Brouze v Wenneni Investments (20427/2014) [2015] ZASCA 142; [2015] 4 All SA 543 (SCA) (30 September 2015)

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[2015] ZASCA 142
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Brouze v Wenneni Investments (20427/2014) [2015] ZASCA 142; [2015] 4 All SA 543 (SCA) (30 September 2015)

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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 20427/2014
In the matter between:
KEITH LARRY
BROUZE

FIRST

APPELLANT
DAVID SOLOMON
BROUZE

SECOND APPELLANT
SHAWN MAURICE
LASHANSKY

THIRD APPELLANT
and
WENNENI INVESTMENTS
(PTY) LTD

FIRST RESPONDENT
SHANE
JEDEIKIN

SECOND RESPONDENT
Neutral
Citation:
Brouze
v Wenneni Investments
(20427/2014)
[2015]  ZASCA 142 (30 September 2015)
Coram:
Lewis,
Leach, Pillay, Willis and Dambuza JJA
Heard:
9
September  2015
Delivered:
30
September 2015
Summary:
Delict:
appeal against findings that the appellants had made fraudulent
misrepresentations and actionable non-disclosures that had
induced a
contract: held that no misrepresentations had been made and that
there was no duty to make disclosure.
ORDER
On
appeal from: Gauteng Division of the High Court, Pretoria (Kollapen J
sitting as court of first instance):
1
The appeal is upheld with the costs of three counsel where so
employed.
2
The order of the trial court is set aside and replaced with:
‘
The
plaintiffs’ claims are dismissed with costs including the costs
of two counsel.’
JUDGMENT
Lewis
JA (Leach, Pillay, Willis and Dambuza JJA concurring)
[1]
Behind this appeal lies a tale about a young man, the second
respondent, Mr Shane Jedeikin, with high commercial aspirations
but a
limited grasp of reality. He and a company that he controlled,
Wenneni Investments (Pty) Ltd (Wenneni), the first respondent,

instituted action in the North Gauteng High Court, Pretoria against
the appellants, Mr Keith Brouze, Mr David Brouze and Mr Shawn

Lashansky, for damages for fraudulent misrepresentation and
non-disclosure. Kollapen J held that the appellants had made the
misrepresentations
and been guilty of non-disclosure, and that but
for these, Wenneni would not have entered into a contract with the
appellants as
and when it did and on the terms it did.
[2]
The contract in question (called the ‘exit contract’) was
that Wenneni would transfer its shares in a company known
as Golden
Pond (Pty) Ltd (Golden Pond), jointly owned by Wenneni and a company
controlled by the appellants, Busby Trading (Pty)
Ltd (Busby Trading)
in return for the payment by Busby Trading of the total sum that
Wenneni had invested in Golden Pond by way
of a loan. Golden Pond was
the vehicle used to acquire and exploit the licence to sell clothing
imported from Punto FA SL, the
Spanish supplier of Mango fashions. I
shall refer to the Spanish company, in general, as Mango.
[3]
The trial court did not deal with the quantum of damages to which
Wenneni was entitled since it had ordered, at the outset of
the trial
and by agreement between the parties, that the quantum of the claim
would be determined after liability had been decided.
It refused the
appellants leave to appeal against the order declaring the appellants
liable for damages, but that they obtained
with the leave of this
court.
[4]
The issues on appeal are whether false and material
misrepresentations were made to Jedeikin, representing Wenneni, and
if
they were, whether they induced the contract in question; and
secondly, whether the appellants owed to the respondents a duty to

disclose, at the time when the contract was concluded, that they were
in talks to sell their shares in a holding company, The House
of
Busby Ltd (House of Busby), which was listed on the Johannesburg
Stock Exchange.
[5]
The facts giving rise to the claims are complex, and the appeal turns
largely on matters of fact. The chronology furnished by
the
appellants to this court is some 21 pages. That of the respondents is
even longer (although there is considerable overlap between
the two),
some 27 pages of listed events said to be relevant to the
determination of the appeal.
[6]
I shall discuss first the events that led to the formation of a joint
venture between Wenneni and Busby to promote the Mango
fashion
products. In doing so I shall refer generally to the Busby Group and
entities within the group as Busby unless reference
to a specific
entity is required. Secondly, I shall deal with the structure of
Wenneni and the manner in which Jedeikin secured
funds from the
Consensus Business Group (CBG) to finance the Wenneni share in Golden
Pond. Thirdly, I shall consider the events
that led to the breakdown
of the relationship between Busby and Jedeikin, and the withdrawal by
CBG of its investment in Wenneni.
And in the fourth place, I shall
narrate (in summary) the events leading to the purchase of the
shareholding in the House of Busby
by a private equity investment
company, Ethos (Pty) Ltd. These are the strands of the story behind
the claims made by Wenneni and
Jedeikin against the appellants.
Wenneni,
Busby and Mango
[7]
Jedeikin testified that he had studied in England and had spent time
in Europe before 2005 and noticed a recent trend in fashion
with new
clothes being sold in stores not just on a seasonal basis but on a
regularly changing basis. He thought it would be a
good idea to bring
certain fashion brands, the makes Zara
[1]
and Mango
[2]
in particular, to
South Africa. He was then about 23 years old. He had no training in
business, and no experience of retailing
anything, let alone fashion
brands.
[8]
Nonetheless, at the beginning of 2005 he requested the South African
Embassy in Spain to arrange a dinner for him and the leading
fashion
suppliers in Spain at which they could discuss the possibility of
partnering with Jedeikin in opening shops to sell fashion
brands. He
had some acquaintance with European royalty and asked that they be
invited to the dinner. They accepted and a dinner
was set up on 9
February 2005 at which Jedeikin met a number of retailers, including
Mr Christian Garcia from Mango and Mr Ivan
Trapuesto of Inditex,
which owns the Zara brand. The next day a co-director of Wenneni met
Trapuesto of Inditex.
[9]
The meeting with Trapuesto yielded nothing. But by the middle of 2005
Jedeikin had received calls from the managing director
of Mango who
was interested in a business relationship with Wenneni. In the
meantime, Jedeikin realized that he did not have the
experience or
ability to pursue his goals without the assistance of an experienced
retailer. An uncle of his, Mr Howard Bloomberg,
who had been at
school with Keith Brouze, introduced Jedeikin to Brouze, and the
fashion trends that Jedeikin wished to pursue
were discussed at a
meeting between them on 4 May 2005. Brouze expressed interest.
[10]
Brouze was the chief executive officer of the Busby group. The group
was a leading wholesaler and retailer in South Africa,
operating, at
the time, some 100 stores selling a variety of different clothes,
fashion accessories, leather goods and luggage,
and supplying other
major retailers with imported and local goods. The group also
operated in Australia. Brouze’s brother,
David, was a
non-executive director of the group. The chief financial officer was
Mr Shawn Lashansky, who looms large in the tale.
[11]
On 6 May 2005, Jedeikin sent a letter to Brouze thanking him for
meeting him. He attached a draft letter to Inditex for Brouze’s

attention. It advised Inditex that ‘my retail team and I,
formerly of Wenneni Holdings’ had formed a partnership with
the
Busby group. He suggested that the letter be sent on the letterhead
of the House of Busby. He met Brouze on 13 May and made
notes on his
draft letter at Brouze’s suggestion. He sent the letter
advising of a formal relationship with the Busby group,
and
explaining their retail operations, to Inditex on 16 May 2015.
[12]
Trapuesto responded to the letter from Jedeikin some ten days later
saying Inditex was not yet ready to bring the Zara brand
to South
Africa. But a few days later, as I have indicated earlier, Jedeikin
had better luck with Mango, and advised Busby of this
on 2 June 2005.
Mango, he said, wanted prime spots for stores it might be interested
in, and Jedeikin asked if Brouze would consider
locations. He also
stated that Inditex might still be willing to negotiate, though there
is no evidence of that.
[13]
On the same day, Jedeikin wrote to Brouze advising that Mango wished
to meet him and Brouze in Barcelona the following week.
He attached
an email from Ms Julia Bischof of Mango suggesting the meeting. And
indeed he went to Barcelona, with Ms Dina Casperis
representing
Wenneni, where they met Bischof and Garcia of Mango on 9 June 2005,
and were introduced to the Mango operations and
in turn presented the
proposed joint venture between Wenneni and Busby.
[14]
Jedeikin followed up the meeting with a letter to Garcia, dated 15
June 2005, thanking Mango for the visit. He said: ‘As
outlined
before, Wenneni . . ., a group of private international investors
with know-how and experience in the retail industry,
is part of a
joint venture operation with the Busby Group Limited, a leading
wholesale and retail fashion Group in South Africa,
employing a
highly trained and retail experienced staff of more than 800 people’.
At that stage there was no formal agreement
with Busby, and the
statement about private international investors with retail
experience was also not true. The only ‘international’

investor was a Mr Victor Tchenguiz, who played a crucial role in the
matter, to which I shall return.
[15]
Jedeikin elaborated on the plans of the ‘joint venture’
to open flagship stores in Sandton City and in Cape Town
and on their
‘trading philosophy’. The letter was copied to Bloomberg,
amongst several others, as ‘Wenneni-Busby
JV Relations
director’ (whether Bloomberg ever had anything to do with
Wenneni is not clear), the South African Ambassador
to Spain, Mr Hans
Dieter Fuchs, ‘Chairman, Wenneni Investments (Pty) Ltd’
(again a statement of doubtful veracity)
and Brouze.
[16]
On 27 June 2005, Jedeikin, having been advised telephonically by
Garcia and Bischof that the Mango label had been awarded to
Wenneni,
wrote to Bischof, on a Wenneni letterhead, asking for written
confirmation. That he received on 22 July 2005, but the
award was
subject to finding of suitable locations for stores. The letter
attached a ‘non-binding’ example of a contract
with Punto
FA SL in respect of the distribution rights of Mango products. The
draft contract was sent by Jedeikin to Brouze’s
secretary, and
a draft memorandum of understanding  between Busby and Wenneni
was sent to Jedeikin by her.
[17]
The draft, in tabular form, indicated that Busby would have a
shareholding of 51 per cent, and Wenneni 49 per cent. Busby would

have the management of the business, management control, would
appoint a brand manager, help negotiate the terms of the agreement

with Mango, as well as leases, would control the board of directors
and would finance the project in accordance with its shareholding.

