ALL THE GOVERNMENT’S FAULT?
In February 2004 O’Reilly had to acknowledge one of the biggest failings in his commercial life in Ireland up until that date, one that made him very angry as he felt he most certainly was not to blame.
That month INM sold its shareholdings in Chorus (once Princes Holdings) to its joint venture partner, Liberty, for a nominal sum, just to escape from its mounting obligations. Liberty immediately headed for the High Court to seek protection under the examinership laws while it tried to find a way to deal with historic debts and be in a position to continue trading. It was a financial disaster: the second largest examinership in the history of the State, topped only by the original rescue of the Goodman Group of beef companies back in 1990. Mr Justice Peter Kelly was told that the company would be liquidated if an examiner was not appointed and that the estimated shortfall between assets and liabilities would be about €490 million.
Chorus owed about €220 million to 18 banks and further debts, including shareholder loans, brought the total up to €385 million. The company was unable to pay interest to its bankers or its liabilities to the Revenue Commissioners. It blamed the burden of making payments on businesses bought during the dotcom bubble that were now worth just a fraction of what it had paid for them. But Liberty, now 100% owner, was prepared to invest another €100 million in improving and extending digital TV and Internet services to the 200,000 customers and make payments in settlement to creditors. The deal got done. Later that year, Liberty abandoned the claim for damages against the State that had been lodged at O’Reilly’s insistence many years earlier.
‘I doubt if any business experience in Ireland made him more angry,’ said one associate. His chairman’s statement in the 2003 INM annual report, published in 2004 shortly after the examinership, pulled few punches. O’Reilly argued that Chorus:
… represents a case study in broken promises, over-regulation and a consistent inability to reflect that, if the government was serious in its attempt to ensure that broadband had universal application in Ireland then cable was going to be one of the major vehicles in achieving that end. That it has not and that it will not ever is a stinging indictment of the regulator and of the inaction of the government of the day in policing the law of the land. Their tolerance of pirate deflectors, which cut off vital revenue to Princes Holdings/Chorus and Cablelink/NTL may have bought temporary political popularity but the price was the long-term erosion of the economic viability of all cable companies. I might add that the principal competitor to the cable companies, BSkyB, was not price controlled at any time during this period.
Your company and its shareholders have written off its entire investment in this sorry episode.
This is a particular issue for State owned industry which still provides the bulk of essential economic services, such as energy and public transport. Too often, government objective has been to keep prices down for the public, while refusing to endorse the changes in costs and efficiency which would permit long-term improved services on a commercial basis. The result is inadequate investment which hides – but only for a time – the poor financial performance of the incumbent. The pursuit of temporary political popularity in this fashion will make Ireland, as a location for inward investment for use in Ireland, a hazardous place to be.
Analysts reckoned that the whole adventure had cost INM about €100 million. ‘He would regularly say that “the worst place to be in Ireland was as an Irish private business because the government is against you. It’s different if you are a multi-national or a state owned company”. That is what he believed and told us regularly,’ said one of his executives at Eircom who watched this unfold at the rival company. ‘He warned regularly to “never fall into the trap of giving something to government in the expectation that it will give something back”.’
Gavin returned to the entire saga in 2015, in an interview he gave to The Sunday Business Post. ‘I know all the talk now is digital, but we were one of the first ISPs [Internet service providers] in Ireland, back in 1999. We had a really super cable business, which is now UPC. The capital appetite for that business was perhaps more aggressive than we would have liked. We should have stuck with it. There are certain things that if you could play them over again, you would. But hindsight is a luxury.’
It was a reasonable assessment about the loss of potential. However, INM was highly indebted at the time and originally O’Reilly had sought to sell the half share of Chorus to fund the Belfast Telegraph acquisition. That was the primary issue: O’Reilly’s continued preference for print. He was reluctant to spend more money on Chorus, but he could have sold more equity in INM to provide funds had he seen the opportunity. The problem was that this would have diluted his own interests substantially, and that was not something he was prepared to do to fund any acquisition or investment.
O’Reilly’s experience at Chorus was central to his appearance at the Moriarty Tribunal that year, which was investigating the circumstances of the award of the second mobile phone licence, in 1996, to Denis O’Brien. While Chorus itself was not linked to that, O’Reilly’s interactions with the government during that time, which included the licence award, were coloured greatly by the Chorus debacle.
