Choppies supermarket directors win the initial judgment against PwC
DIRECTORS at Botswana and JSE-listed supermarket group Choppies have won an initial court victory in their battle to recover damages of more than P451 million (R621m) from PricewaterhouseCoopers (PwC) and its managing partner Rudi Binedell.
Binedell was criticised by a Botswana judge who found he had delayed the Choppies Enterprises (CEL) audit report, because a job he had been offered at Choppies had not materialised.
The matter goes to trial from May 9 to 20, 2022, a statement said yesterday. Choppies owns 90 stores in Botswana, 32 in Zimbabwe, 26 in Zambia and six in Namibia.
PwC’s decision to delay the release of the results had big consequences for Choppies, which was suspended from the JSE, thereafter, and only recently was allowed to trade on the market again.
Choppies chief executive Ramachandran Ottapathu was ousted for his role, but was reinstated after a probe by Ernst & Young found that he had done nothing wrong. He and executive director Ismail Farouk are the plaintiffs in the case.
A judgment handed down by Justice Boipuso Tshweneyagae in the Botswana High Court this week said of Binedell: “… (his) alleged conduct is also an issue. The allegation is that he was not (at) 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 September 30, 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.”
The judge found in favour of an application by Choppies’ two largest shareholders, Ottapathu and Ismail, to compel PwC and Binedell, to provide details of the defence they would raise in answer to allegations that they had caused damage to CEL, by delaying the audit report.
According to Ottapathu and Ismail, PwC’s actions had caused a loss of more than 75 percent to Choppies market value.
The judge ruled, with costs, that PwC and Binedell provide the two shareholders with further particulars of their defence saying: “The information sought from the defendants is necessary to enable the plaintiffs to plead and for the court to equally appreciate the issues in dispute.”
PwC and Binedell had summarised their defence by saying that the audit contract with Choppies never stipulated an absolute deadline for the audit report.
Secondly, the deadline was expressly subject to Choppies furnishing the defendants with draft audited financial statements (AFS) as well as the
necessary information to audit the draft AFS, well ahead of the deadline.
Justice Tshweneyagae said: “The defendants argue that Choppies did not comply.”
This resulted in the draft AFS being delayed and the supporting information given to PwC being insufficient.
“Once the defendants raised (these) issues in their plea, the plaintiffs were entitled to know with certainty what, if any, was supposed to be the deadline for submission of the audit report.
“(They) were also entitled to know what documents were not produced timeously and which information was of a poor quality.
“This is because the claim against the loss of value of the shares of the plaintiffs centres primarily around these two questions.
“The request for further particulars cannot be said to be unreasonable,” Tshweneyagae said.