High Court setback for disgraced former Steinhoff CEO Markus Jooste

Disgraced former Steinhoff International CEO Markus Jooste has suffered a setback in his bid to retain ownership of the Lanzerac wine estate, which he acquired in an allegedly fraudulent transaction from former Steinhoff chairperson and retail billionaire Christo Wiese.

Jooste and an apparent consortium of unnamed investors acquired the interest in the luxury wine estate from Wiese and various business entities for R220 million in 2011.

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On Friday Judge Ashley Binns-Ward in the High Court in Cape Town dismissed with costs a notice of exception to the particulars of claim raised by Jooste and Lanzerac Estate Investments (Pty) Ltd, previously Morpheus Property Investments (Pty) Ltd, to a main application to overturn the Lanzerac sale contract.

The main application was launched by Wiese, Titan Asset Manager (Pty) Ltd, Titan Trademarks (Pty) Ltd, CWP Wine Brands (Pty) Ltd, Titan Premier Investments (Pty) Ltd and Aussenkjer Boerdery (Pty) Ltd.

Judge Binns-Ward said four grounds of exception were set out in the notice of exception, but the first of them, premised on the arbitration clauses in the contracts, they had advisedly not persisted with.

He said the grounds of exception remaining for determination were that:

• Cancellation and rescission are precluded by the terms of the contracts.
  
• The claims for rescission and restitution are invalid because Lanzerac Estate Investments and Jooste are unable to tender or make restitution of what they obtained in the transactions.
  
• The non-joinder of Aussenkjer Boerdery (Pty) Ltd to the case.

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Judge Binns-Ward dismissed all three of these exceptions.

It was agreed in the transaction that the interests in Lanzerac of Wiese and the other business entities would be acquired for R220 million, in exchange for a stipulated number of shares in Steinhoff International of equivalent value.

It is alleged that at all times during the negotiation and implementation of the transaction Jooste knew that:

• The financial records and reports of Steinhoff International and its subsidiaries had materially “misstated its income, profits and assets since at least 2009”.
  
  
• This state of affairs had been engineered by Jooste and his accomplices deliberately to mislead investors concerning the value of the shares of Steinhoff International – and Jooste would therefore have appreciated that Wiese was misled by the fraudulently misstated financial information in entering into the transactions.
  
  
• Jooste’s representation that he was acting on behalf of a consortium was also a falsehood in that, in truth, he was acting on his own behalf to acquire Lanzerac through an indirect interest in the Morpheus Property Investments, of which he was at all material times the controlling mind.
  
  
• Jooste’s misrepresentation that he was acting on behalf of a consortium was a device to conceal the fact that the substantial number of Steinhoff International shares to be exchanged in the transactions were shares of which he personally wished to dispose of at or about their listed price – and these contracts allegedly constituted integral components of an indivisible transaction that had been induced by Jooste’s fraud.

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The court heard that Wiese, on behalf of the other entities involved in the transaction, entered into a further series of agreements that resulted in the Steinhoff shares each of them acquired in terms of the Lanzerac transaction, plus capitalisation issues that they had received from their respective shareholdings, being sold to Wiesfam Trust (Pty) Ltd.

It is further alleged that after November 2017, and while Wiesfam Trust still held the Steinhoff International shares it had acquired through the Lanzerac transaction, the fraudulent misstatement of Steinhoff’s financial position by Jooste and his accomplices became public knowledge and the value of Steinhoff International shares was consequently “reduced to a negligible amount” or had become “valueless”.

Lanzerac Estate Investments claimed the contracts were implemented and all of the obligations under them have been performed and, “in the circumstances and contractually, the plaintiffs [Wiese and the business entities] are precluded from cancelling the contracts and seeking the declaratory relief that the contracts have been or are cancelled, followed by rescission, restitution and/or damages”.

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Judge Binns-Ward said there is no merit in the exception that cancellation and rescission are precluded by the terms of the contracts.

He said it is evident that Wiese and the other entities rejected the contracts because they had been induced by Jooste’s fraudulent non-disclosure.

“The effect of an innocent party resiling [retracting] from a contract on that ground is that the agreement is regarded as being void… and the innocent party is accordingly not held bound by any of its terms.

“Even were the clauses in question treated as effective exclusion clauses, they would not be enforceable in the face of an act of cancellation by the innocent party based on fraud.

“Such clauses, while ordinarily not considered to be against public policy and therefore generally enforceable will not be enforced if their effect is to exclude liability for fraud,” he said.

Judge Binns-Ward said there is a complicating factor in regard to the exception that Lanzerac Estate Investments and Jooste are unable to tender or make restitution of what they obtained in the transactions.

He said that according to the pleaded facts, there are no longer any Steinhoff International shares in issue because they were substituted, on a one-for-one basis, with Steinhoff NV shares in terms of the scheme of arrangement that is mentioned in the particulars of claim.

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“Does that necessarily imply that the plaintiffs are unable to effect restitution? I do not think so,” he said.

Judge Binns-Ward said Lanzerac Estate Investments is entitled only to the fraud-tainted Steinhoff International shares that it gave in consideration for the sellers’ interests in the “Lanzerac” enterprise, or an appropriate substitute.

Wiese and the businesses involved in the Lanzerac transaction allege that the contracts to which they are a party have been cancelled and Lanzerac Estate Investments, previously Morpheus Property Investments, must be directed to make restitution to each of them and, among other things, must pay each of them:

• R50 million, or such amount the court deems fit, for any depreciation or appreciation in the assets since they were transferred to Wiese.
  
• The fair value of the assets transferred to Morpheus and of the Steinhoff International shares received in exchange for those assets.
  
• Interest on these amounts.
  
• The costs of the court applications against Lanzerac Estate Investments and Jooste.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.