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Between October 2010 and September 2011, Tasmania was unaware that Forestry Tasmania (FT) and Gunns were broke and that they were only to be saved by a large infusion of Federal money.


Good intentions over the Pulp Mill were being displayed by various groups, individuals and politicians by meeting, answering questions, writing reports, making recommendations, issuing permits, referring to the potential of the Tamar Valley Pulp mill. All these people worked without knowing that the Tamar Valley Pulp Mill project was no longer on the table.


I will show how both FT and Gunns formally accepted that the pulp mill permit had lapsed as Gunns fought to extricate itself from Contracts 917 and 918, it was free by the end of April from the China Sale Contract.


I ask: Were the Ministers of the Crown in the Federal Government either informed or aware of these facts?


The Liberals failed to gain Government in the March 2010 State Election when Abetz refused to do a deal with the Greens. To the horror of Gunns and FT, the Greens now held the balance of power in the State Parliament ... but theTasmanian forest industry had already pressed the self- destruct button.


On the 1st December 2010 Gunns gave their first indication to Forestry Tasmania that all was not well when they requested FT to not exercise their rights for 120 days under Clause 3.3(b) of the Pulpwood Agreement. [See Part II for the Pulpwood Agreement and the Elise Archer FOI request, below]. If exercised, a window of 180 days remained to negotiate new wood or chip contracts or the contracts came to an end.


The market for Tasmanian woodchips by the end of 2010 had collapsed with virtually no sales and Gunns were on Take or Pay contracts with FT. To avoid the cost of the Take and Pay Gunns needed a reason to terminate the contract under Clause 3.3.


Forests Minister and Deputy Premier (Bryan) Green met with Mr (Bob) Gordon, CEO of Forestry Tasmania and Mr (Greg) L’Estrange, CEO of Gunns Ltd on 23rd of December 2010 to discuss various matters, including the outstanding payments owing under various invoices issued by FT to Gunns. The parties continued to meet and correspond at various levels and forums until the 27th June, but the core issue remained that no payments and no money were forthcoming from Gunns.


By the 18th April 2011 the relationship between Forestry Tasmania and Gunns was such that the outstanding issues between the parties could not be resolved. This impasse was still over the money - or rather the lack of it. To save itself further expense Gunns closed its chip mills and the woodchip port facility at Triabunna and sold the woodchip vessel. It had no Japanese or Chinese customers. A third contract the (China Sale Contract) had been terminated in April but Gunns were left with three shiploads of chips still stored, unwanted at Triabunna.


Forestry Tasmania could not survive these disasters if its largest customer, did not, would not or could not, honour their contractual obligations to take the agreed quantities of logs and pulpwood and pay their outstanding accounts, now dating back in some cases three years.


The first indicator of how the issue could be resolved was on 19th January 2011 when Gordon noted the position of Forestry Tasmania:


“that efforts to resolve payments be pursued under the Statement of Forest Principles process, therefore deferred in the interim. Our (FT) judgement is that it would not be prudent to further defer pursuit of our legal remedies under the contract in the hope that the outcome of this process might produce payment.”


What was now to become of this now very uncomfortable relationship? The Chairman of Gunns Mr (Chris) Newman wrote to the Chairman of Forestry Tasmania Mr (Adrian) Kloeden on 18th April 2011 on Gunns Ltd letterhead suggesting a way out of the dispute. By this time the relationship between Forestry Tasmania and Gunns was so appalling that it could only be conducted between the respective Chairmen (Gutwein FOI attached No 1 below).


The contents of the letter contained a full frontal attack on FT’s performance - made with only one purpose in mind - the getting out of the Take or Pay contracts. The letter also proposed that the two boards meet and resolve the issues that management could not. Gunns also acknowledged that the FT Board was prevented from taking a pro-active role in the activities of FT.


