Macquarie Bank Limited v Nationwide News Pty Limited

MACQUARIE BANK LIMITED & ORS v NATIONWIDE NEWS PTY LIMITED & ANOR [2009] ACTSC 9 (16 February 2009)

DEFAMATION – newspaper article – imputations of illegal conduct – whether imputations defamatory.
DEFAMATION – newspaper article – defence of truth.

Morgan v Odhams Press Ltd [1971] 1 WLR 1239
John Fairfax Publications Pty Ltd v ACP Publishing Pty Ltd (2005) 157 ACTR 28

Jones v Skelton [1963] SR (NSW) 644
John Fairfax Publications Pty Ltd v Rivkin (2003) 77 ALJR 1657; 201 ALR 77
David Syme & Co Ltd and Another v Hore-Lacy (2000) 1 VR 667
Favell v Queensland Newspapers Pty Ltd (2005) 79 ALJR 1716; (2005) 221 ALR 186
John Fairfax Publications Pty Ltd v Obeid (2005) 64 NSWLR 485
Amalgamated Television Services v Marsden (1998) 43 NSWLR 158

Chakravarti v Advertiser Newspapers Limited (1998) 193 CLR 519
Mirror Newspapers Ltd v Harrison (1982) 149 CLR 293

The Macquarie Dictionary, (3^rd ed, 1998)

No. SC 170 of 2005

Judge: Gray J
Supreme Court of the ACT

Date: 16 February 2009

IN THE SUPREME COURT OF THE       )
  )          No. SC 170 of 2005
AUSTRALIAN CAPITAL TERRITORY    )

BETWEEN:MACQUARIE BANK LIMITED
(ACN 008 583 542)
First Plaintiff

AND:WARWICK MORRIS
Second Plaintiff

AND:JONATHAN ROURKE
Third Plaintiff

AND:NATIONWIDE NEWS PTY LIMITED (ACN 008 438 828)
First Defendant

AND:NEWS INTERACTIVE PTY LIMITED (ACN 000 529 457)
Second Defendant

ORDER

Judge:  Gray J
Date:  16 February 2009
Place:  Canberra

THE COURT ORDERS THAT:

The plaintiffs’ claim against the first defendant be dismissed with costs.

The plaintiffs have sued the defendants in respect of the publication of certain matters which they claim are defamatory of them. The first plaintiff, Macquarie Bank Limited, conducts business as a provider of investment banking and financial services under the name Macquarie Bank (Macquarie, also sometimes referred to as ‘MBL’). The second plaintiff, Warwick Morris, and the third plaintiff, Jonathan Rourke, were senior executives of Macquarie Bank’s Treasury and Commodities Group. The first defendant, Nationwide News Pty Limited (Nationwide), is the publisher of the Weekend Australian newspaper and published the matter complained of on 5 March 2005. The Weekend Australian is published in the Australian Capital Territory and each other State and Territory of Australia. The second defendant, News Interactive Pty Limited, is the publisher of the Weekend Australian’s content on the Internet.

At the conclusion of the case for the defendants, the plaintiffs and the defendants, by consent, asked that I dismiss the case against the second defendant with no order as to costs. I did so.

The publication

The article of which the plaintiffs complain is headed “The Mine Shaft” and dealt with Macquarie Bank’s involvement in the Beaconsfield Mine, a gold mine near Launceston in Tasmania. It was published on 5 March 2005 in each Australian State and Territory on pages 33 and 43 of that edition. The article deals with an aspect of Macquarie Bank’s involvement in Allstate Exploration (“Allstate” also sometimes referred to as “AXL”) which was a joint venture partner with Beaconsfield Gold in the Beaconsfield Mine. Allstate had been placed in administration on 8 June 2001 and entered into a deed of company arrangement. A meeting of creditors had been held on 19 March 2002 to further vary the deed of company arrangement to take account of a proposal that Macquarie Bank purchase debts due to Allstate by Allstate’s wholly owned subsidiary companies. Those debts were in excess of $77 million. In return, Macquarie Bank made an amount of $300,000.00 available which could be distributed to the unsecured creditors of Allstate. Mr Morris and Mr Rourke were Macquarie’s employees. They were concerned with putting the position in respect of the meeting of creditors to which the proposal was put to vary the scheme of arrangement. They were named in the article as two senior executives of the first plaintiff’s “treasury and commodities division”.

The article as published on the internet is set out at Appendix A to these reasons. I set it out as an appendix as it needs to be considered as a whole, even though I specifically refer to its content in the course of this judgment. The article as published in the newspaper was published over two pages. A heading, not published in the internet version, “The mine shaft: loded [sic] dice for investors”, was the heading on the second page of the newspaper article. As well as that heading not being reproduced in the internet version, neither are the photographs and graphics which accompany the newspaper article on the two pages in which the article appears. Although the claim against the internet publisher has now been dismissed by consent of the parties, it is convenient to reproduce for the purposes of this judgment that which was published on the internet with the qualifications that I note in the course of this judgment, as the broadsheet publication has proved too difficult to reproduce. I do, however, take into account the captions, photographs and graphics which accompanied the text of the newspaper article and I have tried to capture their flavour in my descriptions of them when referring to the newspaper article.

The pleaded imputations

The imputations said to arise from the published matter and pleaded in paragraph 6 of the further amended statement of claim by the first plaintiff, Macquarie Bank, are as follows:

(a)The First Plaintiff misled Allstate Exploration (“Allstate”) creditors, directors and shareholders as to the financial position of Allstate in order to pursue its own commercial objectives.
(b)The First Plaintiff used its position to keep Allstate in administration for the improper purpose of recovering losses incurred in supporting Otter Gold (“Otter”) by procuring hedging arrangements for Allstate:-
(i)which compared with Otter were not commercially justifiable;
(ii)which were calculated to produce benefit for MBL as Otter’s main creditor; and
(iii)which were contrary to the interests of other creditors and shareholders of Allstate.

(c)The First Plaintiff is guilty of breach(es) of legal obligations regulated by the Australian Securities and Investments Commission and/or the Australian Prudential Regulation Authority.
(d)The First Plaintiff wrongly withheld information from Allstate creditors in regard to the forecast rates of annual gold production in order to pursue its own commercial objectives.
(e)The First Plaintiff, by threatening employee creditors with loss of their livelihoods if its proposal was not passed, in circumstances where the creditors did not have sufficient information about the prospects of the mine to make an informed decision about the proposal and where the First Plaintiff did not have the authority to carry out such a threat, improperly threatened or allowed the threat to be communicated to Allstate creditors that it could foreclose on the Beaconsfield Mine, run the Beaconsfield Mine down and reap the proceeds of sale in order to pursue its own commercial objectives.

(f)The First Plaintiff should be blamed for a significant decrease in Allstate’s value.
(g)The First Plaintiff, contrary to its legal obligations, failed to properly conduct hedging arrangements in relation to Allstate and Otter.
(h)The First Plaintiff, by purchasing Allstate’s intercompany debts by means of conduct particularised in imputations 6(a), (b), (d) and (e), improperly deprived Allstate and Beaconsfield shareholders of their economic benefits.

The imputations in respect of the claim by the second plaintiff, Warwick Morris, are pleaded in paragraph 7 of the further amended statement of claim and they are that:

(a)The Second Plaintiff lied to Allstate creditors.
(b)The Second Plaintiff participated in the illegal or other improper conduct particularised in imputations 6(a), (b), (d), (e), (g) and (h) on behalf of the First Plaintiff.
(c)The Second Plaintiff wrongly neglected to inform Allstate creditors that forecast rates of annual gold production were much higher than the gold production rates at the time in order to pursue his own and the First Plaintiff’s commercial objectives.
(d)The Second Plaintiff, by threatening employee creditors with loss of their livelihoods if the First Plaintiff’s proposal was not passed in circumstances where the creditors did not have sufficient information about the prospects of the mine to make an informed decision about the proposal and where the First Plaintiff did not have the authority to carry out such a threat, improperly threatened or allowed the threat to be communicated to Allstate creditors that the First Plaintiff could foreclose on the Beaconsfield Mine, run the Beaconsfield Mine down and reap the proceeds of sale.

The imputations in respect of the claim by the third plaintiff, Jonathan Rourke, are pleaded in paragraph 8 of the further amended statement of claim and they are that:

The Third Plaintiff participated in the illegal or other improper conduct particularised in imputations 6(a), (b), (d), (e), (g) and (h) on behalf of the First Plaintiff.

General Background

In order to establish the background against which the impugned article is to be considered, the plaintiffs filed outlines of evidence of Richard Keith Holder, the Metallurgy Manager of Allstate, and Harvey Andrew Blair, an Executive Director of Macquarie. The defendant does not challenge this material and they became part of the evidence before me. The plaintiffs’ narrative of events leading up to the creditors’ meeting of 19 March 2002, is based on that evidence. Although what happened at that creditors’ meeting seems to be the centrepiece of the article, there are a number of other circumstances that form the background against which I am asked to view the article. I rely upon the plaintiffs’ narrative of events and the following circumstances as to that background.

In 1877, gold was discovered at Beaconsfield approximately 40 kilometres northwest of Launceston, Tasmania. Underground mining commenced but ceased in 1914 due to poor recovery, water pumping difficulties and labour shortages.

In late 1992, a joint venture known as the Beaconsfield Mine Joint Venture (BMJV) was formed between Allstate Explorations NL (Allstate) and Beaconsfield Gold NL (BGNL). The aim of the joint venture was to mine and process gold at Beaconsfield (the Mine).

Allstate, as the partner with the largest percentage interest, acquired the right to manage BMJV and was entitled to a management fee of 2% of production revenue. Allstate’s 51.51% interest in the assets of BMJV were held by its subsidiary companies ACN 070 164 653 Pty Ltd (ACN) and Allstate Prospecting Pty Ltd (APPL) (the subsidiary companies).

The Mine is a “wet mine” – it requires water to be pumped out of the mine to permit access to the ore body and, in September 1995, as part of the BMJV, a large pumping station was built for this purpose. Almost six million litres of water is pumped from the Mine every day.

The processing plant, or “Mill,” is located about two kilometres from the Mine. At all material times, its operations involved a moderately complex set of procedures. Quite apart from a range of physical processes, there was also, at all material times, a bacterial oxidation process which was a continuing source of problems from its inception, right through 2003 and beyond, and even once rectification work had been carried out concluding in 2003, the process still did not meet design specifications.

Prior to 1997, Allstate’s principal lender was the Australian Industries Development Corporation (AIDC). In 1997, AIDC withdrew from this role and Allstate approached Macquarie for finance, submitting a feasibility study for that purpose in about September 1997. On or about 23 December 1997, Allstate accepted an offer from Macquarie for finance.

