had a conversation with him in which Mr Emons briefed Mr Goodacre on his areas of responsibility and provided him with an overview of each of the markets in which AWB was involved. He also raised with Mr Goodacre his expectation that he would be appointed to the position of General Manager of International Sales. [1423]
18.19 Within two weeks of that discussion, Mr Emons had a further conversation with Mr Goodacre on 19 June 2000 in which he challenged Mr Goodacre with the fact that Mr Stott had been appointed to the position of General Manager of International Sales and Marketing. When Mr Goodacre confirmed Mr Stott's appointment, Mr Emons informed Mr Goodacre that he was going on leave immediately. [1424] He subsequently resigned on 28 June 2000, effective immediately. [1425] The reason for Mr Emons' resignation was because he had taken over Mr Stott's position after Mr Stott had left the Australian Wheat Board in 1996 and did not feel 'as though it would be tenable' to work under Mr Stott. [1426]
18.20 On 3 July 2000, Mr Goodacre sent an email to AWB employees advising that Mr Emons had resigned as Manager, Middle East/Africa in the International Sales division. [1427]
That day, Mr Emons entered into a Deed of Release with AWB.[1428] Clause 7 of that Deed was in substantially the same terms as clause 8 of Mr Officer's Deed of Release. It provided:
AWB acknowledges that it (by its Board and Chief Executive Officer) authorised agency payments during the period 15 December 1999 to 3 July 2000 to overseas agents for sales. [1429]
On his last day at AWB, Mr Emons met with Mr Lindberg who executed the Deed of Release in Mr Emons' presence. Mr Emons signed the Deed at the same time. Mr Lindberg said to Mr Emons at that time:
'AWB is comfortable about signing this document as it has a similar one with Nigel'.[1430]
Mr Emons did not have any discussion with Mr Lindberg about the detail of the agency payments that were referred to in clause 7 of the Deed. [1431]
18.21 Mr Emons gave evidence that he told Mr Goodacre of the 'true nature of the payments that were being made as trucking payments', 'the methods by which payments were being made' but did not tell him that Alia did not do any trucking. He said he told Mr Goodacre that 'a fee was charged by the IGB to ensure our vessels were discharged'. [1432] However he later said that his conversation was 'in the briefest terms' and that the 'only issue that was occupying Mr Goodacre's attention at the time in international marketing was the fact that we had an enormous demurrage bill in Iraq and how we were gong to fix it'.[1433]
Mr Goodacre denied being told by Mr Emons of the 'true nature of the trucking fees, or their link with IGB'. [1434] He acknowledged that Mr Emons may have referred to arrangements regarding trucking but not in any context of there being concerns or problems in relation to such fees.
Whatever was said in the brief conversation between Mr Emons and Mr Goodacre, I am satisfied nothing was said of sufficient detail to attach to Mr Goodacre's knowledge of the true arrangements made between AWB and IGB by Mr Emons the previous year. Nothing was said to or understood by Mr Goodacre to raise concerns of impropriety or illegality of such trucking payments.
18.22 Mr Stott's appointment as General Manager, International Marketing was announced by Mr Lindberg on 22 June 2000. [1435] Although Mr Stott's appointment did not officially commence until 10 July 2000, he spent some time in the offices of AWB prior to taking up his appointment, observing and investigating the Division.[1436] Following his appointment, Mr Stott proposed some changes to the International Sales and Marketing Division. His proposed restructure was approved at an Executive Management Group Meeting on 18 July 2000.[1437]
18.23 On 27 July 2000, Mr Stott sent a memorandum to the International Marketing team, the Executive of AWB and AWBI on the subject of 'Restructure of International Marketing'. In that memorandum, he wrote:
Today I am announcing a number of structural changes to AWB Limited's International Marketing team to ensure our division is strongly positioned to meet the challenges of the future in a competitive international business environment.
These internal changes will assist us in delivering significant improvements in product and service delivery, which will lead to benefits for our customers and will enable AWB to capture superior returns for growers.
The Chief Executive and Executive Committee fully support these changes.
Those staff whose positions have been made redundant through the process of this restructure have been advised. I would like to recognise and thank them for their contribution to AWB, in most cases over an extended period, and wish them well in their next role.
The new leaner structure will give the International Marketing group a more robust and commercially oriented structure. The structure will reposition us for a bright future based on a culture of accountability, commerciality and teamwork, committed to unrelenting performance improvement.
Streamlining the structure will enable us to better identify and deal with our core business, make us stronger in a range of competitive market places and develop mutually profitable relationships with our customers.[1438]
18.24 Attached to this memorandum was a copy of the new organisation chart for International Marketing.[1439] A copy of this chart is reproduced as Figure 11.6 in Appendix 11. The key changes introduced were:
18.25 One of the first steps taken by Mr Stott in July 2000, was to change the method by which inland transportation fees were being paid by AWB at that time. With effect from early August 2000, Mr Stott put an end to AWB's use of Ronly Holdings Limited (Ronly) and its Liechtenstein nominee, Tse Yu Hong Metal Limited, as well as other shipowners, as a conduit for the payment of these fees to Alia.
Before considering the circumstances in which Mr Stott's decision was made and the implementation of that decision, it is convenient first to identify the methods by which inland transportation fees had been paid by AWB up until that time and to examine in particular AWB's use of shipowners as a conduit for the payment of those fees to Alia.
18.26 Inland transportation fees were first paid by AWB in November 1999. This was in respect of the first shipments under contract A4653. AWB thereafter paid inland transportation fees in respect of both:
The method of payment of the inland transportation fees did not differ as between these two categories of contracts.
18.27 Between November 1999 and August 2000, all of the inland transportation fees paid by AWB were paid:
These accounts were maintained in the name of AWB (Australia) Limited and AWB Limited respectively. Most inland transportation fees paid by AWB Chartering during this period were paid from the first of these two accounts.[1441]
18.28 All of the inland transportation fees paid between November 1999 and August 2000 were paid by AWB Chartering either:
or
Mr Stott put an end to the latter method in August 2000.[1444]
18.29 Under this second method, the inland transportation fees were paid by AWB Chartering to the owner of the vessel chartered to carry that shipment to Iraq. These fees were paid either along with the ocean freight payable to the owner or as a component of that ocean freight. The payments would usually be made by AWB Chartering shortly after completion of the loading of the vessel and her departure from Australia.
Following its receipt of these monies from AWB Chartering, the shipowner would:
and
Where inland transportation fees were paid under this second method, AWB Chartering sometimes paid the ship owner a small administration fee in return for its assistance.[1445] These fees were ultimately borne by the AWB Pool.[1446]
18.30 Table 17.1 in Appendix 17 lists AWB's shipments of wheat to Iraq between November 1999 and August 2000, indicating those shipments where the inland transportation fees were paid to Alia directly and indirectly via shipowners. In all but one instance[1447] where inland transportation fees were paid by AWB Chartering to Alia directly the payment was made in two instalments. The first instalment was for 90 per cent of the fees due for the shipment and paid prior to the vessel's arrival at Umm Qasr. The second instalment was for the 10 per cent balance paid following the completion of discharge.
From August 2000, all inland transportation fees paid by AWB Chartering were paid 100 per cent in full to Alia prior to the arrival of the vessel at Umm Qasr, with the exception of the fees for one shipment.[1448]
18.31 Where inland transportation fees were paid indirectly via ship owners, AWB Chartering paid to the ship owner 100 per cent of the fee payable for that shipment. This was paid some time after completion of loading in Australia. In many instances, the ship owner would pay the inland transportation fee to Alia in two instalments. In those circumstances, the ship owner obtained the benefit of the second instalment of 10 per cent until such time as that second instalment was paid. This benefit was in addition to any administration fee that may have been paid.
18.32 Appendix 17 contains a number of diagrams depicting the different methods by which inland transportation fees were paid by AWB prior to early September 2000. Figures 17.1 and 17.2 in Appendix 17 depict the two ways in which inland transportation fees were paid by AWB Chartering to Alia directly. Figures 17.3 and 17.4 in Appendix 17 depict the two ways in which inland transportation fees were paid indirectly by AWB Chartering, through shipowners other than Ronly and its nominee, Tse Yu Hong Metal Limited. Figures 17.5 to 17.7 in Appendix 17 depict the different ways in which Ronly and Tse Yu Hong Metal Limited were used by AWB to pay inland transportation fees to Alia. Figure 17.8 in Appendix 17 depicts a fourth way in which AWB had proposed to use Tse Yu Hong Metal Limited as a conduit for payment of inland transportation fees shortly before Mr Stott's decision in July 2000 to put an end to the payment of those fees via Ronly (and the other shipowners). As a result of that decision, this fourth method was not implemented.
18.33 AWB Chartering obtained reimbursement from the AWB Pool of the inland transportation fees that it paid. It did so in two ways.
18.34 The first was by invoicing the AWB Pool directly for the amount of the fees payable.[1449] This was in addition to, but invoiced separately from, the 'freight' that the AWB Pool was also liable to pay to AWB Chartering. This method was employed in respect of four shipments to Iraq made in late 1999.
18.35 The second method was by including the amount of the fees payable in respect of the shipment as a component of the 'freight' that the Pool was liable to pay to AWB Chartering. In this way, the 'freight' covered both the 'ocean freight' and the inland transportation fees payable. This was the method used by AWB Chartering for the recovery from the Pool of most of the inland transportation fees paid by it.
Figure 17.9 in Appendix 17 depicts these two methods by which the AWB Pool reimbursed AWB Chartering for the inland transportation fees paid by it.
18.36 It was decided within the International Sales and Marketing and Chartering Divisions of AWB in October 1999 that the inland transportation fees payable would be paid to Alia via the shipping companies used to carry the wheat from Australia to Iraq. Consequent upon that decision, on 22 October 1999, Mr Emons sent a facsimile to Mr Daoud at IGB stating:
We have instructed the shipping companies concerned to make payment as directed for the trucking fee.
As discussed we believe that payment should be carried out by a third party to remove any complications. I will discuss with you next week when I am in London.[1450]
18.37 However AWB's first two payments of inland transportation fees were paid by AWB Chartering to Alia directly.[1451] These were the inland transportation fees for the first two shipments under contract A4653. At the time the first of these payments was made, it was described by Mr Emons as a 'one off'.[1452]
18.38 The first payments via shipowners were made in December 1999. These were in respect of five shipments under contracts A4653 and A4654 and were paid through two shipping companies with whom AWB had contracts of affreightment (COAs), namely Hyundai Merchant Marine Co. Limited[1453] and Atlantic and Orient Shipping Company.[1454]
18.39 Hyundai Merchant Marine Co. Limited (Hyundai) was used by AWB Chartering for the payment of inland transportation fees for two shipments in December 1999. Both shipments were under contract A4653 and were shipped to Iraq under a contract of affreightment between AWB (as charterer) and Hyundai (as disponent owner) dated 23 July 1999.[1455]
18.40 For each shipment, Hyundai's invoice included the total amount of the inland transportation fee payable in respect of that shipment. This was described as a 'Trucking Charge'[1456] and was separate from the ocean freight payable for that voyage. AWB Chartering paid to Hyundai the amounts invoiced on 9 December 1999 and 15 December 1999. There was included in each invoice a fee for arranging for the payment. This fee was described as an 'Overhead for Trucking Charge' and was calculated at one half of one per cent (0.5 per cent) of the amount of the Trucking Charge payable.
The arrangements for the payment by Hyundai of these fees on AWB's behalf were not stated within its contract of affreightment of 23 July 1999 or any addendum or amendment to that contract produced to the Inquiry.
18.41 After the completion of loading, AWB Chartering invoiced the AWB Pool for the 'freight' payable for each shipment. The amount invoiced was a composite amount covering both the ocean freight and inland transportation fee. The Pool was subsequently reimbursed the costs of the inland transportation fees from the United Nations escrow account by exclusion of the fees in the wheat price.
18.42 The inland transportation fees paid to Hyundai in respect of these two shipments were paid by Hyundai to Alia in two instalments. On 16 January 2000, Alia sent a facsimile to Mr Emons dated 15 January 2000 setting out the inland transportation fees that it had received for AWB's shipments up until that date.[1457] That facsimile recorded that Alia had received the first instalment of 90 per cent of the inland transportation fees payable in respect of the two Hyundai shipments from December 1999 on 3 January and 16 January 2000. On 30 April 2000, AWB received a telex from IGB requesting payment of the remaining 10 per cent for a number of shipments, including the two Hyundai shipments.[1458] Although there is no direct evidence of the payment of the second instalments for each of these shipments, it can be assumed that the payment was made.
18.43 AWB Chartering paid inland transportation fees to Alia through Atlantic and Orient Shipping Company (Atlantic and Orient Shipping) in respect of three shipments made in November and December 1999. The first two shipments, on 18 November and 3 December 1999, were both shipments under contract A4653. The third, on 18 December 1999, was a shipment under contract A4654.
18.44 All three shipments were shipped under a contract of affreightment between AWB (as charterers) and Atlantic and Orient Shipping (as disponent owners) for the carriage of approximately 500,000 tonnes of wheat.[1459] This contract was concluded on 25 October 1999[1460], just three days after Mr Emons' facsimile of 22 October 1999 to Mr Daoud, in which he advised that AWB had:
- instructed the shipping companies concerned to make payment as directed for the trucking fee.
and that AWB believed:
- payment should be carried out by a third party to remove any complications.[1461]
18.45 The terms of this contract of affreightment were initially set out in a 'recap' telex from Pacific Rim Shipping Pty Limited-acting as agents for Atlantic and Orient Shipping-to AWB dated 25 October 1999.[1462] Relevantly, that telex provided:
TRUCKING/DISBURSEMENTS WILL BE HANDLED BY SEPARATE INVOICE[1463]
18.46 A formal contract of affreightment, on the Australian Wheat Charter 1990 form and dated 25 October 1999, was subsequently prepared and signed by Mr Watson on behalf of AWB and Mr Kudelka of Pacific Rim Shipping Pty Limited as agents for Atlantic and Orient Shipping.[1464]
Three Addenda to this contract of affreightment were produced to the Inquiry.[1465] The first two were signed.[1466] Although the third was not, it does appear to have been given effect to.[1467] None of the Addenda were dated.[1468]
There was no evidence before the Inquiry to indicate when or in what circumstances the first two Addenda were concluded. Nevertheless, having regard to their terms, both are relevant to the instruction to the shipping companies referred to in Mr Emons' facsimile of 22 October 1999 and the arrangement that AWB Chartering sought to put in place.[1469]
18.47 Addendum No. 1 was in the following terms:
It is hereby mutually agreed that all agreed costs associated with trucking charges incurred on the above to be re-imbursed by Charterers and remitted immediately by Owners upon completion of loading to the following nominated account
Cornflower Holdings Limited
Standard Chartered Bank
…………….
…………….. Hong Kong
Account No. …..
A/C Name: Cornflower Holdings Limited
All other terms, conditions and exception to remain.[1470]
18.48 In this Addendum, 'Charterers' refers to AWB; 'Owners' to Atlantic & Orient Shipping; and 'trucking charges' to the inland transportation fee payable by AWB in respect of the wheat being shipped.
Addendum No. 2 provided:
It is hereby further agreed that any shortfall of trucking fees amount to be paid by Owners from freight, but maximum US$1.50 PMT gross from first 150,000/5% more or less Owners option cargo only.
All other terms, conditions and exception to remain.[1471]
Addendum No. 3 provided for the shipment of an additional tonnage of wheat in the period between February and March 2000 as part of this contract of affreightment.[1472] This was pursuant to an agreement AWB concluded with Pacific Rim Shipping Pty Limited (on behalf of Atlantic and Orient Shipping) on 4 February 2000.[1473]
18.49 AWB Chartering made two payments of inland transportation fees via Atlantic and Orient Shipping. The first was on 9 December 1999 for two shipments under contract A4653. The second was on 20 December 1999 for the shipment under contract A4654.
18.50 For each of these three shipments, Pacific Rim Shipping Pty Limited issued (as agent) two invoices to AWB Chartering. The first was for the ocean freight.[1474] The second invoice[1475] was for 100 per cent of the 'trucking fee' payable in respect of that shipment, calculated on the tonnage of the shipment (as loaded) at the rate of US$12 per tonne applicable to contracts A4653 and A4654.[1476] Both the ocean freight and trucking fees were to be paid by AWB Chartering to the nominated bank account of Euro-Asia Chartering Corporation in Singapore (Euro-Asia Chartering), as 'agents to disponent owners'.
18.51 After AWB Chartering had paid each of these invoices:
18.52 There was no evidence before the Inquiry identifying who nominated Cornflower Holdings Limited-a British Virgin Islands company[1481]-and the company referred to in Addendum No.1 to the contract of affreightment-as the company to receive these payments. Nor is there any evidence indicating who it was that stood behind that company at that time.
Mr Watson was not able to recall who it was that nominated Cornflower Holdings Limited[1482] or the purpose for its use.[1483] Although he suggested that it would have been nominated by the shipowner[1484] or the Iraqis[1485] or Alia[1486], he could not say which; there were no documents produced supporting any of these possibilities.[1487] Mr Watson denied that he had nominated Cornflower Holdings Limited to be the recipient of these fees.[1488] He also denied that he had anything to do with that company. Whilst a file note that AWB's Corporate Counsel, Ms Peavey, prepared of a conference she had with Mr Jones (AWB Chartering) and Mr Quennell on 29 October 2003 contains an assertion that Cornflower Holdings Limited was a shelf company for Alia, there is no indication of the source of that assertion.
18.53 Despite Pacific Rim Shipping Pty Limited having described the amounts that were to be paid to Cornflower Holdings Limited as 'trucking fees' in its instructions to make those payments, the amount paid in respect of each of these three shipments was calculated at a rate of US$13.44 per tonne[1489] rather than the US$12 per tonne payable under AWB's contract with IGB, and remitted by AWB Chartering. Accordingly, the amount paid to Cornflower Holdings Limited included an additional US$1.44 per tonne over and above the inland transportation fee.
This additional amount was paid from the ocean freight that Atlantic and Orient Shipping was entitled to under the contract of affreightment. It was apparently paid in purported compliance with Addendum No. 2 to the contract of affreightment, although there is no evidence of 'any shortfall of trucking fees amount' as contemplated by that document. Mr Watson was not able to recall or explain the reason for this additional payment.[1490] He was also unable to recall the reason for Addendum No. 2 in the first place or the need for AWB and Atlantic and Orient Shipping to address the possibility of any shortfall in the payment of the trucking fees. Nor was Mr Watson able to explain why the provisions of that Addendum applied only to a limited tonnage, which was less than the full amount to be shipped under that contract.[1491] He was also unable to say whether Addendum No. 2 and the additional payment it contemplated was related to the 'additional 1.50' referred to in Mr Emons' facsimile to Mr Daoud dated 8 November 1999.[1492] The evidence before this Inquiry does not reveal who ultimately obtained the benefit of these additional funds. Mr Watson denied having received the payment himself.[1493] But irrespective of who ultimately obtained the benefit of this additional amount, it was not a payment by AWB or from funds belonging to AWB.
