Image for Sudden Impact – When Will Gunns Finally Hit the Wall?

Dirty Harry once said, ‘Opinions are like assholes.  Everybody has one.’  So, this is my opinion, for your consideration.

The Pulp Mill Assessment Act 2007 (PMAA),  as we know, provides that the Pulp Mill Permit lapses unless the project is ‘substantially commenced’ within four years of the Permit’s approval – at the end of August 2011, and approvals under the Water Management Act 1999 lapse unless dam works on the site are ‘substantially completed’ with that four year period.  Everyone is thoroughly familiar with this position.

The Pulp Mill Permit, dated 21 August 2007, provides, inter alia, that –

‘8 Every requirement in a condition of the Pulp Mill Permit is to be read as requiring that the action to which it refers is to be substantially performed to the reasonable satisfaction of the regulatory authority responsible for the enforcement of that condition in such a manner as to promote the objective of the requirement as identified by that authority.

9 A requirement in a condition of the Pulp Mill Permit is taken to have been substantially performed to the reasonable satisfaction of the regulatory authority responsible for the enforcement of that condition, unless the regulatory authority provides the person responsible (Gunns Ltd) with notice in writing that the condition is not being substantially performed to its reasonable satisfaction in such a manner as to promote the objective of the requirement as identified by that authority.’ (italics added)

So, the regulatory authority responsible – in this case the EPA – is charged with determining whether a condition of the Pulp Mill Permit has been ‘substantially performed’.  Appendix 2 to the Permit lists all the relevant individual permits subsumed within the Pulp Mill Permit by the PMAA, including permits granted under the Land Use Planning and Approvals Act 1993 (LUPAA).  Section 53 of LUPAA provides that permits will lapse after two years if the relevant ‘use or development’ has not ‘substantially commenced’, with a ‘once only’ two-year extension available on application if the project concerned is unlikely to meet the initial two-year substantial commencement requirement. 

So, a possible four years to substantially commence.  Confused yet? 

Effectively, according to the Pulp Mill Permit, the EPA must determine whether Gunns have ‘substantially performed’ a ‘substantial commencement’.  And, unless they advise Gunns, in writing, that they haven’t achieved this semantically convoluted goal, then everyone must accept that they have.

BUT, the PMAA also provides, in section 8 (1) (d) that ‘the person, body or State Service Agency responsible for the enforcement of each condition (of the Pulp Mill Permit)  must enforce the condition to the extent of its powers’. (italics added)  So, the EPA must satisfy itself that there has been a substantial performance of the substantial commencement requirement, but any adverse finding will only be relevant if the responsible person (Gunns) is notified in writing thereof.  There has been no indication this has occurred.  Heaps of pressure on Alex Schaap – hopefully he’s up to the task, and not just a second-rate, ‘legend in his own mind’ bureaucrat.

The legal nexus between the Pulp Mill Permit and the PMAA is poorly crafted with the Permit apparently allowing a discretionary determination of ‘substantial commencement’ by the EPA, and the PMAA legislating for a lapsing of the Permit after four years if ‘substantial commencement’ of the project has not occurred.  Interpretation of the term ‘substantially commenced’ in the PMAA will, in the absence of an appropriate precedent, require court determination. 

Eons will pass before we learn anything via that course. 

No wonder the Government and the EPA are seeking legal advice.  Gunns must have their own lawyers on speed dial.  This is diabolical stuff, and sometimes you just can’t do it all yourself – like Harry says, ‘a good man always knows his limitations’.  Typically, however, we are being denied any knowledge of the nature and content of the legal advice received by our Premier and the EPA director, on the grounds that it is privileged information. 

Legal professional privilege is a complex, mysterious thing, and we know how much Miss Lara likes to style herself as a person committed to working through complexities.  Here’s a tip, sweetie.  Legal professional privilege ‘belongs’ to the client – that would be you, or Mr Schaap – and the client is entirely able to waive their right to confidentiality. 

Furthermore, following Waterford v Commonwealth of Australia (1987) 163 CLR 54, advice given by a legal professional in relation to an administrative function of government does not attract legal professional privilege.  Any advice given regarding the lapsing, or otherwise, of planning and development permits, is, arguably, advice of this type. (Although the current proceedings instituted in the Hobart Magistrates Court challenging the legality of Gunns’ site works at Longreach may have compromised this situation).

Which brings us to the Long Term Pulpwood Supply Agreement (LTPSA) - Contract of Sale No. 917 - between Forestry Tasmania and Gunns Limited.  At 155 pages, the contract is an eyeball-destroying read, and the phone book would be more entertaining, but it does address the issue of ‘commencement of construction’ of the Pulp Mill.  In the absence of any other legal hook upon which to hang a definition of ‘substantial commencement’ of the project, it may be relevant.  At the very least, it indicates the Government’s intention, through its GBE, Forestry Tasmania, regarding any time limits applying to its relationship with Gunns’ Pulp Mill project.

