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[2018] ZAKZDHC 36
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Govender v Moodley and Another (5050/2014) [2018] ZAKZDHC 36 (12 July 2018)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
LOCAL DIVISION, DURBAN
CASE
NO: 5050/2014
In
the matter between:
ASHARA
SUKDEO
GOVENDER
PLAINTIFF
and
KAASTURIE
MOODLEY
FIRST
DEFENDANT
NICHOLAS
ITOPOULOS
SECOND
DEFENDANT
JUDGMENT
Delivered
on: Thursday, 12 July 2018
Olsen
J
[1]
The plaintiff in this action sues the two defendants for repayment of
the purchase price she paid to them in order to acquire
a one-third
interest in a restaurant business based at Ballito, KwaZulu-Natal,
and known as Olive and Oil. She pleads that
she was the victim
of a misrepresentation intentionally made to induce her to conclude
the agreement.
[2]
In concluding the agreement the plaintiff was represented by her
husband, Mr Sharmlin Govender. The first defendant was
represented by her husband, Mr Wentzel Moodley. (It appears
clear that the first defendant’s interest in the business
was
her’s in name only, and that it was controlled entirely by her
husband.) The second defendant acted personally.
That
statement, and the statement that the first defendant was represented
by her husband, needs perhaps to be qualified by the
observation that
on the evidence Mr Moodley and the second defendant were for much of
the time acting in concert.
[3]
Before furnishing an account of the evidence led in support of the
plaintiff’s case it is necessary to mention one or
two facts by
way of background.
(a)
The Olive and Oil restaurant
group was started by the second defendant about 13 years ago.
At the time when he gave evidence
the group comprised ten
restaurants. (He called them “shops”.) He is a
director of the holding company and attends
to all new developments
and group operations.
(b)
The Ballito restaurant (which
for convenience sake I will call “the restaurant”) was
opened in 2010. It was owned
by Olive Terrace CC, a close
corporation in which each of the defendants held a 50 per cent
interest.
(c)
In or prior to February 2012 it
became apparent to Mr Moodley and the second defendant that money was
being siphoned off from the
restaurant. According to the second
defendant the guilty parties were the then general manager of the
restaurant acting in
concert with an employee of the Hampshire Hotel
which is also situated in Ballito, and with which the restaurant did
a fairly considerable
amount of trade. This led to the
engagement of a forensic auditor and the placement of temporary
managerial staff at the
restaurant. One of the personnel sent
there was a Ms Girdhari who was called as a witness for the
defendants.
(d)
After the plaintiff’s
action had been instituted the defendants instituted a separate
action against the plaintiff, claiming
that the plaintiff had
undertaken to join the two defendants in standing surety for an
indebtedness owed by Olive Terrace CC to
Nedbank, something which the
plaintiff had refused to do. They sought an order holding the
plaintiff liable to them for one-third
of the claim which they had to
meet as sureties. The second action was consolidated with the
present matter for the purposes
of trial. The allegation that
the plaintiff had made such an undertaking was hotly disputed during
the course of the plaintiff’s
case. However after the
close of the plaintiff’s case, and by agreement between the
parties, the defendants were granted
leave to withdraw their action
upon the footing that the costs incurred in it would be costs in the
cause in the plaintiff’s
action.
(e)
The account of the facts which
follows reveals that Mr Moodley was a vital witness for the
defendants. He was not called.
The reason for this, which
the plaintiff accepted for the purpose of the case, was that he has
succumbed to a psychiatric illness
which is a degenerative condition
involving atrophy of the brain, and which, according to medical
opinion, renders him unable to
participate in legal proceedings.
In order to dispense with medical evidence the plaintiff placed on
record that she would
not seek an adverse inference to be drawn
against the defendants because Mr Moodley did not testify; ie it
would not be argued
that he was deliberately not called because his
evidence would contradict the defendants’ case. But where the
evidence led
for the plaintiff stood un-contradicted for want of
evidence from Mr Moodley, the plaintiff would be entitled to the
benefit of
that. All of this was placed on record.
THE
PLAINTIFF’S CASE
[4]
Both the plaintiff and her husband, Mr Govender, gave evidence.
As Mr Govender was the principal player one needs to look
to his
evidence in order to paint the clearest picture of the facts upon
which the plaintiff relies. In her evidence the
plaintiff (who
was called first) corroborated what emerged from Mr Govender’s
evidence wherever her relatively limited involvement
allowed this.
[5]
Mr Govender is an accountant by profession. He served articles with a
well-known firm, Deloitte. He passed his board examinations
in
June 1997 and completed articles in January 2000. He thereafter
stayed on with Deloitte until 2001. After a four
year stint
with another company, Mr Govender joined Grafton Everest in 2005 and
he has been employed there since in the finance
section.