18.54 The payments to Cornflower Holdings Limited in relation to these three shipments were subsequently the subject of an inquiry by the Singaporean monetary authorities in relation to the possibility of money laundering, and an audit inquiry by Pacific Rim Shipping Pty Limited to AWB dated 15 March 2000.[1494]
18.55 The monies that AWB Chartering paid to Euro-Asia Chartering for the inland transportation fees for these three shipments were eventually paid to Alia.
18.56 In relation to the third shipment, that under contract A4654, Mr Watson sent an email to Mr Emons on 8 January 2000 in which he stated:
2) You saw my message to Grace-to contact you in my absence. Waiting confirmation that 650,000 recvd being due on [vessel name deleted] which needed to cover trucking [amount deleted] mt which eta around 11/1-
if this amount received, then would ask that you instruct grace to remit 521110 to Alia-ref [vessel name deleted] she has details for Alia therefore no need to repeat to her.[1495]
Mr Watson's reference in this email to '650,000' is a reference to the payment that was to be made to Cornflower Holdings Limited in relation to the third shipment and which Pacific Rim Shipping Pty Limited had instructed be made the previous day.[1496] His reference to '521110' is a reference to US$521,110-which was 90 per cent of the inland transportation fees payable in respect of that third shipment. This was the amount that (according to the email) 'Grace' was to remit to Alia. This is consistent with AWB's agreement with IGB at that time for inland transportation fees to be paid in two instalments, the first instalment being 90 per cent of the amount due.
By way of this email, Mr Watson seems to be asking Mr Emons to instruct 'Grace' to remit to Alia the first instalment of the inland transportation fees payable in respect of this third shipment[1497], upon confirmation of the receipt by Cornflower Holdings Limited of the monies[1498] that it was to receive in respect of this shipment.[1499]
18.57 Despite this email, on 18 January 2000 Alia sent a facsimile to AWB, to the attention of Mr Emons, advising that it had still not received the inland transportation fees for this third shipment and requesting that they be paid to avoid any delay to the vessel.[1500]
18.58 On 22 January 2000, Alia sent a further facsimile to Mr Emons confirming receipt of US$578,976.92 on account of the inland transportation fees for this shipment.[1501] The amount received represented payment in full of the fees for that shipment.[1502] The payment was presumably made from the monies that AWB Chartering had earlier paid to Euro-Asia Chartering in respect of this shipment (and which Pacific Rim Shipping Pty Limited subsequently instructed FSSL Singapore to pay to Cornflower Holdings Limited as the 'trucking fees' for this shipment).
18.59 In the meantime, on 10 January 2000, Pacific Rim Shipping Pty Limited received a telex from ISCWT Basra requesting payment of the inland transportation fees for the second shipment made in December 1999:
Still not rcvd confirmation from AWB of remittance funds being cost inland transport wheat in bulk USD (12 per tone) pls laises with AWB and advise method payment order avoid unnecessarily delays of vsls sailing.[1503]
Pacific Rim Shipping Pty Limited replied the following day in a telex to the State Enterprise for Water Transport (SEWT)[1504] Basra, to the attention of Mr Krikor:
Trucking/transportation fees were paid on 27/12/99. Pls check and ensure no delays to vessel's sailing please.[1505]
18.60 On 16 January 2000, Mr Emons received a facsimile from Alia setting out the inland transportation fees that it had received to date.[1506] The facsimile, dated 15 January 2000 and said to have been sent further to 'a telephone call' earlier that day, recorded that the first instalment of 90 per cent of the inland transportation fees payable in respect of AWB's first two shipments had been received by Alia on 23 December 1999 and 3 January 2000 respectively.[1507] These payments had presumably been made from the monies that AWB Chartering had paid to Euro-Asia Chartering in respect of these two shipments and which had in turn been paid on to Cornflower Holdings Limited (upon the instructions of Pacific Rim Shipping Pty Limited and as contemplated by Addendum No. 1 to the contract of affreightment).
18.61 On 21 February 2000, Alia sent a facsimile to AWB, to the attention of Mr Emons, requesting payment of the 10 per cent balance of fees for a number of shipments including the three shipments under AWB's 25 October 1999 contract of affreightment.[1508]
18.62 On 7 March 2000, AWB received a telex from IGB requesting details of the payment of the 10 per cent balance of the fees payable in respect of a number of shipments under contract A4653, including the two shipments shipped under AWB's 25 October 1999 contract of affreightment with Atlantic and Orient Shipping (as well as the two Hyundai shipments).[1509] On 8 March 2000, Mr Emons replied, advising that AWB had not received payments from the United Nations on the vessels listed in the IGB message.[1510] The clear inference from his response was that the second instalment was either not yet due or would not be paid until those funds were to hand. This was notwithstanding that AWB Chartering had already paid 100 per cent of the inland transportation fees payable in respect of two of these shipments to Atlantic and Orient Shipping (and to Hyundai in respect of two of the other shipments listed).
18.63 On 30 April 2000, Mr Watson received a telex from IGB headed 'Inland Transport Charges' and which read, 'Pls be advisd that full amount of following vessels were paied'.[1511] There followed a list of five vessels and a date of payment for each. The list included each of the three shipments shipped under AWB's contract of affreightment with Atlantic and Orient Shipping. The telex concluded, 'So you are kindly requested to transfer 10 ./. [per cent] from amount of inland transport charges of a.m. [abovementioned] vessel's cargo'.[1512]
This telex was confirming that payment in full had by then been made for each of the shipments listed and that, having regard to both the agreement between AWB and IGB for the payment of inland transportation fees by instalments and Mr Emons' facsimile of 8 March 2000, payment of the second instalment of 10 per cent should then be made. This request for payment was repeated by IGB on 25 May 2000.[1513]
18.64 There is nothing in the material before the Inquiry to suggest that the final 10 per cent of the inland transportation fees for these shipments was not paid to Alia in due course. In October 2000, AWB investigated whether there were any payments of inland transportation fees still outstanding, following complaints by IGB that monies were still owing, and it was found that they all had been paid.[1514]
18.65 AWB resumed its shipments to Iraq in February 2000 and between 11 February and 7 March 2000 exported eleven shipments under contracts A4654, A4655, A4906 and A4908.[1515]
18.66 The first instalment of the inland transportation fees payable in respect of the first seven of these shipments was paid on 3 March 2000[1516]; the first instalment of the next four shipments was paid on 10 March 2000.[1517] In both instances, the inland transportation fees were paid by AWB Chartering to Alia directly.
Nine[1518] of these first eleven shipments were shipped with Atlantic and Orient Shipping. Each of those nine shipments was shipped by AWB under its 25 October 1999 contract of affreightment with Atlantic and Orient Shipping (as extended by Addendum No. 3) which contemplated that inland transportation fees payable in respect of shipments would be paid through Atlantic and Orient Shipping. Yet, none of the inland transportation fees payable in respect of any of those nine shipments was paid via that company. They were all paid to Alia directly.
18.67 On 3 February 2000, AWB Chartering concluded a further contract of affreightment with Atlantic and Orient Shipping for the carriage of shipments of wheat to Iraq in the first half of 2000.[1519]
It was into this agreement that Ronly and its Liechtenstein nominee, Tse Yu Hong Metal Limited, were subsequently interposed when the formal contracts of affreightment were prepared and signed in early April 2000.[1520]
18.68 On 3 February 2000, Mr Watson sent a facsimile to Pacific Rim Shipping Pty Limited in which he recorded an agreement for the payment of inland transportation fees to Alia via the principals of Pacific Rim Shipping Pty Limited, Atlantic and Orient Shipping. That facsimile was in the following terms:
Further to our conversation, I am writing to confirm as follows in respect of the contract of affreightment in place, between AWB and yourself in respect of the Iraqi cargoes.
- AWB has sold wheat for delivery Iraq under the United Nations, oil for food program
- The Contracts between AWB/Iraq includes the requirement that AWB arrange inland trucking of the wheat within Iraq. This contract has been approved by the United Nations.
- AWB has entered into an agreement with an established trucking company based in Jordan to manage and arrange trucking.
- It is possible that different trucking companies will be used over the course of the contract(s) and I will inform you accordingly of any change
- As agreed, under the terms of the contract of affreightment between our two companies, upon completion of loading AWB will remit to you the agreed freight together with the agreed trucking fees and require that you immediately remit the trucking fees to the trucking company's nominated account as provided
- Due to the need to ensure that trucks are available to meet the vessel at discharge port, the trucking company requires that funds be remitted to them immediately upon receipt by you of the funds from AWB.
I trust that the above covers the points of our discussion, please advise if any further clarification required.
I would like to take this opportunity to thank you for your continued support and professional service enabling us to carry out the Iraqi program successfully.[1521] [emphasis added]
18.69 The circumstances in which this facsimile was prepared and sent are unclear. Mr Watson was unable to give evidence of those circumstances. There is no evidence of the conversation referred to. The facsimile was described by Mr Watson during his examination as a 'recap' of the terms of an agreement that had been made.[1522] Although the facsimile referred to this agreement having been made in the context of and forming part of 'the contract of affreightment in place', it is not apparent which of AWB's contracts of affreightment with Atlantic and Orient Shipping was being referred to-namely AWB's contract of affreightment dated 25 October 1999, which was extended by an agreement concluded on 4 February 2000 to allow further shipments to be made in February and March 2000[1523] or the further contract of affreightment that AWB concluded with Atlantic and Orient Shipping on 3 February 2000, the same day as Mr Watson's facsimile.[1524]
Mr Watson also agreed during his examination that this facsimile was in the nature of a 'letter of comfort'[1525] and that Pacific Rim had wanted such a letter, although he did not state why. One possible reason was in response to a request that Mr Watson said he had received from Mr Kudelka, Managing Director of Pacific Rim, for written verification from AWB that the transportation fees included in the contracts of affreightment for payment to Alia were in order with the United Nations.[1526] According to Mr Watson, AWB responded to this request by its letter to Pacific Rim dated 16 March 2000. That letter and the letter from Mr Kudelka dated 15 March 2000 are discussed below. But if the words 'contract of affreightment in place' in the first paragraph of Mr Watson's facsimile of 3 February 2000 refers to AWB's contract of affreightment with Atlantic and Orient Shipping dated 25 October 1999, then this facsimile could be a response to Mr Kudelka's request. That is so having regard to the third paragraph which expressly stated that AWB's contracts with Iraq had been approved by the United Nations and thus addressed the subject matter of the request that, Mr Watson says, was made by Mr Kudelka.
18.70 There are a number of observations that may be made about this facsimile.
First, the passage emphasised in the quote above records an agreement that the inland transportation fees[1527] payable by AWB for wheat shipped under 'the contract of affreightment in place'[1528] between AWB and Atlantic & Orient Shipping[1529] were to be paid to Alia's nominated account via Atlantic and Orient Shipping. Moreover, the facsimile confirms the existence of such an agreement at the date of the facsimile, namely 3 February 2000, which was shortly before the resumption of AWB's shipments to Iraq in 2000.
18.71 Second, this agreement was consistent with both the decision made within AWB in October 1999 to pay inland transportation fees via shipowners and AWB's earlier arrangement with Atlantic and Orient Shipping under which that company acted as a conduit for the payment to Alia of the inland transportation fees payable in respect of the three shipments to Iraq in November and December 1999 under AWB's contract of affreightment dated 25 October 1999.
18.72 Third, whilst there may be some uncertainty as to whether the agreement recorded in the emphasised passage was intended to be part of AWB's contract of affreightment with Atlantic and Orient Shipping dated 25 October 1999 or its more recently concluded contract of 3 February 2000, the agreement reflected a preparedness on the part Atlantic and Orient Shipping, shortly before AWB resumed its shipments of wheat to Iraq in 2000, to continue to assist AWB in the payment of inland transportation fees indirectly to Alia as it had in December 1999.[1530]
Yet no further fees were paid through that company beyond the two payments made in December 1999.
18.73 Fourth, Mr Watson's facsimile of 3 February 2000 was false in two material respects.
Contrary to what was asserted in the third paragraph of that facsimile, the terms of the contracts that AWB had concluded with IGB by that time-including their the four contracts since July 1999-did not include a 'requirement that AWB arrange inland trucking of wheat within Iraq'. AWB's only obligation under its contracts with IGB was to pay a fee, variously described as an inland transportation or trucking fee, in the amount stipulated by IGB and to the IGB advised recipient or account. Under the terms of the agreement that AWB reached with IGB, AWB was under no obligation to effect or arrange for the inland trucking of the wheat within Iraq.[1531] Mr Watson knew this.[1532] By February 2000, no one at AWB had taken any steps either to arrange for the inland transportation of the wheat within Iraq or to appoint a transport company for that purpose. Mr Watson had himself taken no such step or entered into any such contract with any transportation company, including Alia, notwithstanding that it was AWB Chartering-the Division which Mr Watson headed-that was paying the inland transportation fees. Although the terms used to describe the price at which the wheat was being sold in both AWB's short-form contracts and the IGB long-form contracts were consistent with AWB having an obligation to arrange for the inland transportation of the wheat within Iraq, the written form of contracts did not in fact reflect the true terms of AWB's agreement with IGB.
The same position applied in relation to the contracts AWB had concluded in late 1999 for the indirect supply of wheat to Iraq via the Russian trade[1533] where the true nature of AWB's obligation, being an obligation to pay the IGB stipulated fee, was expressed in clause 6 of those contracts.[1534]
18.74 Further, contrary to what was said in the fourth paragraph of Mr Watson's facsimile, AWB had not 'entered into an agreement with an established trucking company based in Jordan to manage and arrange trucking'. As at 3 February 2000, AWB had not entered into any such agreement with Alia as Mr Watson knew.[1535] Mr Watson knew that AWB had no contractual relationship with Alia[1536] and that the inland transportation fees being paid to Alia were going to an Iraqi organisation.[1537] Even if Mr Watson believed that Alia had been appointed to arrange the inland transportation of the wheat within Iraq, he knew that AWB had not appointed Alia to do this and that it had been IGB that had made any arrangements with Alia.[1538] It was not until after the commencement of hostilities in March 2003, when AWB found itself obliged by the Office of the Iraq Programme and World Food Programme to arrange for the discharge and delivery of wheat within Iraq, that AWB first concluded a transportation agreement with Alia.[1539]
18.75 On 4 February 2000, Mr Watson received a 'recap' telex from Pacific Rim setting out an agreement to extend AWB's 25 October 1999 contract of affreightment with Atlantic and Orient Shipping, by way of a proposed addendum to that contract.[1540] This agreement contemplated the carriage of a further significant amount of wheat from Australia ports to Umm Qasr in February and March 2000. This agreement subsequently became Addendum No. 3 to that contract of affreightment.[1541]
The terms of the agreement in the 'recap' telex included the following:
- Owise per usual CP, with amended arbitration appointments clause including trucking fees/disbursements to be onpaid by Owners from Charterers for Charterers account per addendum.[1542]
18.76 The agreement that was concluded on 4 February 2000 to extend the operation of AWB's 25 October 1999 contract of affreightment with Atlantic and Orient Shipping expressly provided for the payment of the inland transportation fees for shipments made under that contract to be paid to Alia, through Atlantic and Orient Shipping (as 'Owners') in the same way as the two payments made in December 1999. Yet the payments were made directly by AWB to Alia.
The reason for this departure was because some time between 4 February 2000 and 3 March 2000 (when the inland transportation fees were first paid in 2000), Atlantic and Orient Shipping withdrew from its arrangement with AWB.
18.77 In late 2000, the firm of accountants, Arthur Andersen, was retained by AWB to investigate international business transactions conducted by International Sales and Marketing.
18.78 In the course of their investigations Arthur Andersen spoke with Mr Watson in relation to the circumstances in which AWB came to enter into its arrangements with Ronly. Mr Watson informed them that, when consideration was first being given to the use of the shipping companies to pay the inland transportation fees on AWB's behalf, some of the shipping companies that he had approached had refused to make the payment.[1543] Mr Watson was reported as having said that he had:
approached another company who did make the payments. This company made two payments to the Jordanian trucking company. They withdrew from making any other payments to the trucking company after inquiries were made by the Singapore Monetary Authority for suspicion of money laundering. AWB were asked to support the transactions with a letter.[1544]
The 'company' Mr Watson was referring to was Atlantic and Orient Shipping. The reason it withdrew from its then existing agreements to assist AWB with the payment of inland transportation fees-most recently reaffirmed on 3 February and 4 February 2000-was because of the inquiries made of it in Singapore by the monetary authorities.
18.79 On 15 March 2000, Mr Kudelka sent by facsimile a letter to AWB, advising of the audit inquiry that had been made of his principals (Atlantic and Orient Shipping) in relation to the inland transportation fees that had been paid in December 1999. He requested confirmation from AWB that these payments had been sanctioned by the United Nations and Australian Government:
We are agents for the Owners of vessels under AWB/Atlantic and Orient Shipping Auswheat COA charterparty dated 25th October 1999, wheat Australian to Iraq.
Our principals have had an audit enquiry regarding the payment of 'trucking fees' for the aforementioned contracts first 3 vessels, being … [details deleted] … all Australian wheat for Iraq in/around December 1999.
Can you please confirm by return thankyou that the fees of US$13.50 pmt were required by contractual obligations to be remitted to Messrs. Cornflower Holdings Ltd, a British Virgin Island company at their bank account … Such fees were remitted US$12.00 pmt from AWB via Owners and the balance of US$1.50 pmt was paid out by Owners freight as per addendum no.2 of the aforementioned Charterparty.
We would appreciate your confirmation of same as well as confirmation that all such wheat contracts and requirements thereto, including such fees are sanctioned by the United Nations and approved by Australian Government.
Your prompt attention and reply would be appreciated.[1545]
The audit inquiry that Mr Kudelka referred to was either the inquiry that had been made of Atlantic and Orient Shipping Company by the Singaporean monetary authorities or an audit inquiry prompted by their inquiry.[1546]
18.80 Mr Kudelka's letter was addressed to Mr Ingleby. It was also seen by Mr Watson. He denied that he had asked or arranged for it to be sent by Mr Kudelka or for it to be sent to Mr Ingleby.[1547] He said that AWB's receipt of this letter had come out of the blue.[1548]
AWB replied to Mr Kudelka's request by a facsimile sent the following day, over the hand of Mr Ingleby:
I refer to your fax of the 15th March 2000 concerning shipments from Australia to Iraq covered under a charter party dated 25th October 1999 and would confirm as follows:
1) All wheat contracts between Australia and Iraq are approved by the United Nations and the Australian Government.
2) The payment of trucking fees as remitted via your principals was in accordance with AWB instructions and form part of the contractual obligations of AWB.
I trust that the above satisfies your audit enquiry.[1549]
18.81 Mr Ingleby did not recall receiving Mr Kudelka's letter, although presumed that he had.[1550] His evidence was that it would have been dealt with in accordance with his usual practice for dealing with audit inquiries, namely he would have given it to his personal assistant to identify the relevant person to prepare a response.[1551] That would not usually be some one in his department.[1552] Mr Ingleby did not recall who prepared the reply on this occasion. He believed he did not draft the response; it was most likely prepared by some one from the Chartering Division.[1553] If that were so, it is inconceivable that Mr Watson, as the head of that division and the person who up until that time had been corresponding with Pacific Rim Shipping Pty Limited in relation to AWB's agreement with Atlantic and Orient Shipping Company would not have been involved in or at the very least known of the preparation of any draft response.
