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Cape Town – Lewis Group has welcomed a judgment handed down by the Western Cape High Court on Tuesday, which set aside a demand brought by David Woollam to have four Lewis directors declared delinquent.
The judge ruled that Woollam’s use of section 165 of the Companies Act was “vexatious” and that there was no merit in his demand to have the directors declared delinquent. The four directors are Johan Enslin, Les Davies, David Nurek and Hilton Saven.
The court awarded costs against Woollam. Lewis was also awarded costs against Woollam in relation to an application brought by him to strike out Lewis’s replying affidavit, including wasted costs.
READ: Whistleblowers raise more alarms at Lewis
According to the judgment, Woollam could not dispute the evidence of Lewis that the sale of loss of employment insurance occurred because of erroneous data capture. Moreover, there was no evidence before the court to connect any of the directors with the incidents of the sale of loss of employment insurance.
"Woollam’s demand does not make out a prima facie case of dishonest or grossly negligent conduct by the directors, or that any of them were guilty of wilful misconduct, the judgment read," Lewis said in response to the judgment on Tuesday.
"The court found to the contrary and that the evidence shows that upon being alerted to the issue, Lewis’ board acted quickly and responsibly to address the problem and Woollam’s complaint was without merit."
Woollam’s claims relating to extended warranties sold to Lewis customers did not implicate any of the directors and his allegations do not merit an investigation, the court ruled. Similarly, the claims relating to delivery fees do not make out a case of fraud against the company or the directors.
Special investigation
The court found that no case had been made out for delinquency of directors on allegations regarding Lewis’ accounts and the changes to its accounting policies. The special investigation launched by the Lewis board into its accounting policies and the adoption of certain of the recommendations were irreconcilable with fraudulent or grossly negligent behaviour on the part of the directors.
Woollam’s failure to disclose his short-trading activities when publicising adverse opinions on Lewis raised an “ethical question” according to the judgment. The court did not rule on this issue as Woollam’s alleged conduct had already been referred by Lewis to the Financial Services Board for investigation.
Clark Gardner, CEO of Summit Financial Partners, of which Woollam is also a director, said in reaction to the judgment that it is not great news.
He said the judgment deems Woollam's use of section 165 as the incorrect route and that instead we should have made use of section 162.
"S165 was our preferred route in that it is allows a derivative action remedy where the company would have been compelled to undertake an impartial and independent investigation regarding our allegations. Depending on those findings the company would have to pursue the directors’ delinquency case and not us," explained Gardner.
"Such an investigation would have benefited both parties in confirming the allegations as accurate or false, ensuring we are all in a better position for it. However, Lewis successfully applied to set this demand aside, thereby escaping such an investigation."
READ: Court asked for independent probe of Lewis execs, practices
Technicality
Gardner believes Summit lost on a technicality by using the incorrect remedy without sufficient merits. He said their allegations still stand and have not been addressed. "Lewis has yet to get away with anything besides some time and costs," he said.
"S162 can be pursued by us now, but does not contain the benefit for both parties of an independent and impartial investigation either proving our allegations correct or false. The S162 will, therefore, only be used on the back of successful National Consumer Tribunal and other court judgments proving our allegations correct and accurate, which we have started some time back," said Gardner.
"Once achieved, we will then revisit the directors' delinquency action. Tomorrow we will decide whether to appeal this judgment, what to do with our second demand and alternative routes to achieve our same objective."
According to Gardner, this is Summit's first significant loss in court.
"This delinquent case was probably a bridge too far for our courts at this stage. I am extremely disappointed at our loss and the precedent this sets to all other activists now being disincentivised to pursue what is right in that we have shown how tough this route is," said Gardner.
"We are fighting for the right cause and have nothing to be ashamed or silent on. We gained much from this case, showed our bite and our audacity in being like David against Goliath and learnt much."
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