[6]
Mr Govender met Mr Moodley when the former joined Deloitte. Mr
Moodley had just become a senior manager at Deloitte and,
as Mr
Govender put it, he looked up to Mr Moodley as a qualified
accountant. It emerged that Mr Govender respected the
professional
integrity displayed by Mr Moodley whilst the two were
both employed at Deloitte.
[7]
In February 2005 the two met up again, when a pre-audit meeting was
held at Grafton Everest. Deloitte was the company’s
auditor, and it turned out that Mr Moodley would be the person who
signed off the financial statements. Thereafter they met
every
year in connection with the audit. Mr Govender was the client
and Mr Moodley was (Mr Govender believes) a partner at
Deloitte.
They became acquainted on a more personal level, as their sons played
soccer together. In about 2010 or 2011
Mr Moodley took the
Grafton Everest administrative team and his audit team to the Olive
and Oil restaurant in Ballito, and on that
occasion disclosed to Mr
Govender that he owned a 50 per cent share in the restaurant.
[8]
In July 2012, during the Grafton Everest audit for the year-end June
2012, Mr Govender asked Mr Moodley how the restaurant was
going.
Mr Moodley said that he was concerned as it was suspected that a
manager had been stealing and that the owners of
the restaurant were
in the process of finalising a forensic audit. It appeared to
Mr Govender, from what Mr Moodley said,
that the latter and the
second defendant had left the running of the restaurant to a manager.
[9]
Towards the end of July or early August 2012 Mr Moodley telephoned Mr
Govender and suggested that the latter might like to join
the
defendants in the restaurant. Mr Moodley and Mr Govender could
work together to help put things right. Mr Govender
found the
suggestion intriguing, and Mr Moodley said that he would speak to the
second defendant about it.
[10]
A few days later Mr Moodley reported to Mr Govender that the former
had spoken to the second defendant and that the two of
them had
decided that they would be willing to sell a one-third interest in
the restaurant for R750 000. Mr Govender
replied that he
did not have that sort of money and would have to borrow it on the
security of the mortgage bond over his house.
But he would need
to see what he would be getting for the money.
[11]
Mr Govender asked Mr Moodley for the most recent financial statements
of the restaurant but was told that they were not ready
as they were
still being worked on. Neither were monthly management accounts
available. Mr Moodley conveyed that this
state of affairs was
connected with the mismanagement and fraud which was being
investigated. He accordingly proposed that
Mr Govender be
provided with a realistic estimate of what the business would do in
the future. This was about mid-August
2012.
[12]
Under cover of an email dated 24 August 2012 Mr Moodley sent Mr
Govender the document which is at the centre of this case.
The
document (which I will call the “budget”) predicted the
performance of the restaurant for the months of October
2012 through
to February 2013 (inclusive). It listed projected monthly
income from restaurant sales, the costs of those sales
(in the
restaurant trade, that is the cost to the restaurant of the raw food
needed to generate the turnover), the resultant gross
profit, then
the other expenses; all of this then generating a final net profit
figure. It is the plaintiff’s case
that the budget
constitutes the misrepresentation which gives rise to her cause of
action.
[13]
The email which accompanied the budget contained the following
statement.
‘
Nickos
[the second defendant] and I must [sic] spent a fair amount of time
yesterday on this with the aim of getting to realistic
numbers,
perhaps somewhat conservative (i.e. cost of sales 40% versus 36% that
is the first target).’
Mr
Govender’s evidence was that the whole of the so-called budget
was presented as a conservative prediction.
[14]
After receiving the budget Mr Govender did some work on it,
classifying certain of the items of expenditure as variable costs;
that is to say costs which vary with turnover. He made some
adjustments to the figures on that account. The result was to
decrease the predicted profit for the five months in question from
R542 000 to R507 667. Mr Govender then discussed
the
figures with the plaintiff. He conveyed to her that on these
figures, after corporate taxes, more or less R100 000
would be
due to each of the members of the close corporation after five months
of trading. The proposition he put to her
was that on the
figures they would have to pay an extra R7 000 per month on their
bond (which would be increased to cover the purchase
price of a
one-third interest), but would get back approximately R20 000
per month.
[15]
Between 29 August and 3 September 2012 a meeting was held between the
plaintiff, Mr Moodley, the second defendant and Mr Govender
at the
Olive and Oil restaurant in Umhlanga. There agreement in
principle was reached that the deal should go ahead.
The
Govenders had gone to the restaurant on 29 August 2012 to celebrate
their anniversary, and based on that visit they made some
suggestions
as to features of the restaurant which could be upgraded, and the
suggestion was made at the meeting that if each of
the one-third
partners put in R40 000, that should cover it.
