High Court blocks access to Yealands-Marlborough Lines minutes amid trust civil action

Marlborough Lines completed its takeover of the wine company, paying an entity controlled by Peter Yealands almost $23m for his remaining stake. Photo / Supplied

The High Court has suppressed sensitive information relating to a wine company owned by Marlborough's electricity lines company ahead of civil action taken by a local businessman.

The consumer trust that owns Marlborough's electricity network went to the High Court to prevent details of its minutes from being distributed by the plaintiff in the civil action, amid signs that the wine business it bought five years ago may be being propped up by the lines business.

The trustees of Marlborough Electric Power Trust - the owner of Marlborough Lines - are facing court action from local business adviser, David Taylor, who says he represents a wider consumer group.

Taylor says he is seeking information to ascertain whether trustees properly kept the trust's beneficiaries - tens of thousands of electricity users in the Marlborough region - informed, with particular focus on the performance of Yealands, the wine business which Marlborough Lines began buying in 2015.

Taylor said while Yealands had reported significant profits due to upwards revaluations of its land, the trading performance of the business had been modest.

"I feel that the consumers and beneficiaries, their interests have not been properly protected and they're being disadvantaged," Taylor said, adding that he was seeking a better understanding of the performance of the businesses.

"But also, when we understand, we believe that the consumers need to be compensated for losses."

Taylor told the Herald he was concerned that Marlborough Lines had paid too much for Yealands and that its trading performance in the years since had not been as good as it should be for a business of its size.

The trust supplied Taylor minutes of its meetings, which were partially redacted to cover what it said were commercially sensitive materials.

But iPhone users were able to see behind the redactions by using the copy and paste function.

After Taylor disclosed the error to the trustees, and warned the materials had been shared with other parties, lawyers for Marlborough Lines applied to the High Court asking for the materials to be suppressed.

A court minute showed the plaintiff, Taylor considered the inadvertent disclosure to be "fortuitous" but suppressed the reason why. He submitted to the court that the materials were not confidential.

However, Justice Jillian Mallon granted orders preventing the materials from being published.

Yealands Estate was sold fully to Marlborough Lines in 2018. Photo / Supplied

The court action, in which Taylor is being represented by Wellington lawyer Michael Wigley, is several years in the making.

Marlborough Lines bought a majority stake in Yealands Wines for $89 million in 2015, promoting it at the time as a way to "provide increased dividends to consumers".

The deal raised eyebrows in corporate governance circles. Business commentator Brian Gaynor wrote at the time that the deal was a "worrying reminder of the 1980s when manufacturers purchased kiwifruit farms, mining companies bought retailers and fitness centres got into property development. Most of these transactions were not successful in the longer term."

Former NZ Winegrowers chairman and National MP Stuart Smith, whose Kaikōura electorate includes Marlborough, questioned whether a utility business had the skills to run a wine business.

In mid-2018, Marlborough Lines completed the takeover, paying an entity controlled by Peter Yealands almost $23m for his remaining stake.

At the time the High Court had suppressed the fact that Peter Yealands and two former senior staff at the winery and Yealands Wines Group were being prosecuted by the Ministry for Primary Industries for a case relating to adding sugar to wine destined for Europe, a crime under European Union law.

Both the trust and directors of Marlborough Lines and MEPT have talked up the performance of the wine business, even after the suppression orders related to the prosecution were lifted when the parties pleaded guilty, with the Ministry for Primary Industries saying the group had jeopardised New Zealand's reputation internationally.

As recently as the 2019 annual report, released last December said the investment in Yealands Wine Group "has proven to be very successful" and that "dividend expectations have been met, and the capital value of the investment has appreciated significantly".

Since the purchase, MEPT has been increasing the annual dividend it pays to consumers. Between 2011 and 2016, the trust paid a dividend of $50 a year, but this increased to reach $200 in its last dividend in January.

In recent weeks signs have emerged that the dividend is likely to be much lower this year.

Hints as to Yealand's performance were contained in the Marlborough Lines statement of corporate intent, which was released at the start of November.

The document disclosed that Marlborough Lines expects to pay the MEPT a dividend of $500,000 for the year to June 30, 2020, down from $6m in 2019 and $5m in 2018.

It also discloses that Marlborough Lines had loaned Yealands $15m.

"Since balance date, [Yealands Wines] has reduced external debt, increased cash reserves and continues to pay monthly interest payments to Marlborough Lines," the document states.

David Dew, chairman of Marlborough Lines confirmed the loan and dividend expectations, but declined to answer questions about Yealands' performance.

Ian Martella, chairman of the MEPT, also declined to answer questions on the performance of the trust's businesses ahead of the release of its annual meeting in December.

"The trustees are disappointed that Mr Taylor has taken legal action and do not believe his claims are justified," Martella said. He would not discuss the injunction but said the trust had provided "extensive information" to Taylor.

Taylor said, on the face of it, the details of the statement of corporate intent "implies no distribution by the trust to consumers will be announced this year" while the forecast dividend in 2021 was down 40 per cent on 2019.

"It is surprising that the Trustees have not advised consumers what lies behind the prospect of no distribution payment, particularly given some may be experiencing personal uncertainty related to the effects of Covid-19."