Choppies big honchos sue auditors for P450m
Mpho Mokwape | Friday October 2, 2020 17:30
Ottapathu, popularly known as Ram, and Ismail claim PwC and its partner, Rudi Binedell breached the audit agreement they signed in 2018 and in the process made them lose millions.
According to their court documents, the two shareholders of Choppies accuse the auditors of breaching ethical, statutory and common law by prioritising their own interest and entrenching their position in the regional grocer’s without regard to the best interest of the company and its shareholders. “In the course of the purported execution of their duties as statutory auditors in relation to the Choppies financial year ended 2018, PwC breached their statutory, common law and ethical obligations,” read the papers prepared by Ramalepa Attorneys.
The duo alleged PwC and Binedell changed the scope of the audit as contemplated in the Audit Agreement 2018 in that they undertook what amounted to a full investigation into various issues that were raised by Binedell at a meeting of the Board held on September 17, 2018, rather than conducting an audit, as they were obliged to do.
In their papers, Ottapathu and Ismail alleged that PwC and Binedell did bypass the Audit Committee and reported issues directly to the Board of directors off the basis under the pretext that the issues were material irregularities under the Companies Act and Financial Reporting Act.
They pointed out that the auditors failed and refused to complete the audit for Choppies for 2018 financial year or issue their -opinion, imposing impermissible and unlawful stipulations on the finalisation of the audit and that the release of their opinion, including the stipulation that PwC could not finalise the audit in Botswana, South Africa and Zimbabwe unless and until Choppies had commissioned a full forensic audit.
“PwC and Binedell did not hold the honest and bona fide belief that the alleged issues were material irregularities, nor could they have been reasonably satisfied that they were material irregularities as each of the issues was explicable and arose from transactions that were legitimate, lawful and in the best interest of Choppies, its subsidiaries and shareholders,” further read the documents.
The shareholders further explained that the issues raised had little or no bearing on the audit opinion PwC was required to express, further alternatively could and should have been dealt with by the audit firm in a reasonable and acceptable manner without delaying the finalisation of the 2018 audit. On another level, they pointed out that PwC and Binedell failed to deal with the irregularities and report them in the manner prescribed by the legislation and specifically in writing as required by legislation and within the time periods set out in the legislation and that despite management providing them with reasonable explanation, the auditors insisted on the commissioning of a full audit before it could conclude the audit.
“PwC and Binedell usurped the functions of management by insisting on full forensic investigation prior to conclusion of the audit and by preventing alternatively delaying the conclusion of 2018 audit, they did so in circumstances when they knew or ought reasonably to have known that the exercise of commissioning such audit would be time consuming and would substantially delay the audit and have dire consequences for the shareholders and specially Ottapathu and Ismail,” stated the documents.
Furthermore, Ottapathu and Ismail said the auditors acted together with or under the directors of Robert Matthews and Sydney Muller for purposes of discrediting them as the then management of Choppies. They said it was done with the purposes of procuring either the suspension or resignation of Ottapathu and in order to put in place alternative management of Choppies.
“This was done with the purpose of securing the position and future employment of Binedell as the financial director of Choppies and or its subsidiaries and the entrenchment of PwC as auditors of Choppies and its subsidiaries,” they contended. The pair explained that as a result the conduct of the auditors led to the deterioration in the market value of the Choppies shares traded on the stock exchange and in turn they suffered damages in the an amount that represents the loss in the market value of their respective shareholding of Choppies.
Contacted for comment, PwC managing director, Butler Phirie said: 'PwC confirms that it is currently embroiled in legal proceedings with two directors of our erstwhile client, Choppies Enterprise Limited, which action is defended by PwC.
'Out of respect for the court's process we do not believe it appropriate to comment publicly on the matter.'