‘PWC Auditor Withheld Report To Spite Choppies’

According to a damning judgement delivered by Gaborone High Court Judge Makhwe on 5 April 2023, PriceWaterhouseCoopers (PWC), led by its Managing Director Rudi Binedell, has once again lost with costs against Choppies founder Ottapathu Ramachandran and Ismail Farouk. Binedell was found to have used his position as key lead auditor of Choppies to compromise publication of the company’s financial results beyond the deadline of 30 September 2018, leading to loss of value to shareholders. This is the second time that PWC and its MD lost against Choppies. Not so long ago, the High Court concluded that Binedell ’s independence as a dispassionate and professional auditor was impaired once he engaged in potential employment discussions with Choppies. However, when a lucrative offer that he had expected was not coming, Binedell used his position as key lead auditor of Choppies to compromise publication of the company’s financial results beyond the deadline of 30 September 2018, leading to loss of value to shareholders. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="2,3,1,4" ihc_mb_template="3" ] On 31August 2020, Ram and Farouk instituted a delictual action against PWC and its Managing Partner Binedell. Pleadings were closed on 12 April 2022, according to the case management Report. On 6 June 2022, Ram and Farouk then brought a separation application seeking some questions to be separated and decided in advance of the issues in the main action in terms of order 28 Rule 1 read with order 35 Rule 2, namely whether on the admitted and common facts, as set out, PWC and Binedell owed the Choppies directors (and Choppies itself) a duty in law to not cause the harm alleged in circumstances where the applicants (Ram and Farouk) establish that PWC and Binedell (respondents) acted with mala fides or gross negligence in relation to compromising the release of Choppies financials which resulted in loss of value to shareholders. The other question was whether on the admitted common facts, as set out, the respondents were the legal cause of the loss alleged by the applicants in circumstances where the applicants establish that PWC and Binedell acted with mala fides or gross negligence. The Choppies directors wanted the court to alternatively determine the questions in such a manner that it deems expedient. They also sought the court to order PWC and Binedell to pay the costs of this application. PWC and Binedell filed a counter-application on 27 June 2022, directing Ram and Farouk to file their summaries of anticipated factual witness statements and their expert report within three days of the granting of this order. They also sought to have the Choppies businessmen pay costs of the counter-application. On 20July 2022, the applicants filed an amended Notice of Motion and filed a slightly modified draft order and the hearing of 22 nd March 2022. The draft order sought for some questions to be separated from and decided in advance of the other issues in the main action, namely whether on the admitted and common cause facts the respondents owed the Choppies directors a duty in law not to cause harm alleged (whether the defendant’s conduct was wrongful) in circumstances where the applicants establish that the respondents acted with mala fides or gross negligence. The other question was whether PWC and its Managing Partner were the legal cause of the loss alleged in circumstances where the applicants establish that PWC and its MD acted with gross negligence. The applicants in the draft order wanted the application for directions by PWC and its MD dismissed, and that they pay the costs of the separation application. The applicants argued that the court should order a separation of issues as it is beneficial to all parties, the court included. On the other hand, the respondents argued strongly against the separation, contending that they wished to have their day in court and have all issues ventilated at once and would not want a piecemeal approach to the dispute. But the applicants’ main argument was that the issues are questions of law only. “They will be determined on the facts that are common cause and admitted, and on the supposition that we establish fault in one of the four forms: intentional, mala fide conduct, gross negligence or negligence,” argued the applicants, further stating that they may be dealt with purely on the basis of legal arguments and could be decided before any evidence is led at trial which is directed at establishing intentional mala fide, gross negligence or negligence. In the circumstances, they argued that these questions may be separated. The applicants’ counsel argued that in this scenario, there would be no more evidence needed, no second hearing required, no further costs incurred and the matter would not further occupy judicial resources. The counsel further argued that a second hearing becomes necessary but limited. In this scenario, the court resolved the issues of wrongfulness and legal causation. No legal argument would be needed after the second hearing on issues of wrongfulness and legal causation. “The court will not have to decide the question of ordinary negligence, saving costs of the judicial process,” it said. According to the ruling, the respondents have not strongly disputed the applicant’s given proposition. They argued, however, that the separation must be dealt with after evidence has been led and tested at trial. In terms of an application to compel Ram and Farouk to comply with the terms of the Case Management Order, PWC and Binedell argued that Ram and Farouk seem not eager to have trial commence, because it has been three years since the applicants instituted legal action. But in defence, Ram and Farouk stated that it is PWC that is causing the delays. According to the ruling, the centre of the dispute is a written agreement, concluded on 9 March 2018, between Choppies and PWC where PWC was engaged as an auditor for the Choppies Group. It was executed by Ram as Choppies CEO and Binedell as PWC Managing Partner. The agreement forbade solicitation employment or nomination of the key audit partner for the position of director of officer of the company or to any position that may exercise significant influence over the preparation of accounting records or financial statements. The proposed fee structure, according to the ruling, makes it plain that PWC and Binedell were aware that Choppies was listed on both the Botswana Stock Exchange (BSE) and the Johannesburg Stock Exchange(JSE) and were also aware of Choppies’ obligation to comply with listings rules. According to the ruling, PWC and Binedell failed to release the Choppies financials when they were due, resulting in loss of share value as the Choppies shares tumbled, thus eroding their own value in Choppies as shareholders. Binedell was also found to have not been independent as he was solicited for employment soon after PWC and himself had accepted the mandate to be Choppies auditors. The court found that the application brought by Ram and Farouk meets the test of convenience and must succeed. It ruled that the questions raised by the Choppies directors are separated and decided in advance of other issues in the main action. The court ordered the Choppies directors to deliver witness statements in relation to the evidence they wished to lead on the separated issued within 30 days from the date of this order. Determination of the remaining issues was postponed until after judgement of the separated issues. Binedell and PWC were ordered to pay the costs of the application. Further, the court confirmed that various steps and dates of the Case Management Order were suspended as a result of this application. The respondents’ application for directions was also dismissed. [/ihc-hide-content]

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‘PWC Auditor Withheld Report To Spite Choppies’

The mala fides seem to have formed in Rudi Binedell’s head when - working as Lead Auditor of Choppies - a lucrative offer that the MD of PWC had expected was not coming

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‘PWC Auditor Withheld Report To Spite Choppies’

The mala fides seem to have formed in Rudi Binedell’s head when - working as Lead Auditor of Choppies - a lucrative offer that the MD of PWC had expected was not coming

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