Clause 3.3(aa), inserted into the agreement by Deed of Variation dated December 2008, provides that ‘commencement of construction of the Pulp Mill means the carrying out of all construction activities (as that term is defined in the Pulp Mill Permit) which, from time to time, are necessary to construct the Pulp Mill’.

‘Construction activities’ are defined in Appendix 1 of the Pulp Mill Permit as ‘activities on or in the terrestrial or marine environment associated with the construction phase of an activity related to the project including, but not limited to, activities associated with:

‘Clearance of vegetation; site works to create a level site; road construction; construction of a quarry; construction of the buildings; installation of processing equipment and associated infrastructure, including infrastructure for water supply, power and natural gas; construction of a pipeline to discharge wastewater to the Bass Strait outfall; construction of a warehouse for pulp storage; construction of a pipeline to discharge stormwater to the Tamar River; construction of a new shipping berth facility in the Tamar River; construction of infrastructure for solid waste disposal; construction of other infrastructure to be used in conjunction with the pulp mill, including water supply pumping station and pipelines; construction of road and rail infrastructure or upgrade of existing road and rail infrastructure; temporary accommodation for construction workers; construction of a chemical plant; construction of an effluent treatment plant; and construction or upgrading of woodchipping facilities and associated infrastructure’. 

That’s a shitload of construction, in anyone’s language, and there’s little evidence of it onsite at Longreach.

On its face, taking into consideration all publically available variations, it appears that Forestry Tasmania intended the LTPSA to remain in place, provided construction of the Pulp Mill commenced before 30 November 2010, and ‘normal operations to produce pulp at the Pulp Mill’ commenced by 31 December 2012.  Otherwise, Clause 3.3 (b) allows for termination of the agreement, 180 days from written notice of intention to do so.  The contract is clearly on borrowed time.  And, the contentious ‘take or pay’ provisions of the LTPSA and its companion contract, the Sawlogs and Other Products Supply Agreement dated 20 December 2007, unambiguously outline Gunns’ obligation to pay for a fixed amount of product, regardless of the amount taken.  Disputing these provisions is at best an attempt to throw yet another spanner into the creaking machinery of the Tasmanian Government.

Currently, Gunns are in a trading halt, and have flagged a $355m plus operating loss for year end 30 June 2011 in their Appendix 4E Preliminary Report to the ASX.  Audited financial reports are due by the end of September, and they may not be pretty.

Furthermore, the LTPSA provides, in Schedule 13, Clause 11, that Forestry Tasmania may terminate the contract immediately, by notice in writing to Gunns, if any of the following occur –

‘If distress or execution be levied against any of the property of Gunns and not paid out within seven days; if an order be made or a resolution passed winding up Gunns; if a receiver or a receiver and manager shall be appointed of Gunns’ assets or any part thereof; if any scheme of arrangement is submitted for approval by any Court by Gunns; or if Gunns becomes bankrupt or unable to pay its debts as and when they become due.’

Given the current state of Gunns’ financials, one, or more, of these events must be considered a possibility in the short term.  Gunns is able, under Schedule 13, Clause 15, to assign its rights under the LTPSA to another party – presumably these are the residual rights that supposedly require extinguishment before the Intergovernmental Forestry Agreement can be realised.  What happens to these rights if Forestry Tasmania terminates the LTPSA pursuant to Clause 11 of Schedule 13?

We have, ladies and gentlemen, a classic Mexican standoff. 

Gunns, at this point, need to keep the Pulp Mill Permit, and the LTPSA alive, and extract whatever ‘compensation’ they can from the Government before the end of this month, when the shit will officially hit the fan.  At the very least, Gunns’ auditors, KPMG, should be noting issues with the ‘going concern’ status of the company, and the valuation of the pulp mill asset.  And, will the directors have signed off on the company’s ability to pay its debts, as and when they fall due, for the next 12 months?

The Government, the EPA and Forestry Tasmania, for their part, want to keep the Pulp Mill charade alive for mostly personal reasons.  The longer the illusion remains, the fewer days they will have to live their lives as total fuckwits.

Someone – Alex Schaap, Bob Gordon, Greg L’Estrange, Lara Giddings – could man up and sort this pile of crap once and for all.  But, like Harry says, ‘it’s a question of methods.  Everybody wants results, but nobody wants to do what it needs to get them’.  But ‘I feel lucky’ tonight.  Maybe someone will ‘go ahead and make my day’.

And, as for Lara, ‘if she wants to play lumberjack, she’s going to have to learn to handle her end of the log’.

• Brisbane Times: Ratings body suspends green ticks after paper stoush

Ben Butler
September 12, 2011

THE organisation that gives a green tick to some of the biggest timber and paper companies has voluntarily suspended most of its operations after a bruising stoush with environment groups over its approval of the paper brand Reflex.