Wenneni would ‘help deliver the licence’ and negotiate.
All parties would stand surety. A number of points to be considered

were listed.
[18]
On 18 October 2005, Garcia of Mango met Wenneni and Busby
representatives at the Busby offices in Cape Town. Brouze and the

managing director of Busby Retail (Pty) Ltd (Busby Retail), Mr Martin
Duarte, were present. Jedeikin represented Wenneni, and he
was
accompanied by Mr Alfred Muench, said to be the non-executive
chairman of Wenneni and Ms Dina Casperis, in her capacity as
‘Legal
Director Wenneni’.
[19]
Various business models were discussed, and Garcia indicated that
Mango required a ‘franchise fee’ of €100
000 for the
first store to open, and €55 000 for the second store. The fee
included the right to use the Mango trademark,
costs to set up a
store, travel expenses, the costs of a supervisor and a team of staff
trainers.
[20]
The Cape Town meeting was followed by another in Johannesburg on 19
October 2005 at which Lashansky was present. And on 26
October,
Brouze wrote to Bloomberg stating:
‘
This
letter serves to confirm that provided Howard Bloomberg and Shane
Jedeikin of Wenneni Investments can come up with the necessary

finance to launch the Mango brand, they will be included in a
consortium for the Mango licence.
This
is subject to the fact that Busby will have full management control
of the Mango licence and operation of the business.
We
look forward to doing a proper agreement once the licence has been
awarded to the consortium.’
[21]
At the beginning of 2006 Mango sent a fax to Jedeikin enclosing a
‘precontractual letter’ from Mr Isak Halfon Cakim
of
Punto FA SL, which Jedeikin signed for Wenneni. A trip to Barcelona
was arranged so that the Wenneni and Busby representatives
could meet
with the Mango representatives. They met on 31 January 2006 at the
Mango offices in Barcelona. And finally, on 15 February
2006, Cakim
of Mango, and Jedeikin representing Golden Pond Trading 291 (Pty)
Ltd, in which Busby held 51 per cent of the shares,
and Wenneni 49
per cent, signed an agreement in terms of which Mango granted to
Golden Pond the distribution rights of the Mango
products and set out
the terms on which the parties were to operate.
[22]
In March 2006 Wenneni undertook to transfer €49 000 to Busby’s
attorneys’ trust account for its share of the
franchise fee.
And on 25 April 2006 a shareholders’ agreement between Busby
Trading, Wenneni and Golden Pond was concluded.
Busby  and
Golden Pond were represented by Lashansky, and Wenneni was
represented by Jedeikin.
[23]
The salient terms of the shareholders’ agreement were, first,
that Busby would lend R5.1 million to Golden Pond, and
Wenneni R4.9
million. Second, Golden Pond was to employ Jedeikin as ‘brand
ambassador’ and company secretary. It was
agreed that Golden
Pond could sell its business, or a substantial part of it, only with
the approval of 70 per cent of its members.
Monthly management
accounts had to be prepared and circulated to shareholders within 25
days of the end of each month. The books
and records of Golden Pond
were to be made available at all reasonable times to all
shareholders. Wenneni undertook, if other business
opportunities were
presented to it, to offer these to Golden Pond. Busby did not give a
reciprocal undertaking because it already
traded in many other
businesses.
[24]
Annexure A to the agreement, termed a management agreement, provided
that Busby Retail would operate all the stores of Golden
Pond and
would charge a fee for its services to Golden Pond. The fee would
include an allocation of Busby’s fixed overhead
expenses and
actual disbursements.
[25]
A formal management agreement was concluded between Busby Retail and
Golden Pond on 19 July 2006. Busby Retail was appointed
as the sole
and exclusive manager and operator of all the retail outlets and all
the operations of Golden Pond. Busby’s powers
of exclusive
management were detailed, as were the management fees, on the lines
set out in Annexure A to the shareholders’
agreement.
Wenneni
and Consensus Business Group
[26]
How did Wenneni raise its share for the financing of Golden Pond? On
4 May 2006 a bank paid some R4.5 million into the account
of Golden
Pond on behalf of Wenneni. £250 000 (approximately R2.7 million
at the time) was lent to Wenneni by the Consensus
Business Group
(CBG). The balance was advanced by Jedeikin’s mother, Mrs
Denese Schneider.
[27]
The head of CBG was Mr Vincent Tchenguiz, a London-based businessman,
whose investments centered on immovable property. Jedeikin
had heard
of him, and in early 2006 engineered a meeting with him in Cape Town,
where Tchenguiz owns a home. Jedeikin paid a fee
to an associate of
Tchenguiz to arrange the meeting. He explained to Tchenguiz his plans
for bringing high-end fashion from Europe
to South Africa. Tchenguiz
agreed to invest in the enterprise and, on Jedeikin’s evidence,
to acquire a 20 per cent share
in the equity. He advanced payment
before any formal agreement was entered into between CBG and Wenneni.
Ultimately, the advance
came to be treated as a loan.
[28]
CBG was represented in South Africa by Mr Brian Gamsu and Mr Guy
Baxter. On 8 March 2006 CBG wrote to Jedeikin stating that
it would
invest £250 000 into Wenneni ‘as a long-term loan, with
the express purpose of establishing four new retail
stores, operating
under licence to the Mango brand, in South Africa . . . In return for
the investment, CBG will receive 20% of
the equity in [Wenneni].’
It named the other investors – whether that was ever confirmed
is not clear but they would
have a minor share, save for Schneider
(or a Mr Eric Ellerine) who would also hold a 20 per cent share. The
letter stipulated that
the stores would be operated in a joint
venture with Busby. The letter was countersigned by Jedeikin.
[29]
A formal loan agreement between an entity known as Bantry Point
Investments (Pty) Ltd (Bantry Point), a South African company
through
which Tchenguiz’s Cape Town property was held, and Wenneni was
sent to Jedeikin by Gamsu on 2 May 2006. It was signed
for Bantry
Point by Gamsu, and Jedeikin signed it as well as a suretyship given
by him to Bantry Point for performance of Wenneni’s