On 24 March former Taoiseach John Bruton gave evidence to the tribunal. He told it that he had met with O’Reilly at a social reception at a private house in West Cork in July 1996 and that, after a brief conversation, Bruton agreed to visit O’Reilly at his Glandore home the following day. Bruton gave evidence that O’Reilly listed four matters for discussion at that meeting and agreed with the suggestion that O’Reilly had come forward with ‘gripes’. He reported that O’Reilly was ‘very dissatisfied’ with the failure of the Rainbow government to take action against the TV deflector operators, who continued to operate without a licence. Bruton said O’Reilly also expressed ‘some unhappiness’ at the manner in which the 1995 mobile phone licence competition had been run, but said that he wasn’t looking for anything to be done about it. He said that O’Reilly brought up the issue of grant assistance for a Heinz manufacturing unit in County Louth and access difficulties for the Arcon mine at Galmoy in County Kilkenny.
Bruton said one of the reasons why he had been happy to meet O’Reilly was that he had hoped to persuade him to come to some arrangement with the deflector interests. O’Reilly, he said, was not interested in the proposal. He said that O’Reilly felt there had been a ‘general under-appreciation of the contribution he would be able to make’, referring to his investments in the country. In order to end the meeting on as amicable a note as possible, Bruton said he would have his special adviser, Sean Donlon, meet O’Reilly’s nominees and he quickly asked Donlon to see if he could do anything for O’Reilly ‘in the areas in which proper discretion could be exercised’. Bruton revealed he had received a letter from O’Reilly two days after the meeting. In it, references were made to Heinz, INM, Fitzwilton, Waterford Wedgwood, Arcon and a number of luxury hotels and their investments in Ireland.
The meeting between Donlon and O’Reilly’s nominees did not take place until September 1996, at the INM offices at Hatch Street. The tribunal lawyers brought Bruton through what was described as the intended evidence of Donlon and Michael Lowry. Bruton was told that Donlon would say that his meeting with INM had been ‘most difficult’, that some ‘very harsh’ comments had been made about the government and individual ministers and that ‘in spite of the relaxed mood I was left in no doubt about the newspapers’ hostility to the government parties if outstanding issues were not resolved to their satisfaction’. Bruton’s memory of what Donlon told him on return from that meeting was limited. He said he couldn’t remember if he’d been told by Donlon that Lowry was a ‘persona non-grata’ with INM, or even if Donlon had reported back to him in this manner, but said he was ‘well aware that these newspapers didn’t love us particularly’. Bruton was told that Lowry would say that he had been told by Donlon that the INM executives had said the government would lose INM as friends if its ‘demands’ were not met. Bruton replied that he thought INM’s view would be ‘conveyed in a more subtle way’ but that such a message being conveyed to the government by INM would not surprise him. When Bruton was told that Lowry would say that Donlon had told ministers that he was concerned that the government was being ‘held over a political barrel’, Bruton said he had no recollection of that being said.
He did say, however, that it could be taken that INM had threatened him and his government and that subsequent to these events the newspapers it controlled did punish him and his government with negative coverage because it had failed to satisfy O’Reilly’s commercial demands. He said the infamous Irish Independent front-page editorial at the subsequent general election urged ‘people not to vote for a government that had succeeded in getting a 9 per cent annual growth rate during its term of office’. It indicated a ‘certain perversity of political opinion,’ he said.
Bruton was followed in his evidence by Donlon, the former senior civil servant turned GPA executive who had returned to politics as a special adviser to Bruton. Donlon had not been present at O’Reilly’s meeting with Bruton in Glandore, yet he said O’Reilly’s complaint in relation to the licence competition was that he hadn’t won. ‘Complaint may be putting it too strongly,’ Donlon conceded during his evidence. ‘Disappointment might be more appropriate. He knows he didn’t have any right to win the competition.’ Donlon said O’Reilly’s career had its origins in State companies, and he was very aware of how processes here worked. It wasn’t as if O’Reilly was ‘a US tycoon coming into Ireland who doesn’t know how it operates’. He conceded that while O’Reilly was unhappy with how he was treated, it wasn’t a case of ‘I scored that try back in whatever and I should have got the licence’.
This all meant that the stakes were very high for O’Reilly when he followed Bruton into the witness box a week later. It was 31 March 2004, and O’Reilly’s became the latest name to be added to the extensive cast of prominent politicians, bountiful businessmen and cagey civil servants who had been required to present evidence and face cross-examination at an Oireachtas-appointed tribunal of inquiry investigating alleged corruption. O’Reilly had considerable reason to be anxious: he was going into direct conflict with evidence given by a former Taoiseach of the country about a major issue of significant public interest. Even if O’Reilly knew that he was not facing any allegations of financial wrong-doing and was to be examined on a previously submitted written statement, there remained the potential to be embarrassed by hard or unexpected questions. Serious questions about his use and abuse of his commercial power had been asked, and allegations about improperly pressurising a government had been made. As a result, there was bound to be detailed analysis of his answers in the media, some of which was not loyal to him, some even potentially hostile.