Mr Ingleby's evidence was that when he received the draft reply, he would have quickly read it to see that it made sense, assumed that the person who prepared it had done it correctly and if it had made sense, signed it and sent it out.[1554] He said that he would not have paid much attention to the detail.[1555] This was notwithstanding his concession that the subject matter of Mr Kudelka's inquiry, namely a shipping company being used to pay trucking fees, was unusual.[1556]
18.82 Mr Watson gave very different evidence of the circumstances in which Mr Kudelka's letter was considered and Mr Ingleby's reply came to be drafted. According to Mr Watson, following his receipt of Mr Kudelka's letter (most likely from some one in AWB), he met with Mr Officer and Mr Emons to discuss its contents. Mr Ingleby was also called into that meeting. According to Mr Watson, during that meeting they 'fully discussed all aspects of the letter and the response that would be given to Pac Rim'.[1557] This was because the letter 'went to the heart of what AWB was trying to avoid'[1558], namely discovery of the payment of the trucking fee that AWB was trying to disguise.[1559] According to Mr Watson, a reply was drafted at that meeting, which Mr Ingleby signed there. The letter was then sent to Pacific Rim Shipping Pty Limited.[1560]
Mr Emons could not recall 'a specific meeting' which he attended and at which Mr Kudelka's letter was discussed.[1561] Mr Officer did not give any evidence about this letter or whether he had any meeting in relation to it.
18.83 Whoever drafted the letter in reply, it was cleverly crafted. It stated that all wheat contracts between Australia and Iraq were approved by the United Nations and the Australian government, and that the payment of trucking fees remitted through the shipowners was in accordance with AWB's instructions and in fulfilment of AWB's obligations. It did not address whether AWB had contractual obligations to pay 'trucking fees' to Cornflower Holdings or whether the payment of such trucking fees were sanctioned by the United Nations and approved by the Australian government, as the letter from PacRim had asked.
At the time AWB's reply of 16 March 2000 was sent, AWB was actively taking steps to conceal the fact it was paying inland transportation fees to Iraq. It did not want information regarding these fees to be known outside of AWB.[1562] It went to lengths to keep this information and information pertaining to these payments confidential.[1563]
AWB's response of 16 March 2000 to Mr Kudelka's request of 15 March 2000 was deliberately crafted in the way that it was to appear to provide the assurances sought and to otherwise deflect the inquiry that had been made of AWB, without disclosing the true and full position.
18.84 On 20 June 2003, the Managing Director of Atlantic and Orient Shipping Company sent an email to Mr Ingleby[1564], which was also copied to Mr Jones in AWB Chartering, seeking further information from AWB, supplementary to Mr Ingleby's letter of 16 March 2000. In particular, the email sought:
to include specific information and references in order to avoid further auditing for the purpose of determining illegal banking activity.
As you are probably aware new regulations to stem the flow of funds for illegal terrorist and drug activities have been adopted in most banking centers that pertain to all transactions whether past/present/future.
The short list of requirements as specified below need only refer to the aforementioned letter and again we very much regret any inconvenience this request may cause.[1565]
Two of the questions that AWB was asked to answer were:
BB) that said funds transferred via Atlantic and Orient Shipping were for lawful purposes
…
DD) that nothing contained within the transfers and/or payments made between AWB and Atlantic and Orient Shipping would in any way cause extraordinary legal liability to Atlantic and Orient Shipping.[1566]
18.85 On 22 June 2003, Mr Ingleby forwarded a copy of this email to Mr Jones with the following request:
Can u fix this or refer to Gordon to sign if something needs signing.[1567]
Mr Jones, in turn sent an email to Ms Caldwell to 'dig out' the letter that Mr Ingleby had originally sent.[1568]
On 25 June 2003, Atlantic and Orient Shipping Company sent to Mr Jones by facsimile a copy of both Mr Kudelka's letter of 15 March 2000 and AWB's reply of 16 March 2000.[1569]
18.86 On 27 June 2003, Mr Jones forwarded to Ms Lyons, one of AWB's Corporate Counsel, a copy of the 20 June 2003 email, stating:
I'll put a copy of the original on your desk.
Is there any reason as to why we should not comply with their request ?[1570]
18.87 On 1 August 2003, Atlantic and Orient Shipping Company sent to AWB, at its request, a copy of the contract of affreightment and addenda relevant to its inquiry.[1571] On 16 October 2003, Mr Lee from Atlantic and Orient Shipping Company sent an email to Mr Jones chasing AWB's response to their earlier inquiry.[1572] He wrote:
regretably, after numerous chances to response to our expressed concerns on the matter of 'Cornflower' AWB has still not replied. Owners have no choice but to turn to alternative channels to seek information and protect their interests.[1573]
18.88 On 23 October 2003, Mr Jones replied to Mr Lee's email.[1574] Mr Jones expressed regret for the delay in responding because 'the persons who handled this COA left AWB's employ some time ago [and] it has take some time in which to investigate the specific matters'[1575] referred to in the original inquiry. Mr Jones continued:
I can confirm that Mr Ingleby's letter of 16 March 2000 was intended to refer to the COA between AWB Limited and A & O [Atlantic and Orient Shipping Company] dated 25 October 1999.
I can also confirm that each sale contract in respect of which wheat was shipped under the COA received prior UN approval.[1576]
The email concluded by stating that AWB was not in a position to provide advice as to whether payment made by AWB to Atlantic and Orient Shipping Company would cause 'extraordinary legal liability to Atlantic & Orient Shipping' and was not in the business of providing advice on legal issues, especially in relation to 'recent banking laws' in Hong Kong and Singapore.
18.89 Whilst the confirmation provided by Mr Jones was correct in the narrow terms in which it was expressed, like AWB's letter of 16 March 2000 it did not disclose the complete picture regarding the payment of inland transportation fees. The statement that the sale contract was UN approved was apt to be construed as meaning that the payment of the inland transportation fees had also been UN approved.
Further, although Mr Jones' email specifically addressed the subject matter of paragraph DD) of the original request in the email of 20 June 2003[1577], it did not address the question posed in paragraph BB) of that email at all.
18.90 On 28 October 2003, Mr Lee responded to Mr Jones' email:
Fyg Owners have tried their best to avoid any appearance of confrontation however the reply to our enquiry leaves us no choice but to ask AWB for an explanation as to why a vendor for a grain contract between AWB and an U.N. agency required 'trucking fees' to be paid via the shipping company carrying the freight.
Why this requirement was only necessary for four shipments and why the shipping company cannot be afforded some written documentation specifically explaining these otherwise strange banking transactions. The shipping company now stands unprotected from possible accusations in the face of an audit of grain shipments into Iraq.
The shipping company was asked to receive and pay out substantial sums in the name of 'trucking fees' without any supporting documentation. In retrospect, these payments look questionable to an outside enquirer and we would like to receive solid supporting documents. Your reply hardly fits that need.[1578] [emphasis added]
18.91 On 28 October 2003, Mr Jones sent a copy of Mr Lee's email to Ms Peavey, Mr Quennell and Mr Cooper, and sought their advice as to the next step.[1579] The following day, Mr Jones met with Ms Peavey and Mr Quennell to discuss this issue.[1580] At the end of Ms Peavey's note of that meeting, she records:
Get P Jones call Lee (A&O)
- who is he
- purpose
- to say AWB can't do anything further
Feedback response[1581]
18.92 Despite what was said in both Mr Watson's facsimile of 3 February 2000 and AWB's letter of 16 March 2000, Atlantic and Orient Shipping did not assist AWB any further by making payments of inland transportation fees to Alia on AWB's behalf, as it had in December 1999 and as it had agreed to do again in the agreements recorded on 3 February and 4 February 2000.
Rather, after 10 March 2000, the inland transportation fees payable in respect of shipments of wheat to Iraq made under AWB's contracts of affreightment with Atlantic and Orient Shipping were instead facilitated by the arrangement that AWB concluded with Ronly in March 2000 and the interposing of Tse Yu Hong Metal Limited (as Ronly's nominee) into AWB's then existing contracts of affreightment with Atlantic and Orient Shipping.[1582] Consequently from 16 March 2000 onwards, AWB Chartering paid the inland transportation fees payable in respect of those shipments made under both its contracts of affreightment with Atlantic and Orient Shipping of both 25 October 1999 and 3 February 2000, as well as with other shipowners, to Tse Yu Hong Metal Limited who in turn paid those fees on to Alia on AWB's behalf.
18.93 Ronly Holdings Limited is a company incorporated in England that carries on business as a grain trader.
In mid 1999, AWB entered into discussions with Ronly regarding the possible establishment of a joint venture grain trading company. The proposed vehicle for this joint venture was Corgrain Limited, a company incorporated in and carrying on business in the United Kingdom. In 1999, representatives of AWB travelled to England to meet with representatives of Ronly, and to carry out a due diligence on that company. The discussion of this proposed joint venture continued through into mid 2000. During this period, AWB Chartering also concluded a number of charters with Ronly for the carriage of grain on that company's behalf.
18.94 When consideration was first being given within AWB in 1999 to possible methods for the payment of the inland transportation fees introduced by Iraq from phase VI of the Oil-for-Food Programme, it was suggested that Ronly could be used to pay these fees on AWB's behalf.[1583] The proposal was not implemented at that time. AWB initially approached and used the shipowners. Ronly was not approached until early 2000.
18.95 On 6 March 2000, AWB concluded an agreement with Ronly under which Ronly agreed to assist in the payment of inland transportation fees on AWB's behalf. This agreement and the need for the arrangements that flowed from it were, at least in part, a consequence of the failure of some shipowners to assist when approached and the withdrawal of Atlantic and Orient Shipping from its earlier agreement to assist AWB Chartering.
18.96 The circumstances in which AWB concluded its agreement with Ronly are described in correspondence
Mr Nori Bali, a director of Ronly, wrote to Ms Rosemary Peavey, AWB Corporate Counsel, on 22 July 2002 after AWB's agreement with Ronly had come to an end in the context of a disputed claim by Ronly for an indemnity from AWB for a claim made against Ronly by Atlantic and Orient Shipping Company arising out of the collision of the Amarantos in 2000. Mr Bali's letter was in the following terms:
I was present during the meetings and discussions which took place with Trevor Flugge, the then Chairman of the AWB; Michael Watson, the then head of chartering and Nigel Officer and Mark Emons who, at that time were responsible for AWB's business with Iraq. Paul Ingleby head of AWB's finance department was also fully aware of and authorised these transactions.
Prior to being approached by the AWB we had no involvement either direct or indirect with the AWB's sales of wheat to Iraq. In early 2000 the AWB became concerned at whether payments which they were making for inland trucking in Iraq were in breach of UN sanctions against Iraq. The AWB approached us for assistance. At the time when the relevant discussions took place the AWB had already concluded the contract of affreightment with Atlantic and Orient pursuant to which the 'Amarantos' was chartered. Atlantic and Orient Shipping only agreed to the transfer of the contract to Ronly on the basis that the AWB would remain responsible for the management and control of the vessels chartered and for all financial obligations. Equally we were only prepared to front the business for the AWB because at that time we were about to enter into a joint venture partnership with the AWB. We required and were given the assurance that this business would be fronted by us and an offshore company on a full indemnity basis.
In these circumstances your bald statement that you are 'not satisfied' that there is an obligation to indemnify Ronly in respect of any liability that Atlantic and Orient may successfully establish, is totally unsatisfactory and unacceptable. Ronly are neither interested in nor involved in this claim nor care whether this claim ends up being circular or not. My only concern is that you accept responsibility for what is an AWB problem.
If I do not receive a response from you by our opening on 30th July I will assume that you are not prepared to provide the confirmation required. [1584] [emphasis added]
18.97 The second piece of correspondence is an email headed 'Iraq freight and trucking fees' that Mr Emons sent to Mr Bali on 7 March 2000, at about the time AWB concluded its agreement with Ronly.[1585] Mr Emons wrote:
Nori,
Just wanted to touch base with you. When Erol was in town last week Michael Watson had a brief discussion with him on Ronly handling the trucking fee and vessel freight for the AWB into Iraq.
If I can clarify:
1. We have received approval from the United Nations to ship to Iraq 900,000 tonnes in March, April and May.
2. A requirement in the tender document and in our contract price is the inclusion of a payment of USD15 per tonne for trucking in Iraq. I have confirmed this figure with the Iraqi official I deal with but he has not as yet confirmed how he wants to have it paid specifically.
3. This is the twist, under UN/Australian policy no payment can be made directly to Iraq however our contracts have been endorsed by both parties to pay this trucking fee to a third party.
Under the last contracts we have instructed the shipping companies under the Charter party to make payment to a Jordanian trucking company. We did this to a) simplify the process from our point of view but b) to divorce clearly from the FOB price any connection with a shipping/logistics chrge should the contracts come under scrutiny. The only difference is under our own Time charters we have made the payment ourselves.
4. Now this has been going quite smoothly until recently when two of our companies ran into internal problems with making the payment. One was obviously an issue where its offshore senior management ran scarred of getting caught up in sanctions etc. and everything that could entail for their business. The other companies problem stemmed from its banking route through Singapore where there are always serious concerns in that environment on money laundering and despite assurances from ourselves they obviously have more to lose than we can guess at.
5. Now why do we want to use Ronly ? It would be ideal from our point of view if we have a third party that handles the freight and trucking as an item. This not only saves us time but does disguise the fee.
6. Our proposal is this. We pass to Ronly the Charter parties from the ship owners. At Shipment Ronly invoices AWB for the freight and trucking fee to be paid after B/Lading date. Ronly pay the shipper [i.e. ship owner] and then approximately 15 days after B/L [bill of lading] pay 90% of the trucking fee to the transport CO in Jordan. Some 45 to 95 days later AWB is notified by the UN of the final weights. At this point of time the final payments are made by Ronly for the trucking fee to the relevant parties.
7. What's in it for Ronly? The exercise is one of administration but in simple terms there are funds available 10 to 15 days and a balance sitting for a further 30 plus days. On top of this no doubt you see to advantages of working with a partner !
Call me when you have a moment so we can talk, needless to say please be discreet with whom you discuss in AWB.[1586] [emphasis added]
18.98 The first paragraph referred to AWB contracts A4970, A4971 and A4972 with IGB, which AWB had concluded in January 2000[1587] and which were approved by the United Nations on 3 March 2000. A copy of the UN approval was provided to AWB's office in New York on 6 March 2000.[1588] AWB had only just received that approval at the time of this email.
The 'tender document' referred to in the second paragraph was the wheat tender for phase VII of the Oil-for-Food Programme. This in fact specified a 'cost of discharge and … land transport' of US$14 per tonne.[1589] However when contracts A4970-A4972 were concluded, AWB agreed with IGB to pay an inland transportation fee of US$15 per tonne.
The second part of the first sentence in paragraph three was incorrect. The payment of the 'trucking fee' to a third party was not 'endorsed' on either the AWB short-form or IGB long-form contracts for the three contracts that Mr Emons referred to in the first paragraph of his email, namely contracts A4970, A4971 or A4972. Although AWB's four earlier contracts from the second half of 1999[1590] had contained a clause referring to the payment of 'discharge costs' to 'nominated Maritime Agents in Iraq', a clause in similar terms which had been included in the original drafts of contracts A4970, A4971 and A4972 was deleted prior to those contracts being signed by Mr Emons.[1591] It was also not included in the copies of those contracts that were submitted by AWB to the United Nations for its approval or that were the subject of the approval subsequently given. This was notwithstanding that the clause had been included in Mr Emons' earlier facsimile of 20 January 2000 to the IGB, confirming the terms of these sales and was clearly part of AWB's agreement with IGB.
The second of the two companies referred to in paragraph 4 was Atlantic and Orient Shipping Company, which withdrew from its agreement to assist AWB in the circumstances described earlier in this chapter. The 'assurances' that Mr Emons referred to presumably included a reference to Mr Watson's facsimile of 3 February 2000. The statements made in the fourth paragraph about this second company are consistent with the facts outlined earlier in this chapter and what Mr Watson told Arthur Andersen when he was interviewed by them later in 2000.
18.99 Mr Emons' email of 7 March 2000 to Mr Bali makes plain that AWB:
18.100 This email was not produced to the Inquiry until the evening of 27 September 2006, two days before the hearings of the Inquiry were expected to close. Yet it had evidently been created on AWB's IT system on 7 March 2000. A copy of it, and three other documents had been faxed to AWB's Corporate counsel Ms Rosemary Peavey on 16 August 2002, and copied to Mr Long on the same date, by Mr Nori Bali in support of Ronly's claim for indemnity from AWB for any damages claim that might arise out of a collision between the Amarantos and the Wallaroo jetty. Ronly's position, as explained by Mr Bali, was, in substance, that its role had been limited to being a conduit for the payment of inland transport fees through its nominee, Tse Yu Hong Metals Limited to Alia at AWB's direction and that it ought to be indemnified by AWB in respect of the claim, should it arise.[1592] Ms Peavey read the email and wrote upon a paper copy of it which she kept in a legal file. She forwarded it to outside solicitors retained by AWB to deal with the Amarantos matter. Those solicitors had previously written to her recommending that:
Before you can respond meaningfully to Ronly, it is necessary that contact be made with as many of the persons from AWB referred to in paragraph 2 as possible. That may require the provision of written statements in order to ascertain exactly what has occurred.[1593]
The reference to 'the persons from AWB referred to in paragraph 2' was to Mr Flugge, Mr Watson, Mr Officer, Mr Emons and Mr Ingleby.
18.101 Ms Peavey did not follow the advice of AWB's external lawyers and make contact with any of those nominated by Mr Bali. Why she did not do so, she could not say. There was nothing on the Phillips Fox file dealing with these matters or explaining why no contact had been made with those referred to. One would have expected this matter to have been followed up by Ms Peavey.
18.102 Mr Bali's letter of 22 July 2002 is confirmation of the description of the relationship with Ronly in Mr Emons' email of 7 March 2000.
18.103 Mr Bali is unlikely to have made the claims which he had about the knowledge and involvement of others in the arrangements made with Ronly if those claims were untrue for they could readily have been investigated.[1594] Mr Bali repeated these claims in a further facsimile to Ms Peavey on 16 August 2002, wherein he invited her to contact those that he had referred to as having knowledge of the true arrangements between AWB and Ronly.[1595] She did not do so.
18.104 On 30 April 2004 Mr Quennell had a conference via telephone with Mr Flugge in the course of which Mr Quennell made the following notes:
Trevor Flugge.
Peter McEwen may have some information on management discussions.
Peter was with TF at Woolmark Co.
97/98-I was in Canada
Saskatchewan Wheat Pool had tried to put wheat into Iraq-got badly burned-I was approached to talk about this issue.
I can recall talking to management team (Mark Emons)
Some discussion re transport thing.
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.
Canadians had trouble-ships turned away from port
I recall this payment would be made through Ronly-
my suspicions were it was a set-up between Emons & Ronly.
Once AL came on board-clean out of staff-we were paying Alia direct-life went on
I thought it was approved by UN-always upfront-money went for inland transport
I have no idea where money actually went-some money would have been spent on inland transport-
Some transport from Jordan-
Significant costs for transportation
IGB had no money-need for infrastructure to be built-needed source of income to do that-
Extensive bunker building programme IGB were involved in.
