Weldon says Clear Grain platform was 'inflexible', Graincorp not on board

Monday 16th May 2016

The Clear Grain Exchange was not as flexible as NZX had been told it was before acquiring the business, former chief executive Mark Weldon told Wellington's High Court this afternoon.

Weldon appeared for the first time in week three of the lawsuit between NZX and Ralec, the former owners of the grain exchange. The trial, which is expected to last nine weeks, is over NZX's purchase of Australia's 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.

Ralec's QC Tim North has painted Weldon as having been fixated on building Clear into a global commodities powerhouse, ignoring Ralec's advice on the outlook for the business and keeping his own board in the dark, while NZX claims Grant Thomas and Dominic Pym, and their companies Ralec Commodities and Ralec Interactive, misled NZX when it bought the commodities trading platform with “wildly inaccurate” forecasts.

Weldon, speaking with a hoarse voice he blamed on flu, said basic changes to the grain exchange platform proved more difficult that expected since NZX had been given the impression it was a modular system.

For example, the initial price structure the grain exchange had been using had charged buyers A$2.50 per tonne traded through the exchange with no charge to the seller. He was concerned the structure was a disincentive to buyers but his initial proposal to unbundle the services provided by Clear couldn't be done without significant coding work and in the end a compromise had to be reached with buyers charged A$1.50 per tonne and sellers 50 Australian cents per tonne.

Weldon said that these "relatively simple changes", along with branding changes to ensure Clear was always referred to using the longer name, Clear Grain Exchange, "required a significant workload from the IT team" contrary to what he had been led to believe.

"I had been assured the system was flexible and modular at the time of acquisition," Weldon said.

Weldon added that NZX retained Thomas and Pym on annual salaries of between $500,000 and $600,000, which he said was high compared to other NZX executives, and reflected "both their seniority, their expertise, and the expectations [NZX had]."

That detail provoked objections from Ralec's North, who will likely cross-examine Weldon tomorrow.

Earlier in the day, Weldon, who is represented by Alan Galbraith QC, said Ralec had played up the relationship between the Clear Grain Exchange and Graincorp and concealed internal opposition within Australia's largest bulk grain handler to using the Clear platform.

Weldon told the court that Thomas and Pym had given NZX an annual forecast of 1.5 million tonnes of grain to be traded using the platform for 2010.

"It was very clear in meetings they expected Clear to achieve at least 1.5 million tonnes," Weldon said. "They referred to this several times including at dinner, and separately, Thomas said it was a conservative estimate."

Weldon said Thomas and Pym had characterised the relationship between Clear and Graincorp as positive and NZX wouldn't have gone ahead with the acquisition if that hadn't been the case. A due diligence document from Clear had said Graincorp was targeting volumes of 1 million tonnes to trade on the Clear Grain Exchange, he said.

"If there was one fact which, if we had not believed it to be true we would not have bought Clear, it was whether Graincorp would trade on the market," Weldon said. "All the projections and modelling assumed Graincorp themselves would be trading via Clear, and it was confidence in this, as stated specifically in the due diligence document, that led us to affirm our baseline tonnes traded target. Graincorp trading on the market was absolutely fundamental."

Weldon, who recently resigned his job as chief executive of MediaWorks, said NZX was not told about internal opposition within Graincorp towards trading using the Clear platform. Instead, communications from Clear both in written documents and in the language used in meetings was about the strength of the relationship and the support Graincorp had for Clear.

Weldon said he was told by Clear that there wouldn't be any increase in costs to achieve the forecast increase in trading volumes, and this was repeatedly explained at meetings.

Weldon also denied Thomas had told him, at a meeting on July 17, 2009, that NZX would need to invest A$5 million in marketing and development for Clear. And he said Thomas had emphasised Clear's positive relationships within the grain industry.

BusinessDesk.co.nz

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