For some, appearing at either the Moriarty or Flood (later known as Mahon) tribunals had been a relatively innocuous experience: they simply recounted facts about events in which they were involved or told what they knew about other people’s activities. They performed, were offered thanks for their time and effort, and left. For others, the experience was far more difficult: they had done things that were not easily explained, or that were quite clearly wrong, even if they dutifully denied this; or they were probed at length for flaws in their carefully constructed stories, sometimes unravelling with catastrophic consequences. It was a minefield, and it had the potential to ruin reputations.
This was not the type of attention or stage O’Reilly sought or enjoyed. For all of the well-wishers who offered encouragement, there were others who wanted to see him beaten down, just as there had been during his rugby career 50 years ago. It had the potential to be a highly noted and public corporate ‘walk of shame’. O’Reilly’s previous criticisms about the prurience of the tribunal system, uttered before it had ensnared O’Brien, came to mind.
O’Reilly prepared carefully, just as he did for all of the shareholder general meetings he had chaired, for all of those speeches he had delivered during his glittering career. In those instances, however, he was in control: nobody ever heckled a speech and it was rare that a disgruntled shareholder questioned him. On those rare occasions when he was confronted by publicly spoken investor opposition, he had the wit to deliver the politely or humorously chosen retort or, alternatively, the power to deliver a devastating put-down. Here at the tribunal, however, he had to follow a procedure that somebody else had set down and show deference to the tribunal chair. He consulted with his solicitors and barristers and accepted their advice that this was not the venue for jokes or haughtiness or overt confrontation. He had to be respectful and answer questions directly, without deviating into lectures or speeches. He had to stick to his previously submitted statement and resist from expanding upon it. He had none of the protection normally afforded by the presence of PR advisers and other handlers – Jim Milton’s role being restricted to dealing with press queries afterwards and shepherding O’Reilly to his car in the Dublin Castle courtyard, past the press. He did have the protection afforded to him by his lawyers – in particular Paul Gallagher, possibly the most highly regarded senior counsel working in the courts at the time – and also, as he saw it, by the facts.
O’Reilly had always said that facts were friendly. His personal finances were not in question and, crucially, the Moriarty Tribunal was not raising accusations of giving money to any politician in circumstances that required explanation. There would be a conflict with Lowry’s evidence, but he was confident of winning that exchange. Whatever some people felt about O’Reilly, there had been greater condemnation of Lowry’s behaviour. There had been a roll-call of revelations about Lowry that meant many had made up their minds about him in advance of any tribunal report.
O’Reilly spent just two hours in the witness box that day. He was taken through his interactions with Lowry, with Fine Gael and his editorial control of INM by the tribunal’s senior counsel, John Coughlan. Much attention was paid to the date of his first meeting with Lowry. Coughlan referred to Lowry’s statement of intended evidence and his claim about meeting O’Reilly at a horse-racing event at the Curragh in June 2005. O’Reilly denied this, believing that meeting to have taken place in June 2006 and said that their first encounter was at the opening of the Arcon Galmoy mine in County Kilkenny in September 1995.
O’Reilly gave evidence that on walking with Lowry to the tent where they and hundreds of invited guests were to have lunch, Lowry remarked to him, ‘Your fellas didn’t do too well yesterday’. O’Reilly said he didn’t understand what Lowry meant. ‘It was such a strange turn of speech to me because I wasn’t aware of who these “fellas” were.’ He said that Lowry explained that he was referring to the oral presentation made to his department by representatives of O’Reilly’s bidding consortium for available mobile phone licences. The significance of this, and what interested Coughlan, was the suggestion that Lowry had an unauthorised and improper access to the ongoing competition.
O’Reilly gave evidence that he was not aware at that time of the rules of the competition. Coughlan then asked O’Reilly if he was ‘motivated by malice towards Mr Lowry’ and if he had ‘made up’ the alleged Galmoy conversation to cause difficulty for Lowry in his dealings with the tribunal. O’Reilly replied that he had ‘no malice towards Mr Lowry and certainly not in relation to this matter. The question of malice would not come into it.’*
O’Reilly also denied that he had met with Lowry in his corporate box at the Curragh Races on Derby Day July 1995 and that he had told Lowry that he had ‘expected’ to win the mobile phone licence; he believed the meeting occurred the following year, on 30 June 1996. ‘In any event, Mr Lowry had seriously misrepresented what took place,’ O’Reilly told the tribunal. He said he never informed Lowry that he expected his consortium would be successful in its application for the licence. He said he was ‘taken aback’ when he was informed that Lowry was making these ‘unfounded allegations’ against him and could only conclude that he was doing so with a view to causing him as much damage as possible.