By about November 1998, there was in place between Allstate and Macquarie:

(a) a corporate loan facility;

(b) a bullion and currency hedging facility;

supported by various securities including a mortgage over Allstate’s subsidiaries’ interests in the mining tenements of the BMJV.

In November 1998, it was envisaged that the amount of principal owing at March 2000 would be $20.75 million, which would be repaid (together with interest) commencing in March 2000, so as to extinguish the debt by December 2003.

It appears that the first gold output from the reopened mine occurred in late September 1999, although plant commissioning was clearly an ongoing process. By that time, it was apparent that there were significant problems and delays with construction, commissioning and operation, both at the Mill and the Mine.

On 13 and 14 December 1999, Susie Corlett, an executive of Macquarie’s risk management department, together with Mr Rourke, visited the Mine and a detailed memorandum advising the situation of the Mine was prepared. The memorandum recorded many technical issues which were causing problems with the Mill. It also recorded mining issues including unexpected water inflows, unanticipated mining costs and concluded by noting that Allstate was likely to seek to defer its initial March 2000 repayment to Macquarie.

By 24 January 2000, full commissioning of the project was almost five months behind schedule. Problems included trouble with the BiOx processes and variations in ore characteristics. The credit section of Macquarie recommended that Allstate be placed on “creditwatch”, which Macquarie did, probably as a result of an evaluation by Andrew Blair, an executive director in Macquarie’s credit department. The creditwatch committee consists of a core of senior management at Macquarie with the objective of monitoring and providing input into the decision-making concerning financially stressed parties where Macquarie’s financial exposure is at risk. This meant that the financial position of Macquarie’s exposure to Allstate was thereafter brought to the attention of the creditwatch committee at Macquarie on a regular basis. For internal purposes, Macquarie rated Allstate’s financial position at this time as six out of eight, with eight representing the worst level of risk.

Through 2000, problems continued at the Mill and the Mine, including water inflows. Ms Corlett and Mr Rourke visited Beaconsfield again in June 2000 and Ms Corlett’s report, dated 5 July 2000, detailed ongoing problems with the Mill.

Allstate sought further financial support from Macquarie and in about July 2000, Macquarie provided a further $1 million specifically to improve the Mill. In September 2000, Macquarie further downgraded its internal credit rating of Allstate. At that time, Allstate expressed doubts to Macquarie about its capacity to meet its repayment obligations. As a result, Macquarie offered to reschedule the corporate loan facilities (then totalling $19.5 million), with the first scheduled quarterly repayment rescheduled to June 2001 and the last repayment to be made in December 2004. The repayment of the $1 million facility for Mill improvement was also rescheduled.

Commencing in November 2000, another gold mining company, Goldfields Limited (Goldfields) proposed to purchase Allstate’s share in the BMJV. By March 2001, Goldfields had made a cash offer of $32 million for this interest, together with an assumption of Allstate’s hedging liabilities. The effect of that sale would have been to pay Macquarie out in full and such an arrangement, it is asserted, was very attractive to Macquarie. However, on 24 April 2001, Goldfields’ offer was withdrawn. The first repayment of the $1 million facility as rescheduled was not made and that facility was further rescheduled.

As at May 2001, problems continued at the Mill, including the bacterial gold recovery processes. Cash flow projections available to Macquarie suggested Allstate would not be able to meet its upcoming loan repayments and would not be able to meet in full the interest payment due at the end of May. Macquarie made internal provision of $1 million in respect of its exposure to Allstate. On 2 May 2001, Macquarie advised Allstate that it was in default of its obligations and that a review event had occurred which required Allstate to provide a detailed project budget and updated life of mine projections.

At the end of May 2001, it was apparent that Allstate was likely to enter administration and Macquarie was supportive of that process, in part because it was consistent with a sale of the whole BMJV, although “plan B [was] a work out” from Macquarie’s perspective. It was also recognised that BGNL, which at that stage was $170,000.00 in arrears to a BMJV cash call, could also be placed under administration or in receivership.

On 8 June 2001, the board of directors of Allstate appointed Michael Ryan and Antony Woodings, both of the Perth-based firm Taylor Woodings, as joint administrators of Allstate and its subsidiaries. Macquarie supported this process by granting an indemnity in favour of the administrators.

On 22 June 2001, Mr Rourke, together with Mr Blair and Mr Ryan, attended a meeting with BankWest, BGNL’s banker and Gary Trevor, a partner of Ferrier Hodgson, who was shortly to be appointed Beaconsfield Gold’s receiver. All present agreed that the BMJV should be sold as a single asset as soon as possible.

On 25 June 2001, Mr Trevor was appointed receiver of Beaconsfield.

Although Macquarie was not the banker to the joint venture as a whole, it provided 100% of the indemnity to the administrators as NatWest, the banker to the other joint venture partner, did not provide any contribution to this indemnity.

By 13 July 2001, there were a dozen or so mining concerns expressing interest in the BMJV and Macquarie’s focus was for the administrators to get the sales process underway.

The administrators resolved to attempt to sell the joint venture and a formal tender process was carried out. The administrators obtained a valuation of the BMJV which Macquarie received on 11 September 2001. The valuer’s preferred valuation was $35.4 million. This confirmed, in Macquarie’s mind, that a provision of $2.5 million was appropriate.

By the end of September 2001, Macquarie had made a specific provision for Allstate of $3.5 million and total provisioning was about $5 million. The valuation was obtained by the administrators with a view to selling the joint venture as a whole and a formal tender process was carried out. For the purpose of helping Macquarie consider the offers, Mr Blair prepared a model of the joint venture’s performance, based on a five year plan previously provided by the joint venture.

On 1 November 2001, final bids were notified to Macquarie by the administrators and it is asserted that the bids were much less attractive than anticipated, both as to the amount (the best offer was about $20 million) and structure. The administrators withdrew the BMJV from sale on 14 November 2001.

It is asserted by the plaintiffs that Macquarie was disappointed by the outcome of the sale process which, if the highest bid had been accepted, would have resulted in about a $25 million loss to Macquarie and which led Macquarie to consider, on balance, that it would do better by trading on at that time. It is further asserted that Macquarie would have been willing to sell if it had received $15 million out of the sale process, together with having the hedging liability taken over, or at least a substantial portion of that liability. That would mean that, as at the beginning of November 2001, Macquarie was willing to accept a $5 million loss (or what is referred to as a “discount”) to remove its exposure to Allstate.

In the aftermath of the sale that did not take place, Nick Minogue, an executive director of Macquarie, wrote a memorandum on 8 November 2001 to the Board Audit and Compliance Committee of Macquarie. That memorandum records that by this stage, Macquarie’s provision for Allstate remained at about $5 million. On 13 November 2001, Mr Morris wrote a memorandum to Allan Moss, Macquarie’s managing director, concerning an inquiry from Mr Moss “as to how we are planning to capture the equity upside in the Allstate workout given the downside we are wearing”.

In December 2001, Allstate could not meet its interest repayments to Macquarie. Variations to the Deeds of Company Arrangement of the Allstate subsidiaries were made on about 8 January 2002 and Macquarie specifically preserved its rights to appoint a receiver and manager in accordance with the securities it held.

The Mine’s performance in 2002, prior to the creditor’s meeting, was variable. Gold production in December and January was excellent; February’s was disappointing, due to mechanical problems and some disappointment in the grade of ore. The cash operating surplus was largely being reinvested in various capital projects.

In February 2002, Macquarie’s provisioning for Allstate was $6.4 million. Allstate was unable to meet its interest repayments to Macquarie on its loan facilities in full in any month in 2002 and that was the situation until November of that year.

Production of gold from the mine was extremely variable both as to quantity and as to grade. Between August 2000 and March 2002, gold production had met or exceeded budget in only four of those 19 months. Problems in that time included water ingress, composition of the ore, mechanical breakdowns, problems with the bacterial processes and industrial issues.

Another uncertainty in this period was the variability of the gold price and its effect on Macquarie’s exposure to Allstate’s hedging position.

On 17 December 2001, a creditors’ meeting concerning Allstate’s deed of company arrangement was held. At that meeting a proposal was discussed for Macquarie to purchase the creditors’ debts.

By circular to creditors of 5 March 2002, an “alternative” proposal was put that Macquarie pay an amount of $300,000.00 to the administrators of Allstate for the purchase of debts due to Allstate by its subsidiaries rather than purchase Allstate’s unsecured creditors’ debts. Upon acceptance of the proposal, that sum of $300,000.00 was to be distributed to the unsecured creditors. At the time of the appointment of the administrators, the two subsidiaries owed Allstate $20,069,000.00 and $57,389,000.00 respectively.

The meeting of creditors to consider this proposal was held on 19 March 2002 and the proposal passed. Mr Morris and Mr Rourke attended that meeting and Mr Morris spoke at it.

As I have earlier said, this creditors’ meeting is the centre-piece of the article particularly in respect of the implications that might be said to arise from the contrast between the payment of $300,000.00 to acquire the $77 million owing to Allstate by its subsidiaries.

For their part, the plaintiffs point to the extent of the loan and hedging exposure of Macquarie together with the variables involved in the production of gold at Beaconsfield. They refer to “mining and processing issues of almost infinite variability ranging from water ingress, to composition of the ore, to dilution of the ore, to mechanical breakdown, to problems with the bacterial processes, as well as injuries, industrial issues and other mishaps”.

These aspects, which I have set out, were not challenged by the defendant.

The article

In setting out and commenting upon the article, I bear in mind the principles that I later set out that I must apply to determine the meanings that are conveyed to the ordinary reasonable reader. The article itself is in the business section of a broadsheet newspaper. Whilst not truly sensationalist in tone and style, it has elements that take it out of being described as sober and measured. The article contains technical concepts related to finance and mining that the ordinary reasonable reader would have only a very general understanding. It is difficult to say whether the ordinary reasonable reader would re-read or go back to parts of the article which would not be expected if it were a vague sensational and allusive article (cf Morgan v Odhams Press Ltd [1971] 1 WLR 1239 at 1269 per Lord Pearson).

In the present case, I think the ordinary reasonable reader would read the article reasonably carefully but could engage in some loose thinking or reading between the lines in some of the more graphic passages associated with the headings and subheadings.

