Enthusiasm
outran reality with former NZX chief executive Mark Weldon’s plans to mirror
Bloomberg’s success in monetising securities data by NZX becoming an antipodean
agri-Bloomberg selling agricutural data.
The subsequent ill-fated purchase of an embryonic Australian grain
trading platform turned nasty with High Court evidence of Weldon bullying
Australian staff and claims NZX failed to properly support the project.
NZX and Australian-based Ralec
Commodities fought out a nil-all draw after three months of argument in the
High Court canvassing who was at fault over a poorly performing 2009 joint
venture. Neither side had performed as
promised but neither side was entitled to damages.
Justice Dobson described the deal as a
case of Clear Grain Exchange owner Ralec Commodities being a very willing
seller and NZX being a very willing buyer.
Mark Weldon as CEO of NZX envisaged the project growing quickly into a
mini-Bloomberg worth at least $750 million to one billion; part of a strategic expansion labelled
IMI: information/markets/infrastructure.
NZX agreed to buy from Ralec Commodities its
online commodity dealing platform. It
was still a work-in-progress as Ralec sought to exploit commercial possibilities
arising from the Australian Wheat Board’s then recent loss of monopoly control
over bulk grain exports. NZX agreed to
pay Ralec A$7 million upfront, with later payments if specified performance
targets were met. NZX promised to
sufficiently resource and finance the project to enable these earn-out targets to
be achieved.
Justice Dobson ruled that while considerable
resources were poured into the project, there was no evidence of the NZX board
giving specific consideration to the level of resources required to achieve
levels of turnover triggering Ralec’s earn-out.
The board left Mark Weldon with a wide level of discretion to implement
the deal. There was no evidence he
specifically considered what might be needed to achieve Ralec’s earn-out. Almost from the outset, NZX was very disillusioned
with Clear Grain’s performance compared with that promised. Trading levels proved to be only 14 per cent
of projections. NZX questioned the
competence of senior staff at Clear Grain.
There was evidence of Mr Weldon bullying Clear Grain staff. One senior staff member was fired. NZX did not defend legal action taken to
recover promised severance benfits.
Justice Dobson ruled Ralec was not
entitled to damages despite NZX’s failure to specifically consider appropriate
levels of resourcing. Trading levels
were so far below projections it was reasonable to defer further significant
expenditure.
Ralec was in turn held liable for
misrepresentations during the negotiations: representing grain trader GrainCorp
would be putting one million tonnes through the Clear Grain Exchange next
season when there was no realistic prospect of that happening (because of interpersonal
rivalries within the industry); claims Clear was well supported by the grain
industry (based on a minscule increase in trading volumes over the previous
season with large buyers trying the new platform on a trial basis only); claims
costs were reasonable (Clear was charging a higher transaction charge than its
competitors and was requiring payment clearance within five days whilst the
industry norm was 30 days). NZX was not
awarded damages. It was a high-risk
investment by NZX. Clear Grain had
accumulated losses of $4.2 million at the time of the purchase. There were too many uncertainties about
future profitability to determine damages.
Clear Grain was a start-up business, with a limited trading history and facing
a wide range of possible commercial outcomes.
Most of the $A7 million paid was for software and access to Clear’s
online trading platform.
NZX
Ltd v. Ralec Commodities – High Court (15.11.16)
16.159