Even Umm Qasr itself port improvements-
Were all looking for 'hidden dollar'-
most of money legitimately spent
This comes more from hindsight now as opposed to the time.
Didn't [illegible] any recollection of written memos
15/3/00 AWB-IGB fax
There was a discussion with Austrade-
it was [illegible] information raised as a concern but not something to get worked up about.
Austrade may have a message-record,
5/4/00
Doesn't ring any bells with me.
If there was a UN concern we needed to discuss with it-
I never instructed them what to do.
7/4/00.
Fair degree of openness about this
[illegible] [illegible] meeting's [illegible] IGB to some extent.
UN weren't saying don't pay, but this is how to pay
Don't breach Rules!
My real concern was Ronly link-[1596]
18.105 Mr Quennell's evidence about these notes was somewhat at odds with their literal interpretation. He said:
Mr Agius: Just to go back to where we were, can we bring up AWB.0468.0012, which is exhibit 1334, the typescript of your notes of interview with Mr Flugge. You were speaking of the circumstances in which you came to record:
Effectively we paid money back to IGB then they did inland transport-we paid it back through Ronly-they paid Alia Transport.
Now, none of the documents that you had sent to Mr Flugge that morning referred to Ronly paying money to Alia Transport. What was the conversation with Mr Flugge that led to you making those notes, Mr Quennell?
A: Mr Flugge was referred to in those documents which I did send him either by name or-sorry, when I say 'those documents', in some of those documents, was referred to either by name or as our chairman, and I wanted him to ask about those documents, and, in the context of asking him about those documents, I sought his recollection generally in relation to the trucking fee issue.
Q: And in response to those questions he told you what we read in those two lines that I've read to you?
A: In broad terms, yes.
Q: So, in broad terms, he told you that AWB paid money back to the IGB?
A: Well, that's what I wrote.
Q: That's why I'm asking you the question. In broad terms, that's what he told you?
A: Yes, that's what he would have said.
Q: And that the IGB did the inland transport?
A: Yes.
Q: And that AWB had paid that money back through Ronly, who in turn paid it to Alia Transport?
A: Yes.
Q: So the picture you were getting from Mr Flugge was that AWB paid the money to Ronly, who paid it to Alia, who paid it to IGB, who did the inland transport?
A: No, I didn't get that from him.
Q: What picture did you get from what he was telling you?
A: Well, what I gathered him to be saying was that money was being paid to Alia for inland transport within Iraq, which was in effect giving the money back by way of rebate to IGB.
Q: And that the IGB did the inland transport?
A: Well, as opposed to AWB having actual responsibility for the inland transport.[1597]
18.106 This version of the conversation does not fit comfortably with the notes. But even on this version, Mr Flugge has admitted that his knowledge of the contractual relationship between AWB and IGB was different to that disclosed in any of the written contracts approved by the United Nations.
However Mr Flugge denied that whilst he was Chairman he knew that AWB paid for inland transport through Ronly.[1598] I reject that evidence.
18.107 The terms of the agreement that AWB concluded with Ronly were contained in a facsimile that Mr Watson sent to Ms Simone Jordon of Ronly the previous day, 6 March 2000:
I refer to our discussions and thought for good order sake, that I would drop you a line to re-affirm the points of agreement that were reached
- Ronly or a company to be nominated to assist AWB in facilitating the payment of Inland Trucking fees within Iraq, to the nominated trucking company
- Trucking Fee to be remitted to the nominated trucking account upon receipt of trucking fee from AWB
- Total cargo approx. 1.5 million metric tons
- Shipment period March - July 00
- Where required, Ronly or a company to be nominated will also arrange to pay freight to Owners nominated by AWB, in the execution of AWB shipments to Iraq. Such freight to be remitted to Owners, upon receipt from such freight from AWB.
It is agreed Ronly or a company to be advised, will provide administration support and will issue required invoices to AWB upon sailing of each vessel for trucking and where required freight.
It is understood that Ronly or a company to be nominated will not be responsible for the payment of either trucking fees or freight unless same received from AWB.
It is agreed that AWB will pay a fee of USD 0.20 Per Metric Ton, to Ronly or a company to advised in the execution of the above contract.
I would ask that you issue me an invoice periodically for shipments effected to cover the above fee and that such should be kept separate to any trucking or freight invoices.
I trust that the above in line with your understanding of the agreement that we reached. If there are any questions or anything that I have left out, please do not hesitate to let me know.
If you are going to use the services of another company to perform the above, then please let me know, together with their banking details.
I will advise you in due course the banking details of the trucking company as they tend to change the banking details from time to time.
I expect that I will place a couple of our existing contracts with Owners via you or the company that will be used. However I will revert on this point in the near future. As discussed, if this happens, then we will need back to back c/ps on terms, freight rates etc and in order to efficiently manage the contracts, AWB would need a side letter to act as 'managers'.
As advised, we can discuss this later.
Thanks again for your assistance in this matter.[1599] [emphasis added]
18.108 This facsimile was said by Mr Watson to have been sent further to 'our discussions'. There would therefore seem to have been discussions in which Mr Watson participated. This is also consistent with what was said in both Mr Emons' email of 7 March 2000[1600] and Mr Bali's letter of 22 July 2002.[1601] These discussions would appear to have taken place during a visit by Mr Yahya and Ms Jordon to Melbourne in late February or early March 2000. Mr Bali also asserted in his letter that Messrs Flugge, Officer and Emons also participated in these meetings and discussions. Mr Watson's evidence was that he had learned of the agreement to pay Ronly a fee of US$0.20 per tonne from Mr Emons[1602] and that he had been informed by Mr Emons that he (Mr Emons) had discussed the fee with Mr Flugge.[1603]
There is no direct evidence of these meetings or what was said during them. But in the absence of any correspondence from Ronly disputing what Mr Watson had set out in his facsimile of 6 March 2000, it can be concluded that that facsimile accurately recorded the terms of the agreement that had been reached.
18.109 On 15 March 2000, Mr Simon Gabathuler at Fiscon Trust Reg. sent a facsimile to Ronly advising that he had:
reserved the following company for this business
NAME TSE YU HONG METAL LIMITED
PLACE VADUZ
FORMATION 21.06.96
……
Should you require a different name for the company please tell me tomorrow morning (i.e. if you like to omit 'metal' or change it all together) I can do that within two days.[1604]
Tse Yu Hong Metal Limited subsequently became the company that (as nominee of Ronly) was used as a conduit for the payment of the inland transportation fees under AWB's agreement with Ronly.
18.110 On 16 March 2000, Mr Watson wrote to Tse Yu Hong Metal Limited in the following terms:
Ref: Australian Wheat-Ex Australia to Iraq
I refer to the agreement with Ronly for the remittance of trucking expenses for inland transportation within Iraq.
For the sake of good order, remittances to be effected to:
Alia for Transportation and General Trade
…… [ banking details deleted]
Remittance of the agreed trucking fees should be sent to the above a/c immediately upon receipt of funds, unless otherwise instructed.
It is expected that the transportation company may require from time to time to arrange remittances to other accounts and you will therefore be instructed accordingly.
Thank you for your assistance in this matter.[1605]
18.111 Of the 42 shipments to Iraq that AWB made between November 1999 and August 2000, Ronly and its nominee Tse Yu Hong Metal Limited were used as the conduit for the payment to Alia of the inland transportation fees in 16 shipments, commencing with the first four shipments in March 2000.[1606] The first payments of inland transportation fees via Tse Yu Hong Metal Limited were made by AWB Chartering on 31 March 2000 in respect of a number of shipments made in March 2000.
18.112 There were three methods by which Ronly, and its nominee Tse Yu Hong Metal Limited, were used by AWB in the payment of inland transportation fees.
18.113 The first was foreshadowed by Mr Watson in his facsimile of 6 March 2000.[1607] Under this method, Tse Yu Hong Metal Limited was interposed as the nominee of Ronly into contracts of affreightment that AWB had already concluded with some of its other shipowners.[1608] This was done by the establishment of a series of back to back contracts of affreightment on substantially identical terms between (a) AWB and Tse Yu Hong Metal Limited and (b) Tse Yu Hong Metal Limited and the shipowner. Under the terms of the contract of affreightment to which AWB was a party[1609], AWB Chartering would pay to Tse Yu Hong Metal Limited in relation to each shipment both the ocean freight and the amount of the inland transportation fees applicable to that shipment. Tse Yu Hong Metal Limited would in turn pay the freight onto the shipowner under its contract of affreightment with the shipowner, and the inland transportation fee to Alia.
This first method is depicted in Figure 17.5 in Appendix 17. An example of the use of this first method was the interposition of Ronly and its nominee Tse Yu Hong Metal Limited into the contract of affreightment that AWB concluded with Atlantic and Orient Shipping on 3 February 2000.
18.114 The second method was a variation of the first except that under this second method, AWB Chartering would pay to Tse Yu Hong Metal Limited in relation to each shipment a single amount for the carriage of that shipment to Iraq.[1610] The amount paid was described as 'freight' and was the sum of the ocean freight payable by Tse Yu Hong Metal Limited to the shipowner for the carriage of the shipment to Iraq, and the inland transportation fees payable in respect of that shipment.
In this way, there was no separate disclosure or identification of the inland transportation fee or the amount of that fee or of its payment in AWB's records. Rather, the inland transportation fee was subsumed into the 'freight' that was otherwise paid in respect of that shipment.
From the amount that it received from AWB Chartering as 'freight' for each shipment, Tse Yu Hong Metal Limited would then remit to the shipowner an amount sufficient to pay the ocean freight, and pay the amount of the inland transportation fees for the shipment to Alia.
This second method is depicted in Figure 17.6 in Appendix 17. The inland transportation fees payable in respect of a number of shipments under contract A4971 were paid in this way.[1611]
18.115 The third method involved AWB Chartering entering into a contract of affreightment or charterparty with the shipowner for the carriage of wheat to Iraq and paying the ocean freight for each shipment to the shipowner, in the usual way. At the same time, AWB Chartering would also pay the inland transportation fees payable in respect of that shipment to Tse Yu Hong Metal Limited, who would in turn pay those fees on to Alia on AWB's behalf.[1612]
This third method is depicted in Figure 17.7 in Appendix 17. This is the method that was initially employed by AWB for the payment of the inland transportation fees for those shipments made in March 2000 under AWB's contract of affreightment with Atlantic and Orient Shipping Company dated 25 October 1999, as extended by Addendum No. 3.[1613]
18.116 On 3 April 2000, Mr Watson sent an email to Mr Yahya at Ronly, in which he set out the details of the manner in which he proposed to give effect to AWB's recently concluded agreement with Ronly:
5) Charter party details
we currently have several contracts in place with 3 owners for the Iraq contract,
- 590,000 mt
- 200,000 mt
- 80,000 mt
- 150,000 mt under AWB t/c vessels (trucking only)
all 5 pct moloo
I am presently arranging as follows
a) Ammending AWB present c/p with owners-to show as Charterers' 'Co to be Nominated by Ronley Holdings Limited' (performance of which to be guaranteed by AWB)
b) AWB Limited will provide the Owners with side letter as follows
-confirmation that AWB Limited responsible for the day to day operation /management of the charter party
-AWB will issue any LOI that maybe required
all terms and conditions of this c/p to be exactly as current between Owners/AWB Limited
c) A Charter Party between 'Co.to be Nominated by Ronley Holdings Limited' (performance of which to be guaranteed by Ronley ) as Owners and 'AWB Limited as Charterers'
d) Ronley as Onwers, will provide letter to AWB, appointing AWB Limited to act as managers for the performance of this contract and where required sign and document (including c/p) and issue any LOI as necessary to execute this contract
This c/p to be same terms and conditions as above, except will include trucking fee and amended freight rates when required.
e) Owners will invoice Ronley (Tse Yu Hong Metal Limited) for the freight
f) The Co (Tse Yu Hong Metal Limited) will issue AWB with an invoice for the freight rate + trucking.
g) AWB will remit funds to Ronley to pay Owners invoice
h) It will be necessary to finalise a contract for the trucking fees, where there is no freight involved, I will draft ( [vessel names deleted] etc)
Please let me know if the above OK with you.[1614]
18.117 Essentially, Mr Watson proposed that Ronly or its nominee be interposed into one or more of three contracts of affreightment for the carriage of wheat to Iraq that AWB had in place at that time with other shipowners. These included, for example, the contract AWB had concluded with Atlantic and Orient Shipping Company on 3 February 2000.[1615] The manner in which Ronly or its nominee was to be interposed into these existing contracts was set out in paragraphs (a) to (g) of Mr Watson's email. Paragraph (h) of the email, which referred to those shipments where no 'freight' would be payable by AWB, such as a shipment under a vessel on time charter to AWB[1616], was relevant to the third method in which Ronly was used.
18.118 Although there is no evidence of any written response from Ronly to this email of 3 April 2000, Ronly's agreement to Mr Watson's proposal can be inferred from its subsequent implementation. On 8 April 2000, Mr Watson sent two facsimiles to Ms Jordon at Ronly in which he proposed that Ronly be interposed into two of AWB's existing contracts of affreightment.
18.119 The first facsimile was in respect of the contract of affreightment AWB had concluded with Atlantic and Orient Shipping Company on 3 February 2000 and was in the following terms:
1) 590,000 mt Australia/Iraq-Pacrim
Please find enclose c/p between AWB/Ronly which is back to back terms with c/p between Pacrim/Ronly
Freight rate USD ………
All basis foist 1/1 basis
…. Pct addcome to AWB
Trucking fee of USD 15 p/mt to be included in the freight rate (no addcom on trucking)
2) Performing vessels under Pacrim at this time
AMARANTOS-eta load port on/about 8 April-load about 49000 mt
Freight rate USD …. p/mt less … addcom + USD 15.00 trucking
[vessel name deleted]-eta load port 20th April
Freight rate USD …. p/mt less … addcom + USD 15.00 pmt
+
Travelling as of Monday, anything you need send me an email on my private email …….@netscape.net
thanks
Michael.[1617]
18.120 Consistent with the proposals contained both in this facsimile and in Mr Watson's earlier email of 3 April 2000, two written contracts of affreightment were subsequently prepared in documenting this arrangement. The first was a contract of affreightment between Tse Yu Hong Metal Limited (as disponent owner) and AWB (as charterer).[1618] The second was a contract of affreightment between Atlantic and Orient Shipping (as disponent owner) and Ronly Holdings Limited 'or their guaranteed nominee' (as charterer).[1619] Both contracts were in substantially the same terms.[1620] Both were dated 3 February 2000, which was the date on which AWB had concluded its original contract of affreightment with Atlantic and Orient Shipping. Clearly, neither of these contracts was or could have been concluded on that date, given that AWB did not reach its agreement with Ronly until 6 March 2000 and Tse Yu Hong Metal Limited was not proposed as Ronly's nominee until 15 March 2000.
18.121 The agreement for the payment of inland transportation fees via Tse Yu Hong Metal Limited was contained in Addendum No. 2 to its contract of affreightment with AWB. This Addendum, also dated 3 February 2000, was in the following terms:
2) Trucking Charges
USD 15 p/mt covering cost of Inland Transportation at the port of destination.
3) Upon completion of loading of each vessel, Owners to provide Charterers, with a freight invoice at the agreed rate, together with an additional fee of USD 15 p/mt for Inland Transportation cost.
4) Inland Transportation cost is net of AWB's address commission.
5) Owners agree to settle such Inland Transportation expenses with the appropriate trucking company at least 10 days prior to vessel's arrival at the port of discharge.[1621]
18.122 Further, Addendum No. 3 to the contract of affreightment between AWB and Tse Yu Hong Metal Limited, also dated 3 February 2000, provided that AWB:
will be responsible for the day to day operational and management of the contract between Tsu Yu Hong Metal Ltd, and Atlantic and Orient Shipping company.[1622]
It also provided that AWB:
will issue and provide where required on behalf of Tsu Yu Hong Metal Ltd, Letter of Indemnity and or/any other document that may be required to ensure the execution of this contract.[1623]
18.123 These obligations upon AWB were repeated in an Addendum No. 1 to the contract of affreightment between Atlantic and Orient Shipping and Ronly Holdings Limited or its guaranteed nominee:
Charterers full performance under this Charter Party to be guaranteed and underwritten by AWB limited of Melbourne, and all/any LOI's any other such warranties to be provided by, and guaranteed by AWB Limited, including but not limited to that relative to non-presentation of original Bills of Lading at discharge port, payment of freight, payment of demurrage.[1624]
18.124 Although substantially similar, the two contracts of affreightment were not identical. For instance, the freight rate payable by AWB to Tse Yu Hong Metal Limited under the contract of affreightment between them[1625] was slightly higher than the freight rate payable by Tse Yu Hong Metal Limited to Atlantic and Orient Shipping under the contract of affreightment between them.[1626] There was also a difference in the treatment of address commission under each contract. Whilst under the terms of its contract of affreightment with Tse Yu Hong Metal Limited, AWB was entitled to address commission from the freight payable to Tse Yu Hong Metal Limited[1627], Tse Yu Hong Metal Limited was not entitled to any address commission from the freight that it was liable to pay to Atlantic and Orient Shipping.[1628] Both contracts did however impose the same limit on the amount of demurrage payable.[1629]
18.125 Further, under the terms of Addendum No. 1 to the contract of affreightment between Atlantic and Orient Shipping and Ronly Holdings Limited or its guaranteed nominee, AWB guaranteed Ronly's liability to pay freight and demurrage to Atlantic and Orient Shipping under that contract of affreightment. Accordingly, despite the interposition of Ronly and its guaranteed nominee into the arrangement that AWB had earlier concluded with Atlantic and Orient Shipping, AWB was still ultimately responsible for the payment of freight and demurrage in the event that the interposed company did not meet its obligations in that regard. This guarantee should also be read in conjunction with the following provision in the agreement contained in Mr Watson's facsimile of 6 March 2000:
It is understood that Ronly or a company to be nominated will not be responsible for the payment of either trucking fees or freight unless same received from AWB.[1630]
18.126 Both of the vessels nominated in Mr Watson's facsimile of 8 April 2000 were used by AWB for shipments under contract A4972. The inland transportation fees for both of these shipments were paid by AWB Chartering to Alia via Tse Yu Hong Metal Limited, in accordance with the terms of the above documents. One of the vessels nominated, the Amarantos, was to later feature in an exchange between AWB and Ronly in 2002.