O’Reilly was also asked about the meeting at his Glandore home in 1996 with then Taoiseach John Bruton and what had flowed from that. He said his recollection was that he had not mentioned the mobile phone licence competition and that Bruton had sounded ‘tentative’ in his evidence on the meeting while his own recollection was ‘very clear’. He said he considered the matter of the licence closed once the result was announced on 25 October 1995 and he disclosed how a few days later he had written his note to O’Brien, congratulating him on winning the competition. He had not discussed the result with the then US ambassador Jean Kennedy Smith, as had been implied. This was believable to those who knew that his relationship with her brother, Ted Kennedy, had suffered after a friend the American had brought with him unexpectedly to Castlemartin had left a tap running and caused extensive flood damage to one of the rooms.
Coughlan brought O’Reilly through Donlon’s evidence about the meeting with INM executives when he had been left in ‘no doubt’ as to the ‘hostility’ of INM towards the government. O’Reilly said that use of the word ‘hostility’ might have been slightly ‘pejorative’. Much was made of the statement at that meeting that the government would lose INM as friends, which was taken by the government to be a threat. ‘I think it is absolutely, unequivocally clear, that this particular use of the word friends related specifically to losing us as friends in this debate internally within our consortium [PHL], to stop them [the US shareholders] from taking the State to law, and allowing us to exhaust all the various means that we could to remedy the deflector crisis,’ responded O’Reilly. He explained that the US shareholders had been ‘seething with us as well as with the government, at the amount of money they were losing in Ireland’. He was ‘absolutely unequivocal’ that the reference to the government losing INM as friends was a reference to potential litigation as against editorial content.
When Coughlan said the infamous front-page editorial in the 1997 general election could be described as ‘interventionist’, O’Reilly said such a description could only be assigned to it by ‘enemies’. ‘The general view, I would say, about Independent News & Media, is that governments always feel they are being maligned by it, whatever government, and opposition feel that they are being ignored,’ he said. He agreed that the editorial was ‘unusual’, but said he had no input into it. ‘Absolutely none, nor do I interfere in the editorial process whatsoever in the INM group throughout the world.’ He said he did not cause the editorial to come into being and ‘nor did I know that it was going on the front page’. He insisted the board of INM did not interfere in the editorial policy of INM titles. ‘That can be ascertained by direct contact with any of the editors in the group,’ he told the tribunal barrister. He insisted the Rainbow coalition was not given hostile coverage in INM titles as a result of commercial disputes. Indeed, he pointed out that Fine Gael actually increased its vote in the 1997 election. ‘It could be that the front-page editorial helped them,’ he claimed.
One person who was not slow to voice his displeasure at O’Reilly’s evidence was the former chairman of the Competition Authority, Patrick Lyons, the man who had overseen the interim report of the study into the newspaper industry back in 1995. He wrote to The Irish Times, and had his letter published, condemning O’Reilly’s comments to the tribunal about that report and seeking to ‘set the record straight’. He denied that his Authority had been ‘rude’ to representatives of INM, as O’Reilly had alleged, or that its conduct had been ‘frankly disgraceful’, as again claimed by O’Reilly. ‘If the Authority had not behaved with total courtesy and fairness during several days of meetings with Independent Newspapers, there would have been objections from the representatives and from their solicitor and counsel, who were present at all times. There were no such objections,’ complained Lyons. ‘I strongly object to the claim that the Authority “gave the clear impression that they had made up their minds before the arguments had even been heard”. The Authority had come to no prior conclusions in this matter. It questioned and carefully listened to the points made by many representatives of organisations, and it held many lengthy internal discussions before reaching its conclusions.’ Lyons concluded his letter by noting that ‘nine years after the Authority’s report, the “long-term efforts of Rupert Murdoch and his lieutenants in Ireland from simply taking over the Irish media scene …”, the doomsday scenario forecast by Dr O’Reilly in 1996, has not taken place’.
If O’Reilly still had to wait for a finding from Moriarty – and it would not come until 2011 – he had to wait for the Planning Tribunal to even hold a public hearing about issues pertaining to him – if, indeed, it was to have one. That was the last thing O’Reilly wanted. The issues mentioned briefly at the Moriarty hearing – O’Reilly’s alleged antipathy to the Rainbow coalition government because of its failure to regulate television signal distribution according to the law – would have been expanded upon, but going back further into the origins of the original securing of the licence and that controversial and not easily explained Rennicks’ payment to Ray Burke. This was the material the Planning Tribunal wanted to cover, and it could have been catastrophic.