obligations. At some stage Baxter and Gamsu were appointed as
directors on the board of Golden Pond.
The
implementation of the agreements with Golden Pond
[30]
The Busby employees tasked with managing the Golden Pond business,
principally the opening of the first Mango store in Sandton
City,
Johannesburg, were Lashansky, as chief financial officer, and,
reporting to him, Mr Francois du Rand, the financial director
of
Busby Retail. Du Rand was directly in charge of the accounts for
Golden Pond.
[31]
On 20 June 2006 Jedeikin wrote to Lashansky, even before the
management agreement had been concluded, suggesting what his role
as
brand ambassador should be. He saw it as being akin to that of a
‘commercial director’. He proposed ways to promote
Mango
clothing to banks and cabinet ministers (saying that he had political
associations) and suggested that he would attempt to
get government
contracts. He also had plans for meeting with television networks and
celebrities. In addition he undertook to fulfill
the duties of a
company secretary.
[32]
It was subsequently agreed that he would work for three days a week
for Golden Pond, and would be paid R16 000 a month, as
from 1 July
2006. A formal letter setting out his duties was sent to him only
after the opening of the first Mango store. Lashansky
sent Jedeikin a
business plan, drawn up by Du Rand, on 22 June 2006. The official
launch of the first Mango store in Sandton City
was arranged for 24
October 2006.
The
souring of the Wenneni Busby relationship
[33]
Before the store was opened Jedeikin was dissatisfied with the way in
which Busby treated Wenneni, not furnishing management
accounts
timeously (or at all). As pointed out by the appellants, however,
after the store was opened, on 14 October 2006, Jedeikin
was given
daily sales figures and all bank statements of Golden Pond. And while
admitting that management accounts were not provided
timeously,
Lashansky advised that Wenneni was furnished with the management
accounts at the same time as Busby was.  And all
the books of
Golden Pond were available for inspection at all reasonable times in
terms of the shareholders’ agreement. Admittedly,
these were
kept in the Busby Cape Town office, making regular inspection by
Jedeikin difficult.
[34]
Jedeikin complained also that he was sidelined in so far as the
opening launch of the store was concerned. On 29 September
2006 he
wrote an indignant letter to various people at Busby, in response to
a letter from a marketing person at Busby, asking
for an urgent
meeting. He said that he was a partner in the business and a major
shareholder, and that he would not accept being
sidelined. Mango, he
said, would frown on Busby’s behaviour. The Busby marketing
team, it would appear, had arranged the
opening event without his
input, save for asking him for a list of guests. He appeared to
overlook the fact that he was not involved
in the management of
Golden Pond.
[35]
Despite the admonitions of the marketing team, he kept CBG advised of
his involvement in the opening of the store, and wrote
to Guy Baxter
on 11 October 2006 that he was expecting ‘a host of Spanish and
South African dignitaries including SA’s
top celebrities,
businessmen and business women, the financial media, the fashion
media, landlords and others’ to attend
the ‘Official
Launch party’.
The
Zara saga
[36]
Jedeikin continued, however, to try to persuade Inditex (the Zara
brand owner) to open stores in South Africa. And he continued
to
press Busby to find retail space for Zara stores. He wrote to Duarte
of Busby on 24 November 2006 saying he was confident that
Inditex
would appoint Wenneni and Busby as their South African agent. Inditex
was aware, he said, of their joint involvement in
Mango through
Golden Pond.
[37]
But the day before that, Brouze had written to Trapuesto of Inditex
to say that Busby was happy to welcome him to South Africa
and to
partner with Inditex to launch the Zara brand, but that he would like
to stress that ‘should Busby be selected as
the partners
through which to launch the Zara brand in South Africa, the
partnership would consist of Zara and Busby and no joint
venture or
third parties will be involved’. He attached a letter
explaining Busby’s position as a major retailer and
holder of
other brands in the country.
[38]
On 9 February 2007 the first, and only, board meeting of Golden Pond
was convened.  The people present were Baxter, Brouze,
Gamsu,
Jedeikin, Lashansky, and Schneider. It was recorded in the minutes
that the opening of Mango in Johannesburg was a great
success. After
that sales levelled off but were expected to improve in the middle of
2007. A lease for the Cape Town store had
already been concluded at
the Victoria and Alfred Waterfront. Lashansky would provide a
cashflow forecast and shareholders would
be required to raise funding
to the extent of R8 million.
[39]
The minutes reflect that Busby was not interested in Zara and Wenneni
could pursue that on its own account. A transcript of
a recording of
the meeting reflects that there was a tense discussion about Zara
during the meeting. After discussing Jedeikin’s
role at Mango,
Brouze expressed the view that Mango did not really need a brand
ambassador but could use the in-house Busby marketing
team. Jedeikin,
in the course of that discussion said that Golden Pond was sitting
with a new brand. Brouze indicated that he was
interested only in
Mango at that stage. Jedeikin said: ‘The point is that Zara is
going to happen. Do you want it to happen
with us or how do you want
it? Because it’s going to happen. . .’. Brouze responded
that he would be happy with Zara
later, and said ‘At this stage
we’re not interested. If somebody brings us a separate proposal
we’ll look at
it independently. You want to go somewhere else
you’re more than welcome.’
[40]
On the same day as the board meeting, after the exchange between
Jedeikin and himself, Brouze telephoned Trapuesto of Inditex
to
establish the truth of Jedeikin’s assertions. He explained when
testifying that he was surprised to hear that Jedeikin
was confident
that Inditex would partner with Wenneni. And that he was certainly
not willing to have Jedeikin working on any other
brand with Busby.
He also said that he was willing to partner with Inditex but not with
Wenneni.
[41]
He had already said as much to Trapuesto previously and confirmed
that in an email exchange with Trapuesto the same day –
9
February 2007. In that exchange Brouze and Trapuesto agreed to pursue
the possibility of Busby partnering with Inditex.
I shall
revert to the exchange because the respondents argue that Brouze
behaved dishonourably in going behind Jedeikin’s
back after
saying that Busby was not interested in Zara at that stage. They
argue also that Brouze’s credibility was compromised.
[42]
Trapuesto, on 14 February 2007, advised Jedeikin of Brouze’s
interaction with him. He asked Jedeikin whether he was comfortable

that Brouze negotiate directly with him. They arranged a meeting in
Spain for 13 March 2007.
[43]
Baxter, after hearing about Brouze’s call to Trapuesto,
expressed surprise about any negotiation between Busby and Inditex.

In an email to Jedeikin sent on 16 February, Baxter nonetheless
cautioned against litigation against Busby. Jedeikin must have
told
him that he was considering action against Busby. He pointed out that
in terms of the shareholders’ agreement, while
Wenneni was
obliged to offer any new business opportunity to Busby, Busby was not
similarly bound.
[44]
Baxter said that CBG’s investment had been for four Mango
stores and it would not necessarily be interested in Zara in
any
event. And he reminded Jedeikin that the costs of visiting Inditex in
Spain would be for Jedeikin’s account, and should
not be borne
by Wenneni. On 16 February 2006 Baxter wrote to Jedeikin again and
advised him to reconcile with Brouze and resolve
differences over
Zara. He wrote that ‘the fact that Busby was in on the Mango
deal gave [Vincent Tchenguiz] the necessary
comfort in agreeing to go
in with you.’ He suggested that Jedeikin ask Lashansky or
Bloomberg to ‘assist in brokering
a peace-pipe meeting’
with Brouze. He cautioned Jedeikin not to jeopardize Tchenguiz’s
investment by litigating with
Busby. Jedeikin did not heed the advice
to make peace with Brouze.
The
end of the Brouze Jedeikin relationship
[45]
There followed numerous exchanges between Jedeikin and Du Rand in
respect of management accounts which were late. He received
the
February 2007 accounts on 28 March 2007. The next day he wrote to
Baxter telling him about the state of Golden Pond’s
finances.
His report displayed a detailed knowledge of the state of Golden
Pond’s finances. He complained about the management
fees paid
to Busby, and took up his concerns with Lashansky and Du Rand the
next day.
[46]
The hostitility between Brouze and Jedeikin remained but nothing
happened until, on 30 April 2007, Business Day featured a
short
report after an interview with Jedeikin. It was reported that he said
that Wenneni was considering a listing on the JSE and
‘hoped to
have Mango in all major cities by the end of next year’, and
that they would compete ‘in the same space
as Truworths and
Foschini’. Jedeikin was reported as having said that Wenneni
was in talks with two other major European
brands. The report stated
further that ‘property tycoon’ Vincent Tchenguiz had a 50
per cent stake in Wenneni.
[47]
The article was taken up by other newspapers. Jedeikin thought the
media coverage was good – he sent an email to Baxter
saying as
much, and copied it to Tchenguiz. The latter responded: ‘Excellent’.
When cross-examined and asked about
the source of the information
Jedeikin eventually conceded that it was inaccurate. But Brouze was
incensed about what Jedeikin
had said to the reporter from Business
Day. First, much of it was untrue. And, secondly, it angered
Truworths and Foschini which
were customers of Busby, and that upset
Brouze even more. The claim to be competing with Busby’s
biggest customers was like
a shot at them, he said, when testifying.
[48]
Jedeikin claimed to be ignorant of Brouze’s angry reaction to
the press report. That was far from true. He had been advised
that
Brouze wanted nothing more to do with him by Baxter and Gamsu,
through his mother, Schneider. To understand the relationship
between
CBG and Jedeikin it is necessary to go back to 2006.
The
Wenneni CBG relationship
[49]
It will be recalled that Jedeikin and Tchenguiz had met at the
former’s instance. Tchenguiz had agreed to assist Jedeikin

financially even though retail fashion had not been part of his
business investments previously. On Jedeikin’s version,
Tchenguiz had taken a liking to him and wanted to help a young
entrepreneur. But Tchenguiz was based in London and so decided that

his interests would be handled by Gamsu and Baxter who were based in
South Africa.
[50]
As early as July 2006, Jedeikin and Baxter had corresponded on fairly
acrimonious terms by email in respect of the shareholders’

agreement to be concluded between Wenneni and CBG. Baxter wrote to
Jedeikin on 11 July and said that there was not much time left
before
the opening of the Mango store, and that an inordinate amount of time
had been spent on corresponding over administrative
issues. He asked
Jedeikin to conclude the various agreements required between CBG and
Wenneni, and to ensure that the Mango store
was brought to fruition.
[51]
Jedeikin responded on 12 July stating that: ‘It is becoming
gradually more evident to me that relations between Wenneni
on the
one hand and you (and Brian Gamsu) on the other are taking enormous
strain and that the situation in respect of finalizing
the Wenneni
/CBG Shareholders’ Agreement is very near to reaching an
untenable position.’ He complained that his legal
fees had
increased dramatically as a result of the amendments required by
Baxter and Gamsu to various drafts prepared by his attorneys.
[52]
On 14 July Baxter wrote to Gamsu and said that Tchenguiz was treating
the investment as a loss-leader. He said: ‘I think
he knows
it’s not a good deal for him’ but was proceeding anyway.
On the same day Gamsu recorded discussions between
them at a meeting
in respect of a number of CBG matters and said in respect of Wenneni:
‘It was jointly agreed that it is
a time-consuming exercise.
There are consistent non-deliverables from [Jedeikin] expenditure of
over R500 000 on company funds
remains unexplained.’ He went on
to say that he had spoken to Wenneni’s attorney and they had
agreed that unless the
terms of the contracts had been agreed by that
Friday, ‘we should recall the loan and kick this investment to
touch.’
[53]
A week later Gamsu sent an email to Tchenguiz asking him to call. He
said the deal with Wenneni was bad from start to finish.
And
subsequently he advised Tchenguiz that he and Baxter had tried to
speak to Jedeikin but he had told them that they must do
as Tchenguiz
said: ‘[I]f your instructions are to throw client’s money
down the toilet then that is what you do’.
The basics of the
shareholders’ agreement between Wenneni and CBG had been agreed
only on 3 January 2007.
[54]
After the board meeting on 9 February 2007, when the Zara issue
arose, Baxter wrote to Gamsu confirming that CBG was not interested