[16]
After that there were exchanges between the parties in an attempt to
put something down in writing, but no written agreement
was ever
signed. A meeting was then held at the restaurant on 27
September 2012 attended the by the Govenders, Mr Moodley
and the
second defendant. Agreement was reached at that meeting that
the deal would go ahead. A further draft written
agreement was
provided but never signed. Nevertheless the parties proceeded
on the basis that agreement had been reached.
Payment of the
purchase price was made towards the end of October 2012.
[17]
Up to this stage the only financial data available to Mr Govender was
reflected in the budget provided by Mr Moodley, and sanctioned
by the
second defendant. In his evidence in chief and under
cross-examination Mr Govender insisted that he trusted Mr Moodley,
regarding him as a professional person of integrity.
Furthermore Mr Moodley had by then acquired some experience in the
industry, and he was supported in that regard by the extensive
experience of the second defendant. The plaintiff, according
to
both Mr Govender and her own evidence, had no accountancy experience
and relied on her husband’s assessment of the reliability
of
the budget based especially on his trust in Mr Moodley.
[18]
Mr Govender first started considering turnover figures towards the
end of November. He became concerned as they appeared
not to be
in line with the budget. He confronted Mr Moodley who said that
he would speak to the second defendant who was
responsible for
driving turnover. The management accounts for October and
November were then sent to Mr Govender by Mr Moodley
via email dated
1 December 2012. They showed that the restaurant had sustained
a loss of R152 000 for the two months;
whereas, allowing for
depreciation, the budget had reflected a profit of R82 000 for
the same months. Mr Govender was
very unhappy. He
discussed the matter with his wife who was even more unhappy.
He persuaded her that they should “stick
it out” as
December might change everything. The Govenders then monitored
the December turnover on a daily basis.
Up to 30 December the
turnover was R752 000, whereas what had been predicted was
R900 000. In January they decided
that they needed to get
out of the business. Mr Govender told Mr Moodley, explaining
that the failure of the restaurant to
perform as the Govenders had
been led to believe was causing severe trouble at home, and that they
had to withdraw from the transaction.
[19]
A meeting then took place between Mr Moodley, the second defendant
and Mr Govender. Mr Govender had earlier conveyed
to Mr Moodley
that the Govenders were withdrawing. The second defendant and
Mr Moodley expressed their regret that the Govenders
proposed to
leave. They suggested that a buyer should be found and that
while matters were being sorted out they wanted Mr
Govender to
continue to help Mr Moodley dealing with payments which had to be
made by the restaurant, something he had been doing
up to that time.
Mr Govender agreed to do that. There was however no offer of
repayment from the two defendants.
[20]
Subsequently Mr Moodley and the second defendant informed Mr Govender
that they wished to sell their interests in the restaurant
business.
Mr Govender’s response was that each of them should repay their
share of the purchase price to the plaintiff,
after which they could
sell the restaurant themselves. The defendants did not accede
to that request. It appears that things
went from bad to worse for
the restaurant which closed its doors, according to the second
defendant during 2014.
[21]
The account of the evidence given so far does not on its own reveal
that the plaintiff was necessarily the victim of actionable
misrepresentation. Mr Govender conducted an analytical
exercise, which he described in evidence, which was designed to close
the net around the defendants by illustrating that the presentation
of the budget did amount to factual fraudulent misrepresentation
justifying the claim for repayment of the purchase price. It is
convenient, before giving an account of Mr Govender’s
work, to
consider the legal principles against the background of which it must
be considered within the factual matrix already
set out above.
THE
LEGAL FRAMEWORK
[22]
In
Quartermark Investments (Pty) Ltd v Mkhwanazi and Another
2014 (3) SA 96
(SCA) para 14 Theron JA said the following
concerning misrepresentation in a contractual context.
‘
A
misrepresentation has been described as a false statement of fact,
not law or opinion, made by one party to another before or
at the
time of the contract, concerning some matter or circumstance relating
to it. A party seeking to avoid a contract on
the ground of
misrepresentation must prove that: (a) the representation relied upon
was made; (b) it was a representation as to
a fact; (c) the
representation was false; (d) it was material, in the sense that it
would have influenced a reasonable person to
enter into the contract;
and (e) it was intended to induce the person to whom it was made to
enter into the transaction sought
to be avoided.’ (Footnotes
omitted.)
The
above statement of our law was sufficient for the purposes of the
case being dealt with in
Quartermark
,
and required no embellishment or further explanation.
[23]
In
Presidency Property Investments (Pty) Ltd and Others v Patel
2011 (5) SA 432
(SCA) the court had occasion to consider the
principle that statements of opinion will not suffice, and drew the
distinction between
a “mere expression of opinion” and a
dishonest opinion. The following appears in paragraph 28 of the
judgment.
