Sub-Saharan Africa retail giant Choppies has received another major reputation booster after winning a second round in the dragged-out high court case against PricewaterhouseCoopers Botswana (PwC) and its audit partner Rudi Binedell.
The two largest shareholders in the Botswana-headquartered supermarket chain Choppies Enterprises Limited, CEO Ram Ottapathu and partner Farouk Ismail, have obtained an important high court ruling in their R610 million claim PwC and Binedell.
Ottapathu and Ismail want PwC to be made liable for losses the directors faced when Choppies was suspended from the JSE and Botswana stock exchanges for not publishing its 2018 financial statements within stipulated time frames. The two have submitted that PwC was to blame for the delay. The suspension caused shares in Choppies to tumble and thus eroded their own value in Choppies as shareholders.
In a judgment handed down in the Botswana High Court last week, Judge Makhwe ruled in favour of an application by Ottapathu and Ismail for a separation of certain issues from the main legal action and dismissed a counterclaim by PwC and Binedell.
Makhwe ruled that the following questions will be separated from the issues in the main legal action and decided on in advance:
- Whether PwC and Binedell owed Ottapathu and Ismail a duty in law to not cause the harm alleged – in other words whether PwC and Binedell’s conduct was wrongful – in circumstances where Ottapathu and Ismail establish that PwC and Binedell acted:
- In bad faith, or
- With gross negligence, or
- With negligence.
- Whether PwC and Binedell were the legal cause of the loss alleged by Ottapathu and Ismail in circumstances where they establish that PwC and Binedell acted:
- In bad faith, or
- With gross negligence, or
- With negligence.
In their counterclaim, PwC and Binedell argued that they wished all issues in the dispute to be heard at once and did not want a piece-meal approach which they averred would affect their right to a fair hearing as enshrined in the constitution. Judge Makhwe dismissed their counterclaim with costs.
At the centre of the dispute between the parties, said Makhwe, is a written agreement concluded on 9 March 2018 between Choppies and PwC in terms of which PwC was engaged as an auditor for the Choppies Group of Companies.
He said this agreement was executed by Ottapathu in his capacity as CEO of Choppies and Binedell in his capacity as a partner of PwC and provided some salient terms to be observed by the parties.
Makhwe said, for instance, it forbade the solicitation of employment or nomination of the key audit partner for the position of director or officer of the company, or to any position that may exercise significant influence over the preparations of the company’s accounting records or financial statement.
He said the fee proposal structure from PwC and Binedell dated 25 January 2018 is tied to this agreement.
Makhwe said the proposed fee structure makes it plain that PwC and Binedell were aware that Choppies was a listed entity on both the Botswanan and South African stock exchanges and that Choppies was obliged to comply with stock exchange rules in both countries.
He said PwC and Binedell’s senior counsel emphasised during argument that there was no agreement regarding when the results should be released.
Makhwe ruled that PwC’s agreement regarding when Choppies’ financial results would be released does not accord with commercial sense and prudence and “flies in the face” of PwC and Binedell’s own undertaking.
Independence
On the question of solicitation, Binedell argued that the job offer was made long before he accepted the mandate and he had expressed no interest in it, and his independence was therefore not affected.
Ruling on the issue of Binedell’s independence, Makhwe said PwC and Binedell had not disputed that Binedell met with some directors of Choppies on 19 March 2018 when some discussion or inquiries about a job took place.
Makhwe said the directors in question were members of the Choppies audit committee, which was admitted by the parties in their case management report.
He said counsel for PwC and Binedell argued strongly that the offer or discussions took place much earlier than claimed by Ottapathu and Ismail, and that Binedell was not interested.
However, Makhwe said: “I could not help noticing that counsel for the respondents [PwC and Binedell] did not want to commit to any specific date except to say the offer came much earlier.”
He ruled that on the pleadings before him, the job discussions took place after PwC and Binedell had signed a mandate on 9 March 2018 that spelt out the terms of engagement between the parties, with these discussions taking place on 19 March and 24 April 2018.
“Although the respondents [PwC and Binedell] seek to underplay the independence issue, such was the significance of the discussions between the second defendant [Binedell] and the Choppies audit members that the second defendant [Binedell] discussed the inquiry of joining Choppies with the independence leader of PwC Botswana,” he said.
A status hearing of the separation application is now scheduled to be heard in the Lobatse High Court in Botswana in June.
In a previous High Court of Botswana judgment handed down in November 2021, Binedell was found to have delayed the Choppies audit report because a job he had been offered at Choppies had not materialised.
Binedell was harshly criticised in a judgement handed down by Ms Justice Boipuso Tshweneyagae in the Botswana High Court who said at the time: “…(his) alleged conduct is also an issue. The allegation is that he was not arm’s length in his auditing of the Choppies books as he had been offered a job with significant shareholding as incentive.
“When this did not materialize, he used his position as the key lead auditor to compromise the publication of the audit report beyond the publication deadline of 30th September 2018.
“Prima facie…(his) independence as a dispassionate and professional auditor was impaired once he engaged in potential employment discussions with Choppies. He should have recused himself from leading the audit.”
Ottapathu said the company had undergone a major revitalisation and consolidation programme and was well on its way to again assume its position as a leading African multinational retain chain.
“We have made major strides in creating a solid foundation for the group to build on and believe this has set the course for a rebirth of the company which offers value for money to its customers and shareholders in a challenging economic environment.
“The latest court judgement in our favour reinforces our belief that the truth shall always prevail.