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[2013] ZAGPPHC 391
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Wenneni Investments (Proprietary) Limited and Another v Brouze and Others (34349/2010) [2013] ZAGPPHC 391 (11 November 2013)
IN
THE NORTH GAUTENG HIGH COURT. PRETORIA
(REPUBLIC
OF SOUTH AFRICA)
CASE
NO: 34349/2010
DATE:
11 NOVEMBER 2013
NOT
REPORTABLE
NOT
OF INTEREST TO OTHER JUDGES
IN
THE MATTER BETWEEN
WENNENI
INVESTMENTS (PROPRIETARY) LIMITED
………………
FIRST
PLAINTIFF
SHANE
JEDEIKEN
…………………………………………………....
SECOND
PLAINTIFF
AND
KEITH
LARRY BROUZE
……………………………………………..
FIRST
DEFENDANT
DAVID
SOLOMON BROUZE
……………………………………..
SECOND
DEFENDANT
SHAWN
MAURICE LASHANSKY
……………………………….....
THIRD
DEFENDANT
JUDGMENT
KOLLAPEN
J:
Introduction,
the parties and other role-players
1.In
this action, the first plaintiff, Wenneni Investments (Pty) Ltd
(‘Wenneni'), a shareholder in the company Golden Pond
Trading
291 (Pty) Ltd (‘Golden Pondr), and the second plaintiff, Shane
Jedeikin, a director and chief executive officer of
Wenneni, seek
damages as against the three defendants, all of them directors of the
company Busby Trading (Pty) Ltd (‘Busby
Trading’).
2.What
brought the parties together in the context of this action was that
Wenneni and Busby Trading were the only shareholders
in Golden Pond,
Wenneni holding 49% of the shares and Busby Trading 51% of the
shares.
3.There
were four directors of Golden Pond during the time-period relevant to
this action and they were Jedeikin and one Guy Baxter
representing
Wenneni, while the first and the third defendants were directors
representing Busby Trading.
4.Apart
from its shareholding in Golden Pond, Busby Trading held numerous
interests in other entities, in the main in the retail
clothing and
apparel sectors, both in South Africa and Australia.
5.The
other significant role-players in this dispute are the Consensus
Business Group Limited (‘CBG’), Ethos Private
Equity
('Ethos') and the House of Busby Limited.
i.CBG
is a London-based investment company headed and controlled by Vincent
Tchenguiz and it provided part of the funds to the first
plaintiff
when it entered into a joint venture with Busby Trading using the
vehicle of Golden Pond. CBG’s interests in South
Africa were
handled by Guy Baxter and Brian Gamsu. Baxter was appointed to the
board of Golden Pond to represent the interests
of CBG.
ii.
Ethos is a private equity company that effected a management buy-out
of Busby Trading during the year 2007.
iii.
The House of Busby Limited was a listed company and it owned the
whole of Busby Trading.
6.The
significant event upon which the action is anchored is the exit of
Wenneni from Golden Pond during the period late July to
early August
2007. The plaintiffs' stance in launching these proceedings is that
the first plaintiff s exit from Golden Pond was
induced by
misrepresentation and non-disclosure on the part of the defendants
and that but for the misrepresentation and non-disclosure,
the first
plaintiff would not have exited Golden Pond, as and when it did, on
the terms which it did.
7.The
position of the defendants in opposing the relief sought is to deny
that any misrepresentations were made to the plaintiffs,
contending
that whatever was said to the plaintiffs was factually correct, while
in respect of the allegations of non-disclosure,
they place in issue
whether under the circumstances it could be said that there was a
legal duty to disclose, which they failed
to discharge.
The
factual background
8.The
factual background is drawn largely from the evidence of the parties
and the common cause facts. In addition reliance was
placed on the
various bundles of documents handed in by agreement between the
parties. The plaintiff called one witness, Shane
Jedeikin (the second
plaintiff), while the defendants called five witnesses in support of
their case namely the first and third
defendants, Guy Baxter of CBG,
Salome Peterson, an employee of the Busby Group, and Michael Jensen,
an associate at Ethos.
9.In
early 2005, Shane Jedeikin, keen to bring high-end labels in the fast
fashion industry to South Africa, identified as leading
brands two
Spanish labels, Mango and Zara, and went about trying to secure the
rights for the first plaintiff to bring those brands
to South Africa.
10.In
this regard he used his family connections with the royal family of
Spain and invoked the assistance of the South African
embassy in
Spain to secure meetings with the Spanish companies that held the
rights to Mango and Zara.
11.His
efforts appeared to yield positive results when Mango, in mid-2005,
intimated that it was willing to consider a serious potential
relationship. Jedeikin was mindful that if he was to succeed in
securing the Mango, and possibly the Zara rights, it would become
necessary to identify a partner with a strong foothold in the South
African retail market. This would not only make good business
sense
but would be essential in convincing Mango that the necessary skills,
infrastructure and experience were in place to achieve
the successful
introduction of the Mango brand into South Africa.
12..to
this end and assisted by his uncle. Howard Bloomberg, he was able to
secure a meeting with the first defendant, who headed
the Busby
Group. The outcome of that meeting was an in-principle decision that
Busby would work with Wenneni in order to take forward
the positive
intimations from Mango and to ultimately secure the rights to Mango.
Busby however would require Wenneni to contribute
finances for the
launch of the Mango brand and would seek full management control of
the Mango license and business in South Africa.
Wenneni was willing
to accept these conditions.
13.By
July 2005 Mango had committed itself to granting the first plaintiff
the sole rights to the Mango brand in South Africa on
the
understanding that those rights would be exercised in a joint venture
with the House of Busby Limited or one of its subsidiaries.
This
would have provided the basis for the formalization of the
arrangements between Wenneni and Busby which would culminate in
a
shareholders' agreement and a management agreement to which I will
return later.
14.One
of the consequences of the discussions between Wenneni and Busby was
that the former was required to contribute to the financing
of the
launch and roll-out of the Mango brand in South Africa. Wenneni, in
pursuit of securing the necessary funds for the operation,
was able
through the efforts of Jedeikin to convince Vincent Tchenguiz, a
London-based billionaire and chairman of the Consensus
Business Group
(CBG), to financially support the initiative to the extent of 250 000
pounds and this led to the conclusion of an
agreement between Wenneni
and CBG and the payment of 250 000 pounds to Wenneni.
15.In
the early part of 2006 a written contract with the effective date of
the 15th of February 2006 was concluded between Mango
and Golden Pond
securing for Golden Pond the rights to Mango in South Africa.
