Ralec avoids revealing who is funding its counter-claim against NZX

Thursday 9th June 2016

The former owners of the Clear Grain Exchange avoided having to reveal who is funding their counterclaim against NZX in Wellington's High Court today.

NZX bought Clear for $A7 million in October 2009, with two earn-outs of A$7 million tied to performance. The stock market operator is suing Dominic Pym, Grant Thomas, and their companies Ralec Commodities and Ralec Interactive for between A$20.7 million and A$37.6 million, and say they provided “wildly inaccurate” forecasts prior to NZX buying the Australian grain trading platform in 2009. Ralec's counterclaim of A$14 million, for both earnouts, plus bonuses says NZX and former chief Mark Weldon under-funded the business which meant it couldn't meet the earn-out targets.

In cross-examination today, NZX's counsel Brian Latimour asked Thomas who was funding Ralec's counterclaim, to which Ralec's QC Tim North objected. Latimour said the question was principally an issue of costs, but there could be a crossover with other issues in the trial including whether Ralec had suffered any loss or whether the Ralec parties who have brought the counterclaim are the right claimants for any damages.

"If in fact people who are entitled to this money are funding these companies to sue NZX, that will be a fact relevant to your consideration of whether the wrong claimants are being heard," Latimour said, adding he had intended to ask Thomas not only whether he or Pym were funding Ralec to pursue the claim, but also if any other shareholders or consideration recipients were funding the case as Ralec is pursuing a counter-claim for both earnouts.

North said the directors would be available if they were needed for a costs hearing, which Justice Robert Dobson accepted.

Last month, NZX's chief executive Tim Bennett said the stock market operator's total legal cost will amount to between $9 million and $10 million by the end of the trial, not including the time spent by internal staff in running the litigation. NZX spent $2 million on the litigation in the 2015 financial year, and Bennett said it would have been in both parties interests to settle the dispute before trial.

Earlier today, Latimour questioned Thomas about how much he and Pym had disclosed to Ralec shareholders in a letter sent about the plans for distribution of earnouts around the time of NZX's acquisition in 2009. Thomas and Pym would have gained A$3 million each from the second earnout, which was tied to the delivery of the agri-portal, and Latimour asked Thomas what the basis was for the payment structure.

"Your letter suggests [the A$7 million earnout] is to be paid to current Clear employees - it doesn't tell shareholders expressly that A$6 million of that A$7 million is to be paid to you and Pym directly," Latimour said.

Thomas said former chief executive Mark Weldon had wanted the payout designed that way to incentivise him and Pym to stay at the company after NZX's acquisition and to drive the strategy.

"Weldon said it was quite clear that this is not going to work if you're not there or Dominic Pym is not there," Thomas said. "He saw us as critically fundamental, and we had no disagreement with that. I was critical in driving the strategy, the negotiation, the relationship building within the industry, and this arrangement with NZX."

Mark Weldon's QC, Alan Galbraith, has begun cross-examining Thomas and is expected to finish tomorrow. Dominic Pym is set to be the next witness called by Ralec.

BusinessDesk.co.nz

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