Harmos defends Weldon as Ralec presses former NZX chair over 'A$100M commitment'

Thursday 12th May 2016

NZX's former chairman Andrew Harmos has defended former chief Mark Weldon's communications over the Clear Grain Exchange purchase and denied the stock exchange operator had ever committed A$100 million to the business.

Ralec and NZX are in the second week of a trial expected to last nine weeks 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, 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.

Ralec claims NZX, which bought the platform for A$7 million with the potential for further earnouts, failed to fund the exchange enough to ensure it could meet its targets. The case pre-dates much of NZX's existing management, having first hit the courts in 2011. Today Harmos appeared exasperated to be questioned over what if anything NZX had committed to Clear, the same line of questioning Ralec's counsel Tim North QC had used with another witness, former NZX director Neil Paviour-Smith.

"I feel like a planet in an infinite orbit of the same question," Harmos said in response to questioning from Ralec's QC Tim North about the meaning of the word 'commitment' as used in internal documents.

"You're implying a commitment of a legal nature, this indicates the board committing to the next step of the strategy," Harmos said. "There is no commitment, there is nothing in the accounts which reflects a contingent liability or a commitment to do anything which could not be resiled from. This was the next step in a strategy of which every step had to prove its way up in order for the strategy to be fully implemented - this is just normal business practice. This is board language, this is chief executive language, this is not a legal document."

Paviour-Smith had also denied NZX ever committed to a specific investment in Clear, and said the stock market operator had only committed to an Agri-Portal strategy.

Harmos disagreed with North about the A$100 million figure which Ralec says was NZX's financial commitment to the project, and which it is arguing NZX did not fulfil and therefore failed to fund the project's development adequately.

"I wouldn't call [A$100 million] a valuation of a prospect - it's rudimentary, it's not even rule of thumb," Harmos said. "The board knows that if all goes well, all along the way, management's estimate at this stage was it might justify and require an investment of around that level to generate the value that is referred to. It's telling the board that if we embark on this thing, you need to understand it could involve this amount over time."

Ralec QC North said Weldon had spoken to Richard Koch, managing director of Australian agricultural news business ProFarmer which NZX acquired in 2008, for analysis of Clear and had been informed Clear was five to ten years away from making money. North asked Harmos whether he was informed of this as the information "would have affected Weldon's rational decision making in acquisition of the business model."

"That would have been one of a vast number of inputs into management's due diligence process, and to expect that specifically to have been raised with me - all I can tell you is it wasn't raised with me, and I'm not surprised," Harmos said.

Weldon's communication has previously been brought up by North, who said last week that Weldon had been eager to acquire the grain exchange and develop an agri-portal.

"Weldon was 100 percent committed in relation to the acquisition on June 2, 2009, before any representations to the board," the court heard last week. "There was a difference between what the board was informed about and what Weldon and his team knew. The representations were never things the board relied upon because they weren't told about them."

North today said that Weldon had assured Grant Thomas, one of the exchange's former owners, that the board had committed to a financial investment.

"In fact, Mr. Weldon and Mr. Thomas did meet and talk about the execution of the agri portal, and he [Weldon] told them it was a no-brainer and the money would be paid. Are you aware of that?" North asked Harmos, who replied that it sounded like hearsay and he was not aware of it.

North said he would put that claim to Weldon, who is due to give evidence next week.

BusinessDesk.co.nz

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