16.On
the 25th of April 2006 a shareholders’ agreement was concluded
between Busby Trading, Wenneni and Golden Pond which
provided in
broad terms as follows:
a)Wenneni
would hold 49% of the issued share capital of Golden Pond and Busby
Trading would hold 51%;
b)The
holder of each 20% of the issued share capital in Golden Pond would
be entitled to appoint one director of Golden Pond, which
had as its
consequence that Wenneni and Busby could each appoint two directors;
c)
That Wenneni. if it was offered the opportunity to participate in the
Zara brand, would be obliged to offer that opportunity
to Golden Pond
and if the latter took it up, it would require Busby and Wenneni to
each have a 50% shareholding and directorship
in that opportunity;
d)The
shareholders' agreement also provided that the consent of 70% of
shareholders would be required in order to undertake certain
acts and
this would include the sale and disposal of all or a major part of
the company’s assets. The parties were in agreement
that this
would have included the transfer of the Mango licence.
17.Shortly
after this, Jedeikin secured the other funds required as Wenneni’s
initial contribution to Golden Pond which together
with the 250 000
pounds that CBG had advanced, made up a sum of R 4,5 million.
18.The
directors of Golden Pond, following the shareholders’ agreement
to which reference has been made, were the first and
third defendants
representing Busby Trading, and the second plaintiff and Baxter
representing Wenneni with the latter in truth
and reality
representing the interests of CBG and Tchenguiz through Wenneni.
19.The
conclusion of the shareholders' agreement in April 2006 was followed
by the signing of a management agreement between Golden
Pond and
Busby Retail in July 2006.The management agreement provided that
Busby Retail would have full management and operational
control over
the Mango license in return for the payment of a management fee.
20.Plans
for the launch of a store in Sandton scheduled for October 2006 were
far advanced and while the parties, certainly on paper,
appeared to
have the fundamentals in place for the conclusion of a successful
joint venture through the agency of Golden Pond,
difficulties in
their relationship began to emerge when as early as September 2006.
Jedeikin expressed the view to Busby that he
felt he was being
sidelined.
21.The
launch of the first Mango store in South Africa in Sandton City was
regarded by all as successful, premised as it was on
a sound business
model combining as it did the initiative, enthusiasm and persistence
of Jedeikin, with the experience, networking
reach and positive
public profile of Busby. The months that followed however would
reveal a deep chasm in that relationship for
a variety of reasons and
the relationship steadily deteriorated, so much so that it
increasingly became adversarial, antagonistic
and sometimes even
hostile.
22.On
or about the 26th of July 2007 and following discussions between
Jedeikin and Keith Brouze (the first defendant), Wenneni
exited from
Golden Pond on the basis of the full repayment of its loan to Golden
Pond together with interest as well as a consideration
of R50-00 in
respect of the 49% of the shares it held in Golden Pond.
23.It
is the reasons that prompted the exit of Wenneni from Golden Pond
that are at the heart of the dispute between the parties.
What
ultimately is to be determined is whether the decision to exit was,
as is contended for by the plaintiffs, premised on misrepresentations
regarding the performance of the Mango brand and the financial
position of Golden Pond as well as the non-disclosure of the
discussions
between the House of Busby and Ethos about the possible
buy-out of House of Busby, or whether it was, as contended for by the
defendants,
premised on business reasons such as the withdrawal of
CBG from Wenneni and the desire to protect the investment of the
Wenneni
shareholders and investors, and was totally unrelated to the
alleged misrepresentations and non-disclosure.
The
issues in dispute
24.A
series of events played themselves out almost simultaneously and
parallel to each other in the months preceding the exit of
Wenneni
from Golden Pond and the takeover of Busby by Ethos. Those events
underpin the issues in dispute between the parties and
require
determination. They are:
a)The
performance of the Mango brand and the question whether the
defendants in their dealings and interactions with Jedeikin made
misrepresentations with regard to the performance of the brand and
the financial position of Golden Pond in the period preceding
the
decision by Wenneni to exit Golden Pond, leading to the exit of
Wenneni from Golden Pond;
b)The
interaction between House of Busby and Ethos in the period preceding
the exit of Wenneni from Golden Pond, and whether it
could be said
that the defendants owed a duty to the plaintiffs to disclose those
discussions and developments in the period preceding
the exit of
Wenneni from Golden Pond;
c)Whether
the alleged misrepresentations and non-disclosure induced the exit
agreement; and
d)Whether,
but for the misrepresentations and non-disclosure, Wenneni would have
exited on the terms and conditions that it did.
25.In
addition to the above there may be a need to consider the following
issues which may be tangentially related to and relevant
to the
determination of the main issues in dispute:
a)
The relationship between Jedeikin and the Busby group including the
decision to retrench Jedeikin;
b)The
decision by CBG to exit Wenneni, the reasons for the exit and its
relationship if any to Wenneni's exit from Golden Pond;
c)
The matter of the Zara brand and in particular Busby's overtures to
Zara;
d)
The manner in which the defendants made discovery in these
proceedings; and
e)The
manner in which the defendants dealt with the request made by the
plaintiffs for information in terms of the
Promotion of Access to
Information Act 2 of 2000
.
26.The
issues above are in essence at the core of the dispute between the
parties and each will be considered on its own and to
the extent that
the issues are related and may overlap with each other, the necessary
connection and appropriate reference will
be made.
The
separation of issues and the dispute around it in particular the
question of causation
27.At
a pre-trial conference held on the 19th of April 2011, the parties
agreed to a separation of issues and the relevant extract
from those
minutes reads as follows:
'The
defendants have agreed to a separation of issues on the basis
proposed by the plaintiffs i. e. that the issues arising from
paragraph 1-25 of the particulars of claim (as amended) as read with
the defendant's plea thereto would be determined at the trial
commencing on the 14 November 2011 and that the remaining issues
arising from paragraphs 26 to 37 of the plaintiff's particulars
of
claim (as amended) as read with the defendants 'plea thereto would be
determined, if needs be, at a later stage
28.There
was a further amendment effected to the plaintiffs’ particulars
of claim which introduced paragraph 25A and the parties
were in
agreement that paragraph 25A also falls to be determined in this part
of the proceedings.
29.There
is a dispute between the parties, notwithstanding the agreement on
separation arrived at, as to what the plaintiffs must
prove at this
stage in particular if regard is had to paragraph 25 A.
30.Paragraph
25A of the plaintiffs’ particulars of claim reads as follows:
‘
Had
it not been for the aforesaid misrepresentations and non-disclosures,
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 which it did’.
31.The
plaintiffs' stance is that in the context of paragraph 25A, all that
is required to be shown is that Wenneni would not have
exited from
Golden Pond at the time it did, on the terms and conditions that it
did. The precise terms and conditions under which
Wenneni would have
exited, but for the misrepresentations and non-disclosure, including
the value they would have sought for their
shares, is a matter, the
plaintiffs argue, for determination in the next stage of the
proceedings, if the matter should progress
that far.