The plaintiffs first make the point that the article is prominent in the newspaper as being on the front page of the Weekend Business section of The Australian newspaper. That section is a separate part of the broadsheet and commences on page 33 of the newspaper. The article takes up approximately one half of this page and continues on page 43 occupying a similar amount of space on that page. The headline, the plaintiffs submit, is arresting: “THE MINE SHAFT”. That headline is in large, bold capital type. The word “shaft”, in association with a mine, could be said to generally refer to access to the underground workings. That may well have been the initial view of the ordinary reasonable reader in looking at the article. There is also available the colloquial meaning that the Macquarie Dictionary gives to “shaft” as conveying a sense of cheating or betrayal. If not associated with a mine, as this use of the word initially seems to be, I would understand the expression as doing someone down but without the full force of dishonesty that is implied in cheating or betrayal. However, I do not think that this latter sense would immediately occur to the ordinary reader. The more sinister sense of the word is not, in fact, picked up in the article until (as it seems the subeditor intended) the reference is made in a paragraph that is the fourth paragraph from the end of the article (and on a separate page to the headline). That paragraph contains an attributed comment between the position of Allstate and that of Otter Gold:

Will Matthews, using his skills as an actuary, has reviewed the hedge books from published accounts of Otter and Allstate and sees them moving in opposite directions under the same management and the same bank.
“Otter’s gets better and Allstate’s gets worse,” Matthews says. “Otter, the company in serious trouble, survives and is allowed to be taken over. Allstate, the jewel in the crown, is shafted at the first opportunity, and worse, all its assets are then shifted under cover of the administration process to pay for the Otter losses.” [My emphasis]

However, the reference to the derogatory meaning is not immediately apparent and I do not take the reasonable reader as necessarily appreciating the shade of meaning which the subeditor almost certainly intended. Nor do I think the ordinary reader would necessarily conclude that from what is the subheading, “A gold play rakes in millions for Macquarie Bank, but the mine’s investors get nothing”. However, I assume that the discerning reader would understand the colloquial connotation that presumably underlies the use of the word “shaft”. This leads me to accept that the heading and subheading taken together engenders, as far as the ordinary reasonable reader is concerned, a degree of animus towards Macquarie, and most certainly a reason for the reader to be suspicious of the first plaintiff’s motives and actions.

In the article there is also a graphic of three graphs “Gold grades.”, “Gold Production (annualised)”, “Operating costs and cashflows” under a heading “Beaconsfield Mine Operating statistics” and where the fourth graph would be expected, a sign, “Danger abandoned mine workings”. The overall impression certainly adds to the notion that the first plaintiff has advantaged itself at the expense of others.

The next three paragraphs provide the setting of a very profitable enterprise and raises the question of the shareholders’ position as a consequence:

THE Beaconsfield Mine spirals more than a kilometre towards the earth’s core near Launceston in Tasmania.
Per tonne of dirt, this is the most profitable mine in Australia. Gold mines eke out, on average, three grams of gold per tonne. But not Beaconsfield; last year its subterranean boggers hauled up a spectacular 20.8 grams/tonne, the rich ore glittering to the naked eye.
It should be a gold mine for shareholders, too.

An unfavourable comparison is then made between the positions of the two venturers in the mine, Beaconsfield Gold and Allstate:

Just this week Beaconsfield Gold, the junior partner and 48.5 per cent owner of the mine, paid a maiden dividend of 1.5c a share to its 5000 investors, after emerging 18 months ago from the workout of a $30 million debt to the Bank of Western Australia.
But the operator and 51.5 per cent owner of the mine, Allstate Exploration, continues to languish in administration, apparently unable to overcome a smaller initial debt that sent it under just three weeks before Beaconsfield in June 2001. This is despite its bigger share of the mine’s riches and an ongoing management fee that Beaconsfield Gold does not receive as the junior partner.
Unsecured creditors have received just 5c in the dollar for their $3 million in debts, and shareholders who stumped up $56 million to revive the 120-year-old mine in 1999 haven’t seen a cent.

The statement in the last paragraph as to what the creditors had received is factually incorrect and the defendant recognised this in a correction later published. As it turned out, the eventual dividend received by the creditors was 83 cents in the dollar.

Next, comment is made of other big gold miners who have not taken up this particular mine:

Even more bizarrely, this rich mine slipped through the fingers of some formidable players, including New Zealand corporate raider Ron Brierley; Australia’s once biggest gold miner, Robert Champion de Crespigny’s Normandy NFM; and the world’s biggest gold miner Newmont.

The comment “Even more bizarrely” is a colourful expression and, it seems, without content in the context of what follows. The impression conveyed to the reader is a sense, at least, of something odd going on even if what succeeds the comment also does not measure up to or could even be said to fit the description accorded by the expression.

More colourful expressions follow:

Yet Macquarie Bank has, since 2002, been able to turn a $21 million project finance loan into a controlling interest in the mine and rip out up to $20 million a year in cash from “Beacy”.
It looks an incredibly smart play by the Millionaires Factory – as Australia’s biggest home-grown investment bank has come to be known – and the two senior executives of its treasury and commodities division, Warwick Morris and Jonathon Rourke.
By offering to put in $300,000 to acquire the $77.5 million that Allstate had lent to its operating subsidiaries, it got control of the country’s richest mine and the right to more than half the cash it produced.

The words “rip out”, “incredibly smart play” and “Millionaires Factory”, together with the comparatively small sum put in to acquire the very much larger sum lent to the subsidiaries, raise expectations in the reader that something decidedly out of the ordinary is going on. Further, there is the impression overall that what has happened perhaps involves some form of sharp (although not necessarily dishonest) practice. These paragraphs also serve to associate the second and third plaintiffs with the first plaintiff and with whatever is the “smart play”.

The next two paragraphs give what I think the ordinary reader would probably conclude as a reason for the “smart play”:

But creditors claim that had they known information that has subsequently come to light about the mine’s drilling results and prospects, they would never have voted to hand control of the mine to Macquarie.
An investigation by The Weekend Australian shows creditors were not given the full picture of just how rich the mine is.

The phrases “had they known information” and “not given the full picture” are indicative of concealment, either wittingly or not. It begs the question of responsibility for the creditors’ knowledge. The sentence concerning the investigation, which the article says was undertaken by the Weekend Australian, is then qualified by the sentence which immediately follows and concludes the second paragraph:

It also indicates that the bank has used its position to keep Allstate in administration while it recovers losses incurred in supporting Allstate’s controlling shareholder Otter Gold.

This sentence immediately creates an ambiguity as to whether “the bank” has or has not had anything to do with the creditors being given the full picture. By making the assertion in this sentence, a dichotomy is created between what is said to be the knowledge that the creditors have not been given, and the bank’s use of its position to keep Allstate in administration. There is no clear connection that the ordinary reader would make with respect to the lack of information given to the creditors or the concealment of it and the notion of the bank using its position to keep Allstate in administration to recover losses so as to think that the bank was responsible for both actions.

The next immediately succeeding paragraph seems to further detract from Macquarie’s involvement insofar as it relates to information not being provided to the creditors. It also meets what might otherwise be an adverse connotation concerning Macquarie’s asserted actions in recovering Otter Gold’s losses. The paragraph says:

The Australian Securities and Investments Commission has already investigated the circumstances of Macquarie winning control of the mine, but told angry creditors there was not enough evidence to support the case.

On the other hand, that paragraph is then followed by:

But there is now a push to get the Australian Prudential Regulation Authority, which regulates banks, to look into the affair because of concerns about Otter’s hedge book – a series of contracts to sell gold at certain prices in the future – and how Allstate’s own hedge book has been used during the administration.

These lastly cited paragraphs are relied upon to found the imputation the first plaintiff is guilty of breaches of legal obligations regulated by the Australian Securities and Investment Commission (ASIC) and/or the Australian Prudential Regulation Authority. I deal with that imputation in detail later on, but it can be seen that any imputation of wrongdoing relies upon a further and much stronger inference to be drawn than the words used would seem to admit.

The issue of Macquarie and ASIC’s response then is dealt with:

Macquarie declined numerous requests to respond to questions about its control of the mine. ASIC also declined to comment in detail, saying only that the regulator had looked at the situation and found insufficient grounds to take action.

The text of the article is illustrated by what can only be described as four pseudo graphs. They are surrounded by the text to which I have referred and the remainder of the text on this page of the article. The reader’s attention is immediately attracted to these graphs in viewing the article, but I think to no real effect. At about the point at which we are now, I think the reader would pay more attention than that which might have earlier been paid to the graphs. The one in the left of the quadrant of graphs sets out the “Gold grades” and shows fluctuating grades resulting in a dramatic increase in 2003 of actual grades over budgeted grades. However, between 2001 and 2003, budgeted and actual grades show little difference. The adjacent graph is entitled “Gold production (annualised)” and shows a generally increasing gold production with a line drawn under the “Allstate administrator’s forecast at March 5, 2002” and steeply rising “Total gold production (ounces)”. That is apparently a representation to show that the administrators’ forecast has been significantly exceeded. The left lower quadrant of this pictorial representation is a graph “Operating costs and cash flow” depicting operating costs and cash flow at quite opposite ends of the spectrum in 2000, coming together in 2001 and, although separating somewhat in 2001/2002, apparently converging in 2002 to then provide a cash flow greatly in excess of operating costs by 2003. The last pseudo graph and the one in the right quadrant, is labelled “DANGER” with, in capitals underneath, “ABANDONED MINE WORKINGS” together with a representation of a figure apparently stepping back into, or out of, a black hole.

These depictions create an impression of graphic support for whatever are the factual allegations made in the article. Apart from colour that they lend because of the assumption that they would support the narrative, I doubt very much that these graphs would have any great impression on the import of the article upon the ordinary reader.

The article goes on to say:

This is the story of how Australia’s biggest investment bank put its foot on Australia’s richest mine and how its actions might yet come back to haunt it.

There is little doubt that what is conveyed is a sense of taking advantage (“put its foot on”), as well as something that suggests untoward conduct (“come back to haunt it”). It also attracts the reader’s attention to there being something more of concern about the plaintiffs’ conduct than had earlier been reported, perhaps even contrary to what had been reported in the article as conduct that could be attributed to Macquarie.

Then what follows is what the reader might take to be an historical perspective leading to Allstate being placed under administration:

Adventurers from around Australia flocked to northern Tasmania when gold was first discovered in 1877, and the little town of Beaconsfield sprouted up around the mine and along the banks of the Tamar River.
When the operation wound down in 1914 – a casualty of World War I, frequent flooding and the sheer depth of the shaft, at 450 metres – “Beacy” had churned out 854,000 ounces of gold.
By the 1980s, the Beaconsfield township – its main street, three pubs and Chinese restaurant – had sprung back to life. Drilling had begun again at depth.
Armed with their shareholders’ cash, new technology and high hopes, two stockmarket joint venturers – Beaconsfield Gold and Allstate Exploration – were putting historic Beacy back in commission.
Yet just when the mine was on the cusp of profitable production, it all went awry.
Creditors voted to hand control of the mine to Macquarie – the only secured creditor, with a debt of $21 million – on March 19, 2002.
Ten [Fifteen in the internet version] months earlier, on June 8, 2001, production hiccups in the early stages of the mine’s revival had spooked directors and lenders, prompting directors to place the company in voluntary administration under Michael Ryan and Tony Woodings of Perth firm Taylor Woodings.
Just one day earlier, Ryan and representatives of Macquarie Bank were reported to have visited the company’s offices, following visits by Macquarie and BankWest to the mine site, where they were briefed by mining staff.