in Zara and that Jedeikin would have to realize that his was not the
only interest in Wenneni and that he could not do as he pleased.
He
added: ‘We can’t have a loose cannon rolling around the
decks . . . particularly given that we will need a healthy

relationship with Keith and Busby in order to achieve the original
objective of four Mango stores.’
[55]
On 29 March 2007 Baxter wrote to Gamsu advising about a meeting that
he had had in London with Tchenguiz, Jedeikin and Schneider.
The
purpose of the meeting was to discuss a venture between Schneider and
CBG. But the meeting was largely taken up with Jedeikin’s

reporting to Tchenguiz on his discussions with Inditex about the Zara
brand. Apparently Jedeikin had indicated to Inditex that
he would
partner with Tchenguiz in the Zara venture – for which, of
course, he had no authority. Baxter advised further that
he had
attempted to obtain financial information about the Mango store from
Jedeikin with no success.
[56]
On 19 May 2007 Baxter wrote to Tchenguiz saying that Jedeikin had
‘severely aggravated’ Brouze, who wanted nothing
more to
do with Wenneni. He reported that he and Gamsu had a conversation
with Brouze who wanted to find a way to continue with
the business
but without Jedeikin being directly involved. Busby, said Baxter, was
going to be asking CBG, within the next two
weeks, for a bank
guarantee in respect of R10 million for Golden Pond’s business.
He suggested to Tchenguiz that he should
make no decision to proceed
unless CBG received a suitable business plan and the relationship
with Busby was restored. He said
that Jedeikin was not willing to fix
the relationship with Brouze as he saw him as ‘a threat, not a
partner’.
[57]
Before writing the letter to Tchenguiz, Baxter and Gamsu had a
telephone conversation with Schneider, which she recorded. The

transcript of the recording forms part of the record. They explained
that Brouze was no longer willing to work with her son. They
asked
her to speak to Jedeikin and to persuade him that he should repay
CBG’s loan, or buy out the Busby interest in Golden
Pond or
sell Wenneni’s shares in Golden Pond to Busby. They also said
that they would remain on the Wenneni board only if
Jedeikin was
removed from it. They told Schneider that they believed CBG should
withdraw from Wenneni altogether. When testifying
for the appellants,
Baxter said that he and Gamsu had made the recommendation to withdraw
because of  Jedeikin’s conduct
and not because Brouze had
told them he would have nothing further to do with Wenneni. The
environment in which CBG and Busby had
to operate with Jedeikin was
not pleasant.
[58]
On 24 May 2007 Baxter wrote to Gamsu and a member of the board of CBG
in London, Mr Ohad Yaron, advising that he had spoken
to Lashansky
who was finalizing financial statements and a business plan for
Mango. Lashansky, he said, was very willing to assist
CBG
notwithstanding Jedeikin. On the same day Baxter wrote a lengthy
report to Yaron explaining the background to the CBG investment
in
Wenneni. He said:
‘
The
key problem/issues here are that (a) Shane [Jedeikin] is young,
inexperienced and is also a very difficult personality; during
the
formation stages last year his communications with Brian [Gamsu] and
me were volatile, repetitive (multiple phone calls and
emails) and
were very often abusive and threatening and when he did not get
satisfaction from us he’d go straight to Vincent
[Tchenguiz]
who he now regards as a close personal friend (!); (b) Shane has no
capital of his own and so he needs Vincent, Denese
[Schneider] and
Busby to take the business to the next level(s) . . . (c) without
Busby we have no business . . . (d) there is
no executive position in
the business for Shane and Wenneni has no income; . . . (e) this
entire venture has been hugely time consumptive
on Brian’s part
and on mine and we could very well do without the aggravation of the
interpersonal disputes, the abusive
behaviour, the shouting and
threats of legal action etc that have characterized this
transaction.’
Baxter
concluded by saying that, having experienced Jedeikin’s
‘unlikeable attitude and communications style’
neither he
nor Gamsu ‘could in good faith recommend that Vincent pursues
further investments with Shane’.
The
call on Wenneni for funding for the second Mango store
[59]
At the board meeting on 9 February, as I have said, Lashansky
indicated that an injection of funding was needed in order to
open
the Mango store in Cape Town. He had estimated that some R8 million
was required. On 16 May 2007, in response to a lengthy
email from
Jedeikin requesting information and explanations of various matters,
Lashansky reminded Jedeikin that additional funding
was required. He
said ‘the situation will become dire by the end of the
month!!!!’
[60]
Jedeikin’s response was that Wenneni had not received any
request in writing from Busby for further funding, and that
none
would be provided until he received a breakdown of capital and
operating expenses for the new store. Lashansky responded,
on 17 May
2007, asking whether the full board meeting, where it was agreed that
a further R8 million was required, was to be ignored.
He said ‘I
am very confused . . .’ . He received a sarcastic response
telling him to read the correspondence again.
[61]
The correspondence was preceded by a letter from Nedbank, which had
been asked for a loan of R10 million, stating that it was
prepared to
consider the request provided that Wenneni and Busby provided
suretyships and ceded loan accounts. Neither was willing
to agree to
that.
[62]
On 23 May 2007, Lashansky sent Jedeikin an estimate of funds needed
for the Cape Town store and said that the response to his
request for
information was being prepared. The estimate indicated that Wenneni
would have to provide some R3 million for the store,
and Busby
slightly more. Jedeikin, on 28 May 2007, sent a ‘formal request
and notice’ to Lashansky stating that in
terms of clause 7 of
the management agreement Busby had failed to maintain full, accurate
and up to date books of account. He required
the information he had
previously requested to be provided within seven days, failing which
he would resort to obtaining an external
audit of Golden Pond’s
books. The clause said no more, however, than that shareholders were
entitled to inspect the books
at all reasonable times. Lashansky had
said that the books were available for inspection but Jedeikin had
never gone to Cape Town
to inspect the documents.
[63]
After meeting with Jedeikin and a further exchange of correspondence,
Lashansky, on 13 June 2007, sent Jedeikin a full response
to his
requests for information. He said that because the Mango store was
not yet making a profit, the existing Busby accounting
staff were
attending to the Golden Pond financial affairs: no additional
resources had been put in to the accounting operation
of Busby, hence
delays in providing information. He explained that the Golden Pond
accounts were part of a much bigger accounting
system and that it was
not financially viable to have a separate accounting system for
Golden Pond. He confirmed this when testifying.
Lashansky proposed
that R6.3 million be injected by 18 June 2007, and that if additional
funds were required they should be provided
on seven days’
notice.
[64]
Instead of providing the funds required on 18 June, Jedeikin sent
Lashansky his version of Golden Pond’s balance sheet
as at 30
April 2007. And on 3 July 2007, still attempting to get an overdraft
facility from Nedbank, Jedeikin gave it a complete
set of financial
statements including a cash flow projection for Golden Pond. He was
thus fully informed of the financial position
of the company on that
date.
[65]
On 4 July 2007 Du Rand sent a retrenchment letter to Jedeikin. It had
Lashansky’s approval. It was headed ‘Possible