32.The
defendants on the other hand take the position that what is required
at this stage of the proceedings is for the plaintiffs
to go beyond
simply proving that they would not have exited Golden Pond on the
terms and conditions on which they did, but they
are required to
prove on what terms and conditions they would have so exited but for
the misrepresentations and non-disclosure.
33.In
determining this aspect of the dispute and when one has regard to the
pleadings and the pre-trial minute to which reference
has been made,
then it is apparent that the effect of the decision to separate is
that the plaintiff is required to prove the following
issues:
a)Whether
there were misrepresentations;
b)
Whether there was non-disclosure;
c)
Whether the misrepresentation and non-disclosure induced the exit
agreement;
d)Whether,
but for the misrepresentation and non-disclosure, Wenneni would have
exited on the terms and conditions which it did.
34.It
is in my view clear that the consequence of the decision to separate
is that all that is required of the plaintiff in the
context of
causation is to prove that it would not have exited on the terms and
conditions which it did. What those terms and conditions
would have
been will, if necessary and required, have to be determined by
further evidence and a process whereby the conduct which
is the cause
of the harm is eliminated and one then asks what probably would have
happened if lawful conduct was substituted for
the conduct which is
eliminated.
(See
Wille’s Principles of South African Law 9th edition
1
on page 1117)
35.It
is clear that such an exercise was not one contemplated by the
parties at this stage of the proceedings if one simply has
regard to
the formulation of the issues in dispute and the evidence led in
support of those issues. I am accordingly of the view,
regard being
had to the pleadings and the pre-trial minute, that all that the
plaintiffs are required to prove is that they would
not have exited
from Golden Pond on the terms and conditions which they did, but for
the misrepresentations and non-disclosure.
Mango’s
performance in South Africa and the issue of the alleged
misrepresentations
36.The
management agreement to which reference has already been made
provided that Busby Retail would be responsible for the management
of
the Mango brand including all the operational aspects attached
thereto. Busby accordingly was responsible for the preparation
of the
management accounts and the collection and collation of all financial
data. For this they received a management fee of R
85 000-00 per
month.
37.Busby
was accordingly, on account of their management role as well as their
vast experience of the retail clothing sector, best
placed and
eminently qualified to pronounce on the performance of the brand as
and when this was necessary.
38.The
plaintiffs' case is that Busby Trading as well as the first and the
third defendant failed to present a fair picture of the
financial
position of Golden Pond to Wenneni. They contend that the following
was communicated by Busby to Jedeikin and others
regarding the
financial position of Golden Pond:
a)That
Golden Pond was suffering significant losses;
b)
On the 4th of July 2007 Busby Retail informed Jedekin that the Mango
brand was not doing as well as expected and that this necessitated
cost- cutting measures;
c)
On the 25th of July 2007, the first defendant informed Jedeikin that
Golden Pond was in a poor financial position, that shareholders
faced
the risk of losing their investment and suggested that Wenneni exit
Golden Pond. At that point Jedeikin was willing to exit
on the basis
of the repayment of the Wenneni loan account and a fair value for the
shares it held; and
d)
On the 26th of July 2007 the first defendant informed Jedeikin that
if Wenneni did not sell its 49% equity interest in Golden
Pond to
Busby in return for payment of Wennenrs loan to Golden Pond, Busby
would apply for the winding up of Golden Pond. After
the discussion,
Jedeikin agreed to exit on the basis of the repayment of the loan
account and the payment of R50-00 in respect
of the shares Wenneni
held.
39.The
plaintiffs' stance is that the description of Golden Pond as being in
a poor financial position was false and it relied on
the following in
support of its stance:
a)
During September 2007, some two months after the alleged
misrepresentation, House of Busby in a SENS announcement advised that
its South African retail division had successfully launched Mango
into the South African market and that the concept was meeting
expectations;
b)
During February 2008, House of Busby in a SENS announcement reported
that all divisions in the group had performed well and that
the group
had delivered meaningful growth across its portfolio of brands;
c)
In a report called the Benefits and Concerns (B’s and C’s)
that Ethos had prepared on the 24th of July 2007 it was
stated that4
A world-leading brand such as Mango has only been rolled out in
Sandton, with great success'. This report was based
in large measure
on information the plaintiffs argue could only have been sourced from
Busby and it is not in dispute that Busby’s
corporate advisers,
Java Capital, had made information, including financial information,
available to Ethos on a confidential basis
before the preparation of
the report;
d)
In addition the plaintiffs argue that it was in the contemplation of
Busby that Mango would only be profitable from the second
year
onwards as time and patience were required to develop a brand and
that if Golden Pond was in a poor financial position in
July 2007,
only some 10 months after the launch of the brand, it was precisely
what was expected and contemplated when the Mango
brand was launched.
40.The
first defendant disputes the version of the plaintiff with regard to
the discussions and the statements made on the 25th
and the 26th of
July 2007. His version was to admit that he informed Jedeikin that
Golden Pond was not in a good financial position
and that the Mango
brand needed time. In addition he said that the shareholders of
Golden Pond risked losing their investment in
the event of there not
being a large capital injection into Golden Pond
41.In
assessing the veracity of the claims with regard to misrepresentation
the following in my view provides a useful prism through
which to
assess whether the statements made, even on the defendants’
version, represented the true picture of the performance
of the Mango
brand or on the other hand constituted such a distortion of the true
picture that it would constitute a material misrepresentation:
a)
It was hardly in dispute that the introduction of a new brand such as
Mango was likely to be challenging and that it would need
between two
and three years to show profitability. In this regard the evidence of
the third defendant was that he did not expect
Golden Pond to be
solvent in the first year of operation while the first defendant
informed the board of Golden Pond in February
2007 that while there
were challenges with the opening of any store, the store in Sandton
was doing well;
b)
The third defendant conceded in his evidence that when Jedeikin was
informed in July 2007 that the Mango brand was not performing
to
expectations, this was a reference to budgeted expectations, which
could have been incorrect, and was not a reference to the
performance
of the brand as such;
c)
The third defendant also conceded that there was no real difference
in the performance of the brand from July 2007 to when the
SENS
announcement was made in September 2007;
d)
It must accordingly follow that if the brand was meeting expectations
in September 2007, it also was meeting expectations in
July 2007 if
there was no real difference in its performance as testified to by
the third defendant;
e)
The third defendant sought to explain the difference in the July 2007
communication to Jedeikin and the September 2007 SENS announcement
by
distinguishing between the concepts of budgeted expectations and
performance expectations and stated that w'hat was said to
Jedeikin
was in relation to budgeted and not performance expectations while
the SENS announcement related to performance and not
budgeted
expectations;
f)While
no doubt such a distinction may have existed at the time, the problem
is that both the July communication to Jedeikin and
the September
2007 SENS announcement were without qualification or explanation and
clearly on the face of it both related to one
aspect of the brand
only - its performance in relation to expectations;
g)The
explanation offered by the third defendant, is with respect
convoluted and not supported by the text of the two statements
but in
any event his evidence that there was no real difference in the
performance of the brand between July and September 2007
is telling.