This attack was the justification for Gunns advising FT that it was terminating the contractual relationship stated in the Take or Pay Contracts C0S 917 and 918. Most importantly it gave a supporting reason for so doing:


“In light of the decimation of the market for Tasmanian native forest woodchip and the deterioration of the relationship between FT and Gunns it seems desirable that Gunns and FT separate. Gunns therefore wishes to Terminate CoS 917 and CoS 918 noting our agreement that the construction of the pulp mill did not commence by 30 November 2010.”


Not commencing the Pulp Mill allows the exercise of this provision under clause 3 .3 (b) (i) and (ii) The contract allows, after such a proclamation, for negotiations to occur between the parties for a settlement for a period of up to 180 days. It should be noted here that both Gunns and FT have agreed that the mill construction had not commenced.


“To the extent that FT requires formal notice, please treat this letter as a notice of termination under Clauses 3.3 (b) (i) of CoS 917” and 3.3 (b) (ii) of CoS 918… I therefore propose that CoS 917 and 918 be terminated immediately on a full release and indemnity basis in respect of any and all outstanding issues”.


With no future in woodchips Gunns sought to limit the monthly payments due under the Take or Pay contracts but wished to retain its rights under the contract and lock FT into taking legal action whilst awaiting the outcome of the Statement of Forest Principles process.


The April 18th Newman/Gunns attack on FT includes statements such as:


“It is clear that the combination of global and domestic events has resulted in the decimation of the woodchip export market. The impact on industry participants in Tasmania is well documented, and in fact was recognised by FT in FT’s Incoming Government Brief, dated March 2010…..


We have been significantly disadvantaged by FT’s decision to sell directly and indirectly into China and Japan in direct competition with us. Our agreement with FT requires that we disclose our selling price into these markets with FT and it appears that FT has inappropriately used that information to undercut Gunns prices…….


FT management have been making false, adverse comments about Gunns business which inevitably jeopardises our relationship with those customers….


Gunns investment in and capacity to bring the pulp mill development to fruition has been at the core of FT’s adverse comments. This conduct is misleading and defamatory…


FSC and FT’s failure, to assist Gunns obtaining FSC accreditation…has cost Gunns its Japanese Customers….


FT was aware of the damage that its forestry practices were causing to the reputation of Tasmanian wood chip products …….FT had the power to alleviate the concerns of our woodchip customers…..its failure to do so has caused Gunns to lose export sales resulting in job losses and mill closures.”


This outspoken tirade by Newman would have left Kloeden in no doubt as to the enmity Gunns felt towards Forestry Tasmania, an enmity engendered by fear - fear over the substantial losses being incurred daily via these two Take or Pay contracts over which FT rightly demanded payment and submitted invoices.


No question here of compensation; the sole aim being to get out of paying for timber not delivered.  A useful quote for those involved in the court case over Permits is provided by Newman noting that he and Kloeden of FT had agreed over the non-commencement of the pulp mill - this is in direct opposition to the later findings of Schaap at the EPA - an improbable decision presumably made under political pressure from Green as the Minister of Forests. It is of interest that this factor was never again mentioned by either party.


Kloeden replied (Gutwein FOI attached No 1 below) on the 4 May 2011:


“Your letter constitutes a notice to terminate the contracts under their terms, or, if FT agrees, to do so under alternative terms that you have proposed. FT acknowledges this notice. Under the terms of the contract, it is incumbent on the parties to attempt to negotiate in good faith terms of a new agreement for supply. It is unclear whether your alternative proposal for ‘full release and indemnity’ envisages such further negotiation or not……


I assure you that each and every one of your assertions about FT’s alleged actions or inactions are false and will be contested vigorously in any forum in which Gunns might choose to repeat them…..”


Kloeden then gave fourteen dot points refuting Gunns and Newman’s assertions. I suggest that these two letters prove that the relationship between these two companies was by the middle of May dead in the water and heading - at no cost to the taxpayer - towards the courts.