18.127 The terms of Mr Watson's second facsimile to Ronly dated 8 April 2000 were similar to his first. Mr Watson proposed that Ronly and its nominee be interposed into a contract that AWB had earlier concluded with Western Bulk Carriers K/S (WBC) on 15 March 2000. This was the third of the contracts listed in paragraph 5 of his earlier email of 3 April 2000.[1631] The original terms of that fixture as between AWB and WBC were set out in a 'recap' telex that AWB received from Anchor Cross Shipbrokers Pty Limited (Anchor Cross) on 15 March 2000.[1632] Mr Watson's facsimile read:
1) 80,000 mt Australia/Iraq-WBC
Please find enclose c/p between AWB/Ronly which is back to back terms with c/p between WBC/ Ronly
Freight rate USD ………
All basis foist 1/1 basis
…. Pct addcomme to AWB
Trucking fee of USD 15 p/mt to be included in the freight rate (no addcom on trucking)
2) Performing vessels under WBC at this time
[vessel name deleted] load port on/about 9 April
[vessel name deleted]-eta load port 20th April
+
Travelling as of Monday, anything you need send me an email on my private email …….@netscape.net
thanks
Michael.[1633]
18.128 Formal contracts of affreightment were also prepared in relation to this arrangement. Again this was in the form of two back to back contracts of affreightment. Of these, the first was between Tse Yu Hong Metal Limited (as disponent owner) and AWB as charterer.[1634] A copy of this contract has been produced to this Inquiry. Although this contract must have been prepared some time after 8 April 2000 and Mr Watson's facsimile of that same date, it was dated 15 March 2000, consistent with the date of AWB's original agreement with Western Bulk Carriers. The second contract of affreightment in this arrangement was between Western Bulk Carriers K/S (as disponent owners) and Tse Yu Hong Metal Limited (as charterers).[1635] Whilst a copy of this contract has not been produced to this Inquiry, the first paragraph of Mr Watson's facsimile clearly contemplated the existence of such a contract.
18.129 The agreement for the payment of inland transportation fees to be made via Tse Yu Hong Metal Limited was contained in Addendum No. 2 to its contract of affreightment with AWB, which was in the following terms:
Upon completion of loading of each vessel, Owners to provide Charterers, with a freight invoice at the agreed freight rate, together with an additional fee of USD 15 p/mt covering cost of Inland Transportation at the port of destination.
The Inland Transportation cost is net of AWB's address commission.
Owners agree to settle such Inland Transportation expenses with the appropriate trucking company at least 10 days prior to vessel's arrival at the port of discharge.[1636]
18.130 Both of the vessels nominated in this second facsimile of Mr Watson dated 8 April 2000 were subsequently used by AWB Chartering for the carriage of shipments under contract A4972. The inland transportation fees for both of those shipments were paid by AWB Chartering to Alia via Tse Yu Hong Metal Limited, in accordance with the Addendum No. 2.
18.131 Consistent with the terms of the agreement set out in Mr Watson's facsimile of 6 March 2000[1637], AWB Chartering paid Tse Yu Hong Metal Limited an administration support fee of US$0.20 per tonne in respect of those shipments where Tse Yu Hong Metal Limited was used to pay the inland transportation fees to 'the transport company' (Alia).[1638] This fee was payable in addition to the inland transportation fees and invoiced by Tse Yu Hong Metal Limited separately from its invoices for the inland transportation fees.[1639]
18.132 Despite there having been reference to this administration support fee in his facsimile of 6 March 2000, Mr Watson's evidence was that he did not negotiate the agreement to pay this fee, that he did not know who did and he did not know how it came into existence. He said that he was told about the fee by Mr Officer or Mr Emons.[1640]
18.133 This administration support fee was similar to the 'Overhead for Trucking Charge' that AWB Chartering had earlier paid to Hyundai Merchant Marine Co Limited in respect of the two shipments in December 1999 where Hyundai assisted in the payment of inland transportation fees on AWB's behalf.
AWB Chartering obtained reimbursement of this fee from the AWB Pool.
18.134 In April 2000, AWB resumed paying inland transportation fees to Alia via Hyundai Merchant Marine Co. Limited. It resumed with AWB's first two shipments under contract A4972 on 7 April and 12 April 2000. Inland transportation fees for a further seven shipments were thereafter paid through Hyundai. A complete list of these shipments can be found in Table 17.1 in Appendix 17.
18.135 Each of these payments was handled in the same way as the inland transportation fees that Hyundai paid on behalf of AWB in December 1999. For each shipment where Hyundai assisted, the amount of the inland transportation fee payable in respect of that shipment was included along with freight in an invoice that AWB Chartering received from Hyundai.[1641]
However, unlike the arrangement that AWB had in place with Hyundai in relation to the December 1999 shipment, Hyundai did not charge AWB Chartering any 'Overhead for Trucking Charge' for any of the shipments made in 2000.
18.136 From November 1999, when inland transportation fees were first paid by AWB, until August 2000 and the implementation of Mr Stott's decision to stop using shipowners as a conduit for payment of inland transportation fees, AWB paid inland transportation fees to Alia indirectly via shipowners in respect of 30 of the 43 shipments of wheat that it made to Iraq during that period. Of these shipments, inland transportation fees were paid:
18.137 The inland transportation fees for the remaining 13 shipments made prior to the implementation of Mr Stott's decision in August 2000 were paid by AWB Chartering to Alia directly. These included the first two shipments for which inland transportation fees were payable, which were paid directly because AWB had not had sufficient time to implement its October 1999 decision and because a number of shipowners that AWB had approached to pay inland transportation fees on its behalf had refused to assist, including Sanko Shipping, the carrier of the first shipment. Nine of the remaining eleven shipments were made in February and early March 2000, after Atlantic and Orient Shipping Company had withdrawn from its agreement to pay these fees on AWB's behalf and before AWB had concluded its agreement with Ronly.
18.138 Once AWB had concluded its agreement with Ronly in March 2000 and once Hyundai Merchant Marine Co. Limited had recommenced making payments on AWB's behalf in April 2000, all inland transportation fees were paid by one or other of these two means and no inland transportation fees were paid by AWB to Alia directly, until the implementation of Mr Stott's decision in August 2000.
18.139 Mr Stott's evidence was that, upon his return to AWB in July 2000, he was informed that:
He learned of these matters through Mr Lister, Mr Watson and from inquiries that he made of Ronly.
18.140 Mr Watson first met Mr Stott following his return to AWB, when he was walking around the Chartering area and being introduced to members of the Chartering Division.[1648] At that time, they had a brief discussion, during which (according to Mr Watson) Mr Stott displayed 'a very strong interest in Iraq'.[1649] On 19 June 2000, Mr Watson sent an email to Mr Emons (at his personal email address) reporting on this first meeting:
C.S. [Charles Stott]-did his rounds today, 1st question of me, the Iraqi Problem. He asked what the issues were etc etc and who was now in charge, told him Yousef and showed him, his name card, he said that he 'knew' the Rahman family who 'very powerful in Iraq' this after I told him that Yousef part of the ruling family.
He asked if we saw Zuhair and was he helpful, do you know if Zuhair liked him ???-I said Zuhair was very helpful.
I have a meeting tomorrow with him to bring him up to speed with Iraq-I told him the Iraq market was not a black and white issue as he well knew ….
My impression, he giving the impression of being in control, in touch with everything etc.-understand he arranging himself in Tim H old desk, so he can be close to you ….. lucky you.[1650]
18.141 Mr Watson met with Mr Stott again a few days later.[1651] The issue of demurrage and the payment of inland transportation fees were discussed at that meeting. Mr Lister, who headed up the core team within AWB looking at demurrage, also attended the meeting.[1652] Mr Watson thought that Mr Beaumont may have been there as well.
During that meeting, Mr Watson gave Mr Stott:
a very brief overview in terms of what we did and how we did it, expressly making concern-I expressly told him about the mechanisms in place that AWB had come up with to make the trucking payments.[1653]
Mr Watson mentioned AWB's use of Ronly and shipowners in the course of that discussion.[1654] According to Mr Watson, Mr Stott was interested in the use of Ronly and asked Mr Watson why Ronly was being used.[1655] Mr Watson replied by explaining that management had decided some time back to make payments of the trucking fees to Iraq through third parties. Initially it was shipowners who were used; but Ronly became involved sometime in early 2000 as a further mechanism to pay these fees and distance AWB from the actual payments.[1656]
Mr Watson's evidence was that Mr Stott was adamant that the inland transportation fees could be made directly rather than going through third parties.[1657] He informed Mr Watson that it was not necessary to have third party involvement and that payments could be made to Jordan without any problems.[1658] According to Mr Watson, he did mention to Mr Stott that he thought that there was still an issue with sanctions and that was why AWB was still using third parties.[1659] He said to Mr Stott that the reason these mechanisms were put in place was because of the UN sanctions.[1660] Mr Watson was surprised that they were apparently no longer an issue.
18.142 Mr Stott's evidence was that when he spoke to Mr Watson he was not told about the imposition by the Iraqis of a trucking fee and that the 'Iraqi problem' that was discussed was the issue of demurrage at the discharge port.[1661]
But Mr Stott also gave evidence that he was informed that AWB was paying inland transportation fees using Ronly[1662] and that when he was informed of this he 'thought it was very odd'.[1663] He did not recall specifically who informed him of this, but agreed that it could have been Mr Watson.[1664] Mr Stott also gave evidence that when he learned of AWB's use of Ronly, he made inquiries of Mr Watson.[1665] Whilst Mr Stott could not recall exactly what Mr Watson said when he spoke to him in this regard, he thought that he said that that was the way that AWB had decided to make the payments.[1666] According to Mr Stott, he was told by Mr Watson that the reason for using Ronly was because AWB wanted to distance itself from the payment mechanism[1667]; it did not wish to be seen paying it directly to Alia.[1668] Mr Watson also informed Mr Stott that the use of Ronly was approved within AWB and that this was the agreed mechanism.[1669]
18.143 After having made inquiries within AWB, Mr Stott also approached Ronly directly and was informed by them:
The AWB wanted to distance itself from these payments, and that's why they set up this structure to assist AWB in distancing itself from it.[1670]
18.144 Mr Stott said in evidence that he did not get a satisfactory explanation from any one as to why AWB wanted to distance itself from these payments to Alia[1671] and denied that he formed the view that the reason AWB may wish to distance itself was because the payments might not be legal[1672] or because of a fear that the payments were made in breach of the UN sanctions.[1673] Although Mr Stott said that he did not accept this explanation, even on his evidence he was given this reason, which is consistent with Mr Watson's evidence of his meeting with Mr Stott.
18.145 In July 2000, Mr Stott decided to put an end to AWB's arrangement with Ronly. He said that he decided to do this because AWB 'was deriving no benefit from it'.[1674] Although he was told that Ronly was used as a means of distancing AWB from the trucking payments[1675], he did not accept this explanation.[1676] He thought that the true reason was to benefit Ronly[1677] and to allow the AWB employees responsible to steal money from the company.[1678]
18.146 At the time that Mr Stott made this decision, Mr Watson was negotiating a further contract of affreightment for the carriage of wheat in bulk from Australian ports to Iraq with a Greek based shipping company.
On 25 July 2000, Mr Watson sent a facsimile to that shipping company in which he set out the terms of the proposed contract of affreightment:
With respect of the Iraq program, you will recall that we need to arrange payments and therefore would ask that upon completion of loading each vessel that you invoice me for freight as follows
- usd 22 + 15 trucking (USD 37 p/mt)
- commissions only to be basis usd 22 p/mt
Therefore net invoice to AWB, USD 22 p/mt less 4.25 pct addcom usd 21.065 + USD 15 trucking = USD 36.065 p/mt
Upon receipt of the above, please arrange to remit the trucking fee of USD 15 p/mt to the following:
Tse Yu Hong Metal Limited
……[deleted] ……………
……[deleted] ……………
……[deleted] ……………
Reference MV [deleted]
Thanks and all the best.[1679]
Under the terms proposed by Mr Watson, AWB Chartering would pay to the shipping company in respect of each shipment an amount comprising both the ocean freight and the inland transportation fees applicable to that shipment. The shipping company would retain the freight but would pay the inland transportation fees on to Tse Yu Hong Metal Limited, who in turn would pay it to the nominated transport company in accordance with AWB's arrangement with Ronly of 6 March 2000.
18.147 The Greek shipping company responded to Mr Watson's proposal by facsimile later that day, confirming that it would invoice AWB for an amount that represented the total of the ocean freight and inland transportation fees payable in respect of those shipments and that
… the trucking expenses will be reimbursed as requested.[1680]
18.148 At that time, Mr Watson was also arranging with Anchor Cross Shipbrokers Pty Limited (Anchor Cross) for Hyundai Merchant Marine Co Limited to pay onto Alia inland transportation fees payable in respect of shipments shipped on Hyundai Merchant Marine's vessels.[1681] In an email to Anchor Cross dated 25 July 2000, Mr Watson wrote:
Can you please request that HMM remit the USD 15 p/mt trucking fees directly to the following receipt of trucking fees from AWB
Alia for Transportation & General Trade
………..
Please confirm when remittance effected.[1682]
This was in continuation of the arrangements that had resumed in April 2000.
18.149 However, on the same day that Mr Watson was putting in place these arrangements with the Greek shipping company and Hyundai, Mr Stott circulated an email within AWB headed 'Payments for Freight Iraq' advising that inland transportation payments were to be no longer made through Ronly or its nominee.[1683] The email was addressed to Ms Kathleen Gibson and copied to Messrs Borlase, Hunter, Snowball, Morison, Watson, Goodacre, Owen, Ingleby and Beaumont. It read:
Folks
Please amend the Iraq freight payment arrangements as follows:
For all future payments, instead of paying ocean and Iraq road transport costs to Ronly, who then pay owners and the land transport company, please pay owners direct for the ocean freight and the land transport costs direct to the nominated account in Jordan. Under this arrangement we will continue to pay Ronly the USD 0.20 cents per tonne for performing the payment although they are no longer involved. The 0.20 cents to continue until the COA with Ronly is fulfilled.
The new arrangement has been discussed and agreed with Nori during his visit to Australia.
However, before making payments under the new mechanism please clear the first set of payment instructions through me.[1684]
18.150 The next day Mr Watson sent to the Greek shipping company the following facsimile:
Thank for yours of the 25th July
I am sorry to mess you around but AWB has now decided to pay the trucking fee of USD 15 p/mt directly to the trucking company in Jordon.
Therefore only issue us with your debit note for freight less addcom and AWB will arrange payment of trucking directly.[1685]
18.151 On 26 July 2000, Mr Watson sent to Alia a facsimile headed 'Iraq Trucking-Phase 7' that read:
I refer to trucking charges of USD 15 p/mt under this phase.
For sake of good order, I am writing to confirm that all future payments will be made directly by AWB Limited to your nominated account as follows:
……………………
100 pct payment will be made upon completion of loading in accordance with B/ls weight. You will be advised of remittance details of each shipments
Thanks very much your cooperation and ongoing support.[1686]
18.152 On the same day, Mr Watson sent an email to Mr Stott (and copied to others within AWB):
With immediate effect, Trucking fee of USD 15 p/mt now to be made directly by AWB to the trucking company as follows:
Alia for Transportation and General Trade
Amman, Jordon
Please let me know if AWB(I) will now arrange the payment of trucking payment for this shipment and all future shipments. otherwise Chartering can continue to make such payments.
I am happy either way, let me know.[1687]
18.153 On 27 July 2000, Mr Stott responded to Mr Watson's email:
….. Suggest shipping continue to make the payments for ocean freight and land transport costs. I was under the impression that the trucking costs were $14 not $15 grateful if you would check and confirm. Assume that chartering will also pay to whoever Ronly direct the 0.20 cents.[1688]
The reference to 'shipping' in Mr Stott's email was a reference to AWB Chartering. Although Mr Stott was proposing that inland transportation fees would henceforth be paid by AWB directly to Alia, they were to continue to be paid by AWB Chartering in the first instance. This continued to be the position until May 2001.[1689]
18.154 On 1 August 2000, Mr Stott advised Ronly of his decision. This was in an email to Mr Nori Bali, a director of Ronly:
As per our discussions in Melbourne, we have amended the Iraq freight payments arrangements as follows:
For all future payments, instead of paying ocean and Iraq road transport costs to the Ronly nominated Company, the AWB will pay owners direct for the ocean freight and the land transport costs. Under this arrangement, AWB will continue to pay Ronly the USD0.20 cents per tonne for performing the payment although they are not. The 0.20 cents will continue until the COA with Ronly is fulfilled.[1690]
18.155 On 7 August 2000, Mr Watson sent an email headed 'Iraq Trucking Fee' to Ms Gatto, Mr Cowan and Ms Allen (all of whom were in AWB Chartering) advising them of the decision to pay the inland transportation fees to Alia directly:
Due to change in management decision, trucking fees will be paid directly by AWB
therefore upon completion of lading on each vessel, please arrange to remit USD 15 p/mt as follows
Alia for Transportation & General Trade
…… [bank account details deleted ]
This is to be effective as of Flecha.[1691]
18.156 On 2 August 2000, AWB Chartering paid to Tse Yu Hong Metal Limited US$164,906.68 being the administration support fees[1692] payable for the 16 shipments of wheat to Iraq where the inland transportation fees were paid through Tse Yu Hong Metal Limited.[1693]
18.157 On 21 August 2000, Mr Watson sent an email to Mr Bali asking that Tse Yu Hong Metal pay to Alia an outstanding balance of inland transportation fees payable in respect of a shipment. In that email, Mr Watson also confirmed that on the previous Friday he had remitted the final amount covering the administration support fees.[1694] There is no evidence of that payment amongst the documents produced to the Inquiry.[1695]
18.158 On 21 September 2000, Mr Ingleby emailed various executives, including Messrs Goodacre, Stott, Geary and Watson, confirming that the new arrangements for AWB Chartering would be agreed and confirmed the next day.[1696] Mr Ingleby suggested that this was urgent because:
… we seem to find new ways for chartering to lose money each month-this month Yemen demurrage (0.5m) and Iraq trucking (0.5m)-are we sure these are to chartering's account ??[1697]
The email was also copied to Mr David Cowan, in AWB Chartering.
18.159 Mr Cowan replied to Mr Ingleby, advising:
2. Michael Watson has argued, at length, that the trucking fee was not for our account.
Mark Eamons & Nigel O. wanted to disguise AWB payments into Iraq for trucking fees.
This was achieved by chartering taking a forward contract with Ronly to combine the frieght and trucking payments. The new regime has not supported this agreement and Chartering have incurred the cost to buy out of the deal.[1698] [emphasis added]
18.160 Later that same day, Mr Stott replied to Mr Ingleby's query advising:
I am advised by David that the USD 300,000 (UAD500k) payment to Ronly relates to the US 0.20 cents per tonne fee that we agreed to pay for Ronly making Iraq freight and land transport payments on behalf of AWB. Evidently this had not been paid and Ronly only recently sent in an invoice for 1.5 million tonnes. This is an AWBI expense. However it is unfortunate that this payment was made only last week when AWB has an outstanding USD141,713.30 second port discharge dispute with Ronly. It would have clearly been preferable to offset the the cost before remitting the balance.
…
Michael, David
Please urgently confirm that our obligations to Ronly in respect to the Iraq COA are now completed and as such no further payments will be made to Ronly for Iraq business. Also please advise if there are any additional monies due to Ronly in respect to charterings current or past business with this trading house.[1699]
The reference to 'David' in this email is a reference to Mr Cowan. Mr Stott's email was sent to Messrs Ingleby, Goodacre, Geary, Watson, Cowan and Hogan, amongst others.
18.161 On 22 September 2000, Mr Cowan replied to Mr Stott (with a copy to Mr Watson):
1. Thanks for confirming the situation with the $0.20c per tonne.
I will process the transaction to AWBI for the 300K USD today.