‘
In
order to constitute such a representation the statement or assertion
must relate to an ascertainable fact as distinct from a
mere
expression of opinion – see
Jones
v Mazza and Another
1973 (1) SA 570
(R) at 572B – 573E, although a dishonest
opinion as to a future event may be sufficient to found an action for
fraudulent
misrepresentation insofar as it falsely reflects the state
of mind of the representor – see
Van
Heerden and Another v Smith
1956
(3) SA 273
(O) at 275 – 276. As in many other cases what
is decisive is a holistic view of the terms of the representation and
the context in which it was made.’
In
Van Heerden’s
case (at 276C) the court concluded that a
dishonest and erroneous opinion about a future event can form the
basis of an action
for fraudulent misrepresentation,
‘
but
in such case the cause of action will be the dishonesty of the person
about the state of his own mind when he gave expression
to the
erroneous opinion, and not the mere fact that the opinion afterwards
proved to be wrong.’
[24]
In
Feinstein v Niggli and
Another
1981 (2) SA 684
(A)
at 695 (a case which co-incidentally also concerned representations
made to induce a contract for the purchase of a restaurant)
the court
endorsed two propositions which may be regarded as qualifications to
the rule that a statement of opinion about the future
does not give
rise to an action for fraudulent misrepresentation.
[25]
As to the first of these the court endorsed the proposition stated in
Halsbury
Laws of England
3 ed vol 26 para 1520:
‘…
a
statement of expectation or a statement in the future tense may
impliedly say something as to the existing position and so import
an
implied representation.’
On
the same subject the court referred to a passage in Kerr
Fraud and
Mistake
7 ed at 31 which was taken from the
dicta
of Bowen
LJ in
Smith v Land and House Property Corporation
28 Ch D 7
at
15.
‘
It
is often fallaciously assumed that a statement of opinion cannot
involve a statement of fact. But, if the facts are not
equally
known to both sides, a statement of opinion by the one who knows the
facts best often involves a statement of a material
fact, for he
implicitly states that he knows facts which justify his opinion.’
[26]
The second qualification endorsed by the court at 695F-G (with
reference, inter alia to
Van Heerden
) is that:
‘
a
person’s statement of opinion or forecast of the future success
or profits of a business may, at the very least, amount
to a
representation as to his then state of mind, ie that he actually
believes in what he says, …’.
As
to this issue, bearing in mind the requirement stated in
Presidency
Property Investments,
that one should take a holistic view of the
matter and the context, one would think that a false expression of
opinion of a future
event would not qualify as an actionable
misrepresentation unless it could be shown that it was material to
the person to whom
the opinion was expressed that the particular
representor honestly held the opinion.
MR
GOVENDER’S ANALYSIS
[27]
The crucial period in the lifetime of the restaurant for the purposes
of this case is the financial year ending 28 February
2013. The
budget which the plaintiff claims to reflect the misrepresentation
she relies on dealt with the last five months
of that financial or
tax year. The performance of the restaurant during the first
seven months of that tax year (or perhaps
the first six months of the
year, bearing in mind when the budget was produced) are crucial to
the central issue raised by the
plaintiff’s claim, as it
defines the state of affairs from which the predictions contained in
the budget would flow.
The manager of the restaurant who had
been responsible for siphoning off funds had been replaced before1
March 2012.
[28]
The material available to Mr Govender to construct his analysis of
the information available to the defendants when the budget
was
prepared is as follows.
(a)
He had received the monthly
management accounts for the restaurant for the months of October and
November on 1 December 2012.
(b)
In February 2013 Mr Moodley
sent the January 2013 management accounts to Mr Govender.
(c)
The defendants discovered the
annual financial statements of the restaurant for the year ending 28
February 2013, which, in usual
form, record the performance of the
restaurant for the entire year without any reference to performance
in any particular periods
during the year. (The annual financial
statements for the year ending February 2012 were also available.)
(d)
Mr Govender had monitored the
turnover of the restaurant up to 30 December 2012 at which stage it
stood at R752 000, and was accordingly
able to postulate a turnover
for that month of R800 000. (That seems reasonable bearing in
mind that the missing day is New
Year’s eve.)
[29]
The defendants failed to discover any of the monthly management
accounts for the first seven months of the financial year in
question. In his evidence the second defendant claimed that the
missing management accounts were available on Mr Moodley’s
computer at the time the budget was constructed. Nevertheless
they do not feature in discovery. They were not produced
at
trial in any shape or form. The first defendant was not called
to give evidence as to what had happened to her husband’s
computer, nor indeed to state that it was not available.
