Former NZX chief executive Mark Weldon "bullied" one of the vendors of the Clear Grain Exchange and overstated what NZX was likely to invest in developing the platform, the judge in the case has found.
However, neither Ralec nor NZX will get a payout from the High Court dispute, with Justice Robert Dobson ruling both sides' claims were valid but neither could demonstrate a financial impact if things had been different. The case was heard at the High Court in Wellington from May 2 to July 13 this year, having first come to court in 2011.
The stock market operator claimed Clear's former owners, Grant Thomas and Dominic Pym, and their companies Ralec Commodities and Ralec Interactive misled NZX with "wildly inaccurate" forecasts when NZX bought the commodities trading platform for $A7 million in October 2009, with two earn-outs of $A7 million tied to performance.
NZX had quantified losses caused by relying on Clear's forecasts at $13.76 million and put an "expectation measure" of loss between $33.5-44.2 million.
Ralec made a counterclaim of $A14 million, saying NZX and its former chief executive Mark Weldon under-funded the business, which meant it couldn't meet the targets which would trigger those payments.
Messrs Pym and Thomas stayed on following the acquisition, and in his judgment, Justice Dobson found that Mr Thomas had effectively been constructively dismissed by Mr Weldon giving him a harsh performance review in April 2010, while Mr Pym, who remained longer, "was bullied by Mr Weldon".
"At least to a material extent, he (Mr Pym) moderated or changed his own views to appease Mr Weldon in attempts to stay on side with him," Judge Dobson said. "Mr Pym spent time on matters at Mr Weldon's direction that did not best utilise his expertise with the technology."
The degree to which the working relationship between Mr Weldon and Messrs Pym and Thomas broke down is relevant to how NZX should have resourced the business, the judge said, as the parties could have discussed the grain trading platform's disappointing performance and refocused as early as February 2010.
Justice Dobson said Clear, as Ralec was known pre-acquisition, didn't have a reasonable basis for expecting NZX to commit up to $5 million so it could meet its 1.5 million tonne initial trading target. Statements made by NZX about it spending some $100 million to develop the platform "did not constitute an actionable misrepresentation," the judge said.
While there was scope to find Mr Weldon conveyed an impression to Thomas and Pym, prior to the acquisition, that NZX was much closer to spending significantly more money on developing agri-data businesses than was actually the case, there was no scope to assess whether that was an actionable misrepresentation because of how different that was to what was pleaded, the judge said.
During the hearing, Ralec's lawyers argued that Mr Weldon and the NZX due diligence team had been aware of negative indications about the grain trading platform which weren't passed on to the NZX board. Ultimately, the board made the decision to buy Clear, which Ralec's counsel said demonstrated why NZX hadn't been induced into the purchase by misrepresentations.
"A requisite level of inducement is to be considered on the basis of all information available to all involved at NZX so, in any case, NZX could not establish Ralec's liability on the basis that the NZX board, as the notional decision-maker, was not in possession of some of the negative indications conveyed to NZX during due diligence," Justice Dobson said.
The judge rejected Ralec's argument that a claim under New Zealand's Fair Trading Act couldn't be heard in New Zealand, saying that if steps initiated in Australia have legal effect here, it's consistent with the Act to treat it as conduct in New Zealand.
While the claim against Mr Weldon was unsuccessful, the judge said the inclusion of Mr Weldon in a personal capacity wasn't "entirely misconceived.
"There were possible concerns (not ultimately borne out) that Mr Weldon may have obtained board approval for the acquisition without full and frank disclosure, and his injudicious overstatement about a commitment to invest $100 million was not endorsed by the remaining directors who gave evidence," the judge said.
"As matters unfolded at trial, NZX made no attempt to distance itself from any of Mr Weldon's actions or omissions, but Ralec could not be certain of NZX's stance on the point when the counterclaims were pleaded."
The judge said that if Mr Weldon pursued a claim for his own costs, he would need disclosure about whether Mr Weldon was entitled to indemnity by NZX, and if he was, NZX should absorb those costs "as part of a larger nil-all draw."
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