We have not made any further payments to Ronly regarding IRAQ since the settlement of the The $300K usd, I'll have to ask Michael Watson to confirm that all obligations under the contract are complete.[1700]
18.162 That day, AWB Chartering rendered an invoice to the AWB Pool for US$300,000 for 'Iraq Trucking Fee Contract'.[1701] The amount paid was calculated on the basis of Mr Watson's facsimile to Ronly of 6 March 2000.[1702] That invoice was paid by the AWB Pool through an inter company transfer effected in the books of AWB Limited.[1703]
18.163 There were two reasons for AWB's decision to pay inland transportation fees through shipping companies such as Atlantic and Orient Shipping Company, Hyundai Merchant Marine Co. Limited and in due course Ronly Limited and its Liechtenstein nominee, Tse Yu Hong Metal Limited.
18.164 The first was to circumvent United Nations sanctions as many within AWB including Mr Watson[1704] and Mr Emons[1705] well knew. It was to disguise the true nature of the payment being made, it being known that the payment would be contrary to the UN sanctions.
18.165 The second reason was to distance AWB from the payment of these fees, as Mr Watson told Mr Stott (even on Mr Stott's version of their conversation). This was achieved in two ways. The first was the use of the shipowners and Tse Yu Hong Metal Limited to make the payments to Alia, rather than AWB paying Alia directly. AWB was thereby one step removed from that payment. The second was by adding the inland transportation fee payable for a shipment to the ocean freight payable to the ship owner for the carriage of that shipment to Iraq and describing the total amount as 'freight', rather than disclosing the freight and inland transportation fee separately. Whilst this second method was not initially a feature of AWB's implementation of this arrangement[1706], it was an approach that came to be adopted later, in particular with the use of Tse Yu Hong Metal Limited. At least one reason for AWB requesting that it be provided with a composite invoice was to keep the 'Iraqi payments' confidential within AWB.
This desire on the part of AWB to distance itself from the payment of these inland transportation fees arose out of a concern within AWB that the payment of these fees to Alia was in contravention of United Nations sanctions.
18.166 Mr Watson was part of a 'core strategy group' who were responsible for implementing the arrangement whereby inland transportation fees were paid via shipowners and Ronly.[1707] This group included Messrs Officer, Emons and Hogan.[1708] According to Mr Watson, it also initially included Mr Owen and Mr Ingleby.[1709]
The implementation of the decision to pay inland transportation fees via shipowners and the payment of those fees in this way was with the knowledge and consent of senior management within AWB, including Mr Officer.[1710]
18.167 As the head of AWB Chartering, Mr Watson was responsible for the day to day implementation of this arrangement. It was Mr Watson who initially approached the shipowners to enlist their assistance. It was Mr Watson who signed the contracts of affreightment and addenda containing the provisions that gave effect to AWB's decision to use shipowners in this way. It was Mr Watson who corresponded with Ronly and whose facsimiles recorded both AWB's agreement with Ronly and the methods by which its Liechtenstein nominee, Tse Yu Hong Metal Limited, was to be interposed into AWB's existing contracts of affreightment with other shipowners in the implementation of that agreement.
18.168 Mr Watson was aware that Alia had been nominated by IGB as the recipient of the payment of inland transportation fees and that AWB had no contractual relationship with Alia. He knew that although AWB's contracts indicated that the arrangement was free on truck to all governorates in Iraq, AWB was not actually responsible for providing the trucking[1711] and that AWB was 'simply responsible for making the payments of inland transportation fees to the Iraqis'.[1712] He knew that the inland transportation fee had been a requirement imposed by IGB, that the amount of the fee was set by IGB[1713] and was not the subject of negotiation.[1714] He knew, from correspondence that he received, that IGB had an interest in the payments being made to Alia and when payments were said not to have been made.[1715] He knew that the inland transportation fees paid to Alia were going to the IGB or the Iraqi government or an Iraqi organisation[1716] and that what was being proposed with the imposition of the inland transportation fee in the second half of 1999 was a payment to Iraq.[1717]
18.169 Mr Watson was also aware of the United Nations sanctions and that they prevented payments to and from Iraqi entities without United Nations' approval.[1718] He therefore knew that AWB could not make payments directly to Iraq because of the sanctions.[1719] His understanding at the time was that the inland transportation fee could not be made directly or openly to Iraq because of the UN sanctions.[1720] Mr Watson knew that the proposal to use the shipowners (including Ronly) was so that the payments would not be obvious to the United Nations[1721], was so that it 'would not be apparent to the UN that it was being done'[1722], was 'to find ways to avoid attracting the attention of the UN'[1723], and was to avoid the UN sanctions.[1724] Mr Watson knew that the payment of the inland transportation fees had not been approved by the United Nations.[1725] Mr Watson knew that the effect of the arrangements for the payment of inland transportation fees involved a contravention of the UN sanctions.[1726] There was no other reason for AWB's use of shipowners[1727] and Ronly (and its nominee)[1728] in this way.
18.170 The reason AWB agreed to the payment of inland transportation fees in this way was in order to preserve its sales of wheat to Iraq-the pressure to do business.[1729] AWB knew that if it did not agree to the payment of inland transportation fees it would not secure sales to Iraq. Having agreed to sell wheat to Iraq on those terms, AWB also knew that if it did not pay the inland transportation fees in respect of a shipment, the vessel would not be discharged, the vessel would be delayed and AWB would incur significant demurrage. AWB was aware of the UN sanctions and their effect. AWB knew that the fees could not be paid directly. A method of payment of the inland transportation fees that circumvented the sanctions and did not attract the attention of the United Nations had to be found. That method was the payment of these fees via shipowners and Ronly to Alia in Jordan.
18.171 Much of his evidence that Mr Watson gave to the Inquiry on 27 February 2006 to the above effect was not disclosed in his earlier examination on 6 January 2006[1730], in his statutory declaration of that same date[1731], or in his supplementary statutory declaration dated 12 January 2006.[1732] Mr Watson's evidence during that examination and in his prior statutory declarations was less than full and frank.[1733] He attributed this to not having documents from AWB[1734], having ongoing concerns that he would be held responsible[1735] and not wanting to tell the full story on those occasions.[1736]
Nevertheless, Mr Watson's evidence of 27 February 2006 was against his interest and ought be accepted and preferred over his earlier evidence where they contradict.[1737] There is documentary support for his account of the methods by which and the purpose for which AWB sought to circumvent sanctions and avoid detection of its payments to Iraq.
18.172 AWB's use of Ronly and its Liechtenstein nominee, Tse Yu Hong Metal Limited, was characterised by the following features:
18.173 There was no sound commercial reason or benefit to AWB for the use of either Ronly or its nominee Tse Yu Hong Metal Limited in the carriage of wheat to Iraq. Neither company provided any service beyond the receipt and subsequent remittance to Alia of the inland transportation fees.[1738] There was no sound commercial reason for the interposition of Ronly or its nominee Tse Yu Hong Metal Limited into AWB's then existing contracts of affreightment with shipowners for the carriage of wheat to Iraq.
The reasons for AWB entering into the arrangements with Ronly and its nominee Tse Yu Hong Metal Limited were the same as the reasons for entering its arrangement with the other shipowners, namely:
18.174 This second reason was reflected in an email from Mr Watson to Ronly dated 9 May 2000[1740], complaining that AWB was receiving separate invoices for freight and inland transportation fees and that what was required from Tse Yu Hong Metal Limited was a composite invoice. The only reason for insisting on a composite invoice in respect of these two expenses, in particular one where the composite amount was described as freight, was to disguise that portion of the amount being paid that was referable to the inland transportation fees.
18.175 The artificiality and sensitivity of the arrangement was also reflected in the following email (headed 'Iraq') from Mr Emons to Mr Yahya (at Ronly) dated 9 May 2000:
Erol,
I am sure I don't need to remind you of the sensitivity of sending the freight invoices to AWB (by mistake no doubt) but with all the book balancing we are doing plus the discretionary payments to our friends in the middle east we do need to run a very tight admin.
If you have any doubts as to the security of what we are doing I suggest you fax the invoices to Michaels home fax ….. or mine …..
Cheers
Mark.[1741]
18.176 One of the vessels fixed under the arrangements that AWB concluded with Ronly in March 2000 was the Amarantos, which had been chartered under the contract of affreightment that AWB concluded with Atlantic and Orient Shipping Company on 3 February 2000 and into which Tse Yu Hong Metal Limited had been interposed. This was for the carriage of a shipment of wheat from Wallaroo (South Australia) to Iraq. On 10 April 2000, the Amarantos collided with the jetty in the harbour at Wallaroo, causing damage to the jetty and associated facilities.[1742] As a result of the collision a number of claims were made against the owners of the vessel, Amarantos Shipping, including by AWB.[1743]
18.177 The owners of the vessel in turn, claimed an indemnity from Atlantic and Orient Shipping Company, to whom they had chartered the vessel, in respect of any liability that they might be found to have for the collision. Lawyers acting for Atlantic and Orient Shipping Company in turn notified Ronly-with whom Atlantic and Orient Shipping Company had a contract of affreightment dated 3 February 2000 under the back to back arrangement described earlier in this chapter-that if the owners succeeded in their claim against Atlantic and Orient Shipping Company, they would be seeking to recover any liability from Ronly under the terms of their contract of affreightment.[1744]
18.178 On 10 June 2002, Mr Yahya sent an email to Mr Rowlands (by then a senior Ocean Freight Trader in AWB Chartering) seeking confirmation that AWB was aware of the claim by the owner of the Amarantos and would be dealing with it 'under the indemnity and insurance arrangements between us relating to the Iraq business'.[1745] This email was copied to Mr Long. In the course of recounting the history leading up to this claim, Mr Yahya wrote:
Since neither we nor Tse Yu Hong Metal Ltd had no direct involvement in this charter or shipment we/ Tse Yu Hong Metal are giving you immediate notice of this development. All aspects of this business were dealt by yourselves.[1746]
18.179 The email was forwarded by to Messrs Poutney, Fahy and Diamante. Mr Fahy in turn forwarded a copy onto Messrs Diamante, Jones and Wall with a request:
Can you check this out-do you know if legal has a file on this and what can we send through to ronly?[1747]
Mr Diamante in turn forwarded the email to Ms Peavey on 11 June 2002.[1748] In the meantime, Mr Long also circulated a copy of the email to Mr Jones and Mr Cooper (amongst others) with a request that he 'be kept in the loop on response'.[1749] Mr Cooper in turn forwarded a copy on to Ms Peavey advising that 'we already have a file on this. Can you please look after it'.[1750]
18.180 On 17 June 2002, Mr Rowland received a further telex from Ronly seeking a response to Mr Yahya's letter of 10 June 2002.[1751] On 19 June 2002, Mr Rowland relied to Ronly advising that Mr Yahya's letter had been passed onto AWB's legal department, who was preparing a response.[1752]
18.181 On 5 July 2002, Ms Peavey, received an email from Ms Clare Calnan, a lawyer at Ronly, repeating details of the claim and again inviting AWB's response.[1753] In doing so, Ms Calnan wrote:
On this business at your request we fronted the chartering operations and we had no involvement in the operation or management of the vessel. The only matter that we handled was the routing of the freight payment … Atlantic were fully aware that we were fronting for you as the affreightment contract was originally concluded between Atlantic and yourselves and then it was changed to us when the fronting arrangement was put in place.[1754] [emphasis added]
18.182 On 19 July 2002, Ms Peavey responded to Mr Yahya's facsimile of 10 June 2002, stating that AWB did not accept that it had any liability to indemnify Ronly in respect of this claim and the reasons for this.[1755]
In evidence, Ms Peavey expressed a belief that if she had 'expressed rejection of the indemnity to Ronly in such strong terms' she would have made inquiries about the matters raised in Ms Calnan's email of 5 July 2002.[1756] But she had no recollection of doing so.[1757] She did not recall having made any inquiries or having spoken to Mr Ingleby, Mr Flugge or Messrs Watson, Emons or Officer.[1758]
18.183 In a facsimile dated 22 July 2002 Mr Bali, replied to Ms Peavey's letter, in the following terms:
I have been passed a copy of your fax dated 19th July addressed to Erol Yahya. I am shocked and surprised at the contents of your message which I consider does your company no credit whatsoever.
I was present during the meetings and discussions which took place with Trevor Flugge, the then Chairman of the AWB; Michael Watson, the then head of chartering and Nigel Officer and Mark Emons who, at that time were responsible for AWB's business with Iraq. Paul Ingleby head of AWB's finance department was also fully aware of and authorised these transactions.
Prior to being approached by the AWB we had no involvement either direct or indirect with the AWB's sales of wheat to Iraq. In early 2000 the AWB became concerned at whether payments which they were making for inland trucking in Iraq were in breach of UN sanctions against Iraq. The AWB approached us for assistance. At the time when the relevant discussions took place the AWB had already concluded the contract of affreightment with Atlantic and Orient pursuant to which the 'Amarantos' was chartered. Atlantic and Orient only agreed to the transfer of the contract to Ronly on the basis that the AWB would remain responsible for the management and control of the vessels chartered and for all financial obligations. Equally we were only prepared to front the business for the AWB because at that time we were about to enter into a joint venture partnership with the AWB. We required and were given the assurance that this business would be fronted by us and an offshore company on a full indemnity basis.[1759] [emphasis added]
18.184 Ms Peavey wrote again to Mr Bali on 13 August 2002, dismissing Ronly's request that AWB indemnify Ronly for any claims made by Atlantic and Orient Shipping Company if the claim of the owners of the Amarantos was successful.[1760] In her facsimile, Ms Peavey wrote:
As you may be aware, the AWB staff you mentioned in your email as having a significant role in the negotiation of the agreement between AWB Limited and Ronly, have now left AWB. We are currently in the process of making discrete inquiries with some of these people, and we will let you know whether this clarifies the situation.[1761]
After reiterating that she was not satisfied that there was any obligation on AWB to indemnify Ronly in respect of any liability that Atlantic and Orient Shipping may be able to successfully establish, Ms Peavey concluded her facsimile with the following invitation:
However if you are in possession of any documents that establish that such an indemnity exists, please forward a copy of these documents to us.[1762]
18.185 Mr Bali replied on 16 August 2002.[1763] His facsimile to Ms Peavey began:
It is clear to me reading your fax that you have no information concerning the arrangement put in place in March 2000 between Ronly and the AWB for the payment of Inland trucking fees within Iraq and that you have not spoken to any of the relevant people even though those people concerned are available and can confirm the information that we have provided.[1764]
No doubt in response to Ms Peavey's invitation, Mr Bali's facsimile was accompanied by 'copies of documents which will hopefully explain the arrangement'.[1765] These included Mr Watson's facsimile of 6 March 2000, setting out the terms of AWB's agreement with Ronly[1766], and Mr Emons' email of 7 March 2000 to Mr Bali explaining the background and reason why AWB sought its agreement.[1767] Mr Bali also went on to remind Ms Peavey that he had previously informed her that 'Trevor Flugge, the then Chairman and CEO of AWB was also aware of the arrangement, as was the Head of Finance, Paul Ingleby'.[1768] He continued:
I note that you are proposing to make discrete inquiries with some of the people involved. I have no idea why it is necessary for the enquiries to be discrete. All of the people concerned in this matter are contactable and, as far as I am aware are fully prepared to confirm what happened and the nature of the arrangement. If necessary I can provide you with the current contact details of the people referred to above.[1769]
The facsimile then addressed the basis of AWB's rejection of Ronly's claim for indemnity-in doing so stating, 'What I think you fail to appreciate is that we do not know anything about this claim and we do not have any information with which to defend it'.[1770] This was consistent with the assertion that Ronly was merely acting as a 'front company' in both Mr Bali's and Ms Calnan's earlier communications. He then concluded:
If your inability to confirm responsibility on behalf of AWB is because you have insufficient information then I am prepared to give you some time to complete your enquires since I am sure that on a proper investigation of this matter you have no alternative but to confirm your responsibility….
I have no wish to impose deadlines on your response if there is a genuine need for investigations to be carried out. As you will appreciate obtaining a response from you is somewhat akin to extracting blood from a stone so I would appreciate a response from you by our opening on 2nd September failing which we shall proceed in accordance with the legal advice that we have received.[1771]
Mr Bali's facsimile and its attachments were also copied to Mr Long.
18.186 On 16 September 2002, Mr Long responded to Mr Bali's facsimile to Ms Peavey of 16 August 2002.[1772] In his letter, Mr Long stated that, from his review of the documentation attached to Mr Bali's facsimile, 'there is no evidence to suggest that AWB ever agreed to indemnify Ronly'[1773] and that given the lack of evidence AWB was not prepared to provide the indemnity that Ronly sought. In doing so, Mr Long wrote:
The arrangements between Ronly and AWB at that time were commercial arrangements whereby AWB paid you US$0.20 per ton for assisting in organising freight and trucking contracts in Iraq.[1774]
The US$0.20 per tonne fee AWB paid to Tse Yu Hong Metal Limited was recompense for its provision of 'administration support'[1775] in the form of preparing invoices to AWB for freight and inland transportation fees payable in respect of shipments, receiving payments from AWB Chartering of freight and inland transportation fees and paying them onto the shipowner and Alia. This was the extent of its assistance in 'organising freight and trucking contracts in Iraq'.
18.187 Mr Long's letter of 16 September 2002 had been drafted by Ms Peavey.[1776] She could not recall 'settling the letter'.[1777]
Ms Peavey did not know whether Mr Flugge and Mr Ingleby were aware of AWB's agreement with Ronly, as Mr Bali had asserted in his facsimile of 22 July 2002[1778], or whether they sanctioned it.[1779]She had not made any inquiries as to whether Mr Ingleby or Mr Flugge were aware of AWB's deal with Ronly.[1780] The reason Ms Peavey gave for not doing so was first because her focus was on the Amarantos matter and identification of what Ronly were seeking[1781], namely an indemnity, and second because at the time she was receiving instructions from Mr Long and Mr Fahy[1782] and was informed by Mr Long that no indemnity was given.[1783] According to Ms Peavey:
It was a significant claim. I expect that-look, all I would be doing is speculating, but I expect that I received instructions from the business, found those instructions to be satisfactory and not requiring me to approach former employees.[1784]
She did not recall whether, at the time of drafting the letter that Mr Long subsequently sent, she had any instructions as to whether Messrs Flugge, Watson, Officer, Emons and Ingleby knew about the arrangement with Ronly.
18.188 Prior to sending this letter to Mr Bali, Mr Long also sent a copy of the draft by email to Mr Geary[1785] inviting his comments.[1786] In his email, Mr Long set out the background including a summary of the collision and claim. He wrote:
Ronly were involved in paying inland trucking charges and chartering vessels for us because of alleged problemns with the UN/IGB . AWB paid ronly in advance ($12 per tonne) and Ronly paid (via some shelf company) the Jordanian trucking company.
Mark Emons and Mike Watson set the deal up.
Based on the paper work we have from Ronly (our files are thin) there is not enough evidence to prove that AWB has liability or agreed to indemnify Ronly for acting as charterer. AWB paid ronly USD20 cents per tonne facilitation fee. Ronly argue the opposite but can't substantiate it to our satisfaction.
Nori has mentioned that Paul and Trevor are aware of the deal and sanctioned it.