[30]
Dealing with turnover first, Mr Govender took what might be described
as an educated guess as to the turnover the restaurant
might have
achieved during February 2013. The turnover for January 2013
was R371 803, and he postulated a turnover of R350
000 for February
2013. On this basis the conclusion he drew was that the
turnover for the five months covered by the budget
was R2 145 372,
some 23 per cent less than the R2,8 million which the budget
predicted.
[31]
The annual financial statements of the restaurant record that the
turnover for the whole of the 2012/2013 financial year was
R3 900
999. Deducting from that the turnover of R2 145 372 for the
last five months reveals that the total turnover for the
first seven
months was in the region of R1 755 627, or an average of R250 804 per
month. The average monthly turnover predicted
by the budget,
excluding December where R900 000 was predicted because of the
holiday season, amounts to R475 000. What had
actually been
achieved in the earlier seven months of the tax year was 47 per cent
less than that.
[32]
Mr Moodley’s assertion made to Mr Govender that there were no
management accounts available for the seven months which
preceded
October 2012 (the first month of the budget) seems to be borne out by
the fact that such documents have never been produced.
However
it is difficult to believe that Mr Moodley and the second defendant
would not have been aware of the turnovers achieved
in those earlier
months. Mr Govender argues that no person aware of those
figures, and especially no qualified accountant
(as Mr Moodley was)
and seasoned restaurateur (as the second defendant was and is) could
have honestly believed in the predicted
turnovers set out in the
budget, let alone have regarded them as “conservative” as
represented by Mr Moodley to Mr
Govender in writing when the budget
was produced.
[33]
Mr Govender attempted a similar exercise in connection with expenses,
but with rather less material available to him.
The two largest
(by far) items of expenditure in the restaurant were wages and rent.
(a)
According to the budget the
average monthly wage bill would be R69 000, despite the fact that in
the financial year 2011/2012 it
had been some R96 000 per month.
The financial statements for the year ending February 2013 reveal
that in fact during that
year the average monthly wage bill was R93
500.
(b)
According to the budget the
average monthly rent would be R68 000, despite the fact that it had
been R75 000 per month during the
2011/2012 financial year. It
turned out to be some R82 500 per month during the year ending
February 2013.
[34]
On Mr Govender’s evidence, and on the available documents, the
disparity between earlier expenses and those postulated
in the budget
cannot be explained. No explanation for the disparity was
tendered by the defendants in evidence. Indeed,
Mr Govender’s
analysis went unchallenged.
[35]
As is the case with turnover figures contained in the budget, Mr
Govender’s argument is that no person, and again, certainly
no
trained accountant such as Mr Moodley was, and seasoned restaurateur
such as the second defendant was and is, could have believed
that the
expenses reflected in the budget would be realised.
Accordingly, looking at expenses and turnover together, Mr Moodley
and the second defendant could not but have understood and known that
the predictions as to profitability made in the budget could
not be
justified, and were contradicted by the then available information
concerning the performance of the restaurant.
[36]
As it turned out, during the year ended February 2013 the restaurant
incurred a loss of some R1.4 million.
THE
DEFENDANTS’ CASE
[37]
In their plea the defendants averred that the parties jointly
undertook a feasibility and profitability study during September
2012, to determine what might be expected from the proceeds of the
business in the future. It was pleaded that the budget
represents “part of” the study and reflects the parties’
“reasonable assumptions arrived at from the circumstances
known
at the time”. It was admitted that the feasibility study
influenced the plaintiff to enter into the contract
with the
defendants. It was also alleged that at the time of
negotiations and at the time of contracting the parties were
aware
that the restaurant was trading at a loss, but nevertheless
“reasonably assumed, after performing a due diligence and
feasibility study which [the budget] forms part of, that the business
would, after the implementation of certain agreed strategies,
begin
generating the profits contemplated in [the budget]”.
[38]
The defence to the plaintiff’s pleaded claim is based on these
propositions.
THE
DEFENDANTS’ EVIDENCE, AND AN EVALUATION OF ALL THE EVIDENCE
[39]
It is convenient at this stage both to give an account of the
evidence led for the defendant, and to evaluate it and the evidence
led for the plaintiff.
[40]
It should be stated at the outset that I found the plaintiff and Mr
Govender to be good witnesses. Their answers were
direct and
they did not seek to evade questions. It is especially
important in the case of Mr Govender that he was obviously
concerned
to ensure that his answers were precise and accurate. Neither
he nor the plaintiff resorted to vague generalisations
when asked
questions which required a specific answer. Indeed, in argument
counsel for the defendant made the point that
Mr Govender revealed
himself to be a meticulous and rational man who paid attention to
detail. Counsel argued that this militated
against a finding
that Mr Govender relied on the budget in advising the plaintiff to
purchase a one-third interest in the restaurant.
Of course the
argument overlooks the proposition that ‘even Homer nods’,
and the level of trust Mr Govender reposed
in Mr Moodley.
