In a ruling delivered by the High Court judge Boipuso Tshweneyagae on 24 November 2021, the conduct of Binedell was found to have been a key issue leading to the delayed release of Choppies’ audited financials.
“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 materialise, 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,” Justice Tshweneyagae concluded.
He ruled that Binedell’s independence as a dispassionate and professional auditor was impaired once he engaged in potential employment discussions with Choppies. According to the judge, Binedell should have recused himself from leading the audit at that juncture.
Choppies founders, Ramachandran Ottapathu and Farouk Ismail, are demanding P450 million from PWC (1st respondent) and Binedell (2nd respondent) for having knowingly taken decisions that compromised the release of Choppies 2018 audited financials, which led to the loss of shareholder value as the company’s share price crumbled. The respondents were served with a writ of summons on the 31st August 2020.
In the build-up to the case, on 12 November 2020, PWC and Binedell requested further particulars from Ram and Farouk pursuant to Order 25 Rule 3 (1) of the Rules of Court. On 3 February 2021, the Choppies directors served on PWC and its Managing Partner their answers to the request for further particulars, thus allowing the defendants to file their plea. On 12 March 2021, the defendants filed their plea.
However, Ram and Farouk took issue with the plea. Thus, in response to the PWC and Binedell’s plea the Choppies founders on 1st April 2021filed their request for further particulars in terms of Order 20 Rule 19 of the High Court Rules of 2011.
The order provides that where a party, in order to plead, requires a further and better statement of the nature of the claim or defence, that party shall, within the period allowed for filing the subsequent pleading, and before filing any other pleading, deliver a notice of application for such better statement or further particulars, and by such notice shall allow the other party 10 court days within which to deliver such better statement or further particulars.
Rule 19 (1) therefore grants Ram and Farouk the right to ask for further particulars before they can replicate. On 7 May 2021, PWC and Binedell filed their response to Ram and Farouk’s request for further particulars. However, being dissatisfied with the response, Ram and Farouk filed an application on 10 June 2021to compel the two to deliver further and better particulars to their request for further and better particulars.
On 2ndJuly 2021, PWC and Binedell filed their answering affidavit to the application to compel. On 27 July 2021, the Choppies founders filed their reply, the matter of which has been before Justice Tshweneyagae. In the matter, the Choppies directors wanted PWC and Binedell to release some information which is crucial to their case in which they demand P450 million in damages against PWC and its Managing Partner.
The two single largest shareholders of retail giant Choppies are demanding a staggering P450 million from PWC Botswana and Binedell for what they say was intentionally stalling the release of their company’s financial results, which resulted in Choppies losing over 75 percent of its market value. According to court documents, on 19 March 2018, the date on which PWC made its preliminary presentation to the Choppies Audit Committee, Binedell attended a dinner with Rob Neil Matthews and Sydney Muller, who at the time were members of the Choppies Audit Committee as well as Board of Directors of the retail chain store. The court document reveals that in the course of this dinner, Binedell discussed with Matthews and Muller various issues relating to Choppies and PWC’s audit of Choppies for the 2018 financial year.
It is said that Muller requested that Binedell join Choppies as Group Finance Director, thereby soliciting his employment by Choppies. Subsequent to this meeting, it is revealed that Muller and/or Matthews repeated this request to Binedell and to other members of Choppies management on several occasions. In particular, the request was said to have been repeated on several occasions orally and in writing. It is said Matthews had suggested that the Choppies Board consider Binedell being given 50 million shares in Choppies under the employee share option scheme as an incentive.
Documents allege that Ram was requested by Muller and/or Matthews to formalise an offer to Binedell in writing. Muller and/or Matthews are said to have made these requests and thereby solicited the employment of Binedell when they ought to have known that this was in contravention of the Audit Agreement 2018 and that it would compromise Binedell’s independence and the independence of PWC throughout the audit.
As a result of these facts, documents allege, PWC bore an obligation, contractually and in terms of their ethical obligations, immediately to take action in accordance with International Standards on Auditing (ISA) and International Ethics Standards Board for Accountants (IESBA) Code of Ethics and report such threats to those charged with governance, and then to either resign as auditors of Choppies or, and at the very least, to remove Binedell from the audit team.
However, according to the documents, PWC and Binedell failed to do so. “Despite these facts, PWC proceeded to conduct the audit of Choppies and its subsidiaries, with the audit team as it was then constituted, led by Binedell,” the papers state.
At a board meeting on or about 17 September 2018, it is said that Binedell advised the Board of Directors of Choppies that he would not be able to finalise the audit in Botswana, South Africa and Zimbabwe due to a number of audit issues some of which purportedly affected all regions while some of them were specific to certain regions only. The summons states that Binedell had identified a number of issues of concern in Choppies.
In the summons, Ram and Farouk state that as a direct result of Binedell’s report to the Choppies Board, it was proposed that Ram be suspended as CEO, that a forensic audit be conducted on Choppies and that the trading of shares on stock exchanges be suspended.
The court papers detail that Ram responded fully to the issues identified by Binedell on several occasions. It is also detailed that despite Ram addressing the concerns by providing all available information, explanations and documentation, Binedell and PWC remained intransigent and insisted that Choppies procure the services of a forensic investigator.
Ram was consequently suspended and a forensic investigator engaged. The shares were also suspended from trading. It is further said that PWC proceeded to make more demands, disregarding the urgency of the audit despite Choppies management making all attempts to address Binedell’s concerns.
Court papers allege that as a result of Binedell’s actions, Ram lost an P254 174 469 as the value of the shares on the BSE and a further R416 680 on the JSE. At the same time, Ismail lost P197 325 716 on the BSE. The two are therefore demanding damages of P450 million.
In the ongoing case, PWC and Binedell lost a case in which they were trying to avoid furnishing Choppies with some information crucial to completion of the case. In the ruling, Ram and Farouk’s application succeeded with costs that include costs of counsel. PWC and Binedell were ordered to furnish Ram and Farouk with further particulars by 15 December 2021 as demanded in their application for further and better particulars.
Further, Justice Tshweneyagae ruled that the Choppies directors shall replicate, if they so choose to, by 20 January 2022. The initial case management conference shall be held on 14 February 2022 at 9am while the final case management conference shall be held on 20 March 2022 at 9am. Trial is scheduled from 9 to 20 May 2022 at 9am.