On the 16th June 2011 in an interview ‘in camera’  that made it by error into Hansard (TT.16/6/2011) L’Estrange the CEO of Gunns confirmed this situation when he noted that, “Gunns does not believe the Contract is valid”and he spoke of both firms being under financial pressure.


Ten days later on the 27th June Bryan Hayes, General Manager Forest Products at Gunns, informed FT(Gutwein FOI attached No 1 below) that:


“Gunns also formerly advises that its pulpwood requirement CoS 917 and CoS 918 in the financial 2011/2012 is zero. Other processes to terminate these contracts are in train and will take effect in due course…..”


Gunns wanted a Zero allocation by mid-June to the consternation of FT as they had sold or were selling all the working parts of their woodchip business.

 
Publicly Gunns were promoting the lie that they were looking for a social licence for the pulp mill by exiting Tasmanian native forests and moving to plantations; this to distract the people from the fact that their woodchip business had imploded.


At this point we have to look at how the money came over the horizon to cause peace in the woodchip camp and resolve the issue.


On 5 April 2011 the Kelty Interim Report from the Roundtable was presented to the Senate for tabling. Kelty had facilitated a Statement of Principles funded by the Commonwealth Government, which later morphed into the Inter-Governmental Agreement (IGA).The Liberal Opposition Shadow Treasurer in Tasmania - Peter Gutwein - was provided on the 5 August with a copy of the final - but date unknown - Kelty report, “as reportedly handed to the State Government on 22 July 2011”. ( Gutwein No 3 below and illustrated frontispiece) The date has been crossed out as the contents of the final non-draft copy had not been settled or for that matter fully signed. It makes note of a Letter from FT dated 29 June 2011 and the Wilderness Society of 30 June but these are no longer attached on the Web copy these missing documents are in the critical period at the end of June.


It states that the signatories (Roundtable) had reached an agreement on 22 June 2011 but makes no mention of compensation for surrender of the contracts. Kelty introduces knowingly in this document a new clause to help Gunns bolster their claim for Federal funds. I suggest that he did this in full knowledge that it was a lie:


“Recognition that Gunns Limited’s decision to exit native forests was associated with its decision to proceed with a plantation based mill.”


Kelty was having trouble with the date of this report.  Gutwein should have picked up on this point when he had it in his possession.The sums of money to be dispensed and to whom under the resulting IGA was made finite when signed by Gillard and Giddings two days later on 7 August 2011.


A Question Time brief updated from 22 June to 4 July (page 2) for the Minister in the Federal Parliament could indicate that the Government was covering its tracks, but this proposed statement was not altered:


“The withdrawal of Gunns from the native forest industry is a commercial decision and is not directly related to the Tasmanian Statement of Principles process”


Under the IGA the Gillard Government was putting up $277 million - which included $15 million from the State Government of Tasmania. Of this $85 million was to go to contractors, to include $45 million under the Exit Grants program. This was the game-changer for Gunns and FT, but it needed valid contracts to claim the money.


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This document appears to show a last minute change, an inset dot point that gives only $45 million of this total to contractors; they received $44.019622 million when the scheme was closed. Presumably most of the $40 million that remained had been taken from the pockets of the contractors by Minister Green to allow the exit of Gunns and FT from their disputed Contracts.


A Briefing Note from Gordon to Green of 30th June 2011 (Gutwein FOI attached No 1 below) was issued after L’Estrange had rung Gordon that day, indicating that Gunns wanted to commence negotiations for in his words“new contracts”.


“To inform the Minister that Gunns Limited has advised that it intends to negotiate terms for new agreements to replace Contracts 917 and 918 which Gunns previously gave notice of its intention to terminate.”


Gordon notes for some as yet unknown reason that:


“An agreement between FT and Gunns might be considered to be contrary to the Statement of Principles”.


From then on it was only a question of positive spin by governments to convince the people of Tasmania of Gunns so-called exit policy from native forests into plantations.


This phone call from L’Estrange to Gordon instantly changed the dynamics of the dispute.