Little comment is necessary on what purports to be the historical perspective, although the narrative casts some doubt as to whether that decision to place the company in voluntary administration was warranted (“Yet just when the mine was on the cusp of profitable production, it all went awry”). The relevance of the reference to “Ryan and representatives of Macquarie Bank” and the visit to the company’s offices seems gratuitous and is never made clear as to what the article is really asserting about those circumstances.

The article then continues ten pages further on, at page 43 of the newspaper. That raises an issue of the ordinary reader pursuing his or her interest in the subject. On balance, I think they would pursue the subject. There would also be those readers who would presumably have their attention captured by the continuation by the way that attention is drawn to the article on page 43. Those readers would presumable go back to its commencement on page 33. On page 43, the continuation of the article is relatively prominent but under another more prominent article with the headline “Oil heads for a record as OPEC dithers”. The continuation of the article, however, does take up six columns of the eight column broadsheet and occupies most of that page. There is a photograph covering about two-thirds of three of the columns. The caption under the photograph is: “The glitter end: Beaconsfield mine pumped out 146,000 oz of gold last financial year”. The photo depicts mine rigs presumably above the mine. The article is headed with the headline, “The mine shaft: loded dice for investors”. This headline gives some context to what continues in the article assuming the pun of “loded” is understood as “loaded”. It focuses on investors rather than creditors although a subheading in the middle of the article in bolder type, says “Creditors were more interested in maintaining employment” and, in smaller type, “Harry Stacpool Former Beaconsfield chairman”.

The article then goes on to discuss the information circulated to the creditors before the creditors’ March meeting with the administrators. In particular, it discusses what was known about the rates of gold production:

According to information circulated to [from p 33 of the newspaper and then continued on p 43] creditors ahead of the March meeting, things were not looking too bright for Allstate and the Beaconsfield Mine.
Specific forecasts of gold production were not given. But according to Mark Trumbull, executive director of Beaconsfield Gold – writing in that company’s March 2003 quarterly report – the circular indicated annualised gold production of between 77,158 oz and 78,236 oz.
“What the administrators apparently neglected to point out to Allstate creditors in the circular or at the subsequent meeting was that the forecast rates of annual gold production … bore little or no resemblance to the actual BMJV (Beaconsfield Mine joint venture) gold production rates at the time …” Trumbull wrote.
The mine was already producing at an annualised rate of 95,000 oz, and the joint venture’s five-year plan indicated much higher rates of production.

As far as the ordinary reader is concerned, it is clear that it is the administrators’ responsibility to advise the creditors in respect of what the reader might infer are apparently underestimations of gold production.

The article goes on to say:

Lists of emails obtained from ASIC under the Freedom of Information Act suggest Macquarie and Michael Ryan knew the mine to be in better shape than they were letting on “Gold Gold Gold – confirmation of excellent Gold productions” screams the headline of an email on January 9, 2002.
How much Gold Gold Gold was there exactly at Beaconsfield?

The plaintiffs say there is just no evidence of any email to this effect but say that the paragraph sets the tone concerning the knowledge that Macquarie (and the administrators) may have had before the creditors’ meeting. No email was put in evidence and I accept the plaintiffs’ contention as to how this passage should be viewed. That is, an assertion of Macquarie and the administrators having knowledge in early 2002 of excellent gold production from the mine.

The article then implicates Mr Rourke and Mr Morris in that knowledge of the forecasts. However, I take the ordinary reader as taking an adverse implication from what is next written as to Mr Ryan’s involvement but not necessarily the involvement of the plaintiffs:

In an email dated December 7, 2001 – a month earlier – from Michael Ryan to a group of Macquarie bankers, including Morris and Rourke, annual gold production for the year to December 2002 was forecast at 90,659oz.
The Weekend Australian has obtained copies of detailed forecasts that were in the possession of Macquarie and Ryan at the time. Even the 90,659oz forecasts, which creditors never saw, have proven conservative. With Allstate still wallowing in administration it pumped out 146,000oz of gold last financial year.

I expect that the reader would also note the noteworthy difference between the forecast in 2001 for the year to December 2002 and the actuality of the ounces produced in the last financial year (presumably June 2004) without necessarily appreciating the eighteen month difference from the forecast in 2001. Nevertheless, whilst imputing to Macquarie the administrators’ knowledge of the forecasts, the article conveys the source for those forecasts as being the administrators.

If that is the circumstance conveyed to the ordinary reasonable reader, and I think that it is, then it is the administrators who may be blamed for the consequence. It is important to note that neither the plaintiffs nor the defendant contended that on a fair reading of the article there was an implication that what happened was the consequence of a conspiracy between the administrators and the plaintiffs or that any notion that they were acting in concert should be drawn from the article.

What has been set out in those last two paragraphs is the background setting for the article to describe what happened at the creditors’ meeting: That description is:

At the creditors meeting, Ryan recommended the sale of the Internal Allstate subsidiary loans to Macquarie for only $300,000 through a “special” revised Deed of Company Arrangement that would give them 5c in the dollar if they relinquished control of Allstate.
It was a controversial move because a series of loans from Allstate to its subsidiaries to finance the mine redevelopment – and which would have been eliminated in the accounts – were now an external debt. The amount of debt owed to Macquarie Bank suddenly ballooned from $21 million to $98.5 million.
“This is quite a good position for unsecured creditors,” Ryan told creditors of the offer.

The reader would, I think, be somewhat bemused by what is described as the debt increase which I take to be the $77.5 million that the article refers to in the early paragraphs as the amount Allstate has lent to its operating subsidiaries and the $21 million that is the secured debt that Allstate owes to Macquarie. How those loans “would have been eliminated in the accounts” is not explained. It is also difficult to see what should be inferred from what the administrators are reported to have told the creditors to make it a “controversial move”, although it does underline that it is the administrators who have undertaken the responsibility to inform the creditors and is advocating the offer to the creditors.

The article then goes on to consider the position of the shareholders in the next three paragraphs:

There were [was] nothing good about the deal for Beaconsfield shareholders, who were left in the dark about the implications of the Macquarie debt restructure, which made the prospect of them recovering any money even more remote.
“The Allstate shareholders had never been advised or consulted about the Macquarie Bank proposal to divert the next $77.5 million of free cash flow from Allstate to Macquarie,” Beaconsfield Gold said in early 2003. “As the circular (to creditors before the creditors’ meeting) did not mention the figure of $77.5 million … the majority of Allstate shareholders probably still don’t know what really happened to their company on 19 March 2002.”
Two of the biggest losers are Newmont, the world’s biggest gold miner, which owned 56.6 per cent of Allstate through its takeover of Otter, and Beaconsfield Gold, the joint venture that owned 30 per cent. Their loss of future cash flows, which would flow to Macquarie under the debt restructure, was estimated at $67.2 million.

The reference to “Beaconsfield Shareholders” is ambiguous. If it is a reference to both Beaconsfield Gold and Allstate, it sits uneasily with what is said in the next succeeding paragraph. It may be meant to pick up the later reference to Newmont and Beaconsfield Gold in the third paragraph of this set. However, I do not consider that the ordinary reasonable reader would conclude that it was the responsibility of Macquarie to advise or consult any shareholders. What the shareholders have not been consulted about is “the Macquarie Bank proposal”. Who should have consulted them is not made clear. The most likely inference to be drawn is that it should have been by the administrators’ circular to creditors. The quote assigned to “Beaconsfield Gold” by the article suggests as much in asserting that the circular to creditors did not mention the figure of $77.5 million (although the amounts owing of $20,069,000.00 and $57,389,000.00 were, in fact, referred to in the circular). The ordinary reader would only be justified in assuming that any responsibility as far as passing on information was concerned was that of the administrator, Mr Ryan. I say this even though the article has earlier insinuated that Macquarie has been party to the same information.

There is then a switch in the article to the position of the creditors consequential upon the creditors’ meeting that Mr Ryan held:

The aggressive way Ryan went about advocating the deal also left a bad taste in creditors’ mouths. As Macquarie’s Morris watched on, the administrator told creditors that: “The bank could foreclose on the mine … could run the mine down and reap the proceeds of a fire sale”.
According to minutes of the creditors’ meeting, Morris himself told creditors that “Macquarie can sell the property and then liquidate the companies”. “Secondly, Macquarie may not continue with capital development and mine and process what ore is currently available, and let the mine flood,” he was reported as saying.
Rob Hill, a creditor through consulting engineers Rob Hill and Associates, said that because the mine was a joint venture the bank had overstepped the mark in making those comments.
“They (the bank) didn’t have authority to do that (sell, flood or liquidate the mine),” he says. “It wasn’t their call”.

These paragraphs in the article lie at the heart of the imputations that the plaintiffs say can be drawn as to Mr Morris lying to Allstate creditors and Macquarie thereby improperly threatening or allowing the threat to be communicated to Allstate’s creditors.

It may be observed that it is Mr Ryan’s advocacy of the “deal” indicating the consequences that would follow presumably if the deal did not go ahead, that commences this passage. That seems to underline his responsibility for what was taking place. That is followed up by the support given by Mr Morris in saying that Macquarie “can sell the property and then liquidate the companies. Secondly, Macquarie may not continue with capital development, mine and process what ore is currently available, and let the mine flood.”.

The imputation pleaded that, what Mr Morris said was a lie or improper threat, can only be found in the reported assertion by a creditor that Macquarie had overstepped the mark in that the bank did not have the authority to sell, flood or liquidate the mine as it was not their “call”. I should say at this point that, in my view, the passage does not convey to the ordinary reasonable reader, that lies were being told to the creditors. The statement is complementary to Mr Ryan’s reference to foreclosure and, for the moment, I put aside the issue of what might be said to be impropriety by way of threat in making those statements to the creditors. In my view, the ordinary reader would not conclude from the juxtaposition of a contrary view being expressed as to whether the party proposing a course can, in fact, do what is proposed as being sufficient to impute a lie.