Not surprisingly, O’Reilly’s strong preference was for this issue, with its potential for great embarrassment and perhaps even more, to go away. He wasn’t interested in a hearing to clear any lingering suspicion. He just wanted it out of sight and out of mind.
Fitzwilton heard nothing from the Planning Tribunal between April 2000 and January 2003. O’Reilly presumed from that silence that all of the previously supplied written explanations had passed muster, that the tribunal accepted that the £30,000 payment was meant for Fianna Fáil and that it had been unaware that Burke had pocketed a chunk of it.
Then, to his horror, the tribunal wrote to Fitzwilton in February 2003, informing it that it was considering making further orders of discovery on the matter. Cue further written legal submissions from Fitzwilton, in which it contended a public inquiry into the political contribution was not warranted. Meanwhile, the Criminal Assets Bureau (CAB) began asking questions, not because of an investigation into O’Reilly or Fitzwilton but because of charges on other tax matters that had been proffered against Burke in the courts.
Meanwhile, the government had become frustrated with the slow pace at which the tribunal’s work was apparently being done. In 2004 the tribunal reported to the Oireachtas that it might take up to 2015 for it to complete its investigations into all the matters it had put on its to-do list. The government prompted an Oireachtas response that this was too long and that it should limit its workload. It didn’t define what the tribunal should prioritise, but officials were given a 1 May 2005 deadline for identifying what would be brought to public hearing. It said that the tribunal must list the specific matters that were to proceed to a conclusion. The tribunal was told to record these decisions formally and ‘duly notify’ the parties concerned.
The tribunal waited until almost the last moment to make its decision. The list of what it would investigate was not finalised until 28 April 2005, just two days ahead of the deadline, and the ‘Fitzwilton-MMDS-Payment to Ray Burke by Rennicks’ was included, although the list was not made public. The way the intended investigation was titled, with the clear linkages it implied, angered O’Reilly when he subsequently became aware of it.
The tribunal was a little too clever in the official wording of its decision, however. It declared that it ‘may decide to continue its inquiries and/or to proceed to public hearing in respect of one or more issues which are currently part of a matter designated and listed herein’. It was intended as a get-out clause for the tribunal if it didn’t gather enough evidence to proceed with a particular module; inadvertently, it would blow up the future of the tribunal – although this was not to become clear for a while yet.
In mid-July 2005, Fitzwilton received a letter informing it that the tribunal was to hold a public hearing into the Rennicks payment. This was later described in court as ‘a bombshell’. Although lawyers can be given to hyperbole, this was not an inaccurate description of the effect of the letter upon O’Reilly.
The time had come for Fitzwilton to fight by way of the legal process. O’Reilly’s lawyers sought a copy of the record of the tribunal’s decision that public hearings would start in September. The copy furnished revealed that the previous April, the tribunal had not recorded in writing a formal decision that the Fitzwilton matter ‘shall be proceeding to a public hearing’. As far as O’Reilly’s lawyers were concerned, this did not comply with the mandatory requirements of the amended terms of reference, and that provided the grounds for legal challenge.
Fitzwilton got to the High Court in September 2005, with barrister John Gordon representing the company and, by implication, O’Reilly. First, it sought an injunction preventing the public hearing going ahead in advance of adjudication on the point of law it was raising. Gordon complained that Fitzwilton had been deeply frustrated for seven years by the tribunal, which he said had investigated the matter twice and then dropped it. Then, he alleged, ‘out of the blue’, in July, it had decided to pick it up again ‘for its own purposes’. He said that the 28 April document effectively subverted that resolution by drawing up a list that apparently contained an enormous amount of material – 47 separate matters – in which Fitzwilton had featured as one line, but not as a definite subject for inquiry.
Fitzwilton was granted its injunction, but the High Court reserved judgment as to whether it would allow the Planning Tribunal continue with its full hearing. For this most significant decision, O’Reilly would have to wait.
* Author’s note:
I met with both Lowry and O’Reilly at Galmoy that day in September 1995. I spoke to Lowry first and listened while he complained bitterly about the attention another Irish Independent reporter Sam Smyth and I had been paying to various controversies in which he had become involved. I later spoke with O’Reilly, who was clearly furious despite the excitement of the official Arcon opening. He told me during an off-the-record conversation that Lowry had made the comment to him about the AT&T presentation not having gone well. O’Reilly elaborated that he had no idea how the meeting had gone but that the idea that his partners AT&T, as one of the biggest telecoms companies in the world, had made a poor presentation was unbelievable to him. Lowry continued to deny making the comment.