The Supreme Court of Appeal (SCA) yesterday confirmed a High Court order that Ibex must hand over to two media houses the full forensic report into the accounting irregularities at Steinhoff.
In 2022, the High Court in Cape Town ordered Steinhoff to grant the respondents, Tiso Blackstar Group (Pty) Ltd (subsequently Arena Holdings) and amaBhungane Centre for Investigative Journalism, access to the report prepared by PwC, which conducted a forensic investigation that revealed fraud and accounting irregularities within the Steinhoff Group.
The Financial Mail, which is published by Tiso (Arena), and amaBhungane lodged a request in 2019 under the Promotion of Access to Information Act (PAIA) to obtain the full report.
The report, which covers 3 000 pages with some 4 000 documents as annexes, was handed over to Steinhoff management in early 2019. Steinhoff refused to release the full report; instead, it published an “overview” comprising 11 pages and containing PwC’s key findings. The overview stated that a “small group” of former Steinhoff executives had inflated the group’s profit and asset values by about R100 billion over eight years.
Ibex RSA Holdco Limited and Ibex Topco BV, which were substituted for Steinhoff International Holdings NV as a result of the restructuring of the Steinhoff Group in 2023, appealed against the High Court’s order.
Steinhoff contended that disclosure was protected by legal professional privilege as contemplated in section 67 of PAIA; that it had not waived privilege; and that the public interest override in 2 section 70 of the PAIA, which authorises disclosure of the record if it is in the public interest, did not apply.
In a unanimous decision, the SCA held that these contentions were unsustainable.
Section 70 of PAIA provides that disclosure is mandatory if the disclosure of the record would reveal evidence of a substantial contravention of, or failure to comply with, the law, or imminent and serious public safety or environmental risk, and the public interest in the disclosure of the record clearly outweighs the harm contemplated in the provision in question.
Steinhoff cannot claim privilege
Regarding privilege, the SCA rejected Steinhoff’s claim that the purpose of the investigation and the report was to furnish Steinhoff with legal advice and to assist it in assessing its position in light of the claims made against it.
The SCA held that the main purpose of the PWC investigation was to enable Steinhoff to produce its financial statements for 2017 and 2018. This was confirmed by the following facts:
- The SENS announcement of 6 December 2017 stated that Steinhoff – and not its attorneys – had in consultation with Deloitte instructed PWC; and
- The engagement letter by PWC states that its brief was to analyse and investigate the allegations of potential accounting irregularities and the concerns raised by Deloitte.
These facts, the SCA found, were underscored by:
- Steinhoff’s presentation to shareholders at an AGM in April 2018 in which it stated that the purpose of the forensic investigation was to determine what happened, the financial impact of those events, and who was responsible.
- The overview in which Steinhoff itself states that the report “is being used to assist production of the group’s financial statements for FY 2017 and FY 2018 and to assist decision-making in areas for further investigation and remedial work”.
- Further SENS announcements by Steinhoff that it was meeting with its lenders and creditors.
Moreover, the SCA found that Steinhoff had impliedly waived any privilege that may have existed in respect of the report, by publishing the overview containing PwC’s key findings.
PwC essentially found that a small group of former and non-executives, led by a senior management executive had structured and implemented fictitious and irregular transactions over several years, which substantially inflated the profit and asset values of the Steinhoff Group. The overview describes these transactions as profit and asset creation, asset overstatement and reclassification, asset and entity support, and contributions (the irregular transactions).
Three principal third party entities involved in the irregular transactions are identified in the overview, which also explains the modus operandi of the wrongdoers. The overview also states that the irregular transactions are complex and supported by documents created after the fact and backdated.
The SCA held that the effect of the disclosure was, and was intended to be, a short, clear description of the irregular transactions in which the wrongdoers had engaged and their impact on the Steinhoff Group as contained in the report.
The SCA concluded that having chosen to disclose the overview in the form that it did, it would not only be unfair to allow Steinhoff to use part of the report while claiming privilege over the remainder of it, but also inconsistent with the confidence preserved by any privilege, because Steinhoff had voluntarily disclosed the gist of PwC’s findings – the irregular transactions and their impact – the very reasons for the forensic investigation and the existence of the report.
The SCA held that this was a classic case where the public interest override applied. Section 70 of PAIA provides that a private body must grant access to a record if its disclosure would reveal evidence of a contravention of, or failure to comply with, the law. The irregular transactions, and the manner in which they were perpetrated and concealed by the wrongdoers for nearly a decade, were clear indications that they were committing fraud on a large scale, designed to inflate the profits and asset values of the Steinhoff Group.
Steinhoff itself in the overview states that the inflation of profits and asset values “were effected through a cycle of income creation”; that “various transactions were entered into to obscure the extent of the overstatement of the assets”, and that “the facts identified in the PwC report raises serious allegations, against the senior executive in particular”.
In the public interest
The disclosure of the report, the SCA further held, was plainly in the public interest. The harm which Steinhoff alleged if the report were to be published, comprised superficial assertions. These were that disclosure would alert the wrongdoers to the information held by Steinhoff which, in turn, would be used to determine the strategic approach that Steinhoff would take in respect of the litigation; that it would place regulatory and enforcement action at risk; and that it would allow the wrongdoers to take pre-emptive action.
By contrast, the public interest in the disclosure of the report outweighed any potential harm to Steinhoff. In November 2017 it enjoyed a market capitalisation of about R242.4bn and was one of the 10 largest companies listed on the JSE. Steinhoff had about 65 000 shareholders representing a swathe of institutional and retail investors around the world, when its chief executive, Markus Jooste, resigned in December 2017.
The fraud that took place at Steinhoff led to an overstatement of assets and profits in a staggering amount – some R200bn. This led to a massive drop in its share price – about 98% – and affected a large majority of South Africans with some form of retirement savings invested in Steinhoff.
The retirement funds of millions of ordinary South Africans suffered huge losses, including the Government Employees Pension Fund (GEPF), which in December 2017 was the second largest shareholder in Steinhoff, holding shares worth some R32bn. Employers who contribute to the GEPF, pensioners, and members of the public have an interest in the fraud that took place at Steinhoff.
The right of South African society at large to know the facts about the Steinhoff scandal, goes beyond the narrow interests of Steinhoff and is best served by exposing the nation’s biggest corporate scandal through complete transparency, to avoid a recurrence. Indeed, Steinhoff itself, in its presentation to the National Assembly’s Standing Committee on Finance, stated that “Steinhoff was deeply aware of the impact the debacle has had on pension funds, the Steinhoff brand and the nation at large”, and the importance of sharing the key findings in the report, “so that lessons are learnt from these events and processes can be applied”.
The SCA concluded that there was no basis to shield the report from public scrutiny, and Parliament intended that the public interest override should apply in the case such as this. The appeal was accordingly dismissed, and the appellants were ordered to pay the costs of the appeal.
Ibex RSA holds the legal rights to Steinhoff and has control of the report. If the company does not appeal against the ruling, it has 10 days to hand over the report.