[41]
Ms Girdhari was the first witness for the defendants. Counsel
for the plaintiff made the observation in argument that
it was not
perfectly clear why she was called at all, unless it was because
shortly before 1 October 2012, but certainly before
3 October 2012,
she had expressed the view that the figures set out in the budget
were in her opinion too conservative, as a result
of which a recast
budget, reflecting her opinions, and a better outcome, was produced
and sent by Mr Moodley to Mr Govender under
cover of an email dated 3
October 2012. Although this more optimistic prediction was not
relied upon by the plaintiff, the
evidence concerning it is
symptomatic of unsatisfactory features in the evidence presented on
behalf of the defendants.
(a)
According to Ms Girdhari she
was shown the budget before 1 October 2012, and the more optimistic
budget was produced at a meeting
between her and Mr Moodley.
(Whether this was the occasion on which she was first shown the
budget is not clear.)
(b)
According to the second
defendant he first saw the more optimistic prediction at the shop in
Ballito at the beginning of October.
He said he remembers that
there was what he called a big meeting between Mr Govender, Mr
Moodley, the plaintiff and Ms Girdhari
where they changed the budget
because they thought they could do better.
(c)
According to the second
defendant when he saw the more optimistic prediction he “told
them they were very optimistic”.
(d)
As mentioned, this more
optimistic prediction was sent to Mr Govender by Mr Moodley via email
on 3 October 2012. In the email
Mr Moodley recorded that he had
updated the budget following Ms Girdhari’s request, and had
this to say concerning the second
defendant’s response to it.
‘
Nicos
came to see me to assist with his asset and liability statement.
I made him check as well – he is happy.’
(e)
The evidence for the plaintiff
is that there was no such meeting which produced the more optimistic
budget.
(f)
The aim of the evidence
concerning the more optimistic prediction, certainly from the second
defendant’s perspective, was
to fix joint responsibility for
the inaccuracies of the document on Mr Govender, to the obvious
advantage of the contention that
the plaintiff and her husband, Mr
Govender, were party to an analysis which generated the original
budget.
(g)
The second defendant’s
version on this issue is contradicted by Ms Girdhari’s evidence
and the available documentary
evidence.
(h)
I reject the second defendant’s
evidence that the plaintiff and Mr Govender had a hand in the more
optimistic prediction and
find that they only became aware of the
document when it was sent to Mr Govender via email on 3 October
2012.
[42]
According to Ms Girdhari she was sent to Ballito as general manager
in February 2012. According to her Mr Moodley kept
management
accounts on his computer for the months that she was there. She said
that she received such accounts monthly from at
least March onwards.
Reference was made during the course of the case to emails sent by Mr
Moodley to Nedbank which suggest
that he had access to management
accounts for those crucial months, but that they were
“inappropriate”. Ms Girdhari
did not produce copies of
the alleged management accounts. As already discussed earlier they
have never been produced, and neither
Ms Girdhari not the second
defendant was able to furnish a satisfactory explanation for this.
According to the medical evidence
presented to the plaintiff, which
she was asked to and did accept, it was only in 2016 that Mr Moodley
was diagnosed with the problems
which led to him being unable to give
evidence. That was two years, more or less, after this action
commenced. There
is no explanation for why the accounts were
not accessed and stored for the trial if they existed and would
support the budget.
From the outset the plaintiff’s case
hinged on the budget. The importance of the performance of the
restaurant during
the months leading up to the production of the
budget could not have been overlooked by the defendants.
[43]
Ms Girdhari gave notice of her immediate resignation on 3 November
2012. (There is contradictory evidence tendered by
her and by
the second defendant as to the circumstances in which she resigned,
and her reasons for doing so.) What was produced
in evidence
and put to Ms Girdhari was an email written by a group employee, one
Danya Fairney, on 22 October 2012, which reported
on the attempts of
Ms Fairney to counsel Ms Girdhari, and which questioned her ability
to run the restaurant. The October
management accounts (the
accuracy of which is not disputed) illustrate that the performance of
the restaurant under her guidance
in that month fell below what was
postulated in the budget, and obviously even further behind what had
been postulated in Ms Girdhari’s
more optimistic rendition of
the budget. Ms Girdhari’s failings appear to me to be
consistent with Mr Govender’s
analysis which reveals a poor
performance by the restaurant during the first seven months of the
2013 financial year, when Ms Girdhari
was in control.
[44]
It was put to Mr Govender in cross-examination that before final
agreement on the sale was reached Mr Govender had met at least
once
per week with both the second defendant and Mr Moodley; that this was
during the period July, August and September 2012; and
that at these
meetings turnover figures, expenses and payments for 12 months back
from the date of each meeting were available
on Mr Moodley’s
computer, and discussed. This was denied by Mr Govender.
