Perched on an oyster-encrusted boulder, surrounded by 300 gawping Sydney socialites, the three toga-clad Graces primped and posed, their preposterously expensive jewelry glinting in the spotlights. One of the models sported an oval bangle of platinum and gold inset with pearls the size of cherries; another wore a necklace of 36 perfectly-matched silvery pearls joined with a diamond clasp. If you needed to ask the cost of this bling “fit for a Greek goddess” you couldn’t afford it: the bangle $89,800, the necklace $39,800 plus another $26,800 just for the clasp. Team them with a pair of tear-shaped baroque pearl ear-rings and there would be little change from the price of a Porsche.
The extravaganza was staged last spring at the Sydney showrooms of Australia’s largest pearl producer, Paspaley, and the A-list guests nibbling on their pearl-meat canapes, and sipping Veuve Cliquot champagne could certainly afford the odd sports-car. The inevitable Skye Leckie was there, wife of the former Channel Seven supremo, Carla Zampatti fashion house boss Allegra Spender, TV presenters Kath Robinson and Sophie Falkiner, clothing designer Pip Edwards, Louise Olsen and Stephen Ormandy of Dinosaur (jewelry) Designs. And so on — it was a gossip columnist’s wet dream.
But, sadly for Paspaleys — represented by a contingent of third- and fourth-generation members of the family — there was not a lot of flourishing of cheque-books or flashing of no-limit Centurion credit cards that October night. Six months later those unique centrepieces of what was called the Odyssey collection are still unsold, locked away in glass-and-walnut cabinets at Australia’s second most prestigious address, No 2 Martin Place, the century-old Australasia Bank building which the company spent millions restoring.
Business, admits the manager, Simon Hulbert, has been rather quiet. In fact, on a cloudy midweek morning, the store is empty apart from two assistants practising their appraisal skills and a pair of middle-aged tourists who have popped in to take photographs. He unlocks a display case and pulls on a pair of black cotton gloves to fondle the most expensive piece in the store: it is named the Vivienne, after the wife of the company’s founder, a choker made up of 26 lustrous perfectly-graduated pearls up to the size of a quail’s egg. Yours for $1,128,000, says Simon — and no haggling. The cheapest thing in the shop is a polished oyster-shell — and even that has a $100 price-tag.
This is the image the pearl trade would like you to hold in your mind They are selling the the romance not the rock — why else would anyone pay these jaw-dropping prices for what is, essentially, a string of calcium-coated beads? The advertising and promotion in high-end fashion magazines are dripping with glamorous historical references, from finds in the tombs of Babylonian princesses, to Cleopatra astounding Mark Antony by quaffing a priceless pearl dissolved in vinegar, to Columbus showering Spain’s Queen Isabella with his booty from the New World. We are constantly reminded of the rich and famous women who have worn them, from Marilyn Munro, Elizabeth Taylor and Jacqueline Kennedy to Nicole Kidman and Julia Gillard who wore pearls on election night, declaring it was “dress like a Tory day.”
The reality is rather different. Backstage, behind the glittering tableaux, the Australian pearling industry is a brutal, buccaneering business worth something like $100 million a year which one family, descendants of a poor Greek migrant named Theodosis Paspalis, has come to dominate. In the process they have become the richest and one of the most powerful families in the Northern Territory, major donors to political parties and with assets of close to one billion dollars. They own more than 100 parcels of real estate in and around Darwin, including a shopping mall and the site of what will be the tallest office-block in town and home to half the territory’s government departments. They have more ships than the Australian Navy and their air-arm has government contracts across the continent. In recent years the family has diversified into extensive agricultural properties, a chain of resorts and a vineyard — they even, ironically considering their origins, own the country’s largest immigration detention centre.
But it has not come without a cost. Pearling in Australia — still internationally acknowledged as the world leader for quality if no longer for quantity — is an industry littered with broken dreams and bankrupt corporations. The Paspaley group itself is struggling to keep its head above water — it lost about $4 million last year, on top of a similar loss in 2011. There is danger and there is death — last year one of Paspaley’s workers joined the hundreds who have drowned or died of the bends or other causes since diving for pearl began a century and a half ago. It is also, according to evidence given to an extraordinary trial, an industry where the spoils can be so great that outsiders think it worth the risk of trying to corrupt a government to get a piece of the action.