Nori called T Flugge Fri night complaining about our position. TF called me and wants to distance himself.[1787] [emphasis added]
Mr Geary forwarded a copy of this email on to Mr Ingleby that same day, with the following message: 'Do you know anything about this? I have not looked at the file but based on this note I agree with Michael's position'.[1788] Mr Ingleby replied to Mr Geary later that evening: 'I didn't know about these deals until parties left AWB. (usually done by IS&M and nigel) It could get messy but we have no choice than to pursue correct and ethical path'.[1789]
According to Mr Ingleby, his reference in this email to the 'correct and ethical path' was not a reference to what had happened concerning the payment of the inland transportation fees, but was said in the context of Ronly's claim for an indemnity.[1790]
18.189 It is not necessary for the purposes of this Inquiry to determine if AWB was liable to indemnify Ronly as Ronly had claimed or whether AWB was entitled to reject that claim, as it did. What is significant, for present purposes, is that this correspondence from Ronly in July and September 2002 confirms what is also otherwise revealed by an analysis of AWB's agreement with Ronly and the implementation of that agreement, namely:
There were no 'problems' with the United Nations or IGB in late 1999 or early 2000 which would justify the use of Ronly and Tse Yu Hong Metal Limited in the way in which they were used by AWB, other than the UN sanctions, the consequences of their imposition and the inquiries that the Office of Iraq Programme and DFAT were making in relation to the payment of 'trucking fees' in breach of those sanctions.
[1383] Ex 18, WST.0001.0032, para. 2.
[1384] Ex 18, WST.0001.0032 at 0034, para. 10.
[1385] Ex 18, WST.0001.0032 at 0035, para. 17; see also the objectives set out in Mr Lindberg's note 'AWB Limited Organisation Restructure' (Ex 1260, MAE.0004.0017).
[1386] Ex 18, WST.0001.0032 at 0034, para. 11.
[1387] Ex 230, WST.0007.0014_R at 0031_R para. 84.
[1388] T 1966.40 - T 1967.3.
[1389] T 1967.6.
[1390] T 1967.10.
[1391] T 1967.24.
[1392] T 1967.19 and 24.
[1393] Ex 18, WST.0001.0032 at 0038, para. 22.
[1394] Ex 18, WST.0001.0032 at 0038, para. 22.
[1395] T 653.12.
[1396] T 655.33.
[1397] T 673.45.
[1398] Ex 18, WST.0001.0032 at 0034, para. 12.
[1399] Ex 1260, MAE.0004.0017 at 0018.
[1400] Ex 1260, MAE.0004.0017 at 0018.
[1401] Ex 420, WST.0012.0001_R at 0002_R, para. 2.3.
[1402] Ex 230, WST.0007.0014_R at 0032_R, para. 87.
[1403] Ex 230, WST.0007.0014_R at 0032_R - 0033_R, para. 91.
[1404] Ex 1376, WST.0007.0035_R at 0036_R.
[1405] Ex 230, WST.0007.0017_R at 0032_R, para. 88.
[1406] Ex 230, WST.0007.0014_R at 0032_R, para. 88.
[1407] T 939.16-29.
[1408] T 6459.8.
[1409] T 6459 - T 6460.
[1410] T 6459.18.
[1411] T 3555.39.
[1412] T 3333.35; see also Ex 420, WST.0012.0001_R at 0021_R, para. 9.10.
[1413] T 3334.13.
[1414] T 3334.10.
[1415] T 942.36.
[1416] T 943.32.
[1417] T 942.44.
[1418] Ex 420, WST.0012.0001_R at 0002_R, para. 2.3.
[1419] Ex 18, WST.0001.0032 at 0039, para. 25.
[1420] Ex 420, WST.0012.0001_R at 0004_R, para. 4.2.
[1421] Ex 96, WST.0006.0001 at 0012, para. 72.
[1422] Ex 96, WST.0006.0001 at 0012, para. 72.
[1423] T 6048-6049; see also Ex 96 WST.0006.0001 at 0012, para. 73 and Ex 420, WST.0012.0001_R at 0019_R-0020_R, para. 9.5.
[1424] T 6049.36-40; see also Ex 96, WST.0006.0001 at 0012, para. 73 and Ex 420, WST.0012.0001_R at 0020_R, para. 9.79.8.
[1425] Ex 1376, AWB.0278.0011.
[1426] T 1963.39-43.
[1427] Ex 1376, AWB.0278.0012.
[1428] Ex 20, WST.0002.0026-0027.
[1429] Ex 20, WST.0002.0026-0027 at 0026.
[1430] Ex 96, WST.0006.0001 at 0012, para. 75; T 1966.
[1431] T 1966.36.
[1432] T 1964.5-27.
[1433] T 6052.43-T 6053.32.
[1434] Ex 420, WST.0012.0001 at 0019-0020, para. 9.2 and 9.6.
[1435] Ex 1377, AWB.0274.0261. The appointment was in the following terms:
It gives me great pleasure to announce the appointment of Charles Stott to the position of General Manager International Marketing.
Charles joins the AWB from BHP Petroleum where he has worked for the last 4 years. He has in excess of 20 years international trade and capital investment experience which has been acquired across a broad range of industries including grain, petroleum and minerals.
Charles will officially commence on Monday 10th July 2000.
[1436] T 2529.5; T 2530.29; T 2534.1; T 2537.20. Although Mr Stott initially denied that he had attended AWB's offices prior to officially commencing employment, he later accepted that this evidence was incorrect.
[1437] Ex 673, AWB.0305.0115_R at 0122_R.
[1438] Ex 20, WST.0002.0144.
[1439] Ex 20, WST.0002.0166.
[1440] See Chapter 14.
[1441] These inland transportation fees appear to have been paid from this account because, prior to September 2000, all trading activities of the AWB Group including AWB Chartering were conducted through AWB (Australia) Limited (see Chapter 9).
[1442] Including disponent owner. In this chapter, a reference to a 'ship owner' or 'owner' includes a disponent owner or operator of the vessel.
[1443] This arrangement is discussed in more detail below.
[1444] See below.
[1445] Such a fee was paid to Hyundai Merchant Marine Co. Limited in relation to its initial payments (although not in relation to its later shipments) and to Tse Yu Hong Metal Limited. See also T 3427.23.
[1446] T 3427.33.
[1447] Namely the second shipment under contract A4653.
[1448] The payment by instalments resumed with contract A0430 concluded in November 2000 (see Chapter 21) and the first shipments made under that contract in May 2001. However, AWB Chartering no longer played any role in the payment of inland transportation fees from the time of those shipments. From the first shipment under contract A0430, inland transportation fees were paid by the AWB Pool directly upon instructions from the International Sales and Marketing Division.
[1449] Based on the tonnage loaded and the rate applicable to the contract under which the shipment was made, generally US$12 per tonne.
[1450] Ex 112, MAE.0001.0052.
[1451] See Chapter 13.
[1452] Ex 118, MAE.0002.0069.
[1453] Also referred to in the documents as HMM.
[1454] The payments made via Atlantic and Orient Shipping Company were made via its agents Euro-Asia Chartering.
[1455] Ex 1377, AWB.0042.0269_R.
[1456] Ex 1498, AWB.0042.0263_R and AWB.0042.0336_R.
[1457] Ex 1377, MAE.0001.0076_R.
[1458] Ex 1447, AWB.0182.0158_R.
[1459] This was also known as 'Iraq COA #14'.
[1460] Ex 1500, AWB.0203.0019_R.
[1461] Ex 112, MAE.0001.0052.
[1462] Ex 1377, AWB.0197.0036_R.
[1463] Ex 1377, AWB.0197.0036_R at 0037_R.
[1464] Ex 1500, AWB.0203.0019 at 0038.
[1465] Although each incorrectly states that it is an addendum to a charterparty between Atlantic & Orient Shipping Company and the Australian Wheat Board (sic) (and not AWB).
[1466] Although they are both incorrectly signed, purporting to be signed on behalf of AWB (Australia) Limited rather than AWB.
[1467] See below.
[1468] Other than with the date of the COA.
[1469] Ex 112, MAE.0001.0052.
[1470] Ex 1500, AWB.0203.0028_R.
[1471] Ex 1500, AWB.0203.0029_R.
[1472] Ex 1500, AWB.0203.0041_R.
[1473] Contained in a recap telex of that date (Ex 1377, AWB.0046.0138_R). This is dealt with further below.
[1474] Ex 1377, AWB.0203.0013_R, AWB.0203.0005_R and AWB.0203.0016_R.
[1475] The use of a separate invoice for the 'trucking fee' was consistent with what had been set out in the recap telex of 25 October 1999, as quoted above.
[1476] Ex 1377, AWB.0203.0014_R, AWB.0203.0006_R and AWB.0203.0017_R.
[1477] The instructions to make these payments in respect of two of the shipments were made on 26 December 1999 (Ex 1318 AWB.0203.0007_R) and 7 January 2000 (Ex 1318, AWB.0203.0018_R) respectively.
[1478] This appears to be a reference to First Siam Shipping Lines Pte (Singapore). There is no evidence as to the relationship, if any, between FSSL and Atlantic and Orient Shipping Company (the disponent owners under the contract of affreightment), Euro-Asia Chartering Corporation (the agent to whom the freight and inland transportation fees were paid by AWB Chartering) or Pacific Rim Shipping Pty Limited.
[1479] That Cornflower Holdings Limited received these payments was confirmed in the letter that AWB received from Pacific Rim Shipping Pty Limited dated 15 March 2000, considered below.
[1480] This is again confirmed or is apparent from the letter that AWB received from Pacific Rim Shipping Pty Limited dated 15 March 2000.
[1481] Ex 335, WST.0009.0492.
[1482] T 5407.4.
[1483] T 5408.10.
[1484] T 5407.14, for instance because the ship owner was also wishing to find its own way to disguise the payments to Iraq (T 5407.30).
[1485] T 5407.14.
[1486] T 5893.33, T 5896-5897.
[1487] For example, Mr Watson acknowledged that he could point to no document from Alia nominating Cornflower as the company that was to receive these payments (T 5897). Alia did on one occasion nominate a company other than itself to receive inland transportation fees. But that was in February 2000 when it wrote to AWB requesting that inland transportation fees be henceforth paid to the nominated bank account of Hardy's Agents Limited in Hong Kong (Ex 431, AWB.0087.0042_R). Despite that request, there is no evidence that any payments were made by AWB to that account (this was because of a problem AWB encountered in transferring the funds to the company's nominated account (Ex 1469, MAE.0002.0082_R; also at Ex 1470, AWB.0071.0008_R). There is also no evidence that Alia made a similar request in relation to Cornflower Holdings Limited. It would also seem unlikely that Cornflower Holdings had been nominated by the shipowner (Atlantic and Orient Shipping) to receive these fees, given the request contained in the letter from Pacific Rim Shipping Pty Limited to AWB dated 15 March 2000; that is unless that letter was not a genuine request and was prepared for the purposes of it and the response being put before the Singapore authorities in response to their inquiries. This letter, the circumstances in which it came to be sent and AWB's response are examined later in this chapter.
[1488] T 5407.37; T 5893.45.
[1489] In fact, the amount paid was US$13.3635 per tonne.
[1490] T 3431.23, T 5408.10-39.
[1491] T 5410.18.
[1492] Ex 115, AWB.0136.0641. Mr Emons could also not recall the background to this facsimile (T 1907.35-T 1908.4).
[1493] T 5409.35.
[1494] Ex 1499, AWB.0203.0001_R.
[1495] Ex 1377, AWB.5058.0277.
[1496] Ex 1318, AWB 0203.0018_R, facsimile from Pacific Rim Shipping Pty Limited to FSSL dated 7 January 2000 instructing it to remit US$648,317.32 to Cornflower Holdings Pty Limited in respect of the third shipment.
[1497] Of US$521,110.
[1498] Of approximately US$650.000.
[1499] There is nothing in the material before this Inquiry to indicate who 'Grace' is or by whom she was employed or how it was that Mr Emons was able to provide an instruction to Cornflower Holdings Limited to make the payment to Alia. There is also nothing in the material before this Inquiry to indicate what happened to the difference between the amount that Cornflower Holdings Limited was to receive and the amount paid to Alia. That difference not explained by the amount is the second instalment of 10% that was still to be paid to Alia.
[1500] Ex 1448, MAE.0001.0077_R.
[1501] Ex 1448, MAE.0001.0079_R.
[1502] There was a US$36 discrepancy between the total fees payable and the amount received. It appears that notwithstanding Mr Watson's email to Mr Emons of 8 January 2000, the inland transportation fees for this shipment were paid in one instalment, not two.
[1503] Ex 1377, AWB.0203.0008_R.
[1504] SEWT is an acronym for the State Enterprise for Water Transport, see Tramp Oil and Marine Limited v State Enterprise for Water Transport and ors [2005] EWCA 772 at [2].
[1505] Ex 1377, AWB.0203.0009.
[1506] Ex 1377, MAE.0001.0076_R.
[1507] The facsimile also confirmed receipt by Alia of the first instalment of the inland transportation fees payable under the two shipments made under the contract of affreightment with Hyundai Merchant Marine Co Limited (see above).
[1508] Ex 1447, AWB.0087.0050_R.
[1509] Ex 1377, AWB.0087.0009_R.
[1510] Ex 1541, AWB.0136.0538.
[1511] Ex 1503, AWB.0182.0158_R.
[1512] Ex 1503, AWB.0182.0158_R.
[1513] Ex 1377, AWB.0102.0096.
[1514] See Chapter 19.
[1515] These are identified in Table 17.1 in Appendix 17.
[1516] Ex 1377, AWB.0064.0011_R. The amount paid was US$3,454,692.01. The second instalment of 10% of the inland transportation fees for the first 5 of these shipments was paid by AWB Chartering to Alia directly on 12 May 2000 (Ex 1377, AWB.0163.0068_R). Although there is no evidence as to the payment of the 10% balance of the remaining 2 shipments, there is also nothing to suggest that the second instalment of each of these 2 shipments was never paid.
[1517] Ex 1377, AWB.0087.0081_R. The amount paid was US$2,079,614.52. Although there is no evidence as to the payment of the 10% balance of these four shipments, there is also nothing to suggest that the second instalments of these shipments was never paid.
[1518] The other two appear to have been shipped on vessels that AWB had on time charter.
[1519] Ex 1376, AWB.0203.0042_R.
[1520] Ex 1377, AWB.0203.0059_R.
[1521] Ex 430, AWB.0203.0004.
[1522] T 5411.10.
[1523] See below.
[1524] In the first paragraph of his facsimile, Mr Watson states that what follows thereafter, including the agreement recorded in the passage emphasised, is in the context of 'the contract of affreightment in place'. Similarly, in the emphasised passage itself, the agreement there set out is said to be 'under the terms of the contract of affreightment between' AWB and Pacific Rim Shipping Pty Limited (or more accurately its principal, Atlantic and Orient Shipping Company). Although Mr Watson is referring at both of these points in his facsimile of 3 February 2000 to a subsisting contract of affreightment between AWB and Atlantic and Orient Shipping Company, it is not clear whether this was a reference to the contract of affreightment dated 25 October 1999, which AWB was negotiating to extend at that time or the further contract of affreightment that AWB concluded with Atlantic and Orient Shipping Company that same day (namely 3 February 2000).
[1525] T 5413.42.
[1526] Ex 426, WST.0001.0176_R at 0181_R, para. 23.
[1527] 'Trucking fees'.
[1528] Ex 430, AWB.0203.0004.
[1529] The principals of Pacific Rim Shipping Pty Limited, the addressee of the letter
[1530] If the reference to 'the contract of affreightment' in this facsimile was to the 25 October 1999 contract, then Mr Watson's facsimile was merely confirmatory of the arrangements that were already in place under that earlier contract of affreightment and which both AWB and Atlantic and Orient Shipping had already acted upon in relation to the payment of the inland transportation fees for the three shipments made under that contract of affreightment in December 1999. The day after Mr Watson sent his facsimile, AWB concluded an agreement for further shipments to be made under that contract of affreightment in February and March 2000. It was pursuant to this agreement to extent that earlier contract that nine of AWB's first eleven shipments of wheat to Iraq in 2000 were made. If the reference to the 'contract of affreightment' in Mr Watson's facsimile is a reference to AWB's contract of affreightment dated 25 October 1999, then the agreement contained within the facsimile would apply to the further shipments to be made under that contract of affreightment and the extension of it. However, if on the other hand, Mr Watson was referring in his facsimile of 3 February 2000 to the contract of affreightment that AWB had concluded with Atlantic and Orient Shipping Company (through Pacific Rim Shipping Pty Limited) that same day, then his facsimile was in effect a side agreement to that new contract of affreightment, in terms consistent with the arrangement that already existed in relation to the 25 October 1999 contract of affreightment and which had AWB and Atlantic and Orient Shipping Company had put into effect in respect of the three shipments made in December 1999 under that earlier contract. For present purposes, it is not necessary to determine to which contract of affreightment Mr Watson was referring in his facsimile of 3 February 2000 and of which contract of affreightment the agreement in the emphasised passage forms part. Either way, as at the date of this facsimile and thereby shortly before AWB resumed its shipments of wheat to Iraq in 2000, AWB and Atlantic and Orient Shipping Company (via its agents Pacific Rim Shipping Pty Limited) had agreed that inland transportation fees payable in respect of shipments carried under their contract of affreightment-including shipments in the future-would be paid through Atlantic and Orient Shipping, in the same way that the inland transportation fees for the three shipments made in December 1999 had been.
[1531] As Mr Emons made plain in his email of 4 November 1999 (Ex 245, AWB.5056.0395).
[1532] T 3421.13.
[1533] See Chapter 14.
[1534] See Chapter 14.
[1535] Or indeed any agreement with Alia at that time; the protective agency agreement that AWB entered into with Alia was not negotiated until April 2000.
[1536] T 3420.31.
[1537] T 3400.27, T 3405.20, T 3417.3, T 3420.46, T 3439.27 (in the context of Ex 136). Although Mr Watson at first denied that the monies paid to Alia were going to Iraq, he conceded that those earlier answers were incorrect (T 3467.38).
[1538] See for example his exchange with Alia on 7 December 1999, in Chapter 13; see also Ex 120, MAE.0001.0063 and Ex 429, AWB.0089.0309.
[1539] See Chapter 25.
[1540] Ex 1377, AWB.0046.0138_R.
[1541] Addendum no. 3, Ex 1377, AWB.0203.0053.
[1542] Ex 1377, AWB.0046.0138 at 0139.
[1543] One such company was Sanko Shipping, which was the shipping company used by AWB to carry the first shipment made under contract A4653 and the first shipment in respect of which inland transportation fees were payable (Ex 1447, AWB.0042.0018_R, AWB.0042.0015_R). The inland transportation fees payable in respect of this shipment were paid by AWB Chartering to Alia directly, as Mr Emons said at the time 'as a one off'.
[1544] Ex 1565, AWB.0182.0106_R.
[1545] Ex 1499, AWB.0203.0001.
[1546] This is apparent from communications that AWB received in 2003, in follow up to Mr Kudelka's inquiry and AWB's response (Ex 1539, AWB.0295.0163.001). This correspondence is examined elsewhere in this chapter.
[1547] T 5414.34.
[1548] T 5414.43.
[1549] Ex 432, AWB.0087.0091.
[1550] Ex 335, WST.0009.0001 at 0049, para. 212.
[1551] Ex 335, WST.0009.0001 at 0049, para. 213; T 2829.36.
[1552] Ex 335, WST.0009.0001 at 0049, para. 213.
