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The two largest shareholders in JSE-listed Botswana supermarket chain Choppies Enterprises have obtained an important high court ruling in their R610 million claim against PricewaterhouseCoopers Botswana (PwC) and its audit partner Rudi Binedell.
In a judgment handed down in the Botswana High Court last week, Judge Makhwe ruled in favour of an application by Ram Ottapathu and Farouk Ismail, the two largest shareholders in Choppies, 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.
PwC and Binedell argued in their counterclaim that they wished all issues in the dispute to be heard at once and did not want a piecemeal approach.
They argued that a piecemeal approach would affect their right to a fair hearing as enshrined in the constitution.
Judge Makhwe dismissed their counterclaim with costs.
A status hearing of the separation application is now scheduled to be heard in the Lobatse High Court in Botswana in June.
The claim against PwC and Binedell dates back to August 2020 and relates to the alleged material breach of regulatory, reporting and ethical standards that resulted in a significant loss of share value in Choppies.– Bloomberg
It followed PwC’s refusal to sign off on Choppies financial results for the year to end-June 2018, with the delay in the release of the results leading to trading in Choppies shares being suspended on both the JSE and the Botswana Stock Exchange.
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.
Compliance obligation
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. Bloomberg
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