FRAUD, RESTITUTION AND RESTORING THE STATUS QUO

FRAUD, RESTITUTION AND RESTORING THE STATUS QUO

The case of Titan Asset Management (Pty) Ltd v Lanzerac Estate Investments (Pty) Ltd is an offshoot of the Steinhoff corporate scandal. In this case, per an agreement between Christo Wiese and Markus Jooste, various businesses, assets and entities of Lanzerac (“Lanzerac Assets”) were acquired by Jooste at a value of R220 million in exchange for a share in Steinhoff International of same value. 

According to Lanzerac, Jooste knew that Steinhoff International and its subsidiaries had materially misstated income, profits and assets since 2009, deliberately to mislead investors on the value of its shares. Lanzerac sought cancellation of the agreement and restitution of its assets based on this fraud which induced it. 

Jooste raised certain exceptions to Lanzerac’s claims. In respect of the cancellation of the agreement Jooste relied on a non-cancellation clause. However, the court held that the effect of an innocent party resiling from a contract due to fraud is that the agreement is regarded as being void ab initio, with the innocent party not bound by any of its terms, including non-cancellation.

Jooste then excepted to Lanzerac’s claim for restitution of the assets on the basis that Lanzerac was unable to return the Steinhoff shares. The object of restitution is to restore the parties to a transaction to the position they were in when they implemented it. The Lanzerac Assets were purchased with a number of Steinhoff International shares being the purchase consideration. Generally, the innocent party cannot obtain restitution unless it is able to restore what it received under an agreement, in this case the Steinhoff shares for the Lanzerac Assets.

There were no longer any Steinhoff International shares in issue. These had been swapped with Steinhoff NV shares in terms of a scheme of arrangement that had been implemented. However, the court held that the swapped shares could be tendered and sufficed for the purposes of restitution, but this depended on the extent of the equivalence of the rights conferred in terms of the originally held shares and those conferred by the shares swapped under the scheme of arrangement. 

In addition, Jooste claimed that he be placed in the same financial position as before the conclusion of the agreement. The Court held the consideration for the “Lanzerac Assets” was not the contractual value of R220 million, but rather the value of the fraud-tainted shares, which was negligible. The court therefore dismissed all the exceptions to Lanzerac’s claim and the matter could proceed.

Telephone: +27 31 570 5371, email: rishal.bipraj@gb.co.za

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