And now, just as they have seized control of more than 80 per cent of the industry — there is only one rival pearling partnership left standing out of 16 two decades ago — Paspaley faces the gravest threat since Theodosis’s son Nicholas first set to sea as skipper of his own pearling lugger 77 years ago. Pearls by the thousands of tonnes from China, Indonesia and The Philippines have innundated the market, turning what was once a precious gem into a cheap commodity. Prices for all but the largest and most perfect of pearls have fallen by at least 90 per cent since the boom times of the 1980s, concedes the current scion of the family, James Paspaley. Websites such as pearlparadise.com are offering pearl necklaces for as little as $186. Paspaley has shut down several of its farms, shed more than 150 staff, written down its assets by nearly $100 million and mothballed some of its fleet in a desperate attempt to try and rebalance its books. If there was a “major event” — a cyclone, an outbreak of oyster disease — the company would have to consider exiting the industry altogether, said James.
Three Filipino workers, garbed in Wellington boots, full-length rubber aprons, gloves and shower-caps are labouring away on a tiny aluminium skiff bobbing in the middle of the turquoise Timor Sea. There is a constant chug and clatter as a winch hauls up cages of oysters suspended from ropes dangling in the depths of the sea, and feeds them into a Heath Robinson contraption designed to blast away the seaweed with jets of high-pressure seawater. They chip away at barnacles with chisels before lowering the cages back into the ocean and remove one of the oysters — a shell the size of a man’s hand — which has died. From its reeking, mucky black insides they fossick a small mis-shapen pearl. In the warm, nutrient-rich waters around here more than one million Paspaley oysters are silently incubating the pearls that will adorn Japanese socialites, Dubai shaykhahs and European royals.
We have splashed down near a remote and uninhabited speckle of land called the Osborne Islands, mid-way between Perth and Broome, on one of the company planes. Not a flash executive jet but a 13-seater Grumman Mallard seaplane decorated with the ubiquitous Paspaley brand of a blue pearl-shell, which is at least 60 years old but which has the great advantage of being able to land on land or water. With us has come a relief crew of working holiday guys — some more Filipinos, an Estonian, an Irishman and a couple of Australians.
For the next two weeks the casual workers will labour from dawn till late for $220 a day cleaning oysters on one of a flotilla of “tinnies” which operate from a mothership, a white-painted 35-metre steel-hulled vessel named the Roslynne after one of James Paspaley’s aunts. The hull is rusty and in need of a slipyard, but the interior is spick and span and the cook will be rustling up pizzas for the crews when they return to eat, watch sport on satellite TV and drink their regulation four cans of mid-strength beer. “We had to ban them fishing,” says the skipper, Sam Marshall. “The other day a couple of the guys were out in a tinny fishing for barra(mundi) up a creek and a big croc, three or four metres long, half climbed on board and nearly tipped it over — they had to beat it off with their fishing rods.”
Life out here is tough, particularly if you are one of the elite divers Paspaley employs to catch their wild shell, towed along in teams of eight behind a mother ship, clinging to a lifeline of compressed air and stooping to scoop hundreds of oysters a day from the seabed. Last year the company was targeted with a blizzard of criticism in social media after an ABC Four Corners investigation into the death of one of Paspaley’s divers, a 22-year-old Melbourne man named Jarrod Hampton, on his second day on the job. The programme raised questions about the company’s training, about whether there should have been a “rescue diver” on standby, and whether cost-cutting had played a part in his death — a number of experienced Paspaley divers had resigned after the company cut the price it pays per shell from $4.50 to $3.50, an effective pay-cut of $20,000 a season for a good diver.
WorkSafe WA says it is still investigating the death, but if it does come up with an unfavourable finding it will not be the first time that Paspaley has been accused of failing to keep its workers safe. In June last year the company was fined $10,000 in the Darwin Magistrates’ Court after pleading guilty to breaching workplace health and safety laws when a cook, Brooke Wells, broke an arm and suffered internal injuries falling off an unguarded gangplank. The company also has a long-running case before the courts involving a former employee who claims he was denied proper workers’ compensation after injuring his back opening oysters.