42.Accordingly
and even on the version of the first defendant it is clear that what
was being presented as Golden Pond being in
a poor financial position
was hardly consistent with the communication of Busby to the outside
world and in particular to Ethos
in July 2007 almost at the time of
the exit of Wenneni, namely that the Mango brand had been rolled out
with great success and
was meeting expectations.
43.In
addition it could hardly be said that the risk of investors losing
their investment in Golden Pond was a real or imminent
risk at the
time the statement was made on the 25th of July 2007 by the first
defendant to Jedeikin. If there was such a risk at
all, it hardly
makes sense that in the Benefits and Concerns (B?s and C's) document
prepared by Ethos and based in part on information
provided by Busby
through its corporate advisors Java, the Mango brand is described as
having been rolled out with great success
and that there were
absolutely no reservations expressed with regard to the performance
of the brand.
44.On
the contrary the B's and C's report in motivating the attractiveness
of the business of Busby places considerable emphasis
on the place of
brands in the retail market and uses the example of the introduction
of the Mango brand as evidence of the success
of such brands and
their potential in the context of Busby.
45.Whatever
the true position may have been as at July 2007, and even accepting
that there were liquidity challenges with regard
to the funding of
further Mango stores, the portrayal of Golden Pond as being in a poor
financial position with the attendant risk
of investors losing their
investment was a misrepresentation of the true position and given
that it went to the heart of the very
existence of Golden Pond and
the possibility of its demise, it was clearly material in nature.
46.The
defendants have sought to challenge the honesty and the reliability
of the evidence of Jedeikin with regard to the telephone
conversations he held with the first defendant and have suggested
that he gave differing accounts of what transpired in those
conversations during his cross-examination.
47.When
one has regard to the evidence of Jedeikin and his cross-examination
which was extensive, and while it may be so that the
actual words and
phrases he used to describe the discussions between himself and the
third defendant do differ in his various responses,
the thrust of the
responses remained substantially the same. What is constant and
consistent in his responses is that in all of
them he describes how
the first defendant alluded to the poor financial prospects of Golden
Pond and the risk of investors losing
their investment which in any
event accords in large measure with the version of the defendant.
48.I
am of the view that the difference the defendants have sought to
highlight does not lend itself to the conclusion that the
evidence of
Jedeikin was dishonest and unreliable on this aspect given that the
thrust of his responses demonstrates a consistency
that militates
against the conclusion the defendants seek.
49.The
defendants in addition point out that the failure by Jedeikin to
record the conversation with the first defendant in the
form of an
e-mail or note as well as the absence in his attorney's letters of
any threat of liquidation being made by the first
defendant supports
the contention that his evidence on this aspect was a fabrication. I
am unable to agree with that conclusion.
50.The
mere failure to record and the absence of the details of the threat
of liquidation in the attorney's letter cannot sustain
the conclusion
of fabrication and does not in my view detract from the conclusion
that while Jedeikin may have at times been long-
winded, circuitous,
combative and argumentative, requiring the intervention of the Court
on several occasions, I found his evidence
to be generally truthful
and reliable.
51,On
the other hand when one has regard to the evidence of the first
defendant, in particular his evidence that despite his statement
at
the Golden Pond board meeting of the 9th of February 2007 that Busby
was not interested in the Zara brand, he made contact with
Zara the
very next day to seek a relationship between Zara and Busby to the
exclusion of Wenneni - a direct contradiction of what
he communicated
to his fellow directors
52.He
was both unsuccessful and unconvincing in attempting to explain away
his approach to Zara as a general overture for the future,
which in
any event was contradicted by the very precise terms of his e-mail to
Zara of the 10th of February 2007 seeking a business
relationship,
advising that time was of the essence and categorically stating that
there would be no third parties involved (a
clear reference to
Wenneni/Golden Pond).
53.This
conduct was described as dishonourable by Brian Gamsu of CBG. Guy
Baxter who testified for the defendants, when comparing
the
communication of the first defendant to his fellow directors with his
immediate approach to Zara thereafter, properly characterised
it as a
misrepresentation to his fellow directors. This points tellingly in
the direction of what can only be described as highly
questionable
conduct and a willingness to distort the truth when business
exigencies required it. I did not find the first defendant
to be a
reliable witness and he made a poor impression in the witness box
54.In
dealing with his approach to Zara in February 2007 and in attempting
to explain his stance of non-interest as communicated
to his fellow
directors in Golden Pond on the 09th of February 2007 as opposed to
his letter to Zara the following day clearly
expressing an interest
and willingness to do business with them, the following exchange
provides some insight into how he conducted
himself when he responded
to a question by counsel for the plaintiffs:
'Question:
Is it not dishonest to say to them something which you do not believe
to be true?
Answer:
No ’.
55.In
my assessment of the evidence on this issue, I am of the view that
the plaintiff s evidence is more reliable than that proffered
by the
defendants. The version of the defendants does not in my view' accord
with the factual reality of the performance of the
Mango brand as it
existed on the 25th of July 2007, in particular that there was
nothing negative about the performance of the
brand mentioned in the
B’s and C’s report. If the brand was performing as poorly
as the defendants would have Jedeikin
believe, it would certainly
have warranted mention in the B’s and C’s report.
56.In
my view and having regard to the above, the probabilities lean
overwhelmingly in favour of the version of the plaintiff with
regard
to the telephone conversations of the 25th and 26th of July 2007 and
this is fortified by the almost immediate change in
stance adopted by
Jedeikin with regard to his abandoning his claim for payment at fair
value for the Wenneni shares after the telephone
discussion with the
first defendant.
57.I
am accordingly satisfied that the defendants misrepresented the
financial position of Golden Pond and the performance of the
Mango
brand in South Africa in their interactions with the plaintiffs and
that when the threat of liquidation of Golden Pond was
made, it was
made at a time when to the belief and knowledge of the first
defendant, there was no basis for making such a threat.
These
misrepresentations were by their very nature material, going as it
were to the very heart of the Mango business and its future.
58.In
the context of this matter I am satisfied that the representations
were false.
59.When
Busby Trading informed Jedeikin in early July 2007 that the brand was
not meeting expectations and when the first defendant
informed
Jedeikin on the 25th of July 2007 that there was a risk of
liquidation and that investors faced losing their money, there
was no
objective basis for such statements and they were not in accordance
with the reality of the performance of the Mango brand.