As far as imputing a threat to close the mine is concerned, that impression is made explicit from the three paragraphs which next follow:

But creditors didn’t appear to have the full picture and, in a remote mining town built around the gold mine, they had other priorities to think about. Hill says: “It was all about creditors keeping their jobs at the mine. That’s why they agreed to the proposal”.
Harry Stacpoole, a mining engineer who as former chairman of Beaconsfield Gold was the driving force behind the mine’s revival, says jobs were at stake.
“Creditors were more interested in maintaining employment in the area, and after the threat that Macquarie might close the mine they agreed to the bank’s proposal,” Stacpoole says. “The creditors would not have had the opportunity to understand the real position of the mine.”

The references to the creditors not having the full picture and to not having had the opportunity to understand the real position of the mine do not, on the view that I take of what the ordinary reader would draw from the article, support an inference that what Mr Morris said to the meeting was a lie. I will deal later with the extent that impropriety can be inferred from what was said to be the position with respect to the creditors’ understanding.

The article then goes on to describe and contrast the mine’s turnaround after that meeting:

Within a few short months of that meeting the grim picture painted for creditors had been turned on its head.
Gold production began to climb spectacularly as lodes nearly twice as rich came to the surface. Mining costs that had been above $450 an ounce started to plunge below $300.

Then there is comment on the lack of information about this turnaround:

But by then the mine was out of shareholders’ hands and information was choked off by a blanket ASIC waiver on filing accounts.
Trumbull, however, has waged a one-man war against the secrecy. As executive director of Beaconsfield Gold, he resisted repeated attempts by Macquarie Bank and BankWest to sign confidentiality agreements.
He declined to talk to The Weekend Australian but has continued to file detailed quarterly statements for Beaconsfield Gold shareholders, which shed light on the mine’s spectacular results.
In the March 2003 quarterly report he discusses an apparent proposal by Macquarie to merge Allstate and Beaconsfield Gold, creating one company with full ownership of the mine but controlled by Macquarie and carrying debts to both BankWest and Macquarie.

There is an impression that the reader might get of concealment of what was going on extending not only before the meeting of creditors but also after that meeting. That perhaps adds to the context but it is difficult to attribute any real suggestion of concealment or wrongdoing on the part of Macquarie which can be related to the imputations that the plaintiffs say should be drawn.

The next paragraphs in the article are particularly pertinent to the complicated innuendo claimed by the plaintiffs as to impropriety in the administration of the hedge books of both Otter and Allstate. The topic was raised on the first page of the article as “concerns” about the Otter and Allstate hedge books. It is not referred to again until these paragraphs in the middle of the second page of the article. However, I consider that the ordinary reader would have difficulty in understanding what to make of this narrative:

Allstate shareholder and qualified actuary Will Matthews says Allstate’s continued formal administration can be traced to losses racked up by Otter Gold, an explorer which owned 56 per cent of Allstate and came undone on a much-hyped but fruitless gold hunt in the Northern Territory’s Tanami desert.
Matthews estimates Macquarie’s support of Otter via gold hedging contracts over three years to 2001 was worth as much as $100 million.
His analysis of hedge books for both Allstate and Otter argues that the contracts “stripped significant value from Allstate”.
Matthews says the hedge book arrangements, which saw Allstate lose money while Otter was making it, were, at best, nonsensical. “We are talking about bank-authorised and required hedge contracts as insurance against its loan exposure here – not a derivatives punt by your local plumber.
“My best conservative guess at the actual resultant loss to Allstate is around $10 million, which is directly comparable to Otter’s $30 million gain.”
Otter’s inability to bring its Tanami mine into profits put it in a parlous position, with huge debts to its financier, Macquarie.
But, perversely, it was Allstate and its rich Beaconsfield mine, not Otter and its Tanami misadventures, that eventually collapsed.

These passages commence by purportedly being an explanation of why Allstate has continued in administration. Otter Gold’s losses are referred to and Macquarie is said to “support” it “via gold hedging contracts”. The article had earlier referred to the hedge book as being “a series of contracts to sell gold at certain prices in the future”. Although Macquarie is said to be giving support to Otter by way of the gold hedging contracts, just what is meant by reference to the contracts that “stripped” significant value from Allstate is uncertain, although I do not play down the emotive power of the word “stripped”. The “at best, nonsensical” reference serves to add colour to what might be suspicious actions. That is compounded by the “bank authorised and required hedge contracts” and the contrast between insurance and loan exposure and a “derivatives punt by your local plumber” (whatever that might mean). The assertion is then made of Otter’s huge debts to “its financier, Macquarie”. I accept these paragraphs convey an impression that there is something highly suspicious in what is asserted to be the comparison between the gold hedging contracts but, on the balance, I do not think that it leads to a conclusion of impropriety. I am satisfied that the ordinary reader would be left with the overall impression that while some sort of funny business is going on, it is by no means clear what Macquarie’s actual role was in respect of those contracts or that Macquarie had acted outside the bounds of what was commercially open to them. I do not overlook the earlier assertion in the article that Macquarie has used its position to recover “losses incurred” in supporting Otter, but I think the force of this assertion is much diminished because it is made relatively early on and appears on the first page of the article rather than proximate to these paragraphs.

The article then tackles what the ordinary reader might conclude is an associated topic, the position of Otter, which was, as the article had already noted earlier, at the time of the creditors’ meeting, the majority shareholder in Allstate:

Otter continued to be viewed as a prize catch for acquisitive miners. A succession of takeover battles saw control of Otter – and therefore Allstate – pass from founder Tony Radford to Sir Ron Brierley’s Guinness Peat Group, to Robert Champion de Crespigny’s Normandy Mining and finally to Newmont.
It was while Sir Ron’s Mid East Minerals controlled Otter that Allstate was placed in administration.
Continued problems in the Tanami forced Otter to close the mine, and after the sale of its only other asset, a stake in the Mount Martha mine in New Zealand, Otter’s finances also deteriorated to the point where the company owed far more than it was worth.
Yet incredibly, on October 11, de Crespigny’s Normandy NFM launched a takeover bid at 26c a share.
Directors must hardly have been able to believe their luck. In the December 2001 quarterly report they told shareholders that independent valuer Investor Resources had valued the company at between minus 56c a share and minus 16c a share.
Just why would Newmont NFM want to pay such a lavish price for a company with negative value?

That narrative culminating in the question at the end, is the background to the article’s commentary which follows.

That commentary makes the point in the next two paragraphs arising from what the article attributes as the views of the executive director of Beaconsfield Gold:

Beaconsfield’s Trumbull had a stab at explaining it, again in the quarterly report “It is not clear why Newmont NFM paid a very substantial premium (independently estimated to be between $32.5 million and $65.9 million) if indeed it had negative value,” Trumbull wrote.
“A possible explanation could be that Newmont and Macquarie may have come to some agreement about the sharing of the Otter debt and the out-of-the-money gold hedging facilities with Macquarie”.

I do not see the ordinary reader as being able to make out of this much more than speculation that some commercial arrangement had been entered into between Newmont NFM and Macquarie related to debt and gold hedging which has given Macquarie some commercial advantage. The ordinary reader might assume that the fact that Newmont made the offer is a vindication of Macquarie’s commercial position.

However, the next point made in the commentary seeks to engender further suspicion by its attribution of the views of Mr Stacpoole, the former chairman of Beaconsfield Gold. He had been earlier quoted in the context of the creditors being more interested in maintaining employment in the area and not being in a position to understand the real position. He was quoted again:

Stacpoole believes Macquarie wanted to make up the losses on Otter at Allstate, which was on the brink of delivering rich grades from its Tasmanian reef. “As the chairman of Beaconsfield at the time, we thought that Otter had made Allstate the sacrificial lamb to save their (Otter) financial position in regards to Tanami … which wasn’t going too well,” says Stacpoole. “Allstate was the sacrificial lamb for Otter and all of Otter’s problems”.

However, I do not think that the ordinary reader would fairly regard the slight on Otter as making Allstate the “sacrificial lamb” for its problems as having its, or Allstate’s, hedge books manipulated by Macquarie. The connection with Macquarie is that it is asserted that Macquarie wanted to make up the losses on Otter but that consideration does not imply wrongdoing or impropriety with respect to the hedge books. Insofar as the reference to “sacrificial lamb” is concerned, the beneficiary in that regard would seem to be Otter, not Macquarie.

Finally, the point is made in attributing the following to Mr Matthews, the “Allstate shareholder and qualified actuary” who was previously reported as commenting upon “Allstate’s continued formal administration”:

Will Matthews, using his skills as an actuary, has reviewed the hedge books from published accounts of Otter and Allstate and sees them moving in opposite directions under the same management and the same bank.
“Otter’s gets better and Allstate’s gets worse,” Matthews says. “Otter, the company in serious trouble, survives and is allowed to be taken over. Allstate, the jewel in the crown, is shafted at the first opportunity, and worse, all its assets are then shifted under cover of the administration process to pay for the Otter losses.”
All the while that Allstate was hit with heavy hedging losses, its joint venture partner Beaconsfield Gold was generating comfortable cashflow surpluses (even though it had a smaller entitlement to the Beaconsfield mine’s cashflow).

It is at this point that the double entendre presumably intended by the headline is made clear. What is not clear, and what is quite uncertain, is the event that is the “first opportunity” and who causes the assets to be “shifted under cover of the administration process”. Perhaps this conclusion goes closest to an imputation that Macquarie manipulated the hedge books or conspired with the administrators to act detrimentally to Allstate. However, in my view, the ordinary reasonable reader would not draw such a firm conclusion from the article read as a whole. No doubt there is an impression of Macquarie having engaged in some form of sharp practice and to have benefitted to its own commercial advantage. There is also a sense that Macquarie benefitted from having the administrators “on side”. In the absence of a fair inference being drawn that the administrators were complicit in a joint intention to detrimentally affect Allstate, I do not consider that the ordinary reasonable reader would necessarily conclude that Macquarie had acted unlawfully or improperly. The tone and tenor of the article is to be deprecated but it falls short of conveying impropriety as opposed to shrewd and perhaps even manipulative conduct on Macquarie’s part in advancing Macquarie’s own interests. I reach this conclusion with considerable hesitation and because I am conscious that it is the plaintiffs who bear the onus of making good the defamatory nature of the imputations upon which they seek to sue. These comments are made upon the overall impression that I take the ordinary reasonable reader to have formed upon his or her reading of the article. I deal with the specific imputations later.

The article goes on to say what is the present position with respect to Allstate but nevertheless recognising the significantly privileged financial position of Macquarie:

Of course, Allstate is operating profitably now, too. Its accounts for the December 2004 half year show profits of $5.5 million, down 71 per cent after revenue fell 19 per cent because of lower production and slightly lower grades.
But shareholders won’t see anything for a few years yet at this rate. The Macquarie debt leaves the company still holding liabilities of $38 million in excess of its assets.