Redundancy’. Du Rand said that ‘the brand is
unfortunately not doing as well as expected’ and that Golden
Pond
was compelled to consider cost cutting measures. One such
measure was to retrench Jedeikin as brand ambassador. He called on
Jedeikin
to  meet urgently to respond to the possibility.
Wenneni argued that the retrenchment proposal was a sham. It was a
disguised
unfair dismissal. That may be so. The fact that emerges
from it, however, is that Jedeikin now knew that he was not wanted by
the
Busby shareholders in Golden Pond.
[66]
On 13 July 2007 Jedeikin went to the Doornfontein offices of Busby
with his grandfather. He demanded to see Lashansky. The
receptionist
said it was not possible as he was in a meeting. He said he would
wait. The receptionist, who testified, said that
he then created a
disturbance, that she felt intimidated, and that he and his
grandfather had to be ushered out of the building
by security guards.
She did not know who had called the guards. Jedeikin and his
grandfather then went to a police station and
deposed to affidavits
saying that they had tried to see Lashansky but was warned and
threatened to leave. Interestingly, Jedeikin
said that this occurred
within five minutes after deciding to wait. His grandfather estimated
the time as 30 minutes. Nothing turns
on this of course. But the
visit shows, in my view, the desperate state of mind that Jedeikin
was in:  not only had he received
the retrenchment letter, but
he had by that time learned that Tchenguiz was withdrawing his
funding.
The
CBG withdrawal of funding
[67]
On 20 June 2007 Tchenguiz wrote a memorandum to Yaron, Baxter and
Gamsu to record that CBG had decided that it was no longer
interested
in co-funding or co-investing in the establishment of any more Mango
stores in South Africa. He said that CBG should
secure an appropriate
exit from Wenneni before there was a call for further funding. He
suggested that Bantry Point call in the
loan, or that CBG sell its
interest to the shareholders in Wenneni. Tchenguiz communicated the
decision to Jedeikin and Schneider,
as directors of Wenneni, on 5
July 2007 and said that finality should be reached by the end of
August. He notified the directors
of Golden Pond on the same day.
[68]
Baxter met Jedeikin and Schneider on 16 July 2007 to discuss the
options open to them. He recorded what they had discussed
two days
later. He confirmed that CBG wished to sell its interest to Wenneni
shareholders. He mentioned also that they had considered
finding
another buyer for it.
The
exit contract
[69]
On 25 July 2007 Jedeikin and Brouze had a telephone conversation.
There is a dispute as to who
initiated it. It was followed by an
email from Jedeikin to Brouze said to be ‘without prejudice’
and the subject was
‘Possible exit from Golden Pond . . .’.
He wrote:
‘
Dear
Keith
Further
to our good conversation this afternoon the following was discussed:
Wenneni . . . is prepared to consider exiting Golden
Pond  . . .
in entirety with immediate effect subject to the following terms:
a)
The full repayment of
Wenneni’s loan to Golden Pond . . .
b)
The repayment of interest
on Wenneni’s loan account to date.
c)
Consideration of a
mutually favourable and fair value price for the shares in question
particularly in respect of the goodwill of
the Brand.
d)
Wenneni and/or any of its
related or affiliated entities to be released from all its
obligations in respect of guarantees, warranties,
suretyships and
indemnities for and on behalf of Golden Pond . . . .
Please
could I kindly request that you advise me of your considered response
at the earliest opportunity? I would like to ask you
to please kindly
respond to me by the end of this month at the latest.
I
look forward to hearing from you.
Kind
regards,
Shane.’
[70]
Jedeikin said, when testifying, that Brouze advised him that the
business was ‘in a perilous financial position, that
all the
investors stood to lose their money, and that the best way for me to
get out of this, would be to get repayment of my loan
account and
interest . . .’. That was what had made him decide to exit, but
he still expected to be paid for his goodwill.
[71]
The following day, 26 July 2007, Brouze and Jedeikin had another
phone conversation. It was not a good one. On Jedeikin’s

version he was told that no goodwill would be paid to him, and that
if he did not exit the investment Golden Pond would be liquidated
and
wound-up. Brouze had said that ‘this business is going to be
liquidated. I am going to wind this business up. . . and
you stand to
lose your entire investment . . .’.
[72]
The email that followed after the conversation had a different tone
from the one sent the day before:
‘
Keith,
I
refer to my email sent to you yesterday which you have communicated
to me that you are not willing to consider in entirety.
In
furtherance to our conversation of this afternoon, I am hereby
prepared to exit Golden Pond . . . subject to the full repayment
of
Wenneni’s loan to Golden Pond . . . including the interest
within 24 hours, in full and final settlement.
I
await your urgent response.
Yours
sincerely . . .’ .
[73]
The exit agreement was thus induced, said Jedeikin, by the threat of
liquidation which would entail Wenneni losing its investment.
I shall
return to the misrepresentations pleaded in due course. Brouze denied
Jedeikin’s version. When testifying he said
that in the
conversation on 26 July they had discussed whether there was any
goodwill attaching to Wenneni’s share in Golden
Pond. He made
the point that it was factually and commercially insolvent as its
liabilities exceeded its assets. Without the additional
funding that
Busby contributed it was unable to pay its debts. It was trading at a
loss. If the shareholders in Golden Pond did
not invest additional
capital for the operational costs and for the opening of the second
store the investors would lose their
capital. The conversation, said
Brouze, was heated.
[74]
He denied having threatened to liquidate Golden Pond. It would have
made no sense and would have jeopardized Busby: it would
have
seriously affected its reputation, and the landlords of their many
stores would have had concerns. The respondents argue that
Brouze was
not a credible witness. I shall consider the credibility of Brouze
and Jedeikin, and the probabilities as to what was
said, in due
course. I shall also consider whether, even if the threat were made,
it amounted to a fraudulent misrepresentation
of a fact, and whether
it induced Wenneni’s exit from Golden Pond.
[75]
The offer that was made by Jedeikin on 26 July 2007 was accepted by
Busby the following day. Lashansky wrote to him asking
him to sign
share transfer certificates and to resign as a brand ambassador,
which was done, and Jedeikin signed a settlement letter
on 6 August
2007. Busby paid Wenneni the sum it had invested in the first place,
together with interest.
The
non-disclosure of a proposed equity buy-out by Ethos
[76]
I shall deal with this issue only briefly, for it was not disputed
that no one at Busby disclosed to Jedeikin that the private
equity
company, Ethos, had started discussions with Brouze about a takeover
of the controlling share in the House of Busby, the
holding company.
The only questions that arise are whether there was a duty to
disclose and what there was in fact to disclose
when the exit
contract was concluded.
[77]
In February 2007 Mr Jos van Zyl, a principal in Ethos, a company that
invests on behalf of other entities, identified the House
of Busby as
a company in which it might be interested. Mr Michael Jensen, who
testified for the appellants, explained that Van
Zyl had phoned
Brouze in February and set up an exploratory meeting on 3 March
2007.  Jensen was at that time an associate
in Ethos. Van Zyl,
Mr Danie Jordaan and Jensen, all of Ethos, met Keith and David Brouze
again on 31 May 2007. By that stage Ethos
staff had done research on
the House of Busby and the retail market, all of it based on what was
in the public domain, and had
code-named the possible transaction
‘Project Bugsy’.
[78]
At the meeting Ethos showed a pre-screening report which was an
overview of the Busby group. Only the Brouze brothers from
Busby were
present. No one else in the Busby group was at that stage aware of
the proposed transaction. The Brouzes indicated that
they were
interested in taking the matter further. Brouze called Van Zyl on 9
July 2007 and undertook to furnish information on
the Busby group to
him. On 12 July Ethos sent Busby a letter undertaking to keep the
information provided confidential. Busby asked
its corporate adviser,
Java Capital, to provide to Ethos a report on the Busby group, which
they did on 16 July 2007. The report
made no mention of Golden Pond
or the Mango brand and indicated that there was potential for growth.
[79]
Ethos then prepared a report on the benefits and concerns associated
with a takeover of the House of Busby, dated 24 July.
At a meeting of
people at Ethos on that day Ethos decided to continue the process of
considering a purchase of shares in the holding
company of Busby. The
third meeting with the Brouzes occurred on 25 July 2007. The
appellants say that it was fortuitous that the
meeting took place on
the same day as Brouze and Jedeikin talked about Busby taking over
Wenneni’s shareholding in Golden
Pond. The respondents argue
that it was the possibility of the Ethos transaction that led to
Brouze forcing it out. But since the
transaction had not been
concluded (indeed the Ethos proposals were all rejected on 25 July)
the argument is at best tenuous.
[80]
As at 25 and 26 July, when the exit agreement with Wenneni was
concluded, the Ethos transaction was very much in the air. Jensen

testified that a very small percentage of projects that Ethos
initiated ever found their way into concluded transactions. The
Brouzes had not at that stage advised even members of the board of
the House of Busby about a proposed transaction with Ethos, because

there was nothing to tell. Only Lashansky was aware of it because he
had had to provide information to Java. And he knew that all
the
discussions were confidential.
[81]
Thus when Jedeikin, in June 2007, asked Lashansky whether Busby had
been approached by a private equity firm Lashansky did
not respond –
he was taken by surprise as he thought the information was
confidential and ‘price-sensitive’:
that is, that
if it got out it would affect the price of Busby shares. Moreover,
said Lashansky, Jedeikin had previously divulged
confidential
information, and he would have been reluctant to tell him anything
which might result in a contravention of the regulatory
rules
governing listed companies.
[82]
In August 2007 Busby and Ethos continued negotiations, with Busby
making a counter proposal as to the form of a possible transaction.