That they
were nevertheless made without regard to their truthfulness renders
them not only false but in my view, and as I will
demonstrate, they
were made deliberately and with the knowledge of their falsity and
with the intention of inducing the first plaintiff
to exit from
Golden Pond on the terms and conditions which it did.
The
Ethos discussions and negotiations leading to the buy-out
60.By
way of introduction Mr. Michael Jensen of Ethos took the Court
through the various stages that would theoretically form part
of a
transaction process from an Ethos perspective. Obviously not all
initiatives would result in a transaction and while some
progressed
to finality, many were aborted at some stage of the process. He
described the various stages as follows:
a)
The fund-raising which requires accessing capital or obtaining a
commitment to that effect;
b)
The deal transaction origination which entails looking at the
opportunities and undertaking a broad assessment of them;
c)
The assessment, processing and approval which involves a more
detailed assessment of the opportunity. This requires analyzing
public information and possibly non-public information and provides a
thorough analysis of the benefits and concerns regarding
the
potential transaction. It also may entail a preliminary investment
committee meeting which may give the deal team approval
to start
incurring transaction costs. In his view a decision of the
preliminary investment committee would signify ‘real
intent’
and such a decision would involve all partners, principals and
associates of Ethos, clearly suggestive of the seriousness
of the
process;
d)
This would then lead to the submission of a non-binding expression of
interest letter, followed by the processing of the transaction,
due
diligence and structuring;
e)
A follow-up meeting of the investment committee would be held which
would then lead to the submission of a firm intention to
offer;
f)
Finally the processes around a scheme meeting and High Court sanction
of the scheme would be given effect to.
61.In
the context of the Ethos and Busby discussion, the interaction
commenced in late February 2007 when Ethos staff identified
Busby as
a retail entity that Ethos may be interested in investing in.
62.A
meeting was held on the 02nd of March 2007 attended by
representatives of Ethos and the first and second defendants
representing
Busby which was largely exploratory in nature.
63.This
was followed by telephonic discussions between Mr Jos van Zyl of
Ethos and the first defendant until about the 25th of May
2007 when
the first and second defendants indicated to Ethos that Busby was
interested in looking at a possible transaction.
64.A
meeting was then held on the 31st of May 2007 attended by Jensen and
other Ethos representatives and the first and second defendants
representing Busby at which meeting Busby intimated its keenness to
do a transaction with Ethos. Ethos in its turn would require
further
information, including non-public information in order to take the
process forward.
65.Towards
the end of June 2007, Jedeikin approached the third defendant and
asked him about a possible buy-out by a private equity
company. The
third respondent did not respond and his evidence was that he did not
tell Jedeikin about the Ethos approach as in
his view it was
sensitive information and he was concerned that if the information
came into the public domain it would have an
effect on the share
price of Busby.
66.On
or about the 12th of July 2007, Busby and Ethos concluded a
confidentiality agreement in relation to the possible transaction
and
in terms of which Busby intimated a willingness to disclose
corporate, business and financial information relating to the House
of Busby to Ethos on the basis of confidentiality. This information
was thereafter made available to Ethos by Java Capital, the
corporate
advisors to Busby.
67.Ethos
proceeded to prepare the B’s and C’s Report which was
approved by Ethos at an internal meeting on the 24th
of July 2007 and
which then served before a meeting held on the 25th of July 2007
between Ethos and the House of Busby, it being
shared with Busby in
advance of the meeting.
The
following appears from the B's and C’s Report:
a)
That during the March meeting between Ethos and Busby to which
reference has already been made, the first and second defendants
intimated that the timing of the Ethos approach was appropriate as
they 'were looking to realize some/all of their investment';
b)
That the number and quality of the brands in Busby was an attractive
aspect of the possible transaction;
c)
That the Mango brand, described as a ‘world leading brand’
has been rolled out with great success;
d)
That Ethos was the only potential bidder that had received non-public
information from Busby;
e)
That Ethos has prepared a presentation for a proposed transaction
structure and will meet David and Keith Brouze, the first and
second
defendants, as soon as possible;
f)
The report concluded with a recommendation that Ethos proceeds with a
proposal to the major shareholders of Busby and for testing
their
support for the deal structure and pricing.
68.The
B’s and C's report and recommendation it made was approved by
the preliminary investment committee of Ethos and then
shared with
House of Busby. On the 25th of July 2007 a meeting was held between
Ethos and Busby where the B’s and C’s
report served as
the basis for discussion.
69.At
the meeting of the 25th of July 2007 which was attended by the first
and second defendants, Ethos made certain proposals which
Busby found
unacceptable from a price and structure perspective. The principle of
a possible transaction was however not jettisoned
and Busby agreed to
prepare a revised proposal that would accord with the structure Busby
preferred and the price that would go
with it.
70.Further
meetings followed early in August 2007 as well as the exchange of
various e- mails and other documents in advance of
the proposed
transaction resulting in the investment committee of Ethos deciding
on the 18th of September 2007 to submit a non-binding
expression of
interest to Busby. This was followed by further processes which
culminated in the submission of a firm offer in November
2007 which
led to the conclusion of the transaction.
71.The
defendants and Jensen have contended that the Ethos approach was only
in respect of acquiring the majority interest in Busby
and there was
at no stage any interest in acquiring the interests of minority
shareholders or subsidiaries. To this end they argue
that the
discussions and the negotiations would have no impact or consequence
for minority shareholders in a subsidiary, the position
in which
Wenneni was prior to its exit from Golden Pond.
72.In
addition it is the stance of the defendants that the acquisition and
control of licenses to brands was never part of the discussions
held
and accordingly the fact that a 70% majority was required to effect
transfer of the Mango license in Golden Pond which would
have
required the support of Wenneni, was not an issue.
73.It
is against this background and in particular the trajectory of the
discussions, negotiations and the exchange of information
between
Ethos and Busby that the question of whether as at the 25th of July
2007 or at any earlier date it could be said that the
defendants were
under a duty to disclose to Jedeikin and Wenneni the nature of the
contact and the discussions between Ethos and
Busby must be
determined.
The
duty to disclose and the legal convictions of the community
74.The
determination of what the legal convictions of the community would
require of parties in a given relationship and a particular
time is
an exercise that cannot be determined by reference to what was
described in the majority judgment in BRISLEY v DROTSKY
2002 (4) SA 1
as the ‘idiosyncratic inferences of a few judicial minds’.
In Brisley (supra) Cameron JA, in a separate concurring
judgment, in
expressing the view that the phrase 'the legal convictions of the
community’ may be a concept open to misrepresentation
and
misapplication, suggested that it should be replaced by reference to
‘the appropriate norms of the objective value system
embodied
in the Constitution.'
75.He
concluded that those values had to be employed to achieve a careful
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.