Defamatory meanings

The parties were generally agreed upon the proper legal tests to be applied as to the meanings of the imputations that the plaintiffs alleged arise from the article. The plaintiffs took as their starting point the summary of the general principles applicable set out in the decision of the Court of Appeal of this court in John Fairfax Publications Pty Ltd v ACP Publishing Pty Ltd (2005) 157 ACTR 28 at 30 [8] – [14]:

8.The general principles applicable to issues of this kind were summarised by Lord Reid in Lewis v Daily Telegraph Ltd [1964] AC 234 in the following passage at 258-259:
There is no doubt that in actions for libel the question is what the words would convey to the ordinary man: it is not one of construction in the legal sense. The ordinary man does not live in an ivory tower and he is not inhibited by a knowledge of the rules of construction. So he can and does read between the lines in the light of his general knowledge and experience of worldly affairs . . . What the ordinary man would infer without special knowledge has generally been called the natural and ordinary meaning of the words. But that expression is rather misleading in that it conceals the fact that there are two elements in it. Sometimes it is not necessary to go beyond the words themselves, as where the plaintiff has been called a thief or a murderer. But more often the sting is not so much in the words themselves as in what the ordinary man will infer from them, and that is also regarded as part of their natural and ordinary meaning . . . Ordinary men and women have different temperaments and outlooks. Some are unusually suspicious and some are unusually naïve. One must try to envisage people between these two extremes and see what is the most damaging meaning they would put on the words in question.
9.See also Slatyer v Daily Telegraph Newspaper Co Ltd (1908) 6 CLR 1 at 7; Sim v Stretch [1936] 2 All ER 1237, (1936) 52 TLR 669; Farquhar v Bottom [1980] 2 NSWLR 380 at 386; Amalgamated Television Services v Marsden (1998) 43 NSWLR 158 at 170 and Steiner Wilson & Webster Pty Ltd v Amalgamated Television Services Pty Ltd [1999] ACTSC 123.
10.The hypothetical ordinary reader has been variously described as a “reasonable reader”, a “right-thinking [member] of society”, an “ordinary man, not avid for scandal” and sometimes as a “reader of average intelligence”. Special knowledge is excluded and so are extremes of suspicion or cynicism on the one hand or naivety and disbelief on the other: Chakravarti v Advertiser Newspapers Ltd (1998) 193 CLR 519; 154 ALR 294; [1998] HCA 37 at [134.1] per Kirby J.
11.In deciding whether any particular imputation is capable of being conveyed by the material in question the issue is whether it is “reasonably so capable, and any strained or forced or utterly unreasonable interpretation must be rejected” (see Hunt CJ at CL in Amalgamated Television Services v Marsden at 170). However, a wide degree of latitude will be attributed to the capacity of the ordinary reasonable member of society to draw adverse imputations where the language employed has been imprecise, ambiguous or loose: Amalgamated Television Services v Marsden at 165 and Chakravarti v Advertiser Newspaper Ltd at [134. 2].
12.The nature of the publication may be a material consideration in determining whether imputations are capable of being conveyed by the words employed. The reasonable reader of a “sensational” article may be permitted to engage in a certain amount of “loose thinking” whilst the reader of a non-sensational article should be taken to apply a greater degree of analytical focus: Steele v Mirror Newspapers Ltd [1974] 2 NSWLR 348 at 373.
13.Mr Reynolds also relied upon a suggested principle that the ordinary reader will be presumed not to draw “inference on inference”. Whilst this submission is frequently made in cases of this nature, such a formulation is potentially misleading. The legal test is simply whether the material in question was reasonably capable of conveying the relevant imputation and the significance of any distinction between primary and secondary inferences must be considered in the context of that test. There may be many circumstances such as those arising in Mirror Newspapers Ltd v Harrison (1982) 149 CLR 293; 42 ALR 487, in which a primary inference could fairly be drawn from the published material but a secondary inference said to arise from the first could not be regarded as an imputation reasonably drawn from that material. At the other extreme, there may be circumstances in which the second inference would be regarded an almost inevitable corollary of the first. In the latter event, there would be no rational reason to act upon some perceived truism that a reasonable reader would lack the intellectual acuity to draw it. As Hunt CJ at CL explained in Amalgamated Television Services v Marsden (at 166), the real point of distinction lies between what the ordinary reasonable reader could understand from what the defendant has said in the matter complained of and the conclusion which such a reader might reach by taking into account his or her own belief which has been excited by what was said.
14.An imputation must, of course, reflect some meaning fairly attributable to the words in question, albeit as Lord Reid pointed out in the passage we have quoted, the most damaging meaning an ordinary reasonable reader would attribute to them. Hence, as Hunt CJ at CL observed, it is the former, not the latter, concept that is relevant. This distinction is of some importance in the present case.

The defendant also asked that I have regard to what the Privy Council said in Jones v Skelton [1963] SR (NSW) 644 at 650:

The ordinary and natural meaning of words may be either the literal meaning or it may be an implied or inferred or an indirect meaning; any meaning that does not require the support of extrinsic facts passing beyond general knowledge but is a meaning which is capable of being detected in the language used can be a part of the ordinary and natural meaning of words. See Lewis v Daily Telegraph [1963] 2 All ER 151. The ordinary and natural meaning may therefore include any implication or inference which a reasonable reader guided not by any special but only by general knowledge and not fettered by any strict legal rules of construction would draw from the words. The test of reasonableness guides and directs the court in its function of deciding whether it is open to a jury in any particular case to hold that reasonable persons would understand the words complained of in a defamatory sense.

The defendant also referred to a passage from the judgment of McHugh J in John Fairfax Publications Pty Ltd v Rivkin (2003) 77 ALJR 1657; 201 ALR 77 at [26]:

However, although a reasonable reader may engage in some loose thinking, he or she is not a person “avid for scandal”. A reasonable reader considers the publication as a whole. Such a reader tries to strike a balance between the most extreme meaning that the words could have and the most innocent meaning. The reasonable reader considers the context as well as the words alleged to be defamatory. If “[i]n one part of [the] publication, something disreputable to the plaintiff is stated, but that is removed by the conclusion; the bane and antidote must be taken together”. But this does not mean that the reasonable reader does or must give equal weight to every part of the publication. The emphasis that the publisher supplies by inserting conspicuous headlines, headings and captions is a legitimate matter that readers do and are entitled to take into account. Contrary statements in an article do not automatically negate the effect of other defamatory statements in the article.

[Footnotes omitted]

It may be noted that the defendant’s citation to me of what McHugh J said in that case does not include the latter half of the passage that I have cited. It seems to me, however, that the latter part of McHugh J’s observations is particularly pertinent to this particular case.

In that case, Callinan J, in discussing whether imputations are conveyed, commented at [187]:

Some other preliminary observations should be made. It is true that an article has to be read as a whole. But that does not mean that matters that have been emphasized should be treated as if they have only the same impact or significance as matters which are treated differently. A headline, for example, expressed pithily and necessarily incompletely, but designed to catch the eye and give the reader a predisposition about what follows may well assume more importance than the latter. … Layout may create its own impression. … The order in which matters are dealt with can be significant. The capacity of the first paragraph of an article, the “intro”, to excite the reader’s attention is a matter upon which editors place store. The language employed is also of relevance. … The intrusion of irrelevant information may raise questions as to the meaning intended to be, and actually conveyed: … True it may be that readers may take an article or articles on impression, but the fact that they may do so is likely to have the consequence that ideas and meanings conveyed by graphic language will create the strongest impressions. Of course publishers are entitled to use colourful and seductive language, but in using it they may run the risk of seducing readers into believing only what is colourful and on occasions scandalous, rather than the facts conveyed by straight reportage.

I have also derived some assistance from the observations of Ormiston JA in the Victorian Court of Appeal in David Syme & Co Ltd and Another v Hore-Lacy (2000) 1 VR 667 at 675 [22] where his Honour said:

Unfortunately, defamation actions are frequently cases of considerable subtlety. Again, unfortunately, many articles in the press (or elsewhere) these days are devised on the “no smoke without fire” premise, so that many allegations take a form which might be construed by the jury as alleging highly improper activity though on detailed analysis the elements of the allegation would appear less serious. It is this sort of case which might go to the jury with the plaintiff pleading imputations of high impropriety and the defendant asserting that its meaning referred to less serious peccadillos which it wished to justify. The “smoke” could therefore be justified but it would remain for the jury (or judge) to decide whether the imputation was still one of “fire”. Particulars of a plea of truth of the less serious imputations of “smoke” would appear to be either bad or irrelevant if the only allegations on the record are the plaintiff’s imputations of “fire”, unless the defendant’s case of “smoke” explicitly forms part of its pleading.

See, too, Favell v Queensland Newspapers Pty Ltd (2005) 79 ALJR 1716; 221 ALR 186 at [11]:

Lord Devlin pointed out, in Lewis v Daily Telegraph Ltd, [1964] AC 234 at 277; 2 All ER 151 at 169, that whereas, for a lawyer, an implication in a text must be necessary as well as reasonable, ordinary readers draw implications much more freely, especially when they are derogatory. That is an important reminder for judges. In words apposite to the present case, his Lordship said, at [1964] AC 234 at 285; 2 All ER 151 at 173-4:
It is not … correct to say as a matter of law that a statement of suspicion imputes guilt. It can be said as a matter of practice that it very often does so, because although suspicion of guilt is something different from proof of guilt, it is the broad impression conveyed by the libel that has to be considered and not the meaning of each word under analysis. A man who wants to talk at large about smoke may have to pick his words very carefully if he wants to exclude the suggestion that there is also a fire; but it can be done. One always gets back to the fundamental question: what is the meaning that the words convey to the ordinary man: you cannot make a rule about that. They can convey a meaning of suspicion short of guilt; but loose talk about suspicion can very easily convey the impression that it is a suspicion that is well founded.

I accept the submissions made on behalf of the defendant that the ordinary reasonable reader represents an unvarying standard. I am not to regard the reader as one as having some special background in the gold mining industry or even in the finance industry. I must look at the article in the same way as a reasonable reader would have understood without assigning any special characteristics or knowledge to that reader.