The Australian pearling industry has come a long way since Theodosis and his family fled Greece during World War I and settled at Cossack in the Pilbara, a thousand kilometres south of the Osbornes, now a ghost-town but then a thriving port and the centre of Australia’s pearling industry until it moved to Broome. After the pearl-shell industry collapsed in the 1950s his son Nicholas attempted to start a cultured pearl-farm, using Japanese technology, but his attempts to grow pearls were largely unsuccessful, and it wasn’t until Theodosis’s grand-son Nicholas jnr took over the business in 1984 that the company really hit the global big-time.
The biggest and most profitable pearl farm in the country had been established in the early 1950s at a place called Kuri Bay, north of Broome. There oysters caught by divers off Broome’s 80 Mile Beach were innoculated with “seeds” of Mississippi clam shell and left for two years to allow a coating of lustrous nacre to form — the same process that is used today. The young Nick Paspaley’s coup was in persuading the heirs of the major owner, an eccentric American commodities dealer named Allan Gerdau, to sell the business to him for a song ahead of a scramble of rivals when Gerdau died. It is widely rumoured that he more than recouped the $15 million he paid for the business with pearls they had already grown — other assets of the estate, including an office building on Wall Street which Paspaley still owns, were a bonus.
“Nick did revolutionise the industry,” says David Norman, a Sydney pearl trader who has worked for both Paspaley and for one of their many defunct rivals, the Fremantle-based maritime company Kailis. “In the 80’s when I was with Kailis we’d look at Paspaley with envy. Nick was a genius at creating pearls that no-one else could. They were making amazing amounts of money — one necklace brought $2.2 million at Sothebys. He brought down the same technicians from Japan every year, he knew how to site the farms, the husbandry. I went on one of their (seeding) vessels once and it was amazing — like going to the Rolex factory — all these technicians sitting there in sealed air-conditioned rooms with not a speck of dust to be seen.”
But it wasn’t just his technical innovation that built the Paspaley fortune. In the 1980s when the West Australian government, as a “temporary” measure to protect stocks, licensed pearl farms and restricted both the number of wild-caught oysters that could be taken and — more controversially — the number of hatchery-bred oysters that could be seeded it delivered the existing players a monopoly. There were just 17 licences issued in WA (and a handful more in the Northern Territory) and new entrants in the industry were banned — unless they could buy or lease quota from an existing farmer. Over the years, using their huge commercial clout, Paspaley entered into co-venture deals with most of their rivals in which they provided either the oysters, or the seeding or the marketing. In almost every case they finished buying out the competitor.
Some fascinating details emerged in a sensational corruption trial three years ago of the degree of control Paspaley exercised over the industry — and the desperation of their competitors to get the rules changed. The case involved two of the most notorious figures in Australian politics: Brian Burke, the former West Australian Labor premier of the 1980s later jailed for rorting his expenses, and one of his former ministers, Julian Grill, who has been expelled from the Labor Party. The WA Supreme Court was told that the pair, who were working as lobbyists, had been hired by a small pearl-producer named Kevin Waldron-Brown of Nor’West Pearls, to try and influence the-then Labor government to relax pearling quotas to allow smaller companies to grow and compete.
Paspaley had by 2006 formed an alliance with the Kailis company because “once-fat margins have been squeezed by rising costs and by a chronic downturn in the international market led by Japan, the biggest pearl-buyer.” It also had commercial arrangements with five other growers which gave them control of 87 pc of the industry — the company had lobbied successfully to prevent the issuing of more licences and pearl quota through the Pearl Producers’ Association, which it dominated and which advised the WA government. The effect of the restrictions was (in the words of one witness) that “It keeps the small small and allows Paspaley to pick them off and buy them.” As it turned out the court threw out the charges and although a new trial was ordered on appeal the WA Director of Public Prosecutions announced in February that it would not proceed. The newly-elected Liberal government of Colin Barnett has been handed the hot potato of whether to deregulate the industry.
James Brown is the owner/manager of Cygnet Bay Pearls which was established by his father Bruce and operates a pearl farm on the Dampier peninsula north of Broome. He and his partner, the Sydney-based pearl dealer Rosario Autore — they own a second farm nearby, Clipper Pearls — are the only viable competitors that Paspaley has left. Like most other pearl farmers the Browns once had a contract with Paspaley. “For the first few years it was wonderful — you didn’t have to buggerise around sending a lugger down to 80 Mile Beach,” says James. Then the contracts got “more onerous” — Nick Paspaley didn’t just want to catch the oysters, seed and deliver them he wanted control of the valuation, sales and marketing. “History shows,” says James “That no other company except Cygnet Bay survived a Paspaley contract.”