On 15 August, Java provided an organogram of the Busby group to
Ethos. That reflected the companies in the group, and showed that

Busby Retail held 100 per cent of Golden Pond. Jensen obtained a mass
of detail from Lashansky between then and 18 September 2007
when
Ethos held an investment committee meeting and the ‘deal team’
(including Jensen) was authorized to submit a non-binding
expression
of interest to the House of Busby, which it did on the 28 September
2007.
[83]
The letter conveying the non-binding expression of interest informed
the board of the House of Busby that Ethos was interested
in buying a
controlling share in the company. Busby then published (as it was
required to do), on 1 October 2007, a SENS
[3]
announcement that Ethos had made a proposal that might result in an
offer to purchase a significant share in the listed company
for some
R1.33 billion.
[84]
The Ethos investment committee approved the takeover on 23 November
2007 and a company in the Ethos group, Main Street 251
(Pty) Ltd
(Main Street), made a firm offer for the controlling share in the
House of Busby at the end of November. The takeover
was effected by a
scheme of arrangement in terms of s 311 of the Companies Act 61 of
1973, sanctioned by the South Gauteng High
Court on 12 December 2007.
[85]
It is significant that when financial information about the
subsidiaries of the House of Busby was obtained for tax purposes,

both by Busby and by Ethos before the takeover, Golden Pond was
valued at zero. It was not trading profitably at the time of the

takeover and had not done so before then.
[86]
After the takeover, all the trading activities of the Busby group in
South Africa were moved to Main Street. Several subsidiary
companies,
including Golden Pond and Busby Retail, were liquidated. Some of them
had had minority shares held by other persons.
The
position of Wenneni and Jedeikin after the exit contract was
concluded
[87]
It will be recalled that Jedeikin signed the settlement letter
recording the terms of Wenneni’s exit from Golden Pond
on 6
August 2007. On 15 August he wrote to Tchenguiz stating that he was
‘extremely surprised and disappointed’ that
Tchenguiz had
withdrawn his investment in Wenneni. He was ‘shattered, both
from a professional and personal point-of-view,
to read of your
unexpected withdrawal’. He continued: ‘Your unforeseen
intention to exit from Wenneni and Mango has
resulted in me having to
abruptly withdraw from Mango altogether.’  Jedeikin then
made various proposals as to the way
in which Wenneni would repay
Tchenguiz. CBG had already agreed that Wenneni was not required to
pay interest on the £250
000 that had been advanced to it.’
[88]
A cause of the exit contract was clearly the withdrawal of funding by
Tchenguiz: that was what induced the contract, and Jedeikin
not only
thought that it was all CBG’s ‘fault’, he said as
much. A combination of the need to invest further
capital in Golden
Pond (R3 million, as estimated by Lashansky, and requested several
times in June 2007), which Wenneni simply
did not have, and the
withdrawal of the CBG investment, both of which occurred shortly
before the exit contract was concluded,
entailed an inevitable need
to sell the share in Golden Pond. Wenneni had no choice.
[89]
But when Jedeikin saw the SENS announcement of the expression of
interest by Ethos in Busby he came to a different conclusion.
The
announcement of September 2007, which presented the results of the
House of Busby as at the end of June 2007, stated that the
South
African retail division had ‘successfully launched the Mango
brand into the South African market during the recent
financial year;
this concept is meeting expectations’. And a later SENS
announcement, in February 2008, stated that as at
the end of December
2007, all divisions within the Busby group had ‘performed well’
and that ‘the group delivered
meaningful growth across its
portfolio of brands’. Subsequently, Jedeikin also obtained the
Ethos report of 24 July 2007,
presented to the Brouzes on 25 July,
which stated that ‘A world leading brand such as Mango has only
been rolled out in Sandton,
with great success. The potential is to
open at least another ten stores around the country.’
[90]
Jedeikin accordingly concluded that statements made to him about
Mango not doing as well as expected (at the board meeting
of Golden
Pond on 9 February 2007) and that it was insolvent and the situation
was dire (when Lashansky asked for the capital injection
of R3
million) were false. That is when, to Jedeikin’s mind, the
alleged threat of liquidation of Golden Pond by Brouze became
a false
misrepresentation made to get rid of Wenneni, and the non-disclosure
of the potential Ethos deal became actionable.
The
claims as pleaded
[91]
The misrepresentations pleaded were that Brouze, at the board meeting
of 9 February 2007, had advised that Busby was not interested
in the
Zara brand; Busby Retail failed timeously or at all to provide
Wenneni with management accounts, and that these included
inaccurate
or misleading entries; Du Rand had said in the retrenchment letter
that the Mango brand was not doing as well as expected;
Brouze told
Jedeikin on 25 July 2007 that Golden Pond was in a perilous financial
position, that the business prospects were looking
very bleak, and
that all the shareholders stood to lose their investments, and that
in the circumstances Wenneni should relinquish
its investment; that
Brouze told Jedeikin on 26 July 2007 that if Wenneni did not sell its
49 per cent equity interest in Golden
Pond in return for the
repayment of its loan, Busby intended to apply for Golden Pond to be
liquidated on the basis of its inability
to pay its debts, and that
Busby would then approach Mango to renegotiate the rights to the
franchise; and that Brouze and Lashansky
failed to give Jedeikin
financial information so that he could himself assess the financial
status of Golden Pond.
[92]
The non-disclosures alleged were that Brouze had not told Jedeikin
that after the board meeting he had phoned Trapuesto of
Indictex and
said that Busby, not Wenneni, should acquire the Zara brand; and that
the Brouzes had failed to disclose to Wenneni
and Jedeikin, before
the exit contract was concluded, that Busby was in discussions with
Ethos to buy the controlling share in
House of Busby for over R1
billion.
[93]
Both misrepresentations and non-disclosures were alleged to be
deliberate, made to induce Wenneni to sell its shares in Golden
Pond.
The crucial allegation about the alleged misrepresentations and
non-disclosures was inserted by an amendment to the particulars
of
claim: had they not been made, or had the disclosures been made,
‘Wenneni (represented by Jedeikin) would not have concluded
the
exit agreement, and would not have exited from Golden Pond, as and
when it did, and on the terms it did’.
[94]
The respondents alleged that because Golden Pond had been liquidated,
it was not able to claim rescission of the exit agreement.
And that
the scheme of arrangement had been conditional on the consent of the
owners of all the brands in the Busby group to the
assignment of the
brands, including, of course, Mango. Thus, they claimed, the value of
each brand had to be calculated by having
regard to the price paid by
Main Street (alleged to be R1.28 million, although Jensen had said it
was actually R1.33 million) and
the number of brands in the group –
16. On that basis they claimed they were entitled to damages in the
sum of R39.2 million,
plus interest. (As I have said, the
determination of the quantum of damages was postponed.)
[95]
The allegations were for the most part denied, but the appellants
pleaded that they had not disclosed the Ethos-Busby deal
because they
had no duty to do so. They said also that by the end of July 2007
Golden Pond had not yet traded at a profit and that
it was not
foreseen that it would do so in the near future. At that time, its
liabilities exceeded its assets.
The
findings of the trial court
[96]
Kollapen J found for Wenneni and Jedeikin. He issued an order that:
‘Had it not been for the misrepresentations and non-disclosure,

the first plaintiff [Wenneni] would not have concluded the exit
agreement, and would not have exited from Golden Pond, as and when
it
did, on the terms that it did.’ The court characterized the
issues to be determined as: whether there were misrepresentations;

