UPDATE: Weldon denies misleading former Clear Grain owners, cross-examination becomes heated

Wednesday 18th May 2016

Former NZX chief Mark Weldon has denied misleading the former owners of the Clear Grain Exchange when NZX was negotiating to buy the platform in an at-times heated cross-examination in Wellington's High Court this afternoon.

Weldon was responding to questions from Tim North, counsel for Clear's former owners, Grant Thomas and Dominic Pym, and their companies Ralec Commodities and Ralec Interactive during his second day of cross-examination. NZX and Ralec have made claim and counterclaim over NZX's purchase of the grain exchange in 2009 in a High Court hearing that's been extended to 11 weeks because of slow progress.

Weldon, who earlier in the day rejected North's claim he had kept material information from NZX's board and said he stopped trusting Clear's former owners when it became clear they had misrepresented the likelihood of winning Australia's largest bulk grain handler as a customer, disagreed with North over the contents of a letter he sent to Ralec in 2009.

North said that in the letter Weldon told Thomas and Pym that the NZX board had made a $100 million commitment to investment in the agri portal, and described that as "false" and "misleading", a claim Weldon denied.

"You, as the chief executive of the New Zealand stock exchange, have said to the vendors of assets that your company is to commit a level of investment of $100 million, haven't you?" North said. "You did it for the purpose of seeking to persuade the vendors to sell their assets, didn't you? You put in the words that your board had committed to the level of investment because you were seeking to persuade them to enter into the transaction, didn't you? The content of this letter, I want to put to you, is put forward on the basis of you seeking to entice the Ralec party to enter into the transaction."

"It's relatively florid language to say we're seeking to entice Ralec," Weldon said, adding that he had answered questions about whether the board had made a commitment to invest $100 million "thirteen times now."

"The vendors were dying to sell their assets," he said. "This was a negotiation. This is a non-binding letter which sets out a prospective structure and lays out in relatively short form, prior to an SPA (sale and purchase agreement) the strategic intent of the board to a direction of travel on the global agri portal. The board did indeed commit to that and did indeed spend a significant amount of money. The company did indeed run into a hell of a hiccup, with the underperformance of Clear which required enormous triage, and the success of that platform was a key building block in the agri portal."

Earlier today North quizzed Weldon about analysis he had commissioned about Clear from Richard Koch, managing director of Australian agricultural news business ProFarmer, which NZX acquired in 2008. Koch had advised that Clear was five to 10 years away from making money, an assessment North says was kept from the NZX board.

But Weldon said Koch was actually predicting how long it would take for Clear to be taken up 'en masse' by growers, which would amount to over 50 percent of growers trading grain through the platform, and that was not key for Clear's success in a market he described as "heavily institutionalised."

The NZX board would expect management to synthesise the views it had gathered, and Koch didn't amount to an expert, Weldon said.

"Koch had absolutely no experience in grain markets," Weldon said. "It would be like saying a really good analyst for Fletcher Building would be able to tell if NZX would make money. His views would hardly constitute him as an expert."

The cross-examination became at times tetchy and Justice Robert Dobson had to intervene several times today to clarify what was being asked, as Weldon appeared increasingly at North's approach, at one point saying: "I've answered yes to this inane question a number of times."

In his brief, Weldon said Ralec had misled NZX over the nature of the platform's relationship with Graincorp and NZX would not have bought the platform had it not thought Graincorp would trade grain through the platform.

Today, Weldon said it was astonishing Graincorp's trading on the market had not eventuated. Weldon had replaced Ralec's Thomas, who left Clear in 2010, with NZX's corporate counsel Rachael Newsome when NZX lost trust in the transparency of information coming from the grain exchange.

"Could we go and talk to Graincorp? Yes we could, but we had no reason to - we trusted and believed [Thomas] and when we got some suspicions that something was rotten in the state of Denmark we sent Rachael Newsome across. I wanted someone who I could trust, who wouldn't gild the lily. That was when we understood there had never been a commitment to trade, even pre-acquisition."

Weldon was pushed by both North and Justice Dobson on whether there was anything preventing NZX from talking to Graincorp itself pre-acquisition. He said NZX felt an unshakeable belief Graincorp would trade on Clear because of the information it had been given by Clear, and that confidentiality about the acquisition was an issue.

"My strong sense was the Clear guys didn't want us talking to anybody, they didn't want wind of the acquisition getting out," Weldon said, adding when asked by North that he believed Graincorp had an opportunity to match any offer for Clear.

North put it to Weldon that NZX had "never spent anywhere near $12 million" on Clear, but Weldon said that as a "back of the envelope" calculation, NZX might have spent about $15 to $20 million on the Clear business from the point of acquisition to when the market operator first issued proceedings, and he had been told the accumulated losses were around $8 million.

Dobson told the counsel for the parties that another two weeks was available for the hearing if needed and if that wasn't enough time the court would have to sit for longer hours. He agreed to extend the hearing after lawyers for both sides told the court yesterday that their witnesses wouldn't be finished within the initial nine-week time frame.

The judge yesterday warned North about spending too much time on similar questions or a single document, and this morning directed North to take it as given that Weldon had read emails he had been sent after Weldon gave the same response, that he assumed he had read the email but could not remember it specifically as it was seven years ago, to multiple questions.

Weldon is the fourth witness in the trial. NZX and Ralec have made claim and counterclaim over NZX's purchase of the Australian Clear Grain Exchange in 2009. NZX is suing for between A$20.7 million and A$37.6 million, and Ralec has countered with a suit totalling A$14 million plus bonuses.

NZX claims Clear’s former owners, Thomas and Pym, and their Ralec companies misled NZX when it bought the commodities trading platform with “wildly inaccurate” forecasts. Ralec subsequently filed a counterclaim against NZX, later adding Weldon to the list of defendants. It claims NZX, which bought the platform for A$7 million with the potential for a further A$7 million of earnouts, failed to fund the exchange sufficiently. The case pre-dates much of NZX's existing management, having first hit the courts in 2011.

BusinessDesk.co.nz

Comments from our readers

No comments yet