L’Estrange must have got wind of, or he may even have lobbied for inclusion in any payout. He knew by the 30th June that new money was available and that if FT and Gunns played their cards correctly it would save them both from bankruptcy.


It was an instant and complete about-face from the above quoted Hayes directive of the 27th June for a Zero timber requirement for 2011-12. In the intervening three days nothing had changed - Gunns still had no markets, no money, no woodchip facilities and no wish to pay. Further L’Estrange was convinced that there were no longer any valid contracts in place.


What happened during those three days 28th, 29th and 30th June 2011 holds the key to this saga. Elise Archer, newly elected to Parliament, a qualified barrister and solicitor, formerly the senior litigation lawyer with the Hobart firm Dobson Mitchell, was on the contracts case. In her FOI she asked FT for correspondence from Lipman Karam to Gunns regarding contracts 917 and 918 dated 28 June 2011. FT replied that they had no record of any correspondence from Lipman Karam to Gunns. This was a lie and Archer as a lawyer should have known better or was she warned off by the liberal Hierarchy under Abetz, the former Minister. The firm is a very powerful player in the litigation and debt settlement stakes and its correct title is Lipman Karas.  (Google it). It is a firm a lawyer such as Archer would be well aware of, I ask: do the documents still exist and will FT release the contents?


L’Estrange now had an immediate need to confirm or resuscitate the contracts because the exit money depended on “Continuity (Operational or otherwise)”. As a result within a week Gunns had backed off, reversing their former position over the scrapped contracts to continuity of existing contracts.


I suggest the CEO of a technically bankrupt Gunns could now see a way out of the Gunns corporate death spiral.


Who hatched this plot:  the Facilitator Kelty, the Gunns CEO L’Estrange, Gordon or Minister Green?


Gordon’s FT was owed $26.83 million (See part II illustration) and was to receive under the IGA only $11.5m, a loss presumably forced on the GBE by Minister Green. It is unlikely that Gordon played a substantial part other than going along with the concept that the contracts had remained valid, accepting the loss in exchange for a draw down on the Green/Giddings Letter of Comfort issued in February 2011 for $110 million.


Kelty’s part was played; he still needed a feel-good result for the money and something to sell for the proposed lock-up of the forests; hence the Final Report clause as noted above. The exit of Gunns from their so called contracts for cash gave all those involved a press release to dream over; it kept the ENGOs on side, the public happy and the Facilitator smelling of roses.


When Gunns rejected the original offer of $11.5 million the cat was now amongst the pigeons for there was only a fixed sum. How to get the additional money to satisfy Gunns became the pressing problem. Somehow the whole sum of $23 million previously to be split 50/50 - or $11.5 million each - had to go to Gunns.


I suggest that Green recognised an immediate political opportunity from the Gordon Briefing Note (Gutwein FOI attached No 1 below) of 30th June 2011. The State had only $15 million in the game; did that go to pay off FT? For someone or persons – as yet unknown – had to re-arrange the contractors’ portion of the monies to accommodate Gunns. I suggest that this was effected before the 7th August taking the required additional millions from the Contractors and putting them into the Gunns exit strategy.


The resulting IGA was signed off on 7 August 2011 and the money was paid on or about 15 September 2011 - $23 million in cash to Gunns and importantly its debt of $26 million to FT wiped via a payment of $11.5 million in cash to FT.


This may be considered a criminal act as the contract cancellation as initiated on April 18th by Gunns would have come to fruition in a matter of weeks, as the 180 days was virtually up. Forestry Tasmania should then have placed Gunns into liquidation at little or no cost to the taxpayer.


This was a solution that neither Labor nor the Liberals would countenance for it was politically far more expedient for both to keep the pulp mill dream alive and Gunns and FT solvent.


The Deed of Settlement between the Crown and Gunns dated 15 September is prefaced by a series of extraordinary clauses in particular, Recitals D, E,and F. further at 7.1 Gunns Warrants that it is solvent.