In his evidence the second defendant
said that it was during May 2012
that Mr Moodley had raised the question of Mr Govender with the
second defendant, saying that
Mr Govender was one of his best
friends, who at that time had problems with his wife; and that the
couple were therefore looking
to buy shares in a restaurant in the
hope that working there (in the restaurant) together would help their
marital situation. None
of this was put either to the plaintiff or Mr
Govender as a reason why they would have wanted to go into the
restaurant business.
[45]
The second defendant said he met the plaintiff and Mr Govender in
June 2012 when they were brought to him by Mr Moodley.
At that
stage, according to the second defendant, Mr Moodley and the
Govenders had already had a lot of discussions about the restaurant,
and they came to speak to the second defendant about their interest
in it. After that, said the second defendant, they
used
to come and see him (in Umhlanga) every week to talk to him;
sometimes, this occurred twice a week. Sometimes it was
both
the plaintiff and her husband and on other occasions only Mr
Govender, but Mr Moodley was always there. The second defendant
said in evidence that he did not really want a new partner, and he
implied that these frequent meetings at the Umhlanga restaurant
were
designed to persuade him to relent. It was not put to Mr
Govender that any interest he had in the business arose any
earlier
than at the end of the audit in July 2012 (which would have been in
the middle of or shortly after the middle of that month).
When
both he and the plaintiff denied any allegation that there were
weekly meetings with the second defendant, their denials were
not
challenged upon the basis that these meetings were the product of
their own anxiety to get into the business; nor that such
anxiety
arose out of marital difficulties; nor that the second defendant
exhibited a reluctance to take on a third partner.
It was not
put to the Govenders that they wanted to work together in the
restaurant. Both of them were in full time employment.
The plaintiff and Mr Govender did have marital difficulties on their
own version, but these, they said, arose as a result of failure
of
the restaurant venture and the plaintiff’s manifest
dissatisfaction with the poor advice given to her by Mr Govender,
that they should go into the venture.
[46]
I accept the evidence of the Govenders as to the circumstances in
which they came to be interested in the restaurant.
It was not
challenged in a manner consistent with the version eventually given
in evidence by the second defendant. (I intend
no criticism of
counsel for the defendants when I say that, as counsel was in a
position only to challenge the plaintiff’s
evidence on the
basis of instructions.)
[47]
Putting aside the conflicts between the evidence of the second
defendant and Mr Govender on the circumstances in which the
budget
came into being (ie who had a hand in it), and what material was
available at that time, I find the second defendant’s
explanation of the basis upon which the figures were established (and
on his version subsequently interrogated) unconvincing. According
to
him, despite the fact that the management accounts for the first
seven months of 2012 were available, the budget was based on
the
figures for the last five months of the 2012 tax year. This was
measured against an average for the whole of the 2012
tax year which
came to just less than R450 000. He said that the loss of
the Hampshire Hotel business was ignored on
the basis that the staff
at the restaurant would increase ordinary turnover in order to
overcome that. The evidence concerning
the contribution
previously made by the Hampshire Hotel business to the turnover of
the restaurant was vague and unsubstantiated.
It had been put
to Mr Govender that it was R80 000 to R100 000 per month.
In his evidence the second defendant
played it down, suggesting that
it was R50 000 to R60 000 per month, contradicting the
instructions he had given to counsel.
No attempt was made by
the defendants to produce any paperwork generated by the hotel
business. Mr Govender said in evidence
that he did not know
anything about earlier turnovers generated by business with the
Hampshire Hotel. I find it improbable
that the loss of an
income flow of the size attributed to the Hampshire Hotel would be
overlooked or swept aside in the course
of a genuine attempt to
create a predictive document such as the budget, and that the figures
for the 2012 tax year would be regarded
as a satisfactory basis for
structuring the budget for the last five months of the 2013 tax year
without having regard to what
was achieved during the first six or
seven months of the 2013 tax year.
[48]
Nothing which the second defendant said in evidence served to correct
or render unreliable the product of Mr Govender’s
analysis as
to what the management accounts for the restaurant for the months
March to September 2012 would have revealed (or must
have revealed if
they existed).
[49]
I found the second defendant to be an unsatisfactory witness. He had
little regard for accuracy, resorted to generalisations
and was
aggressive at times. I have concluded that where on any
material issue there is a conflict between the evidence of
the
plaintiff and Mr Govender (on the one hand), and the second defendant
(on the other), the version of the Govenders is to be
preferred.
Their evidence was consistent, not contradicted by documentary
evidence, not internally contradictory, and in
my view accords with
the probabilities.
CONCLUSION
[50]
I also find that the product of Mr Govender’s analysis dealt
with earlier in this judgment is as near as may be correct.