76.The
argument that the Constitution should form the template for
determining the legal and policy considerations in imposing a
legal
duty also found support in TRUSTEES, TWO OCEANS AQUARIUM TRUST v
KANTEY & TEMPTER
2006 (3) SA 138
(SCA). The Court, in the context
of dealing with a claim for pure economic loss and in dealing with
the existence of a legal duty,
expressed the view (at 144C) that
(T)he imposition of such a legal duty is a matter for judicial
determination involving criteria
of public or legal policy consistent
with constitutional norms’.
77.It
must accordingly have regard to a number of factors and they would
include but not be limited to:
a)The
Constitution and the legal framework in support of it including the
values underpinning the Constitution such as dignity and
equality.
b)The
relationship between the parties and whether information falls within
the exclusive knowledge of one party while the other
relies on frank
disclosure thereof
c)The
previous dealings between the parties and whether there could be said
to be a duty to make full disclosure if a previous statement
or
representation of the one party constitutes an incomplete or vague
disclosure which requires to be supplemented or elucidated.
(See
McCANN v GOODALL GROUP OPERATIONS (PTY) LTD
1995 (2) SA 718
(C)
)
78.
Applying those principles and criteria to the matter on hand and
working on the version substantially of the defendants which
is the
only version before the Court, the plaintiffs not being privy to the
Ethos dealing and discussions, the following emerges:
a)While at the 25th of
July 2007, no transaction had been concluded, it could be said that
Ethos and Busby had made progress from
the 2nd of March 2007 in
moving beyond a general sounding out to the further phases in the
transaction cycle described by Jensen;
b)That at the 25th of
July 2007 from the Ethos perspective they had resolved to proceed
with the deal and had made certain proposals
as well as having
committed funds to undertake various investigations and inquiries
that could become necessary in order to advance
and conclude the
deal. The B’s and C's report requested R46 million for this
purpose which was approved by the preliminary
investment committee of
Ethos;
c)Ethos was in a very
different position from any other potential bidder. Its decision of
the 24th of July 2007 signified 'real
intent’ according to
Jensen and it was the only bidder who was favoured with non-public
information - certainly an indication
of the seriousness of the level
to which matters had progressed between Ethos and Busby
d)While the high-level
meeting of the 25th of July 2007 did not result in the acceptance of
the proposals Ethos had made, they w'ere
rejected on price and
structure with the understanding that a new proposal would be
submitted by Busby shortly. This is indicative
that the principle of
advancing the deal was very much alive even if agreement on the
proposals had by then not materialized
79.
While one must immediately accept that as at the 25th of July 2007,
there was no certainty that a deal would be concluded, it
must also
be evident on the other hand that the duty to disclose cannot arise
only at the point where there is certainty of a deal
being concluded.
There would in this regard be a point somewhere along the continuum
of activities that led to the conclusion of
the deal, where matters
had progressed to the point, that regard being had to the legal
convictions of the community, the duty
to disclose would have arisen
and my view is that by the 25th of July 2007, following Ethos’
adoption of the B’s and
C’s report and the high-level
meeting between Ethos and Busby this point was reached at least then,
if not earlier.
80.In
coming to this conclusion the evidence of the third defendant is also
relevant to the extent that when he was asked by Jedeikin
at the end
of June 2007 about an Ethos approach, of which the third defendant
was aware at the time, he elected to remain silent.
The response of
silence was not in accordance with the factual reality and was
dishonest and the third defendant sought to justify
his silence on
the basis that the information was price-sensitive.
81.
If, as the defendants contend, the discussions were at a very
preliminary stage and there was no duty to disclose as nothing
material had transpired, then it hardly makes sense that non-material
information could be price-sensitive. If it was price-sensitive
as
the third defendant has testified, then it must in my view follow
that the information had become sufficiently material by then
and
there could be no justifiable basis not to disclose it.
82.Accordingly
all three defendants who either had knowledge of and/or were involved
in the actual discussions between Ethos and
House of Busby which
ultimately resulted in the transaction, had by at least the 25th of
July 2007, the duty to disclose those
discussions to the plaintiffs.
It is common cause that there was no such disclosure.
The
argument that the Ethos approach was for the holding company and not
the subsidiaries or the minority shareholders
83.The
defendants have formulated the following question in seeking to argue
that the duty to disclose could never arise under circumstances
where
what Ethos was interested in would have no bearing on Golden Pond:
‘
At
the heart of this case is the question whether the Chief Executive
Officer of a listed company, and the managing director of
a wholly
owned subsidiary thereof which latter company is a 51% shareholder of
a trading company, is duty hound to inform the 49%
co-shareholder of
the trading company (who is disposing of such shareholding in favour
of the 51% shareholding), of negotiations
being conducted by them on
behalf of the listed holding company with a private equity firm for
the latter to acquire a majority
shareholding in the holding company,
in circumstances where the private equity firm does not express an
interest in acquiring minority
shareholdings of trading subsidiaries,
nor the transfer to it of or 100% control over trading licences’
84.
The stance of the defendants is that the interest of Ethos was
confined to acquiring the majority interest of House of Busby
and it
was not concerned with the minority shareholders, the subsidiary
companies or in seeking 100% control over licences. Under
those
circumstances they argue that the Ethos approach was neither of
interest to nor was of relevance to the minority shareholders
or
subsidiaries, of which Golden Pond was one and it could therefore not
be said that there was a duty to disclose under such circumstances.
In order to illustrate this, Jensen produced an organogram of the
Busby corporate structure at the time which is attached here
as
annexure A and insisted that the entities above the red line on the
organogram de-lineated what Ethos was interested in, while
those
below the red line held no interest for Ethos.
85.
This argument would have held attraction if that which was below the
so-called red line was of no interest to Ethos and did
not feature in
how it was conceived, constructed and motivated the deal.
86.
While it may be correct that Ethos did not seek to acquire
minorities, subsidiaries or licences, what was happening in trading
entities below the red line was clearly important. The B’s and
C’s report makes reference to the retail operations
of Busby,
the brands it held including the Mango brand, which was in a
subsidiary.
87.In
rule 28(4) proceedings in this action, Jensen filed an affidavit in
support of the defendants and in that affidavit he deals
with the
internal Ethos approval of the 24th of July 2007 and sets out in
detail the further steps that would have had to be put
in place to
conclude any proposed transaction and they include what he describes
as 'approvals from the licensors of Guess, Nine
West, Aldo, Esprit
and Mango for the change in control of Busby and the required
transaction restructuring’.
88.As
at the 24th/25th July 2007, this would have been the approval of
Golden Pond in respect of the Mango licence and the shareholders’
agreement would have required the approval of 70% of the shareholders
(which would have necessitated the approval of Wenneni).