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Under recitals there are a large number of points qualifying and explaining the reasons for the payment of $25,300,000 dollars to Gunns Ltd. Clause 3 (a) payment and (b) relates to the China Sale Agreement, a contract which definitely had been cancelled by the beginning of May 2011.

This document can be accessed via the link below:
http://www.treasury.tas.gov.au/domino/dtf/dtf.nsf/LookupFiles/Deed-Forestry-Tasmania-and-Gunns.pdf/$file/Deed-Forestry-Tasmania-and-Gunns.pdf


I suggest that this dubious transaction is worthy of further investigation for a fraud may have taken place on the Commonwealth aided and abetted by the connivance and silence of all three of Tasmania’s political parties in an effort to keep Gunns solvent, the Pulp mill in play and for the Greens, the forests protected.


The implementation of the IGA in terms of FT and Gunns, was a process involving the Tasmanian Treasury, the Government’s legal advisors, and the Department of Premier and Cabinet. The decision to pay caused an outcry and was now in need of a clean public face.


The State Government hired Wise Lord and Ferguson to review the process of determining the recommended position of the State and the Settlements to be made to Gunns and FT under the Tasmanian Forests Intergovernmental Agreement. This was a very limited task.(See No 4 below)


Under the review they identified the parties, the advice given by Treasury, the legal advice, the appropriateness of the proposed offer and outcome of FT and Gunns agreements. The firm looked at only the 12 correspondence documents - all supplied by Minister Green. It did identify that the advice given recommended the proposed outcome was the best commercial outcome possible and that Treasury’s first recommendation that the funds originally available ($23 million) should be divided equally between FT and Gunns.


More important is what they were not asked to do, to examine the unknowns i.e. the status of Gunns’ contractual situation following its decision to seek a stay of the contract termination in December 2010,and the final termination of contracts in April.


There were issues of what termination rights existed other than under the pulp mill clause or what is a reasonable view of the debts and liabilities owed to the Crown in the name of FT and the obligation to recover them.


The Briefing clause 3.3 b, also mentioned in the Gunns 1 December 2010 letter, failed to mention the reason for using the clause i.e. no commencement of the construction of the pulp mill. Without that reason the period of the 180 day window enabled the contract period to formally expire in Oct 2011.


No new wood agreement existed; all negotiations had ceased by April following Gunns’ final renouncement of the contracts and letters cancelling wood orders. It is arguable that all contract relationships had ended by the end of this month - but maybe it was a case of what-we-do- not-admit-to-knowing rather than we-didn’t-know-because-they-didn’t-tell-us. 


It is of concern that the status of the pulp mill - factor of major public interest - was not mentioned in any of the briefings, or mentioned in public. It is that provision only that enabled the fiction of negotiations for a new pulpwood agreement to be exercised by Gunns. 


To not quote the second part of clause 3.3 from the Gordon /Green briefing note could suggest that the parties knew that there was no pulp mill but that of more importance (to them) were the political implications for Government if FT forced Gunns into receivership.


Receivership or administration would have brought the contracts to an instant termination and no compensation or rights would have existed.


Given that Gunns would have had no contracts after October why the rush, the answer must have been Gunns financial position for they were due to repay millions in the new financial year and the liquidator beckoned.

 
Where to from here:


From a public point of view have our interests been served?


The interests of the public would be varied depending on where people lived, worked or lost their jobs or business.


Did each of the parties act solely in their own self-interest, or partly in the public interest, or in consideration of a long-standing relationship?


At the end of the day, were justice and the public interest served?


There were a number of issues that did not come to public attention including the role of Deputy Premier Green, also the Minister of Forests responsible for the GBE Forestry Tasmania. Green withheld a number of important documents from Wise Lord and Ferguson which suggested that the contracts could be considered null and void. He appears to have submitted no documents regarding the Gunns China Sale Contract with FT, which ended in April 2011. I suggest that withholding documents and preventing FT putting Gunns into liquidation may be considered bad judgments from a Minister of the Crown who has now been before the Courts three times.