I
accept the arguments advanced by him and on his behalf as to the
implications of that analysis when considering the question
as to
whether Mr Moodley and the second defendant genuinely and honestly
believed that the budget constituted the realistic estimate
promised
to Mr Govender, and needed by the Govenders to make their decision as
to whether they would buy into the restaurant.
[51]
When the budget was presented to the Govenders, and when, relying on
it, they made their decision, the facts concerning the
then current
condition of the restaurant were not equally known to the
plaintiff and the defendants. The statement
by and on behalf of
the defendants that the budget was a realistic basis upon which to
make the contractual decision implied that
those figures were
consistent with what the defendants and Mr Moodley knew of the then
current performance of the restaurant, at
least from March through to
August 2012. Whether there were or were not management accounts
for those months available at
the time seems to me to make little
difference. Mr Moodley and the second defendant had to know
what turnovers were being
generated in those months. The second
defendant did not attempt to justify the prediction in the budget for
the last five months
of the financial year by making a comparison
with the turnovers which had been generated during the first seven
months of that
year. I find that the presentation of the budget
to the Govenders constituted an intentional misrepresentation as to
the
current condition of the restaurant.
[52]
In addition I find it probable that Mr Moodley and the second
defendant did not genuinely believe that the budget constituted
a
reasonable and satisfactory source of information upon which a
decision as to whether to get involved might be made by the plaintiff
and Mr Govender. I reject the second defendant’s evidence that
he was reluctant to take on a new partner. (Even Ms
Girdhari
expressed no surprise about being informed that a new partner was
coming in, given that she had understood that the restaurant
was
suffering from what she called “financial issues”.)
[53]
On the authorities already mentioned, the false implied
representation as to the current state of affairs at the restaurant,
and its recent performance; and the false representation as to a
belief on the part of Mr Moodley and the second defendant in the
genuineness of the predictions contained in the budget, are
actionable. The plaintiff must accordingly succeed in this
case.
[54]
Through an oversight the particulars of claim, and in particular the
order prayed at the end of them, reflected the purchase
price as
R700 000 as opposed to R750 000. Counsel for the
defendant did not object to an application from the bar
at the
conclusion of the trial to amend the prayer to reflect the correct
amount, which was accordingly granted.
[55]
From the outset the plaintiff’s prayer for judgment was for a
singular amount on the premise that the defendants are
jointly and
severally liable for payment thereof. No argument was raised
before me against the proposition that any judgment
should be against
the defendants, jointly and severally.
[56]
This trial was previously set down to commence on 7 June 2017.
On that day the plaintiff found it necessary to amend
her particulars
of claim as the incorrect version of the budget had erroneously been
annexed to the particulars of claim.
The defendants sought an
adjournment on that account, presumably contending that they were
prejudiced. The plaintiff agreed
to the adjournment on
condition that costs should be reserved. Counsel for the
plaintiff now argues that the amendment to
substitute the annexure
was a small matter causing the defendant no prejudice on the day.
I am inclined to accept that.
But in my view, if that was the
case, then the adjournment ought to have been resisted. It was
not brought to my attention
during argument that any other factors
were material to the question as to whether the trial should have
been adjourned on that
day. I conclude that no party should
have the benefit of a costs order for that day.
I
accordingly make the following order.
1.
Judgment is granted in favour
of the plaintiff against the defendants, jointly and severally, the
one paying the other to be absolved
for:
(a)
payment of the sum of R750 000;
(b)
interest thereon at the rate of
15.5% per annum from 1 November 2012 to date of payment;
(c)
subject to paragraph 2 below,
costs of suit including the costs of senior counsel, the costs of
preparation of written heads of
argument, and the costs of the action
under case number 50/2015.
2.
There is no order as to the
wasted costs occasioned by the adjournment of the trial on 7 June
2017.
___________________
Olsen
J
Date
of Hearing: 19 FEBRUARY to 21 FEBRUARY 2018
and
16
APRIL 2018 to 20 APRIL 2018
Date
of Judgment: THURSDAY, 12 JULY 2018
For
the Plaintiff: Mr AK Kissoon Singh SC
Instructed by: P R Maharaj &
Company
Plaintiff’s Attorneys
2
nd
Floor,
Ridge 63
8
Sinembe Park
Douglas
Sauders Drive
La
Lucia Ridge Office Park
Umhlanga
Rocks
Durban
(Ref.:
JJN/G381)
(Tel.:
031 – 566 1696)
For
the Defendant : Mr I Dutton
Instructed by: Woodhead Bigby Inc.
Defendants’
Attorneys
92
Armstrong Avenue
La
Lucia
Durban
(Ref.:
HSBB/vf/05M0641A4)
(Tel.:
031 – 360 9700)