Clearly as
at the 24th/25th July 2007 on the version of Jensen, Golden Pond as
licence holder of the Mango brand, would have had
an interest in what
was transpiring even if the proposed transaction was not in relation
to its shareholding or the licence. Had
Wenneni continued to remain
in Golden Pond as the process unfolded, its approval would have been
required.
89.In
my view the so-called red line is not some impenetrable barrier. One
must take a broad and realistic approach to what was
happening at the
time. The intention of Ethos to acquire the majority in House of
Busby would have a cascading effect on other
entities including
subsidiaries and licensors as demonstrated by the B and C’s
report and the affidavit of Jensen.
90.Therefore
returning to the question posed, it is evident that it cannot and
should not be answered in isolation but in context.
The answer cannot
always be in the affirmative, but in this instance it must be. In
doing so this does not constitute an unwarranted
extension of the
duty to disclose but rather interprets such a duty in context and on
the unique facts and circumstances of each
case and accords with the
general policy approach that in such circumstances the legal
convictions of the community would require
disclosure.
91.The
defendants' argument that the Ethos approach to the extent that it
did not relate to the acquisition of minorities or subsidiaries
or
licensors, is in my view narrow and limited and loses sight of the
fact that while Ethos sought to acquire the majority shareholding
in
House of Busby, what was happening in the trading entities w'hich
were subsidiaries was relevant and played an important role
in how
the deal was motivated and advanced. The defendants, who having
considered the B and C’s report, must have been aware
of the
thinking and approach of Ethos and what were the factors that made
its proposed deal attractive and worth pursuing.
92.After
all, the duty to disclose is to be assessed from the perspective of
the defendants and not from the perspective of Ethos.
The suggestion
that the subsidiaries were so remote from the proposals discussed is
accordingly not sustainable. There is in my
view' a sufficient
connection as I have demonstrated to render the connection
sufficiently close and to render the discussions
material and thereby
activate the duty to disclose.
Did
the misrepresentation and non-disclosure lead to the exit of Wenneni
from Golden Pond?
93.In
my view what was portrayed by the first defendant to Jedeikin during
the latter part of July 2007 could hardly have been as
negative as it
was made out to be. Jedeikin relied on it and was entitled to accept
it as the correct status of the performance
of the brand and the
position of Golden Pond. This the plaintiffs argue is compellingly
demonstrated by the virtually immediate
change in stance in relation
to the exit strategy of Jedeikin over the 24 hour period from the
25th July 2007 to the 26th July
2007.
94.The
stance of Jedeikin on the 25th July 2007 was to seek an exit on
repayment of the loan account together with interest as well
as a
favourable and fair value price for Wenneni!s shares particularly in
respect of the goodwill of the brand. This stance changed
so
dramatically by the 26th of July 2007 that Wenneni was prepared to
exit without receiving any value for its 49% shareholding
in Golden
Pond.
95.This
of course raises the question as to what prompted Jedeikin, who
worked hard over time to contribute to securing the Mango
brand for
the South African market, to simply abandon his request for payment
for the fair value of Wenneni's shares and be willing
to part ways,
as he ultimately did, in return only for his investment and interest
and a nominal payment of R50-00 for the 49%
of shares Wenneni held in
Golden Pond?
96.In
my view the most significant external event which occurred between
the 25th and the 26th of July 2007 was the discussion between
Jedeikin and the first defendant. The change in stance could only
have come about, as Jedeikin stated in his evidence, following
a real
fear that the investment made by Wenneni was at risk in a possible
winding up of Golden Pond by Busby.
97.With
regard to the non-disclosure of the Ethos discussions the approach to
be taken is obviously different in that what is required
is a
hypothetical exercise that removes from the equation the offending
conduct and replaces it with what should have occurred,
and then to
pose the question - had Jedeikin been aware of the Ethos discussions
what is likely to have occurred?
98.The
evidence of Jedeikin in this regard was that Wenneni would have
exited on different terms and conditions had he been told
the truth.
While those precise terms and conditions may have to be determined at
a future time, I must accept that if regard is
had to the totality of
the evidence, then it is clear that if Jedeikin was not misled about
the performance of Mango and the threat
of liquidation and if he was
informed of the status of the Ethos discussions as at the 25th of
July 2007, he would not have exited
on the basis of a nominal payment
of R50-00 in respect of the 49% shareholding of Wenneni.
99.The
defendants have argued that the exit of Wenneni was occasioned by the
decision of CBG to call up its loan to Wenneni. They
argue that as
Wenneni had no other source of funds, the only way to repay the CBG
loan was to exit Golden Pond on the terms and
conditions they did at
the time.
100.In
examining this proposition the following is relevant:-
a)CBG's
representatives in South Africa hardly had the appetite for the
retail sector. They considered the Wenneni involvement as
time-consuming and frustrating;
b
)Vincent Tchenguez, who headed CBG, had a soft spot for Jedeikin and
may have been motivated by altruism in becoming involved
in Wenneni
and Golden Pond;
c)With
the passage of time CBG’s South African representatives, Baxter
and Gamsu, apart from their reservations about the
retail sector and
the business of Golden Pond, took a clear position with regard to the
problems between Jedeikin and the first
defendant, with Baxter
stating unequivocally that Jedekin had antagonized the third
defendant and that moving forward, CBG needed
the support of Busby
Trading;
d)Under
these circumstances it was evident that from a local CBG perspective,
Jedekin was seen as the problem.
101.
The withdrawal of CBG cannot be viewed in isolation as it played
itself out close to the timeline when the position of Jedeikin
as an
employee of Golden Pond was under threat as well as the
misrepresentations made to him regarding the financial position of
Golden Pond and the risk of loss to investors.
102.
The evidence of Jedeikin was that if the supposed real risk to
investors did not exist, then it would have been open to him
to
approach other investors and the name of Hans-Dieter Fuchs came up as
one possible investor. While the stance of the defendants
was that
this was an afterthought as the name of Fuchs never featured as a
possible investor, it was clear from the evidence of
Baxter, called
by the defendants to testify in their case, that Fuchs (accompanied
by Jedeikin) had met with Baxter in early 2007
and expressed an
interest in becoming financially involved in Wenneni and Golden Pond.
Baxter's response was in the negative.
103.
My view is that in considering whether the CBG loan was the reason
for the exit, regard must be had not only to the CBG-Wenneni
relationship but also to the operation of other factors which existed
at the time including the effect the misrepresentations would
have on
securing other investors as well as the possible effect of the Ethos
discussions on the entire decision to exit. It is
not an event that
stands in isolation or that can be considered without the operation
of other facts and events which existed at
that time. In my view even
if CBG would have exited if they became aware of the Ethos
discussions, this would not necessarily have
resulted in the Wenneni
exit as the Ethos discussions, if they were disclosed to Jedeikin,
may well have enabled Jedeikin to attract
another investor. In my
view, the CBG exit was accordingly hardly decisive when viewed in
context.