whether there was non-disclosure; whether the misrepresentations and
non-disclosure induced the exit agreement; and whether, but
for the
misrepresentation and non-disclosure, Wenneni would have exited on
the terms that it did. It did not have regard to the
requirement of
fraud or negligence that would warrant a claim for damages in delict
and did not apparently examine whether the
alleged misrepresentations
were false.
[97]
The trial court failed also to consider in any detail the role that
CBG played, and the immediate reasons why Wenneni was not
able to
provide the capital funding for the second Mango store, and why he
had to repay CBG the loan that Bantry Point had made
to Wenneni.
Kollapen J did take into account, however, that a friend of Jedeikin,
Mr Hans Fuchs, who has apparently funded this
litigation, would have
stepped in and provided funding had Brouze and Lashansky not painted
such a bleak picture of Golden Pond
and its future. Fuchs did not
give evidence and there is no proof at all that he would have been
able and willing to invest in
Golden Pond. The trial court regarded
the CBG withdrawal as part of the larger picture – it could not
have been looked at
in isolation. It did not, however, have regard to
the demand for payment by Wenneni of some R3 million made by Busby at
much the
same time.
[98]
In so far as the non-disclosure of the Ethos-Busby transaction was
concerned, the trial court found that there was a duty to
disclose it
to Wenneni and Jedeikin before the 25 July 2007 even though there was
no transaction concluded at that stage, and negotiations
were at an
early stage. It considered that because of previous dealings between
the parties, and the constitutional imperative
to achieve a balance
between the ‘unacceptable excesses of contractual freedom and
securing a framework in which the ability
to contract enhances rather
than diminishes self-respect and dignity’, Busby owed a duty to
disclose the negotiations without
considering whether they would have
any impact on Golden Pond. The intention of Ethos to acquire the
controlling shareholding of
the House of Busby would have had a
‘cascading effect on other entities including subsidiaries and
licensors’.
[99]
The failure to disclose was deliberate, said the trial court. That
was an inference to be drawn from the fact that when Jedeikin
learned
of the proposed transaction, his then attorneys applied in terms of
the Promotion of Access to Information Act 2 of 2000
(PAIA), for the
documents and information relating to Golden Pond, Busby and Ethos,
the former attorneys for Busby adopted a deliberate
delaying
strategy. This was revealed by documents that were subsequently made
available, where a letter confirming instructions
from Busby said
that they were to delay the furnishing of the information.
[100]
Accordingly, the trial court held that the Brouze brothers and
Lashansky misrepresented the performance of the
Mango brand when the
letter of possible retrenchment was sent by Du Rand on 4 July, and on
25 and 26 July 2007 when Brouze spoke
to Jedeikin; the
misrepresentations were material; they had a duty to disclose to
Wenneni, at least on 26 July 2007, the status
of the discussions
between Ethos and Busby; they had a duty to disclose these
discussions even though nothing might have come of
them; the
misrepresentations were made knowingly; the non-disclosure was
deliberate, and was intended to induce Wenneni to abandon
its share
in Golden Pond; and Wenneni would not have concluded the exit
contract but for the misrepresentations and the non-disclosure.
Were
misrepresentations in fact made?
[101]
On appeal the appellants contend that the findings of fact by the
trial court were wrong. I have already traversed
the circumstance in
which the statements about the poor performance of the Mango brand
and the financial status of Golden Pond
were made. Jedeikin was,
despite his allegations of being kept in the dark, fully aware of the
daily sales figures of Mango products
and of the financial position
of Golden Pond. His own testimony was that Du Rand’s statements
in the retrenchment letter
were honest, and he too was concerned
about the disappointing sales of the Mango brand. Jedeikin was not
misled at all. He knew
that if a second store was to be opened in
Cape Town, Wenneni would have to find additional funding. And he knew
that unless other
stores were opened the Mango brand would never be
successful. He did not prove that the statements in the retrenchment
letter were
false, let alone that he relied on them in entering into
the exit contract. So the trial court did indeed err in concluding
that
Du Rand’s letter contained a false statement that was a
cause of the exit contract.
[102]
As to the conversations on 25 and 26 July with Brouze, it is clear
that Jedeikin was in a financial predicament.
That is why he had to
sell Wenneni’s interest to Busby.  The CBG loan had to be
repaid by 31 August 2007 and Jedeikin
could not raise the additional
funding of R3 million to fund Wenneni’s contribution to Golden
Pond. The only question to
be resolved was whether he was entitled to
payment for goodwill in that he had introduced the Mango brand to
Busby. Brouze was
not willing to pay anything but the token sum of
R50. Golden Pond was trading at a loss.
[103]
If the threat of liquidation was made by Brouze – and it is
unlikely that it was – then it was no
more than that, a threat
and not a false misrepresentation of fact. Brouze said he would never
have made such a threat: it would
have been damaging to Busby to even
contemplate liquidating a company in the group. And Jedeikin knew
that too. The allegation
about the threat only surfaced after the
SENS announcement at the end of September.
[104]
The statements in the Ethos report on the benefits and concerns in
respect of a transaction with Busby, that the
Mango brand had been
rolled out with great success and the statements in the SENS
announcements dealing with Mango related to the
brand’s
potential. They had nothing to do with the financial status of Golden
Pond in July 2007. By the time the statements
were made the Cape Town
Mango store was ready to open: Busby had raised the finance for it,
and had signed a lease as early as
February 2007. The prospects for
Mango were thus appreciably better in the latter part of 2007 than
they were in July of that year.
Thus the statements relied on by the
trial court in concluding that what was allegedly said to Jedeikin
was false actually show
no such thing.
[105]
It is true that Brouze was a poor witness: he was obstructive and
evasive and claimed far too often that he could
not remember what was
said. And it is also no doubt true that he handled Jedeikin roughly.
I do not understand his discussions
with Trapuesto of Inditex after
the board meeting to have been dishonest – going behind
Jedeikin’s back. The previous
year (in November 2006) he had
written to Inditex saying Busby was interested in the Zara brand –
but not with any other
company. Inditex was not interested at that
stage. Hence his call to Trapuesto to find out if Inditex’s
plans had changed
when Jedeikin made his statement that ‘Zara
was coming’ at the board meeting. Brouze followed the call up
with the
email to say, again, that Busby would not be involved with a
joint venture. So his behaviour was consistent.
[106]
Jedeikin was an equally poor witness. He was, as counsel for the
appellants said during the course of the trial,
arrogant, unmannered,
ill-disciplined and evasive. Jedeikin misled Busby at the outset,
when first meeting Brouze, by claiming
to have landed the Zara brand.
And he said when testifying that had he known the truth he would have
exited from Golden Pond with
an excellent price because he would have
had the right to assign the Mango licence and would have used that as
a bargaining chip.
But he did not have the licence. Golden Pond did.
As I said at the start of the judgment, Jedeikin had a limited grasp
of reality.
[107]
Given that both Jedeikin and Brouze were not good witnesses, this
court must have regard to the probabilities.
These are that no threat
to liquidate was made. Such a course of action would have made no
sense. And even if the threat was made,
and Brouze told Jedeikin, as
claimed, that they would all lose their investments, Jedeikin would
not have believed it. The fact
is that Busby was able immediately to
repay the R4.9 million Wenneni loan account, plus interest. Moreover,
Jedeikin, when testifying
as to why he would have acted differently
had he known the truth, said that ‘we were on the brink of
something very lucrative,
had I known and the prospects of sale to a
major private equity house meant that there was a large sum of money,
would have placed
a value on Golden Pond, given that it had a major
international brand, Mango, in its stable’. Thus the reason he
sold Wenneni’s
share to Busby was not the threat of
liquidation.
[108]
The trial court erred also in finding that David Brouze and Lashansky
were guilty of making misrepresentations.
David Brouze did no more
than react rudely to Jedeikin when he called him to complain that
nothing was being paid to him for goodwill.
He cannot be held
responsible for the statements of his brother. And equally, there is
simply no basis on which to find Lashansky
liable for
misrepresentations. There was no evidence at all that the financial
statements were misleading.
[109]
I conclude accordingly that no actionable misrepresentations were
made by any of the appellants to Jedeikin, acting
for Wenneni.
Was
the non-disclosure actionable?
[110]
The claim for damages is one in delict. Where it is based on an
omission – a non-disclosure – it must
be shown that it is
wrongful: that the appellants had a duty to tell Jedeikin about the
Busby negotiations with Ethos. In
Absa Bank Ltd v Fouche
2003
(1) SA 176
(SCA) Conradie JA pointed out that the test for
determining wrongfulness in a pre-contractual setting is the same as
the general
test in delict for omissions: in each case the court
looks to the legal convictions of the community. He continued (para
5):
‘
The
policy considerations appertaining to the unlawfulness of a failure
to speak in a contractual context – a non-disclosure
–
have been synthesized into a general test for liability. The test
takes account of the fact that it is not the norm that
one
contracting party need tell the other all he knows about anything
that may be material (
Speight
v Glass & another
1961 (1) SA 778
(D) at 781H-783B). That accords with the general rule
that where conduct takes the form of an omission, such conduct is
prima facie
lawful . . . .  A party is expected to speak when
the information he has to impart falls within his exclusive knowledge
(so
that in a practical business sense the other party has him as his
only source) and the information, moreover, is such that the right
to
have it communicated to him ‘would be mutually recognized by
honest men in the circumstances’. . . .
[111]
In
Speight
Fannin J said (at 781H-782G):
‘
There
is in our law no general duty upon contracting parties to disclose to
each other any facts and circumstances known to them
which may
influence the mind of the other party in deciding whether to conclude
the contract (see
Hoffman
v Moni’s Wineries Ltd
1948
(2) SA 163
(C); cf Wessels
South
African Law of Contract
2nd
ed vol I s 1073 pp 329 et seq). There is authority for the
proposition that in Roman and Roman-Dutch law, and therefore in South

African law, a seller who knows of the existence of defects in the
thing sold, but deliberately refrains from disclosing them to
the
buyer, is guilty of fraud, justifying the cancellation of the
contract by a buyer who is not aware of them.  . . . There
is
still some controversy as to whether mere silence is enough, or
whether the silence must itself amount to a representation or
be
accompanied by some deliberate act of concealment. See, for example,
Dibley
v Furter
1951
(4) SA 73
(C);
Cloete
v Smithfield Hotel (Pty) Ltd
1955
(2) SA 622
(O); Norman
Purchase
and Sale in South Africa,
2nd
ed p 84; and the discussions on the two above cases in the
Annual
Survey of South African Law
for
1951 (at pp 230-232) and 1955 (at pp 264-266).  . . .
I have
examined all the authorities which are cited or referred to in the
foregoing cases. They all, without exception I think,
deal with the
cases of deliberate suppression or the calculated withholding of
information regarding the subject matter of the
sale, which is known
to the seller and unknown to the buyer, and which might affect, the
buyer’s mind. . . . In none of them,
save one, can I find any
suggestion that, where the seller has not made any misrepresentation,
express or otherwise, on the matter
in question, the mere failure to
disclose the relevant facts can found an action, or any statement
that, in the case of a sale,
there is a duty of disclosure such as is
set out in the passages from
Spencer Bower
[Actionable
Non-Disclosure]. The exception is the passage in
Norman
[Purchase and Sale in South Africa 2 ed 84] op cit at p 84, where,
dealing with fraud, the learned author says: -
“
Non-disclosure
will always amount to fraud where there exists a duty to disclose the
full facts, eg:
(i)
In contracts where a
fiduciary relationship
arises between the
parties – contracts
uberrimae fidei,
such as insurance
contracts, partnership and agency contracts,
(ii)
where the facts concealed are accessible only to the party concealing
them.”’
[112]
Wenneni and Jedeikin argue that the relationship between Wenneni and
Busby was a fiduciary relationship: they
were in a way partners.
Jedeikin referred to Busby as a partner from time to time, as
indicated in correspondence described earlier,
and Brouze raised no
objection. However, the incorrect designation of the legal
relationship cannot change the legal position.
Apart from that, the
loose use of terminology by non-lawyers is common.
[113]
It is true that ‘there is room in company law for recognition
of the fact that behind it, or amongst it,
there are individuals,
with rights, expectations and obligations
inter
se
which are not necessarily submerged in the company structure’:
Ebrahimi
v Westbourne Galleries Ltd & another
[1973] AC 360
(HL) at 379
b-c
quoted
with approval by Hoexter JA in
Hulett
& others v Hulett
[1992] ZASCA 111
;
1992
(4) SA 291
(A) at 307G-I. In that case the court held that the
pre-existing bonds of a lengthy friendship and of mutual trust and
confidence
between three men had resulted in a quasi-partnership.
That was hardly the case in this matter. The relationship between
Wenneni
and Busby was shortlived and acrimonious. There was certainly
no basis for finding that there was a quasi-partnership. And in the