The article refers to statements assigned to other persons. The defendant directed me to a comment made by McHugh J in Rivkin (supra) at [27]:

The rule that the publication must be read as a whole is particularly important where the publication reports a defamatory statement by a third party. The general rule is that a person who publishes the defamatory statement of a third party adopts the statement and has the same liability as if the statement originated from the publisher. Accordingly, it is not the law that a person reporting the defamatory statement of another is only liable if he or she adopts the statement or reaffirms it. But, as Griffith CJ pointed out in Ronald v Harper, although as a general rule a person who repeats a defamation adopts it as his or her own statement, it is not “a rule of invariable application”. The context of the statement may show that it is refuted or undermined by other parts of the publication. In Bik v Mirror Newspapers Ltd, the plaintiff claimed that he was defamed by a report of parliamentary proceedings that disclosed that a witness at a coronial inquiry had alleged that the plaintiff had designed a faulty crane that led to a fatality. But the report also stated that, in answer to a question, the Minister of Justice “completely cleared” the plaintiff. The New South Wales Court of Appeal unanimously held that the report was incapable of a defamatory meaning concerning the plaintiff.

[Footnotes omitted]

To a similar effect, the plaintiffs referred to the discussion by McColl JA in John Fairfax Publications Pty Ltd v Obeid (2005) 64 NSWLR 485 at [98] – [102]. Her Honour summarised that discussion at [119] of that decision. She said:

This review of the authorities demonstrates that:
(a) Republication of defamatory hearsay constitutes adoption of the defamatory statement – using “adoption” in the primary sense;
(b) As a general rule the republisher is liable in defamation as if the author of the defamatory hearsay;
(c) To determine what, if any, defamatory imputations are conveyed by the publication in which the defamatory hearsay appears, the matter complained of must be viewed as a whole. Relevant indicia will include whether the defamatory hearsay is approved, reaffirmed and/or endorsed (adopted in the secondary sense), repudiated or discounted and the purpose of the republication.

The article generally

What makes my task particularly difficult in the present case is that the article appears in a specialist section of a weekend paper rather than the general news or features part. It is lengthy but, on the other hand, is accompanied by eye-catching photographs, graphics and headings. I have found it very difficult to try and place myself in the position of the ordinary reasonable reader in order to imply the meaning for which the plaintiffs contend. Part of the difficulty lies in not reading the article initially as part of the whole publication and doing so without knowledge of, or reference to, the pleadings and the submissions put to me in the course of this case. I do not have the benefit, as a jury would have, of discussion about the impact and impression that the article might make on others and particularly on persons who are not lawyers. I must try as best I can, bearing in mind that the ordinary reasonable reader might not necessarily analyse the article or view it in a particularly logical fashion or give the words and concepts expressed in the article a precise meaning.

Subsequently, the minutes record the questions by various of the creditors and the responses given to those questions. Of the 16 questions recorded, the chairman (the administrator) responded to 14 of them. The minutes report Mr Morris’ responses:

Q. Dale Elphinstone of William Adams
What is MBL’s view to going forward if this proposal is not approved?
A. Warrick Morris of MBL
To date MBL have been very supportive of the mine. For example they are currently contributing toward capital development of the mine. Mr Morris outlined that the Bank has other options if the proposal is not approved. Firstly MBL can sell the property and then liquidate the companies. Secondly, MBL may not continue with capital development and mine and process what ore is currently available and then let the mine flood. Thirdly carry on as in the current structure.
Mr Morris noted that if the proposal were not accepted it would be difficult to commit to the Bank continuing to support the mine over the next five years.
Q.Julianne Creely from Manions Body Works

If the proposal is accepted, will MBL continue to support the mine?
A. Warrick Morris of MBL
Yes.

The defendants seek to characterise what Mr Morris said to the meeting as a threat to the creditors that unless they voted for the proposal that Macquarie was putting, Macquarie would implement one or other of the first two options. In my view, such a characterisation is not a fair representation of what was reported in the minutes or, indeed, what was said to the meeting.

The defendant seeks to infer from the statement a sense of immediacy in order to constitute what was said as a threat. A number of matters tell against that. What Mr Morris is reported as saying is in the context of “other options”. There are in fact three that he refers to and the third is to carry on the mine “as in the current structure”. Further, it is Macquarie’s support over the next five years which qualifies the options that Mr Morris puts to the meeting.

I do not doubt that the creditors were alive to the possibility that without the Bank’s support the mine could be closed. The evidence given by Mr Seen, one of the creditors and the only witness called in the defence case attests to that. However, Mr Seen’s evidence is his interpretation of how it appeared to him rather than evidence that there were different words used by Mr Morris which could have amounted to a threat. Indeed, Mr Seen’s evidence is at odds with the minutes of the meeting which, in their terms, do not convey the immediacy which characterised Mr Seen’s understanding of what was said at the meeting. I place no real weight on his evidence insofar as it is at variance with the reported minutes of the meeting.

Moreover, I am satisfied, having heard and seen Mr Morris give evidence, that he did not intend to respond to the creditor’s question in terms of giving an ultimatum which he knew could, or would, not be carried out.

In coming to this conclusion, I have carefully considered all of the criticisms of Mr Morris’ evidence that the defendants have made.

Mr Morris was subjected to a very testing cross-examination on what he said to the meeting as well as other issues. I accept that at times his evidence gave the impression of calculated best responses. However, that does not detract from the fact that the defendants have not shown that the probable inference to be drawn from the whole of Mr Morris’ evidence is a deliberate attempt to lie to or mislead the meeting of creditors.

The defendants’ difficulty in seeking to make a case for a sinister plot on Macquarie’s behalf to manipulate the creditors to vote for the proposal is that the objective facts do not support that proposition. There can be no doubt that on Mr Rourke’s and Mr Morris’ evidence, they saw a business opportunity to benefit Macquarie. No doubt too, the commercial opportunity to risk a relatively small loss for the prospect of a significant profit was a motivating factor. That motive does not establish that Macquarie was, in fact, party to, or its employees were misleading the creditors to achieve the prospect that it sought.

Several matters were put particularly concerning the dealings with Normandy including email correspondence where it appears that initially Macquarie, through Mr Morris, seemed to be prepared to risk the commercial relationship with that entity to ensure control of the intercompany loans. These matters may be considered as background to the proposal that Macquarie put to the meeting of creditors but do not give any additional colour to the words that Mr Morris is reported to have used to the meeting of creditors.

I accept that the prospect sought, that of gaining access to intercompany loans, was dependant on many factors. However, most of these factors were beyond Macquarie’s control or foresight. In light of that finding, I do not accept that what was put to the creditors, in fact, misled them. Nor do any of the other issues raised by the defendants as to the motive for either or both of Mr Morris or Mr Rourke to act as they did, persuade me that, in fact, Mr Morris lied to or that Mr Morris, Mr Rourke or Macquarie misled the meeting of creditors. Unless the defendants can make out such a proposition, the defence is bound to fail.

As can be seen from the foregoing assessment of the defence of truth there is, in my view, no justification for the tone of the article or what can only be described as “cheap shots” that the article takes at Macquarie’s expense.

No attempt appears to have been made to seek a response from Macquarie or the two individual plaintiffs to the various assertions made in the article. That seems to me to be quite unfair. However, as I have found, having regard to the onus that the plaintiffs bear, what was reported does not make out the plaintiffs’ claim that they were defamed.

Having regard to what has been now put before me as to the circumstances upon which the article is based, I can only express my disappointment at the approach taken by the authors of the article published in a newspaper that I thought prided itself on accurate and responsible reporting.

In the result, the plaintiffs’ claim against the first defendant will be dismissed with costs.
I certify that the preceding one hundred and ninety-four (194) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Gray.
Associate:
Date: 16 February 2009

Counsel for the plaintiffs:  Mr B Walker SC and Mr K Smark SC
Solicitor for the plaintiffs:  Clayton Utz
Counsel for the defendants:  Mr T D Blackburn SC and Mr A Leopold SC

Solicitor for the defendants: Cropper Parkhill Solicitors

By their agents
Elrington Boardman Allport

Date of hearing: 24, 25, 26, 27, 28 September 2007

2, 3, 4, 5, 8, 9, 10, 11, 12, 15 October 2007

Date of judgment: 16 February 2009

APPENDIX A

The Australian: The mine shaft [05mar05]

THE AUSTRALIAN

The mine shaft

A gold play rakes in millions for Macquarie Bank, but the mine’s investors get nothing. Michael West reports.
05mar05

THE Beaconsfield Mine spirals more than a kilometre towards the earth’s core near Launceston in Tasmania.

Per tonne of dirt, this is the most profitable mine in Australia. Gold mines eke out, on average, three grams of gold per tonne. But not Beaconsfield; last year its subterranean boggers hauled up a spectacular 20.8 grams/tonne, the rich ore glittering to the naked eye.

It should be a gold mine for shareholders, too.

Just this week Beaconsfield Gold, the junior partner and 48.5 per cent owner of the mine, paid a maiden dividend of 1.5c a share to its 5000 investors, after emerging 18 months ago from the workout of a $30 million debt to the Bank of Western Australia.

But the operator and 51.5 per cent owner of the mine, Allstate Exploration, continues to languish in administration, apparently unable to overcome a smaller initial debt that sent it under just three weeks before Beaconsfield in June 2001. This is despite its bigger share of the mine’s riches and an ongoing management fee that Beaconsfield Gold does not receive as the junior partner.

Unsecured creditors have received just 5c in the dollar for their $3 million in debts, and shareholders who stumped up $56 million to revive the 120-year-old mine in 1999 haven’t seen a cent.

Even more bizarrely, this rich mine slipped through the fingers of some formidable players, including New Zealand corporate raider Ron Brierley; Australia’s once biggest gold miner, Robert Champion de Crespigny’s Normandy NFM; and the world’s biggest gold miner, Newmont.

Yet Macquarie Bank has, since 2002, been able to turn a $21 million project finance loan into a controlling interest in the mine and rip out up to $20 million a year in cash from “Beacy”.

It looks an incredibly smart play by the Millionaires Factory – as Australia’s biggest home-grown investment bank has come to be known – and the two senior executives of its treasury and commodities division, Warwick Morris and Jonathon Rourke.

By offering to put in $300,000 to acquire the $77.5 million that Allstate had lent to its operating subsidiaries, it got control of the country’s richest mine and the right to more than half the cash it produced.

But creditors claim that had they known information that has subsequently come to light about the mine’s drilling results and prospects, they would never have voted to hand control of the mine to Macquarie.

An investigation by The Weekend Australian shows creditors were not given the full picture of just how rich the mine is. It also indicates that the bank has used its position to keep Allstate in administration while it recovers losses incurred in supporting Allstate’s controlling shareholder Otter Gold.

The Australian Securities and Investments Commission has already investigated the circumstances of Macquarie winning control of the mine, but told angry creditors there was not enough evidence to support a case.

But there is now a push to get the Australian Prudential Regulation Authority, which regulates banks, to look into the affair because of concerns about Otter’s hedge book – a series of contracts to sell gold at certain prices in the future – and how Allstate’s own hedge book has been used during the administration.