One after another Nick Paspaley took over his rivals: Hamaguchi Pearls, Natural Pearls, Pearls Pty Ltd, Roebuck Pearl Producers, the Australian South Sea Pearl Company, Morgan and Co. The most recent was Kailis, a wealthy fishing and shipping family which, by extraordinary coincidence, also came from the Paspaleys’ home island, Kastelorizo. Kailis had been farming pearls on their lease, at Roebuck Bay near Broome, since 1975 and brought in Paspaley as a partner in 2006. Struggling with a huge debt, the company was hit with an epidemic of the dreaded oyster oedema disease (OOD) which killed hundreds of thousands of oysters in their hatchery and in 2009 they bit the bullet and sold out to the only buyer in a buyers’ market. “It was a very emotional decision for the family,” says the current managing director, Alex Kailis. “Pearl farming is in our bones, in our heritage. But this was a knockover event — we had to make the hard call on whether to reinvest millions of dollars in the pearl industry, or concentrate on other branches of our business — fishing and marine engineering. In the end you just couldn’t justify it.”
The Roebuck Bay lease is now closed down, as are dozens of once-profitable pearl farms dotted around the 2000-kilometre coastline from Broome to Darwin. Most recently, in March, a company which owns two farms — one on Croker Island, way out in the Arafura Sea, and another at Elizabeth Bay in north-east Arnhem Land — went bankrupt for the second time in two years. Arafura Pearl Holdings as the company was originally known, was a managed investment scheme — actually, according to James Paspaley who fought hard to stop it, it was a Ponzi scheme in which none of the 600 investors who put money in stood a chance of a return. At last count, according to administrators KordaMentha, they stand to lose every cent of the $40 million they invested
What is driving this destruction is the collapse of the international pearl market. Andy Müller, a Swiss-born pearl trader based in the Japanese “pearl capital” Kobe, an author and an authority on the industry, has documented the huge increase in pearl production in recent years — particularly in China which now produces an estimated 4000 tonnes of pearls a year, grown in freshwater mussels in flooded rice-paddies. These pearls, scorned by high-end retailers, can be polished, coated, irradiated and dyed to any colour and make up the necklaces on sale for as little as $200 at Walmart in the US. But Müller has also documented the boom in production of Australian-style pearls, the so-called South Sea pearl, in Indonesia where one producer, Robert Sukendy of the Nusantara Pearl Group has about four million oysters under management — more than double the entire Australian crop. In the decade to 2009, says Müller, global South Sea pearl production increased five-fold, to around 12 tonnes — but the price per kilo of the once-prized pearls fell from $US91,000 to $US13,000. Since then things have got even worse.
The cultured pearl industry, says Müller, is in “dire straits,” particularly in Australia where a quota was once “a licence to print money.” Production has fallen from about $200 million a year to $100 million, and the consequences to the country’s biggest producer have been catastrophic. Although they are notoriously secretive about their business, the bare-bones figures supplied by Paspaley to the corporate regulator show that their flagship company, Pearl Corporation of Australia, is in trouble. In the year to June 2011 the company plunged from a profit of $8 million to a loss of $4 million — and James Paspaley expects the results for 2012 to be equally dismal. In the past five years the company has laid off about 150 people, and its assets (ships, planes, property, oyster leases) have withered from $438 to $369 million. It will be interesting to see what BRW magazine makes of the family’s wealth this year, after valuing it at $900 million in 2012.
After weeks of negotiating with their public relations guard-dogs — Paspaley pays two companies to protect and project its public image — it was decided that the family spokesman would be the fourth-generation James Paspaley, who is the company’s executive director. His father Nick, who turns 65 this year and has been the driving force of the company “doesn’t talk to the press,” I was told. In fact it was even hard to find out where he and his second wife and young family live — perhaps because he has property in Darwin, a farm at Wagga, and has had a serious dispute with the NSW Commissioner of State Revenue over $1.5 million in land tax the commissioner says he owed on his $8 million mansion, Ramona, in Sydney’s Elizabeth Bay. Nick Paspaley has told the NSW Supreme Court he lives there and shouldn’t have to pay it.