[1553] Ex 335, WST.0009.0001 at 0049, para. 213.
[1554] T 2829.39.
[1555] Ex 335, WST.0009.0001 at 0049, para. 214.
[1556] T 2829.46-T 2830.10.
[1557] T 3428.30.
[1558] T 3428.32.
[1559] T 3428.41.
[1560] T 3429.3.
[1561] T 6035.13.
[1562] T 3405.15.
[1563] T 3434.27.
[1564] Ex 1539, AWB.0295.0163.001.
[1565] Ex 1539, AWB.0295.0163.001-0164.
[1566] Ex 1539, AWB.0295.0163.001 at AWB.0295.0164.
[1567] Ex 1539, AWB.0295.0163.001.
[1568] Ex 1539, AWB.0295.0163.001.
[1569] Ex 1542, AWB.0295.0165-0167.
[1570] Ex 1315, AWB.0295.0168.
[1571] Ex 1316, AWB.9000.0142_R. Legal professional privilege was originally claimed by AWB in respect of this document. This document was only produced to the Inquiry after the Federal Court of Australia had found that that privilege had been waived (AWB Limited v Honourable Terence Rhoderic Hudson Cole (No. 5) [2006] FCA 1234).
[1572] Ex 1316, AWB.9000.0142_R at 0143_R-0144_R.
[1573] Ex 1316, AWB.9000.0142_R at 0144_R.
[1574] Ex 1316, AWB.9000.0142_R at 0143_R.
[1575] Ex 1316, AWB.9000.0142_R at 0143_R.
[1576] Ex 1316, AWB.9000.0142_R at 0143_R.
[1577] Albeit in terms explaining why the confirmation sought in that paragraph would not be given by AWB.
[1578] Ex 1316, AWB.9000.0142_R at 0142_R. Legal professional privilege was originally claimed by AWB in respect of this document. This document was only produced to the Inquiry after the Federal Court of Australia had found that that privilege had been waived (AWB Limited v Honourable Terence Rhoderic Hudson Cole (No. 5) [2006] FCA 1234).
[1579] Ex 1316, AWB.9000.0142_R.
[1580] Ex 1317, AWB.9000.0148. Legal professional privilege was originally claimed by AWB in respect of this document. This document was only produced to the Inquiry after the Federal Court of Australia had found that that privilege had been waived (AWB Limited v Honourable Terence Rhoderic Hudson Cole (No. 5) [2006] FCA 1234).
[1581] Ex 1317, AWB.9000. 0148. Ms Peavey said in evidence that the last line read 'to say AWB can't do anything further' (T 7348.16).
[1582] This was the first of the three methods in which Ronly and its nominee Tse Yu Hong Metal Limited came to be used by AWB (see below).
[1583] Ex 96, WST.0006.0001 at 0004, para. 22. This is dealt with more fully in Chapter 13.
[1584] Ex 1259, AWB.0462.0022. This letter was not produced to this Inquiry by AWB until 6 September 2006, after each of the persons from AWB referred to in it had given evidence. As a result, its contents were not put to any of those persons.
[1585] Ex 1347, AWB.0469.0106. A copy of this email was only produced by AWB to the Inquiry on 28 September 2006.
[1586] Ex 1347, AWB.0469.0106.
[1587] See Chapter 15.
[1588] See Chapter 15.
[1589] Rather than the US$15 per tonne claimed by Mr Emons-see Ex 802, MAE.0001.0066_R at 0067_R; see also Chapter 15.
[1590] Contracts A4653, A4654, A4655 (examined in Chapter 13) and contract A4822 (examined in Chapter 14).
[1591] See Chapter 15.
[1592] The background is set out in a letter from Phillips Fox, AWB's retained solicitors to Ms Peavey of 27 June 2002. See Ex 1360, AWB.0470.0044.
[1593] Ex 1361, AWB.0470.0054 at 0055.
[1594] See the evidence of Mr Flugge who, although he denied knowledge of the arrangement as described by Mr Bali, he acknowledged the logic of the argument that there was no commercial reason reason why Mr Bali would have knowingly made such a false assertion concerning the knowledge of those at AWB. T 7610.38-T 7611.23.
[1595] Ex 1347, AWB.0469.0101.
[1596] Ex 1334, AWB.0468.0012.
[1597] T 7424.25-T 7425.32.
[1598] T 7593.30-32.
[1599] Ex 11, AWB.0087.0076-0077.
[1600] Which refers to discussions between Mr Watson and Mr Yahya.
[1601] Which refers to meetings and discussions that included Mr Watson.
[1602] Ex 427, MFW.0002.0002 at 0009 (1941); at T 3426.24 Mr Watson said that he did not negotiate this fee, that he did not know who did, that he did not know how it came into existence and that either Mr Emons or Mr Watson told him about it.
[1603] Ex 427, MFW.0002.0002 at 0009 (1941).
[1604] Ex 1376, AWB.0046.0036.
[1605] Ex 1488, AWB.0087.0092_R.
[1606] A complete list of the shipments in which Ronly and Tse Yu Hong Metal Limited were used in this way can be found in Appendix 17.
[1607] Ex 11, AWB.0087.0076.
[1608] Such as the charter he had concluded through agents Pacific Rim Shipping Pty Limited with Atlantic and Orient Shipping Company on 3 February 2000 (Ex 1377, AWB.0208.0042).
[1609] See for example Ex 1376, AWB.0051.0135_R at 0144_R (Addendum No. 2 to contract of affreightment between Tsu Yu Hong Metal Limited (as disponent owner) and AWBA (as charterer) dated 3 February 2000).
[1610] See for example Ex 1454, AWB.0051.0087_R, AWB.0051.0130_R and AWB.0051.0214_R.
[1611] Ex 1454, AWB.0051.0087_R, AWB.0051.0130_R, AWB.0051.0214_R and AWB.0051.0249_R.
[1612] The inland transportation fees (over US$1.4m) payable in respect of the shipment on board the Prima II were paid in this way (see Ex 1451, AWB.0046.0035_R, AWB.0163.0160_R). On 3 April 2000 Mr Emons sent an email to Ronly advising that the inland transportation fees of US$12 per tonne had been paid and asked that the first instalment of US$10 per tonne be paid to the transport company (Ex 1451, AWB.0087.0100_R).
[1613] See for example Ex 1449, AWB.0163.0122_R; Ex 1455, AWB.0046.0079_R (payment of inland transportation fees) cf Ex 1377, AWB.0046.0081_R (invoice for freight); Ex 1451, AWB.0163.0125_R (payment of inland transportation fees) cf Ex 1451, AWB.0046.0143_R and AWB.0046.0144_R (payment of freight).
[1614] Ex 995, AWB.0420.0136_R.
[1615] Which is the first of the contracts listed in paragraph 5 of his email, namely that for '590,000 mt'.
[1616] Such as 'the 150,000 mt under AWB t/c [time chartered] vessels (trucking only)' referred to in paragraph 5 of the email.
[1617] Ex 1455, AWB.0048.0009_R.
[1618] Ex 1455, AWB.0048.0010_R (including Addenda).
[1619] Ex 1376, AWB.0203.0042_R (including confidential side letter and addenda). The terms of this contract were also set out in a 'recap' telex that Pacific Rim Shipping Pty Limited sent to Mr Watson on 6 April 2000 (Ex 1377, AWB.0203.0059_R).
[1620] Although there were some differences, for example as to the rate of freight (see below).
[1621] Ex 1455, AWB.0048.0010_R at 0019_R.
[1622] Ex 1455, AWB.0048.0010_R at 0020_R (Tse Yu Hong Metal Limited is incorrectly spelt in the original).
[1623] Ex 1455, AWB.0048.0010_R at 0020_R (Tse Yu Hong Metal Limited is incorrectly spelt in the original).
[1624] Ex 1377, AWB.0203.0051.
[1625] Ex 1455, AWB.0048.0010_R at 0019_R.
[1626] Ex 1377, AWB.0203.0050.
[1627] Ex 1455, AWB.0048.0010_R at 0014_R (clause 32).
[1628] Ex 1376, AWB.0203.0042_R at 0045_R (clause 32 has been deleted).
[1629] Ex 1455, AWB.0048.0010_R at 0018_R (clause 49) and Ex 1377, AWB.0203.0042_R at 0047_R (clause 45).
[1630] Ex 11, AWB.0087.0076.
[1631] Ex 995, AWB.0420.0136_R. This is the contract for '80,000 mt'.
[1632] Ex 1455, AWB.0052.0231_R.
[1633] Ex 1377, AWB.0052.0218_R.
[1634] Ex 1377, AWB.0052.0219_R.
[1635] A copy of this contract of affreightment was not produced to the Inquiry.
[1636] Ex 1377, AWB.0052.0219_R at 0228_R.
[1637] Ex 11, AWB.0087.0076.
[1638] For example see Ex 1451, AWB.0039.0087_R.
[1639] For example see Ex 1454, AWB.0051.0207_R. This was as Mr Watson had sought in his facsimile of 6 March 2000 (Ex 11, AWB.0087.0076).
[1640] T 3426.24.
[1641] See for example Ex 1455, AWB.00052.0020_R, AWB.0052.0118_R, AWB.0052.0185_R and AWB.0052.0308_R.
[1642] The last shipment where Hyundai was used having been shortly after Mr Stott's decision to cease using shipowners as conduits was implemented.
[1643] Ex 198, WST.0001.0137 at 0144, para. 26.
[1644] Ex 198, WST.0001.0137 at 0144, para. 26; T 2261.45.
[1645] Ex 198, WST.0001.0137 at 0144, para. 26; T 2513.20.
[1646] T 2517.11; T 2524.13.
[1647] Ex 198, WST.0001.0137 at 0144, para. 27.
[1648] T 3449.16.
[1649] T 3449.21.
[1650] Ex 286, AWB.5058.0251_R. Although Mr Stott said in evidence that he could not recall discussing the 'Iraqi problem' with Mr Watson, as this email suggests (T 2530.23) and that Mr Watson was not part of his 'initial discovery process' (T 2530.39), it is nevertheless clear that he did have discussions with Mr Watson at about this time in relation to the payment of the inland transportation fees and in particular the use of Ronly. Mr Stott's evidence about those discussions is set out later in this chapter. Moreover, later in his examination Mr Stott admitted that he may have met Mr Watson when he was walking around the AWB offices (T 2538).
[1651] Although Mr Watson was cross examined on whether his evidence of his conversation with Mr Stott at T 3450 and following occurred when he first met Mr Stott (as he suggested when he first gave that evidence) or some two days later (as he conceded had been the correct position)-see T 5916-T 5919-no criticism or adverse finding should be made against Mr Watson for that error, given that the two conversations were so close together and both versions coincided with Mr Stott being informed of the matters identified by Mr Watson shortly after Mr Stott's return to AWB.
[1652] T 3451.1.
[1653] T 3449.33.
[1654] T 3449.43.
[1655] T 3450.1.
[1656] T 3450.10.
[1657] T 3451.25.
[1658] T 3451.29.
[1659] T 3452.2.
[1660] T 3452.11.
[1661] T 2539.12.
[1662] According to Mr Stott he was initially informed that these payments were being made through Ronly; he was not informed that other shipowners were also being used (T 2513.20). He did not learn of this until later, in December 2000 when he went through the Arthur Andersen report (T 2523.1).
[1663] T 2514.6.
[1664] T 2513.45.
[1665] T 2514.20.
[1666] T 2514.25.
[1667] T 2514.46-T 2515.2, T 2516.38.
[1668] T 2515.12, T 2516.28.
[1669] T 2515.36.
[1670] T 2521.2.
[1671] T 2521.8 and 38.
[1672] T 2522.11.
[1673] T 2522.32.
[1674] Ex 98, WST.0001.0137 at 0144, para. 26.
[1675] T 2264.23.
[1676] T 2264.47; T 2522.7. According to Mr Stott this was also not his reason for stopping the use of Ronly (T 2523.25).
[1677] T 2265.4; T 2522.17; T 2522.38; T 2523.45.
[1678] T 2534.23; T 2536.26-35.
[1679] Ex 439, AWB.0088.0143_R.
[1680] Ex 440, AWB.0158.0440_R.
[1681] Ex 442, AWB.5079.0239_R.
[1682] Ex 442, AWB.5079.0239_R.
[1683] Ex 384, SNO.0001.0057.
[1684] Ex 384, SNO.0001.0057.
[1685] Ex 441, AWB.0088.0147.
[1686] Ex 995, AWB.0420.0177_R.
[1687] Ex 399, AWB.0138.0378_R.
[1688] Ex 335, WST.0009.0356.
[1689] See Chapter 26.
[1690] Ex 676, AWB.0141.0539.
[1691] Ex 957, AWB.0050.0098.
[1692] Calculated at US$0.20 per tonne in accordance with Mr Watson's facsimile of 6 March 2000 (Ex 11, AWB.0087.0076).
[1693] Ex 1451, AWB.0052.0244_R.
[1694] Ex 1377, AWB.0158.0048_R.
[1695] It is not clear if Ex 1540, AWB.0196.0065_R, which records an amount said to have been owed by Ronly was reduced via an offset relating to the balance of this debt.
[1696] Ex 677, AWB.5076.0354.
[1697] Ex 677, AWB.5076.0354.
[1698] Ex 677, AWB.5076.0354.
[1699] Ex 335, WST.0009.0364.
[1700] Ex 61, AWB.5040.0244.
[1701] Ex 349, AWB.0088.0351_R.
[1702] Ex 11, AWB.0087.0076; namely that the 'total cargo to be shipped' would be 1.5 million tonnes and the agreement to pay 'USD 0.20 Per Metric Ton, to Ronly or a company advised in the execution of the contract.'
[1703] Ex 349, AWB.0088.0351_R.
[1704] T 3423.32; T 3427.44.
[1705] T 1896.40-45.
[1706] Other than as between AWB Chartering and the AWB Pool.
[1707] Ex 428, WST.0014.0001 at 0001, para. 4.
[1708] T 3401.4.
[1709] T 3401.4.
[1710] Ex 428, WST.0014.0001 at 0002, para. 8.
[1711] Ex 427, MFW.0002.0002 at 0006 (1907).
[1712] Ex 427, MFW.0002.0002 at 0006 (1907).
[1713] Ex 427, MFW.0002.0002 at 0003 (1871).
[1714] T 3425.11.
[1715] T 3421.33.
[1716] Ex 428, WST.0014.0001 at 0002, paras 5-6; Ex 427, MFW.0002.0002 at 0003 (1871) and 0004 (1886); T 3400.27, T 3405.20, T 3417.3, T 3420.46, T 3439.27. Mr Watson conceded that his original denials to this Inquiry that the monies paid to Alia were going to Iraq were incorrect (T 3467.38).
[1717] T 3405.20.
[1718] T 3402.20.
[1719] T 3419.28.
[1720] Ex 428, WST.0014.0001 at 0002, para. 7.
[1721] Ex 427, MFW.0002.0002 at 0002 (1864); see also T 3400.29.
[1722] Ex 427, MFW.0002.0002 at 0004 (1895).
[1723] Ex 1565, AWB.0182.0106_R.
[1724] T 3423.32; T 3427.44.
[1725] T 5411.22.
[1726] T 3466.28.
[1727] T 3402.30, T 3427.44.
[1728] T 3426.16.
[1729] Ex 427, MFW.0002.0002 at 0007 (1915).
[1730] Ex 424, INQ.0014.0001.
[1731] Ex 425, WST.0003.0015_R.
[1732] Ex 426, WST.0001.0176_R.
[1733] T 3464-T 3466.
[1734] T 3465.42.
[1735] T 3465.42 and T 3461.32 which had carried over from when he was at AWB.
[1736] T 3465.36.
[1737] T 3465.17.
[1738] And the payment of freight to the shipowner, where there were back to back contracts of affreightment.
[1739] As Mr Emons stated in his email of 7 March 2000 (Ex 1347, AWB.0469.0106).
[1740] Ex 139, AWB.0182.0163_R.
[1741] Ex 139, AWB.0182.0163_R.
[1742] Amarantos Shipping v State of South Australia [2004] SASC 57, [1] (Debelle J).
[1743] Amarantos Shipping v State of South Australia [2004] SASC 57, [8] (Debelle J).
[1744] Ex 1377, AWB.0462.0005.
[1745] Ex 1312, AWB.0378.0171 at 0172.
[1746] Ex 1312, AWB.0378.0171 at 0172.
[1747] Ex 1312, AWB.0378.0171.
[1748] Ex 1312, AWB.0378.0171.
[1749] Ex 1313, AWB.0462.0008_R at 0009_R.
[1750] Ex 1313, AWB.0462.0008_R at 0009_R.
[1751] Ex 1313, AWB.0462.0008_R.
[1752] Ex 1313, AWB.0462.0008_R.
[1753] Ex 1314, AWB.0462.0015_R at 0015_R-0016_R.
[1754] Ex 1314, AWB.0462.0015_R at 0016_R.
[1755] Ex 1314, AWB.0462.0015_R at 0018_R. A copy of that facsimile was also sent to Ms Calnan (at 0015_R).
[1756] T 7332.10.
[1757] T 7332.10.
[1758] T 7528.34-T 7529.43.
[1759] Ex 1259, AWB.0462.0022_R.
[1760] Ex 1347, AWB.0469.0108.
[1761] Ex 1347, AWB.0469.0108.
[1762] Ex 1347, AWB.0469.0108.
[1763] Ex 1347, AWB.0469.0101. A copy of this facsimile was only produced by AWB to the Inquiry on 27 September 2006.
[1764] Ex 1347, AWB.0469.0101.
[1765] Ex 1347, AWB.0469.0101.
[1766] Ex 11, AWB.0087.0076.
[1767] Ex 1347, AWB.0469.0109_R; see above.
[1768] Ex 1347, AWB.0469.0101.
[1769] Ex 1347, AWB.0469.0101.
[1770] Ex 1347, AWB.0469.0101.
[1771] Ex 1347, AWB.0469.0101 at 0102.
[1772] Ex 87, AWB.5066.0346.
[1773] Ex 87, AWB.5066.0346.
[1774] Ex 87, AWB.5066.0346.
[1775] Ex 11, AWB.0087.0076.
[1776] Ex 62, EXH.0001.0081 at 0082.
[1777] T 7323.22.
[1778] Ex 1259 AWB.0462.0022_R.
[1779] T 7325.32.
[1780] T 7324.22; Ms Peavey had no recollection of having made any such inquiries (T 7326.4) and gave no evidence of having made such inquiries. When pressed, Ms Peavey (at T 7328.31) suggested that she may have discussed this issue with Mr Ingleby. She also suggested that Mr Flugge had left AWB by then, as a reason for not having spoken with him. Ms Peavey also agreed that if she had spoken with them she would have made a file note (T 7326.6). No such file note has been produced by AWB.
[1781] T 7325.38.
[1782] T 7326.25 and T 7326.45.
[1783] T 7328.26.
[1784] T 7336.16-20.
[1785] With a copy to Mr Fahy and Ms Peavey.
[1786] Ex 62, EXH.0001.0081.
[1787] Ex 62, EXH.0001.0081.
[1788] Ex 62, EXH.0001.0081.
[1789] Ex 335, WST.0009.0351.
[1790] T 2828.27-T 2829.3.
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