Finally what political considerations affected his decisions; did he receive any financial benefit from the transaction, who made the sacrifices, and has Tasmania learnt anything?


Gutwein had the undated Kelty, Tasmanian Forests Final Report for Consideration on the 5th August two days before the Gillard-Giddings agreement of 7th August. He later refrained as the Opposition Treasurer to act on the information contained in the documents obtained in his FOI request received on the 30th September. I suggest he thereby played a part in protecting Gunns by preventing their biggest donor from being put into bankruptcy. Was this with hindsight a wise decision now that Gunns are in liquidation with debts exceeding $750 million?


As I read the Heads of Agreement no money remains in the IGA to compensate Ta Ann under Force Majeure, (See Part II) as Gunns and FT have been gifted virtually the lot on day one. Harriss and his Committee have made no enquiries and no comments over the IGA cupboard being bare.


This means unless the Feds stump up the payment it will have to come from Giddings and the Tasmanian State Government. The State Government has no money and the thought of paying a logging company from Sarawak $50 million dollars for a free gift of access to our State Forests negotiated by their current CEO (Evan) Rolley whilst CEO of Forestry Tasmania beggars belief.


This might prove tobe the “Final Step to Far.”


Explanation over Contracts 917 and 918.


The contracts 917 and 918 had 4 requirements applicable to Gunns:


1. To take a contracted amount of pulpwood and or of logs, access to each was dependant on taking both.
2. Failure to take the contracted amount (take and pay) incurred payments in lieu
3. A change in the status of the pulp mill had to be notified to FT under C0S 917 and 918 and in such a case negotiations will occur in good faith for a new agreement for the supply of pulpwood and logs during a period of 180 days.
4. Payments had to made in accordance with a formula failure to pay triggers a process for the eventual termination of the contract and for forestry to assume control of state forests.


Download:

1.  Gutwein part 2 –(Attachment 1)

Attachment_1_-_Gutwein_Part_2.pdf

A series of documents obtained under Freedom of Information by Peter Gutwein MP on 30th September 2011. Obtained in 2 parts, from the point of view of this article the information is to be found in Part 2. The request was ‘Copies of all communications between Gunns and Forestry Tasmania, including the relevant briefs and communications to the Minister regarding Gunns wood supply contract since January this year’. The application was dated 2nd August 2011.

2.Elise Archer – (Attachment 2)

Attachment_2_-_Elise_Archer.pdf

For some reason Archer requested, “a copy of correspondence from Lipman Karam to Gunns regarding contracts 917 & 918 dated 28th June 2011” a key date in this investigation and Forestry Tasmania had no record of any correspondence from Karam to Gunns. Not all the requested documents are still available. In particular a copy of an undated letter to Forestry Tasmania advising that the offer from the State to Forestry Tasmania was conditional on Gunns Ltd accepting the offer made to them, provided to Wise Lord and Ferguson as part of its Probity Audit.

3.This final report ...

Attachment_3.pdf

... with the date in July crossed out was obtained under Freedom of Information by Peter Gutwein on 5th August 2011 from the Department of Premier and Cabinet, the covering page by Catherine Vickers notes, “to my knowledge a final ‘non draft‘ copy has not been settled, as this version has been widely circulated I consider it in the public interest to release this draft to you.”(Attachment 3)


4.A PowerPoint presentation by Wise Lord &Ferguson of their Review of the process for determining the recommended position of the State and Settlements to be made to Gunns Ltd and Forestry Tasmania Under the Tasmanian Forests Intergovernmental Agreement.(This can be accessed via the link below)
http://www.premier.tas.gov.au/hot_topics/probity_auditors_-_iga_report_and_follow_up_letter

Earlier on Tasmanian Times:

Part 1: Paul Harriss: A Step Too Far?

Part 2: Contracts and Collusion: The Underbelly of Forestry Tasmania. Julia pledge on pulp mill