The other three members of the family who own a piece of Pearl Corporation are Nick’s older sister Roslynne Bracher, 68, and her son Nicholas Hannigan and Nick’s younger sister Marilynne Paspaley, 61, a former actor best-known for her role as Dr Tessa Korkidas in the ABC TV series GP. Roslynne doesn’t talk to the media either, I was told, but I was granted a telephone audience with Marilynne who was keen to spruik the attractions of her Pinctada resort in Broome, and blame the government for the fact that it is losing money. The decision to allow budget airlines to fly between Perth and Bali had siphoned off hundreds of thousands of holidaymakers who otherwise would consider travelling to the Kimberley, she said.
So it is James who fronts up for the interview in the company’s temporary offices — the company headquarters is being bulldozed to make way for a 20-storey office-block, which the NT government has underwritten by leasing half the floor space. Around the walls are historic photographs of pearling luggers, samurai swords, a scale model of Lord Nelson’s flagship, the Victory, and a large Sidney Nolan oil painting of a dead trooper from his Ned Kelly series. Down the road in the show-room sits the finest pearl Paspaley has ever grown, a perfect sphere the size of a Jaffa and insured, optimistically, for $1 million.
James Paspaley is a fit-looking 35, dressed in an open-neck lilac shirt, jeans and boots. After university, where he did an economics degree, he took two years off to travel and finished up teaching skiing at a resort near ritzy St Moritz in Switzerland where he met his wife Sonia who was a snow-board instructor. He persuaded her to marry and move to Darwin where he was joining the family business by telling her “it’s just like Switzerland without the mountains” but she forgave his lie and now they have a baby. A bit of a larrikin in his youth, he still likes going to his shack at weekends to fish for barramundi, and drives not only a signature Territory Toyota Land Cruiser but also a fancy Aston Martin sports car. He has an unnerving habit of flicking open and shut a wicked-looking pocket knife during the interview.
James is quick to acknowledge the trouble the industry — and the company — are in, though he won’t confirm chatter that Paspaley will only be taking up less than half of its allocated quota of pearl-shell this year, perhaps seeding only 200,000 oysters. Some of his boats have been put up for sale, and one of Paspaley’s huge motherships has been on the slips for two years. “You close down farm-sites,” he says. “You lay people off. You have redundancies… we’ve had to refit some of our vessels to change the way we operate. We’re not in a state where I’d want to go out encouraging people to come and invest in our industry. We’re line ball.”
Which is why the company has diversified into farming, property, its air charter business and shipyards — pearls today represent only half the Paspaley business. And James is quick to deny that political patronage has played a part in building the empire. Paspaley Pearls last year gave an even-handed $15,000 to both Labor and the Country-Liberal Party, but what raised Darwin’s eyebrows was a $50,000 donation to Labor in June 2011, not long after a company with Paspaley links signed a highly-lucrative contract with the Gillard government to build Australia’s largest immigration centre at Wickham Point, next to a mosquito-infested mangrove swamp 35 kilometres south of Darwin.
The company responsible, Trepang Services, is a co-venture between Nick Paspaley and a Darwin developer named John ‘Foxy’ Robinson and the controversy reached warp speed when the Northern Territory News discovered that the 94-hectare site had been leased in perpetuity from the NT government for a flat $510,000. The Commonwealth had contracted to lease it from the lucky landholders for a total of $197 million over three years — after they had constructed some basic accommodation to house the 1500 refugees. James tried to explain that it was a private project by his father — not the Paspaley company — but that got short shrift in Darwin:
“When dad and Foxy won that contract — read the press on it,” says James. “It runs along the lines of ‘Migrant Family Investing in Detaining Poor Migrants.’ We copped a flogging …(but) do I sit home and lose sleep over it? No. It’s just one of those things.”
So what does the future hold for Paspaley and the pearl industry? “We can continue now as the industry is indefinitely, but what you don’t have is any capacity to deal with shocks (like) cyclones or OOD (disease). If the price went from where it is today and halved again, yeah, we’d exit. We would have no choice but to exit.”
Would your father allow that after a lifetime building up the business?
“You’ve got two choices — you either have a sensible controlled exit, or you put a bag over your head and pretend everything’s OK. I think you’d find dad would actually be the first bloke sitting at the table saying ‘This doesn’t make sense.’”