The
retrenchment of the second plaintiff
104.
On the 04th of July Shane Jedeikin received a letter on a
Mango/Golden Pond letterhead advising him of his possible redundancy
on the basis that the Mango brand was not performing as well as
expected. The letter however was signed by Francois du Rand, the
financial director of Busby Retail. In his evidence relevant to the
redundancy of Jedeikin, Shawn Lashansky testified that apart
from the
letter to Jedeikin, no other employees received redundancy letters
and he was unable to identify any other cost-cutting
measures that
were taken at the time.
105.
If indeed the possible redundancy of Jedeikin was a genuine
cost-cutting exercise, one would have expected that such an exercise
would have been comprehensive in identifying both other employees to
be retrenched and other areas of the operations of Golden
Pond where
costs could be cut. The fact that none of this happened must point
overwhelmingly in the direction that the possible
redundancy of
Jedeikin was not genuine and was, as contended for by the plaintiffs,
an attempt to get Jedeikin out of the picture
as it were.
The
defendant’s discover
106.
A discovery affidavit was filed by the third defendant on behalf of
all the defendants in these proceedings. In his evidence
the third
defendant conceded that the Ethos negotiations and the deal that
followed it was at the centre of the litigation between
the parties
but notwithstanding this, there was no discovery in respect thereof
with the exception of two documents. In this regard
he conceded that
the discovery affidavit contained an untruth. This of course
necessitated further discovery.
107.
In my view the deficient manner in which the defendants dealt with
the discovery of the Ethos documents clearly demonstrates
intent on
their part to conceal the existence of any meaningful discussions
with Ethos in relation to the sale of the House of
Busby.
The
manner in which the PAIA request was dealt with
108.
Following the release on the 01st of October 2007 by the House of
Busby of a cautionary announcement regarding the Ethos transaction,
the plaintiffs through their erstwhile attorney submitted a request
in terms of the Promotion of Access to Information Act 2 of
2000
('PAIA') to the House of Busby for documents and information relating
to Golden Pond, Busby and the interactions between Busby
and Ethos in
2006 and 2007. The request was made on or about the 21st of December
2007.
109.
The stance and the strategy of the House of Busby in dealing with
this request is captured in a letter dated the 11th of February
2008
from Busby's then attorney (ENS) to the third defendant. The letter
after referring to a meeting held on the 17th of January
2008,
proceeds to confirm the following to Busby:
a)
‘That we are to delay this matter for as long as possible;
b)
That if Werksmans (the plaintiffs’ then attorney) are able to
comply with the requirements of the Act in submitting the
request for
information, there may be an obligation to disclose the information
(or some of it) that could successfully be enforced
in court;
c)That
when a new request comes we again have 30 days within which to
respond, and then will look at raising other deficiencies
in the
request or simply refusing to provide the information requested on
one of the grounds set out in the Act and defend any
court action
that may follow.’
110.It
is abundantly clear that the strategy adopted as evidenced above was
to deliberately frustrate the plaintiffs' right of access
to
information even in the face of a concession that there was a duty to
disclose the information and this in my view' supports
the
conclusion, having regard to the other evidence including the failure
to disclose the Ethos discussions and the deficient manner
of
discovery, of a persistent and considered pattern of non-disclosure
by the defendants in order to frustrate the plaintiffs in
the
exercise of the rights they had.
111.Thus
while the allegations of misrepresentation and those of
non-disclosure played themselves out on different tracks, they
were
from the defendants' perspective happening simultaneously. The
discussion between Jedeikin and the first defendant with regard
to
the performance of Mango and the possible demise of Golden Pond
occurred immediately after the high-level meeting with Ethos
where
the B’s and C’s report was considered as well as possible
proposals on a transaction. In my view the inference
of a linkage
between these separate events is irresistible. It could hardly be
said that when the first defendant urged Jedeikin
to abandon his
claim for fair value for the Wenneni shares, the Ethos discussion and
the positive intimations that flowed from
it was not present in the
consciousness of the first defendant. That the two events came
together in the timeline as they did,
in my view supports the
conclusion that the duty to disclose the Ethos discussions became
even more demanding.
Summary
and conclusions
112.In
summary I must accordingly conclude that the plaintiff has
established on a preponderance of probabilities that:
'
a)
The defendants misrepresented the performance of the Mango brand and
the position of Golden Pond on the 25th and 26th of July
at the time
when the first plaintiff was considering the terms and conditions of
its exit from Golden Pond;
b)
The misrepresentations were material, going as they did to the heart
of the performance of Mango and the security of the investments
made
by the investors in Golden Pond;
c)The
defendants were, at the very least on the 26th of July 2007, under a
legal duty to disclose to the plaintiff the status of
the discussions
between Ethos and the House of Busby;
d)The
defendants failed to discharge the legal duty to disclose under
circumstances where they should have been aware of its relevance
in
the consideration of the plaintiffs' decision to exit Golden Pond and
the terms and conditions under which such exit was to
take place;
e)The
misrepresentations and non-disclosure were made knowingly with the
intention of inducing the plaintiff to exit from Wenneni
at the time
it did and on the terms and conditions that it did;
f)The
misrepresentations and non-disclosure induced the plaintiff to exit
Wenneni at the time that it did and on the terms and conditions
that
it did;
g)
But for the misrepresentation and non-disclosure, the plaintiff would
not have exited Wenneni at the time it did on the terms
and
conditions it did.
ORDER
113.I
accordingly make the following order in respect of the separated
issues, being paragraph 1 to
25A
of the plaintiffs’ particulars of claim (as amended):
i.Had
it not been for the misrepresentations and non-disclosure, the first
plaintiff 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.
ii.The
defendants are ordered jointly and severally, the one paying, the
others to be absolved, to pay the costs of the action in
so far as
they relate to the separated issues, which costs are to include the
costs of two counsel.
N
KOLLAPEN
JUDGE
OF THE NORTH GAUTENG HIGH COURT
HEARD
ON: 14 to 16 November 2011; 25 to 28 September 2012; 23 to 26 April
2013 & 19 September 2013.
FOR
THE PLAINTIFFS: ADV C D A LOXTON SC with ADV P B J FARLAM
INSTRUCTED
BY: KORBERS INC (correspondents Friedland Hart Solomon &
Nicolson)
FOR
THE DEFENDANTS: ADV C M ELOFF SC with ADV T DALRYMPLE
INSTRUCTED
BY: KNOWLES HUSAIN LINDSAY (correspondents Fourie Incorporated)
1
DU
BOIS, F et al (2007) Wille's Prinviples of South African Law 9
th
edition. Cape tOwn: Juta & Co Ltd