The events on and around 31 May 1989
17 The first step appears to have been the completion of a cheque voucher in respect of a cheque which was to be drawn by News Finance. This was signed by at least Mr Chegwyn and Mr Macourt. Prior to Mr Macourt signing the voucher, it had been completed by other persons (who were not identified). At that time it revealed the following information:
PAYEE: SIBHAND PTY LIMITED [scil: the original name of NPHP]
IN PAYMENT OF: LOANS - US$1,796,743,102
- [£]292,971,509
- A$1,000,000[,000]
AMOUNT: [A]$2,974,708,426.00
Cheque No: 272461
DATE: 30/5/89
The voucher noted the Australian dollar loan as being for 'A$1,000,000.00'. A loan of one million Australian dollars, however, is inconsistent with all other evidence on this point. It is clear that the loan was for one billion Australian dollars. I consider the notation on the voucher to be a mistake.
18 The identity of the bank upon whom this large cheque was to be drawn was not identified on the voucher (which is unexceptional). The cheque in question was not in evidence. Since it was drawn nearly a quarter of a century ago this is unsurprising.
19 It is, however, clear that cheque 272461 was, in fact, drawn upon the Commonwealth Bank at its branch on the corner of Pitt Street and Martin Place in Sydney. On 31 May 1989 that bank debited an Australian dollar account in the name of News Finance in respect of cheque 272461 in four separate sums totalling A$2,974,708,426. There was another debit on the same day in respect of another cheque, number 272462, which was in the sum of A$297,503,582. These two cheques resulted in debits to the account which totalled A$3,272,212,008. On the same day there were six credits to the same account totalling A$3,272,212,009. It will be observed that there is a A$1 difference. I am unable to say definitively what cheque 272462 related to or what the source of the credits was. However, recourse to Mr Macourt's memorandum suggests that the net cash flow in and out of News Finance on the occurrence of the restructuring was expected to be equal. As events transpired there appears to have been a A$1 anomaly. The account balance on the day before was A$13,466.48 in debit and, following the activity on 31 May, it was A$13,465.48 in debit.
20 There is no direct evidence as to who presented cheque 272461. But the following can be determined: on 31 May 1989 NPHP subscribed for 50,000 ordinary shares and 19,400 preference shares in NPIP. According to the subscription application executed by NPHP on 31 May 1989 each ordinary share was issued at a par value of A$1 and a premium of A$9,999; each preference share was issued for A$1 at a premium of A$127,561.29. These imposed on NPHP an obligation to pay NPIP A$2,974,708,426 which is the same amount as cheque 272461. The Australian dollar nature of that obligation is important and should be noted. The application recorded the fact that a cheque in that sum was attached.
21 Settlement occurred on 31 May 1989. Although there is some evidence to suggest that it occurred on 26 May 1989 (namely, the entries in the register of members) or on 5 June 1989 (namely, the date of the share certificates), I consider that it is much more likely that it occurred on the day the cheques were presented, i.e. 31 May 1989. The magnitude of the cheques are such that it may be inferred that it would be irrational for there to be any delay between settlement and presentation. I so conclude.
22 There is no direct evidence of what occurred at settlement on 31 May 1989 but the most likely inference is that News Finance handed cheque 272461 to a person representing NPHP and that person then attached it to the subscription application which was then given to a person representing NPIP. The minutes of a directors meeting of NPIP held on 26 May 1989 contemplated that NPIP would purchase News Limited's 48% holding in NPL Bermuda for US$2,270,000,000 'or its Australian Dollar equivalent'. Although Mr Macourt's memorandum of 20 May 1989 had originally contemplated an exchange rate between the US and Australian dollars of 0.7450 it is apparent that, on 31 May 1989, a rate of 0.7631 was used. Using that rate, the Australian dollar equivalent of News Limited's selling price for NPL Bermuda was A$2,974,708,426 which was the precise amount of cheque 272461. From that I infer two matters. First, News Limited agreed to accept cheque 272461 in discharge of NPIP's obligation to pay it the purchase price of US$2,270,000,000; secondly, the cheque was physically delivered to News Limited by NPIP. What precisely happened then may be discerned from a restructuring diagramme in Mr Macourt's memorandum. Although the figures are incorrect because of their revision on the day, that diagramme makes clear the flow of funds was from News Finance through several interposed entities to News Limited and then back to News Finance. I will not set that diagramme out but it suffices that one may infer from it that the cheque was given by News Limited to News Finance which then presented it for payment. As such News Finance was both the drawer of the cheque and ultimately its holder in due course. Upon presentation the Commonwealth Bank then both debited and credited News Finance's account at its Pitt Street and Martin Place Branch. This account of events, it may be admitted, is deficient in that it does not provide any explanation of how the A$1 anomaly to which I have referred arose. However, I do not see that as a sufficient reason for rejecting its correctness: de minimis non curat lex.
