Steinhoff action found not triable

MEMBERS: LITIGATION SHOULD BE IN THEIR INTERESTS

Court finds there are other remedies available to hold directors liable.

When you have been wronged, as shareholders were when the Steinhoff share price crashed, “we will sue” is easier said than done. The rash of adverts offering class action lawsuits that followed the crash may have offered a false promise.

Bowmans partner Adam Anderson said that class action proceedings were governed by common law.

These take place in a two-stage procedure: the certification application, in which the court must grant permission for the matter to proceed, and the trial itself.

Professor Theo Broodryk, associate professor and head of the Stellenbosch University Law Clinic, said that in South African cases where certification was refused, the primary reason was that the applicants failed to satisfy the court that there were triable issues.

The judgments in Children’s Resource Centre Trust v Pioneer Food (Children’s Resources) and Mukaddam versus Pioneer Foods (Mukaddam) set out factors to be considered – including that the damages claimed flow from the cause of action, and are ascertainable and determinable – as well as how to allocate the damages to the various classes.

The court noted that “litigation should be conducted in the interests of class members”.

The Supreme Court of Appeal, in PriceWaterhouseCoopers Inc and others versus National Potato Cooperative Limited, warned “that third party funders, incentivised by profit, should not be able to take over litigation for their own benefit”.

Retired pensioner Anthea de Bruyn represented three different classes of Steinhoff shareholders. Class members should have clearly defined objective criteria and the initial criticisms of the class definitions by the respondents had to be resolved.

There were three different classes of respondents. These included the Steinhoff companies, the auditors (Deloitte & Touche) and various directors of Steinhoff (with some exclusions).

All in all, representing respondents were some 21 firms of attorneys and 17 advocates (including nine senior counsel). This was going to be an extremely expensive matter.

The court had to rule on several issues.

These included the adequacy of the class definitions, whether De Bruyn was a suitable representative of the class members, the funding of the litigation, and whether this is a triable matter.

The court found that this was not a triable matter.

The funders were DRRT Limited (an international law firm and litigation funder) and Therium (an international company that provides litigation funding).

Initially, the applicants’ attorneys, LHL Attorneys, were going to participate in the proceeds of the class action.

This was in contravention of the Contingency Fees Act, which stipulates that the success fee of a legal practitioner may not exceed 100% of the practitioner’s normal fee. LHL had to waive its participation.

The court looked at the appropriateness of the class action procedure, and found that other remedies were available to shareholders who wish to hold directors liable for alleged breaches of their fiduciary duties.

Hence “the class action procedure was not the most appropriate means through which the class of persons in question could determine their claim”.