Macquarie declined numerous requests to respond to questions about its control of the mine. ASIC also declined to comment in detail, saying only that the regulator had looked at the situation and found insufficient grounds to take action.

This is the story of how Australia’s biggest investment bank put its foot on Australia’s richest mine and how its actions might yet come back to haunt it.

Adventurers from around Australia flocked to northern Tasmania when gold was first discovered in 1877, and the little town of Beaconsfield sprouted up around the mine and along the banks of the Tamar River.

When the operation wound down in 1914 – a casualty of World War I, frequent flooding and the sheer depth of the shaft, at 450 metres – “Beacy” had churned out 854,000 ounces of gold.

By the 1980s, the Beaconsfield township – its main street, three pubs and Chinese restaurant – had sprung back to life. Drilling had begun again at depth.

Armed with their shareholders’ cash, new technology and high hopes, two stockmarket joint venturers – Beaconsfield Gold and Allstate Exploration – were putting historic Beacy back in commission.

Yet just when the mine was on the cusp of profitable production, it all went awry.

Creditors voted to hand control of the mine to Macquarie – the only secured creditor, with a debt of $21 million – on March 19, 2002.

Fifteen months earlier, on June 8, 2001, production hiccups in the early stages of the mine’s revival had spooked directors and lenders, prompting directors to place the company in voluntary administration under Michael Ryan and Tony Woodings of Perth firm Taylor Woodings.

Just one day earlier, Ryan and representatives of Macquarie Bank were reported to have visited the company’s offices, following visits by Macquarie and BankWest to the mine site, where they were briefed by mining staff.

According to information circulated to creditors ahead of the March meeting, things were not looking too bright for Allstate and the Beaconsfield Mine.

Specific forecasts of gold production were not given. But according to Mark Trumbull, executive director of Beaconsfield Gold – writing in that company’s March 2003 quarterly report – the circular indicated annualised gold production of between 77,158oz and 78,236oz.

“What the administrators apparently neglected to point out to Allstate creditors in the circular or at the subsequent meeting was that the forecast rates of annual gold production … bore little or no resemblance to the actual BMJV (Beaconsfield Mine joint venture) gold production rates at the time …” Trumbull wrote.

The mine was already producing at an annualised rate of 95,000oz, and the joint venture’s five-year plan indicated much higher rates of production.

Lists of emails obtained from ASIC under the Freedom of Information Act suggest Macquarie and Michael Ryan knew the mine to be in better shape than they were letting on. “Gold Gold Gold – confirmation of excellent Gold productions” screams the headline of an email on January 9, 2002.

How much Gold Gold Gold was there exactly at Beaconsfield?

In an email dated December 7, 2001 – a month earlier – from Michael Ryan to a group of Macquarie bankers, including Morris and Rourke, annual gold production for the year to December 2002 was forecast at 90,659oz.

The Weekend Australian has obtained copies of detailed forecasts that were in the possession of Macquarie and Ryan at the time. Even the 90,659oz forecasts, which creditors never saw, have proven conservative. With Allstate still wallowing in administration it pumped out 146,000oz of gold last financial year.

At the creditors meeting, Ryan recommended the sale of the Internal Allstate subsidiary loans to Macquarie for only $300,000 through a “special” revised Deed of Company Arrangement that would give them 5c in the dollar if they relinquished control of Allstate.

It was a controversial move because a series of loans from Allstate to its subsidiaries to finance the mine redevelopment – and which would have been eliminated in the accounts – were now an external debt. The amount of debt owed to Macquarie Bank suddenly ballooned from $21 million to $98.5 million.

“This is quite a good position for unsecured creditors,” Ryan told creditors of the offer.

There were nothing good about the deal for Beaconsfield shareholders, who were left in the dark about the implications of the Macquarie debt restructure, which made the prospect of them recovering any money even more remote.

“The Allstate shareholders had never been advised or consulted about the Macquarie Bank proposal to divert the next $77.5 million of free cash flow from Allstate to Macquarie,” Beaconsfield Gold said in early 2003. “As the circular (to creditors before the creditors’ meeting) did not mention the figure of $77.5 million … the majority of Allstate shareholders probably still don’t know what really happened to their company on 19 March 2002.”

Two of the biggest losers are Newmont, the world’s biggest gold miner, which owned 56.6 per cent of Allstate through its takeover of Otter, and Beaconsfield Gold, the joint venture that owned 30 per cent. Their loss of future cash flows, which would flow to Macquarie under the debt restructure, was estimated at $67.2 million.

The aggressive way Ryan went about advocating the deal also left a bad taste in creditors’ mouths. As Macquarie’s Morris watched on, the administrator told creditors that: “The bank could foreclose on the mine … could run the mine down and reap the proceeds of a fire sale.”

According to minutes of the creditors meeting, Morris himself told creditors that “Macquarie can sell the property and then liquidate the companies”. “Secondly, Macquarie may not continue with capital development and mine and process what ore is currently available, and let the mine flood,” he was reported as saying.

Rob Hill, a creditor through consulting engineers Rob Hill and Associates, said that because the mine was a joint venture the bank had overstepped the mark in making those comments.

“They (the bank) didn’t have authority to do that (sell, flood or liquidate the mine)”, he says. “It wasn’t their call.”

But creditors didn’t appear to have the full picture and, in a remote mining town built around the gold mine, they had other priorities to think about. Hill says: “It was all about creditors keeping their jobs at the mine. That’s why they agreed to the proposal”.

Harry Stacpoole, a mining engineer who as former chairman of Beaconsfield Gold was the driving force behind the mine’s revival, says jobs were at stake.

“Creditors were more interested in maintaining employment in the area, and after the threat that Macquarie might close the mine they agreed to the bank’s proposal,” Stacpoole says. “The creditors would not have had the opportunity to understand the real position of the mine.”

Within a few short months of that meeting the grim picture painted for creditors had been turned on its head.

Gold production began to climb spectacularly as lodes nearly twice as rich came to the surface. Mining costs that had been above $450 an ounce started to plunge below $300.

But by then the mine was out of shareholders’ hands and information was choked off by a blanket ASIC waiver on filling accounts.

Trumbull, however, has waged a one-man war against the secrecy. As executive director of Beaconsfield Gold, he resisted repeated attempts by Macquarie Bank and BankWest to sign confidentiality agreements.

He declined to talk to The Weekend Australian but has continued to file detailed quarterly statements for Beaconsfield Gold shareholders, which shed light on the mine’s spectacular results.

In the March 2003 quarterly report he discussed an apparent proposal by Macquarie to merge Allstate and Beaconsfield Gold, creating one company with full ownership of the mine but controlled by Macquarie and carrying debts to both BankWest and Macquarie.

Allstate shareholder and qualified actuary Will Matthews says Allstate’s continued formal administration can be traced to losses racked up by Otter Gold, an explorer which owned 56 per cent of Allstate and came undone on a much-hyped but fruitless gold hunt in the Northern Territory’s Tanami desert.

Matthews estimates Macquarie’s support of Otter via gold hedging contracts over three years to 2001 was worth as much as $100 million.

His analysis of hedge books for both Allstate and Otter argues that the contracts “stripped significant value from Allstate”.

Matthews says the hedge book arrangements, which saw Allstate lose money while Otter was making it, were, at best, nonsensical. “We are talking about bank-authorised and required hedge contracts as insurance against its loan exposure here – not a derivatives punt by your local plumber.

“My best conservative guess at the actual resultant loss to Allstate is around $10 million, which id directly comparable to Otter’s $30 million gain.”

Otter’s inability to bring its Tanami mine into profits put it in a parlous position, with huge debts to its financier, Macquarie.

But, perversely, it was Allstate and its rich Beaconsfield mine, not Otter and its Tanami misadventures, that eventually collapsed.

Otter continued to be viewed as a prize catch for acquisitive miners. A succession of takeover battles saw control of Otter – and therefore Allstate – pass from founder Tony Radford to Sir Ron Brierley’s Guinness Peat Group, to Robert Champion de Crespigny’s Normandy Mining and finally to Newmont.

It was while Sir Ron’s Mid East Minerals controlled Otter that Allstate was placed in administration.

Continued problems in the Tanami forced Otter to close the mine, and after the sale of its only other asset, a stake in the Mount Martha mine in New Zealand, Otter’s finances also deteriorated to the point where the company owed far more than it was worth.

Yet incredibly, on October 11, de Crespigny’s Normandy NFM launched a takeover bid at 26c a share.

Directors must hardly have been able to believe their luck. In the December 2001 quarterly report they told shareholders that independent valuer Investor Resources had valued the company at between minus 56c a share and minus 16c a share.

Just why would Newmont NFM want to pay such a lavish price for a company with negative value?

Beaconsfield’s Trumbull had a stab at explaining it, again in the quarterly report. “It is not clear why Newmont NFM paid a very substantial premium (independently estimated to be between $32.5 million and $65.9 million) if indeed it had negative value,” Trumbull wrote.

“A possible explanation could be that Newmont and Macquarie may have come to some agreement about the sharing of the Otter debt and the out-of-the-money gold hedging facilities with Macquarie.”

Stacpoole believes Macquarie wanted to make up the losses on Otter at Allstate, which was on the brink of delivering rich grades from its Tasmanian reef. “As the chairman of Beaconsfield at the time, we thought that Otter had made Allstate the sacrificial lamb to save their (Otter) financial position in regards to Tanami … which wasn’t going too well,” says Stacpoole. “Allstate was the sacrificial lamb for Otter and all of Otter’s problems.”

Will Matthews, using his skills as an actuary, has reviewed the hedge books from published accounts of Otter and Allstate and sees them moving in opposite directions under the same management and the same bank.

“Otter’s gets better and Allstate’s gets worse,” Matthews says. “Otter, the company in serious trouble, survives and is allowed to be taken over. Allstate, the jewel in the crown, is shafted at the first opportunity, and worse, all its assets are then shifted under cover of the administration process to pay for the Otter losses.”

All the while that Allstate was hit with heavy hedging losses, its joint venture partner Beaconsfield Gold was generating comfortable cashflow surpluses (even though it had a smaller entitlement to the Beaconsfield mine’s cashflow).

Of course, Allstate is operating profitably now, too. Its accounts for the December 2004 half year shows profits of $5.5 million, down 71 per cent after revenue fell 19 per cent because of lower production and slightly lower grades.

But shareholders won’t see anything for a few years yet at this rate. The Macquarie debt leaves the company still holding liabilities of $38 million in excess of its assets.

[2009] ACTSC 9

16 February 2009

Key Legal Topics

Areas of Law

Defamation Law

Legal Concepts

Defamation

Truth as Defence

Compensatory Damages