23 What then appears to have occurred is this: a few days later on 5 June 1989 NPIP issued the relevant share certificates to NPHP. This shareholding had been entered into NPIP's register of members on 26 May 1989.
24 At some time during June 1989 corresponding entries were inserted in the general ledger for NPHP. Although Mr Macourt was ultimately responsible for the maintenance of this general ledger as the financial controller of News Limited, the actual entries were done by News Group accounts staff. Mr Macourt thought this would most likely have been done by reference to the record or records of the actual making of the loans. It seems to me there is no reason not to accept that proposition.
25 The general ledger for NPHP records borrowings from News Finance in the following amounts:
(a) A$1 billion;
(b) US$1,033,643,102 (equivalent of A$1,354,531,650 at a conversion rate of A$1 = US$0.7631); and
(c) £292,971,509 (equivalent of A$620,176,776 at a conversion rate of A$1 = £0.4724).
26 The general ledger also records as liabilities three loans owing by NPHP to News Finance as follows:
(a) account number 711-195-745-002 entitled 'NEWS FINANCE A$ LOAN' with two entries of A$500,000,000 which total A$1 billion;
(b) account number 711-195-745-003 entitled 'NEWS FINANCE US$ LOAN' with two entries of A$454,531,650 and A$900,000,000. These appear besides the words '31/5 US$1,033,643,102' and '31/5 US$ @ 7631';
(c) account number 711-195-745-007 entitled 'NEWS FINANCE STG LOAN' (STG being shorthand for 'pounds sterling') with one entry for A$620,176,776. This appears next to the words '31/5 292,971,509 @ 4724'.
27 Mr Macourt believed, and I accept, that this is likely to have occurred in June 1989. The copy of the general ledger in evidence bore a date and time of 16 August 1989 at 11:57 pm but this was, I accept, the time at which it was printed out.
28 One important matter should be noted. The original cheque voucher had suggested a loan of US$1,796,743,102 but the general ledger suggests one of US$1,033,643,102. At the exchange rate recorded in the general ledger (and any other plausible exchange rate) it is plain that the figure on the cheque voucher cannot have been correct. At some time after Mr Macourt signed the voucher but at or before the time the general ledger was completed in June 1989 a person has inscribed the correct figure of US$1,033,643,102 on the cheque voucher. The identity of that person is not known.
29 It will be necessary later in these reasons to give a precise legal characterisation to the events which I have just described. For present purposes the following should be observed:
(a) NPHP received a cheque from News Finance made payable to it for A$2,974,708,426;
(b) in return for that cheque it incurred a liability to repay to News Finance three interest bearing amounts in three different currencies - Australian dollars, US dollars and pounds sterling;
(c) although it incurred liabilities to repay in these currencies it did not receive any money in US dollars or pounds sterling; instead, it received by delivery only the physical chattel constituted by cheque 272461 with a face value of A$2,974,708,426;
(d) not having a bank account it did not seek to present that cheque for collection and payment through the banking system; and
(e) instead, it either endorsed the cheque to NPIP or, if it was a bearer cheque, negotiated it by delivery to NPIP in discharge of its obligation denominated in Australian dollars to pay NPIP the subscription moneys due on the allotment of the shares.
30 Although it is certainly true that liabilities to pay foreign moneys were created by these events it is equally clear that no foreign currency in the sense of coin, cash or money held on deposit with a bank or other deposit-taking financial institution actually changed hands. NPHP neither received nor passed anything on but cheque 272461 for A$2,974,708,426. At the moment of settlement NPHP's Australian dollar liability to NPIP (for the shares) was replaced by a multicurrency debt to News Finance.
31 Thus was concluded the first stage of the 1989 restructuring. It is now useful to turn to the second stage.