shareholders agreement clause 25, headed ‘Quasi Partnership’,
expressly stated that ‘The relationship between
the
shareholders as such shall not be construed as that of quasi
partners’.
[114]
Nonetheless the respondents argued that as a shareholder in Golden
Pond, where a transaction involving the sale
of shares by one
shareholder would impact on another, there was a fiduciary duty in
the circumstances to disclose the fact of the
sale. This was a
principle recognized by the Supreme Court of New South Wales,
Australia in
Brunninghausen
& another v Galvanics
[1999] NSWCA 199
;
(1999) 32 ACSR 294.
And Professor Michael Blackman, in
Lawsa
First reissue vol 4 Part 2, para 119, suggested that directors
wishing to purchase shares in their own company would have a duty
to
make full disclosure to other shareholders of all relevant facts
concerning the company’s affairs when negotiating the
purchase.
But as a general principle, Blackman stated, directors of a company
owe a fiduciary duty to it, and not to shareholders
individually.
[115]
In
Cape Empowerment Trust v Fisher Hoffman Sithole
[2013]
ZASCA 16
;
2013 (5) SA 183
(SCA) Brand JA, dealing with the
wrongfulness of a failure to protect a plaintiff from economic risk
caused by a negligent misrepresentation,
said (para 28):
‘
But
the consideration which, in my view, weighs most heavily against the
imposition of legal liability on [an auditing firm] is
the one that
has become known, in the context of wrongfulness, as the plaintiff’s
“vulnerability to risk”. As
developed in our law, under
the influence of Australian jurisprudence, vulnerability to risk
signifies that the plaintiff could
not reasonably have avoided the
risk of harm by other means. What is now well established in our law
is that a finding of non-vulnerability
on the part of the plaintiff
is an important indicator against the imposition of delictual
liability on the defendant.  .
. . The role of this
consideration is best illustrated, I think, by McHugh J in
Perre
v Apand (Pty) Ltd
[1999] HCA 36
;
(1999) 198 CLR 180
(HC of A)  . . .para 118:
“
Cases
where a plaintiff will fail to establish a duty of care [or
wrongfulness in the parlance of our law] in cases of pure economic

loss are not limited to cases where imposing a duty of care would
expose the defendant to indeterminate liability or interfere
with
legitimate acts of trade. In many cases there will be no sound reason
for imposing a duty on the defendant to protect the
plaintiff from
pure economic loss where it was reasonably open to the plaintiff to
take steps to protect itself. The vulnerability
of the plaintiff to
harm from the defendant’s conduct is therefore ordinarily a
prerequisite to imposing a duty. If the plaintiff
has taken or could
have taken steps to protect itself from the defendant’s conduct
and was not induced by the defendant’s
conduct from taking such
steps, there is no reason why the law should step in and impose a
duty on the defendant to protect the
plaintiff from the risk of pure
economic loss.”’
[116]
It is not necessary to discuss the principles any further. At the
time when the exit contract was entered into,
there was no
transaction to disclose. At the meeting between Busby and Ethos on 25
July 2007, Busby rejected the proposals made
by Ethos. It made a
counter-proposal only subsequently. At that stage not even the
directors of the House of Busby had been advised
of the approach.
There was nothing to tell them.
[117]
The proposed takeover was, in any event, of the shares in the House
of Busby.  Golden Pond would not have
been affected. Wenneni did
not show how, if at all, the value of its shares in Golden Pond would
have been affected by the takeover
of the holding company (this is
not a question of the calculation of the claim – quantum –
but a question of causation).
There were numerous subsidiaries in the
group, and  there was certainly no idea in July 2007 how any of
these would be affected,
if at all.  As the appellants argue,
the buyer of shares is perfectly entitled to deal with different
sellers without disclosing
the fact of competing buyers to them.
[118]
And the fact is that Busby had started talks not to sell the shares
in Golden Pond, but to sell shares in the
holding company of Golden’s
Pond’s holding company. Golden Pond was a subsidiary of Busby
SA, which was itself a subsidiary
of the House of Busby. Preliminary
talks about a sale of shares in the House of Busby were not such as
to require any disclosure
to a shareholder in a subsidiary. I
consider that there was no duty to disclose the talks that occurred
before the exit agreement
was concluded. Jedeikin, acting for
Wenneni, had all the facts on which to base the decision to exit from
Golden Pond at his disposal.
[119]
Even on the assumption that there was a duty on the appellants to
disclose anything to Jedeikin and Wenneni, they
did not discharge the
burden of proving that they would not have sold the shares in Golden
Pond, or would have sold them on different
terms. Every question that
related to causation in this regard was considered during the course
of the trial to be a question of
quantum, and not to relate to
liability. In my view, the respondents bore the onus of proving that
Wenneni would not have exited
from Golden Pond had it known there
were negotiations about selling the controlling share in the House of
Busby. Jedeikin could
not say what he would have done about repaying
the loan to CBG or injecting a further R3 million to fund the Mango
store in Cape
Town. He mentioned Fuchs. But as I have said, there was
no evidence that Fuchs was willing or able to lend Wenneni R3 million
and
repay £250 000 to CBG. And likewise, he adduced no evidence
that the takeover the following year would have raised the value
of
the Golden Pond shares. In fact, those shares were valued at nil when
valuations were obtained by Ethos for tax purposes. Had
Jedeikin not
exited from Golden Pond, the Wenneni shares would have had no greater
value than they did when its shares were sold
to Busby.
[120]
When Jedeikin wrote to Tchenguiz, Gamsu and Baxter on 2 October 2007
saying that they would have noted that Busby
had received a private
equity offer from Ethos of R1.3 billion, and that Golden Pond would
be acquired for a ‘high multiple’,
he was being fanciful.
The test to determine whether wrongful conduct has caused economic
loss is to ask, hypothetically, what
would have happened but for the
wrongful conduct of the defendant:
Cape
Empowerment Trust
para 20. Wenneni and Jedeikin failed to show what they would have
done but for the misrepresentations and non-disclosures alleged.
As I
have said, Wenneni had no choice but to sell its shares to Busby
given CBG’s withdrawal of funding and its inability
to raise
other finance for the second Mango store.
[121]
The argument that Wenneni’s exit from Golden Pond was the
result of a deliberate strategy on the part of
the Brouzes and
Lashansky must also be rejected. The only reason Keith Brouze wanted
to get rid of Jedeikin was because of his
nuisance value. He
interfered in the management of the Mango store despite Busby having
sole management rights and made constant
demands for information
despite having all that was necessary at his disposal. And the
inference that the non-disclosure of the
Ethos deal by Lashansky was
deliberate because he had wanted to delay the response to the PAIA
request is unfounded. The concern
was that Jedeikin would in some way
jeopardize the s 311 application. Perhaps the concern was unfounded
and the delay was unjustified
(as was the failure to make discovery
of all the Ethos and Busby documentation) but the question as to
Wenneni’s right to
the information requested was well-founded.
I conclude, therefore, that there was no duty to disclose the Ethos
transaction, and
no proof that it had any causal effect on the exit
agreement. Wenneni had to exit when it did.
[122]
It is not clear why Jedeikin sued personally or why the trial court
ruled in his favour. At all material times
he was acting for Wenneni
and it was Wenneni which would have suffered damages if the claims
had succeeded. But given the conclusions
to which I have come it is
not necessary to deal with this question.
[123]
On appeal, the Brouzes and Lashansky ask for the costs of three
counsel. The reputations of three people have
been damaged without
justification by the findings of the trial court and they need
vindication. The amount claimed by Wenneni
and Jedeikin is some R39.2
million, plus that amount in interest. The record is lengthy and the
facts complex. The employment of
three counsel was thus warranted. I
agree.
[124]
Accordingly:
1
The appeal is upheld with the costs of three counsel where so
employed.
2
The order of the
trial court is set aside and replaced with:
‘
The
plaintiffs’ claims are dismissed with costs including the costs
of two counsel.’
_______________________
C
H Lewis
Judge
of Appeal
APPEARANCES
For
Appellants:

W H Trengove SC (with him C M Eloff SC and T Dalrymple)
Instructed
by:

Knowles Husain Lindsay Inc, Sandton
McIntyre & van der
Post, Bloemfontein
For
Respondents:

C D A Loxton SC (with him P B J Farlam)
Instructed
by:

Korbers Inc, Cape Town
Webbers, Bloemfontein
[1]
Zara is a multinational (originally Spanish) clothing and
accessories retailer. It is the flagship store of the Inditex group.
[2]
Mango is the trading name of Punto FA SL, a clothing design and
manufacturing company founded in Barcelona.
[3]
SENS is the acronym for the Stock Exchange News Service: it is an
instant information dissemination service administered by the

Johannesburg Stock Exchange.