SmartWood, a division of Rainforest Alliance, gave up its ability to issue chain-of-custody certifications following an investigation into its audit of Reflex manufacturer Australian Paper by the Forest Stewardship Council (FSC), an international governing body.

In addition, SmartWood had also certified Tasmanian forestry group Gunns, plantation owners Hancock, tissue company Kimberly-Clark and Norwegian paper group Norske Skog, which supplies the bulk of newsprint used in Australia.

The voluntary suspension was accepted by Accreditation Services International, which was auditing SmartWood on behalf of the forest council, on September 1, and remains in force until lifted by ASI.

‘‘This is the first time in the development of FSC Australia that this has occurred,’’ the forest council chief executive, Michael Spencer, said.

He said the suspension showed the forest council system worked.

‘‘Integrity is really paramount to the system. Businesses particularly need to know the rules are applied consistently.’‘

SmartWood’s withdrawal means companies it audited will have to find a new auditor if they wish to remain within the forest council program when their certificates expire.

ASI’s investigation of SmartWood was triggered by environment groups that were unhappy it had continued to certify Australian Paper’s use of timber logged from native forests by VicForests, the Victorian government’s logging company.

Green groups say native forests are classified ‘‘high conservation value’’ and cannot be logged for use in forest council-certified products.

Australian Paper withdrew from the council system last month so it could continue using logs from VicForests, approved by Australian Forestry Standard, a rival accreditation system.

The director of MyEnvironment, Sarah Rees, whose complaint helped spark the ASI inquiry, said the result showed the forest council ‘‘is capable of responding to environmental and community change’‘.

Wilderness Society forest campaigner Luke Chamberlain said, ‘‘By hitching their wagon to the unsustainable practices of VicForests and Australian Paper, Rainforest Alliance have taken themselves out in what is an international blight on forestry practices in Australia.’‘

Read more HERE

• Loretta Johnston, The Examiner: Hands off public money: Brown

BY LORETTA JOHNSTON
12 Sep, 2011 12:00 AM

AUSTRALIAN Greens leader Bob Brown says he will meet Prime Minister Julia Gillard tonight to argue against public money being used to settle a commercial dispute between timber company Gunns and Forestry Tasmania.

Premier Lara Giddings on Friday said the state and federal governments had been working to achieve a resolution to disputed debts between the two entities in order to progress the forestry intergovernmental agreement.

“That’s a self-caused commercial dispute between those two entities and they should be paying for it,” Senator Brown said.

Senator Brown also called on the federal government to obtain advice from the federal Solicitor-General in relation to any residual legal obligations arising from the handing back of Gunns’ native forest contracts.

“Prudence would require a federal legal opinion to look at the state opinion, which says there is a residual legal need to pay Gunns money,” he said.

“I’m not convinced that that is the case ... You need more than one opinion on that; we’re talking about millions of dollars of taxpayers’ money.”

The state government has offered Gunns a revised commercial settlement, but the amount of compensation offered has not been made public.

The company said it would respond to the offer early this week.

Loretta Johnston in The Examiner HERE

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Media Release

12 Sep 2011

• Jenny Webber: Tasmanian Agreement continues to fail ancient forests

A blockade has been set up in the Picton valley this morning, to halt logging and call for immediate protection and the rescheduling of loggers out of these ancient forests.

‘Conservationists are protesting about the ongoing logging in the old growth forests in the Picton valley, forests that had a road put through them when they should have had a moratorium and now are being logged when they should have formal protection’ Huon Valley Environment Centre’s spokesperson Jenny Weber said.

‘There are no signs of protection for the forests inside the nominated 430 000ha.  As logging continues unabated.  In the Picton valley the forests have missed out on the promised protection and these future national parks are vanishing,’ Jenny Weber said.

‘In August the Tasmanian and Federal Government promised the immediate protection of 430 000ha of native forest, and logging commenced in these Picton forests two weeks after that announcement.  Premier Giddings and Prime Minister Gillard are failing to provide leadership on the promise of protection for these forests,’  Jenny Weber said.

Media Update

12 Sep 2011

Logging Halted in Tasmania’s Picton Valley

Police have arrived at the scene of a protest in the Picton valley in Tasmanias south, where conservationists have set up a blockade.  Six logging machines that have been destroying old growth forests, are prevented from logging by a conservationist up a single pole structure attached to the machinery. 

‘Huon Valley Environment Centre is concerned that continued logging inside the 430 000ha puts the forest agreement in to question. The Tasmanian Government can reign in Forestry Tasmania if they want to and put an end to logging of future national parks.  Instead ancient forests are being sent to Malaysian logging giant Ta Ann, they are being stockpiled in the coupes and at Forestry Tasmania’s merchandising yards,’ Huon Valley Environment Centre’s Jenny Weber said.