Legality of Vector C-Shares Still Ducked - Council
A Court Ruling was handed down yesterday on the first part of an action brought by three Auckland Councils – Auckland, Manukau and Papakura – against energy lines company Vector Limited and the Auckland Energy Consumer Trust, majority owners of the shares of Vector.
Justice Paterson ruled that the Councils had no standing to be heard on the issue of whether the C-class shares issued to Russell McVeagh partners are legal. This means that the Councils have no technical right in law to take issue with the governance structures of Vector.
The Councils are the ultimate beneficiaries of the Consumers’ Trust.
However, the Judge offered some support for the second half of the Councils’ case to be heard next year.
In the judgment Justice Paterson made no finding on the legality of the C-class shares. This means that the issue remains unresolved.
The three Councils today made a joint statement:
“The illegality issue has been ducked in this judgment. It’s the same issue that the Government’s Rennie Report raised, when it pointed to flaws in the governance structure of the then Mercury. In our opinion, this issue still hasn’t been satisfactorily settled.
“What the Rennie Report pointed to, we raised on behalf of Auckland and Aucklanders. It’s now been determined that the three Councils are not the bodies able in law to raise these issues or settle them.”
The part of the Councils’ case ruled on yesterday turned around the legality of Vector’s C-class shares. Under Vector’s structure, six Russell McVeagh partners hold six C-class shares representing 25% of the votes on the Vector Board. The Consumer Trust, in contrast, owns 300 million shares and has a 75% vote.
The three Councils challenged the legality of the C-class shares, arguing that the Consumers Trust as the proper owner of Vector should own all the shares and 100% of the voting rights.
“In reaching no finding on the C-class shares, we are very concerned that aspects of the same flawed conditions as far as ownership of electricity lines in Auckland which existed when the electricity failed in Auckland in 1998, still exist.
“However, we regard the main part of our actions as ‘yet to come’.”
In the second part of the action – not yet heard – the three Councils are seeking clarification from the Court as to whether an intended $107 million distribution by Auckland Energy Consumers Trust is “capital” or “income”. This is especially relevant to the Councils, who will benefit as “capital beneficiaries” in 80 years time, when the Trust is wound up.
The Councils argue that this money should be kept as a legacy for future generations of Aucklanders, and also that the accounts of Vector are not clear enough to determine enough to determine what is “capital” and what is “income”.
Justice Paterson offered some support on the second part of the action in his judgment: ‘There is a substantial and arguable point of law which needs to be resolved under those causes of action and which is of fundamental importance to the Councils.’
The three Councils stated:
“We would expect the Trustees to facilitate the resolution of this second half of the action, to minimise the on going costs.
“Further, we have always said the trust is welcome to distribute income but not capital (proceeds from asset sales). We want the capital fund protected for future generations to invest in infrastructure. The fact the Trust hasn’t distributed may suggest they don’t know what’s capital and what’s income.”
The Mayor of Auckland City, Chris Fletcher
The Mayor of Papakura, David Hawkins
And The Mayor of Manukau City, Sir Barry Curtis