Six former Dimension Data executives, who were found last November by the high court to have engaged in a “brazen and dishonest” scheme involving the sale of the company’s Johannesburg head office, The Campus in Bryanston, have won leave to appeal the judgment.
High court judge Denise Fisher, who handed down the scathing judgment against the former executives, on Wednesday agreed that it could be taken on appeal.
Fisher, in her November judgment, found that the former senior executives had “entered into an illegal scheme” designed to benefit them personally at the expense of the company and its Japanese parent, NTT Group.
Read: Dimension Data drags ex-bosses to court over Campus deal
The court declared the sale of The Campus property in Bryanston null and void and awarded punitive costs against the former executives. TechCentral broke the news in January 2022 that several former executives – unnamed at the time – had become embroiled in a fraud scandal following a forensic probe into the December 2019 sale of The Campus in a complex black economic empowerment transaction.
NTT Ltd, which is owned by Japan’s NTT Group, appointed international law firm Herbert Smith Freehills to conduct a forensic investigation into allegations brought forward by a whistle-blower.
In November’s judgment, Fisher not only found in favour of NTT but awarded punitive costs against the former executives and made several damning findings against them.
She found that the executives had “entered into an illegal scheme designed to appropriate for themselves a secret financial benefit which placed them in conflict with their boards”. She described the scheme as “brazen and dishonest” and said it was orchestrated “without due regard to the relationships between the Japanese holding entities (NTT) and the South African interests”.
The judge also found that should “this kind of flouting of foundational and universal commercial values remain unchecked and unpunished, this would represent a travesty of South Africa’s commitment nationally and internationally to the upholding of the values of honesty and integrity which are so intrinsic to proper commercial relationships”.
But in a joint statement after the judgment was handed down, the former executives said the court’s findings “came as a surprise” to them and their lawyers. “We are resolute in our commitment to ensuring that we are exonerated from any wrongdoing,” they said at the time.
‘Welcomed’
The former executives, first identified in TechCentral’s reporting on this story, are:
- Jeremy Ord, who until mid-2021 served as Dimension Data’s executive chairman;
- Jason Goodall, a former Dimension Data CEO who later took the reins at NTT Ltd;
- Grant Bodley, who served as Dimension Data Middle East & Africa CEO until March 2021;
- Steven Nathan, Dimension Data’s former head of corporate finance, who resigned in mid-2021;
- Saki Missaikos, a former MD of Dimension Data’s Internet Solutions who was group head of strategy prior to his exit, also in mid-2021; and
- Bruce “Doc” Watson, a Dimension Data stalwart who left around the same time.
On securing leave to appeal, the ex-executives said on Wednesday that they welcomed the decision. They said they are “confident that the orders made by Judge Fisher will be set aside on appeal”.
They said the judge granted leave to appeal on the basis that:
- “The court embarked on an in-depth interpretation of written exchanges and drew far-reaching inferences from them on the papers” and another court may determine that the judge had been wrong in the inferences drawn;
- “The applicants allege that, on a proper interpretation of the transaction, it does not amount to a subversion of BEE legislation” and that the empowerment structure should be assessed by another court; and
- “The question of whether there are real indications of a ratification of the transaction by the respondent which required oral evidence for proper determination” and the determination that there was no evidence of ratification should be revisited on appeal.
In their statement, they said that they expect that the appeal court will find that:
- “The correspondence that the lower court drew inferences from was inadmissible”;
- “The inferences that were drawn were incorrect”;
- “The matter should not have been determined on paper, thereby depriving the respondents of the benefit of obtaining discovery of documentation, leading evidence and cross-examining NTT’s witnesses, including their senior Japanese and South African executives”;
- “The allegation that the BEE structure was a subterfuge was one that none of the parties raised and is incorrect. The BEE structure was fully compliant with all BEE rules and was sanctioned by Eversheds and Webber Wentzel acting for NTT and Webber Wentzel acting for the empowerment entity”; and
- “There is compelling evidence that NTT elected to abide by the transaction, which had achieved the BEE result NTT sought, and that it in fact relied on and benefited from the transaction. Moreover, the CEO of the business, Werner Kapp, said on 25 January 2022, ‘We have taken the decision to ratify The Campus transaction subject to dealing with the exit of the executives in a manner which preserves the original objectives of this transaction. Based on that step, which we took today, the BEE status remains unchanged.’”
In their statement, the former executives provided detailed insight for the first time into how they plan to fight the judgment in the appeal court. TechCentral has republished this below (slightly edited for style and readability):
In January 2019, NTT advised Jeremy Ord, one of the founders of Dimension Data, that it wished to divest from Africa. It offered to sell the African business to a consortium of executives of NTT. Ord expressed interest in the proposal because he saw an opportunity to rebuild the South African IT company that he had dedicated his life to establishing. He knew that many of the managers in the African business, who had lost faith in NTT’s ability to operate in Africa, would also be keen to participate in a management buyout and to contribute to the rebirth of Dimension Data. However, Ord cited to NTT the poor broad-based BEE rating of the South African business as a factor that would need to be addressed in order for a sale to proceed.
Ord and NTT agreed that Ord would resign from NTT to pursue the MBO, which he did in June 2019, and that Ord would identify other members of the management team to participate in the MBO. Steven Nathan, an independent contractor working at NTT, joined Ord in negotiating the MBO. Nathan did not need to resign from the business because he was not an employee. NTT and Ord agreed that the business would be sold at market value for the assets comprising the African business, including specifically the Bryanston head office known as The Campus.
Historically, as a Japanese company, NTT had struggled with the concept of empowerment and its implementation, and it had fallen behind its competitors in this regard. It understood, however, that unless the BEE rating was improved, full value could not be achieved on a sale of the business. Initially, it was envisaged that NTT would simultaneously sell shares to the executives and BEE investors. Standard Bank and other property experts were also employed by NTT. However, it proved challenging logistically to achieve both sales at once. Moreover, when NTT realised that an equity deal would necessitate the sale of some of the shares at a discount, they began looking for other ways to achieve a better BEE rating.
Read: Dimension Data campus sale was an ‘illegal scheme’
In May 2019, NTT instructed Standard Bank to abandon the proposal to sell shares to black people and to instead implement an arrangement to achieve the BEE rating that involved the sale and lease back of The Campus. Importantly, this was a proposal that NTT (as opposed to the executives) came up with in consultation with its own advisors, Eversheds, Webber Wentzel and Standard Bank. In so doing, NTT hoped to achieve the desired BEE result without having to incur a discount on the sale of shares in the business.
In July 2019, NTT made a binding offer (which was accepted) to sell the Campus to Identity Property Co (Propco), a subsidiary of Identity Partners, a BEE fund manager. None of the executives signed that binding offer, which NTT says was not authorised until August 2019. None of the executives has ever held any participation whatsoever in Propco.
The executives were disappointed with the arrangement because they did not consider that it resulted in genuine empowerment within the South African business which they were set to acquire. Given NTT’s insistence on pursuing this structure, extensive work was done by all of the professional advisors to ensure that the structure that was finally implemented was fully compliant.
In November 2019, Identity Partners contributed their rights to The Campus to a fund, Identity Fund I, established at the same time and managed by Identity Fund Managers, a black fund manager. The terms of the fund had been negotiated extensively to ensure it complied with BEE rules.
Read: Ex-Dimension Data bosses slam court judgment that skewered them
The relevant BEE rules under which the scheme operated seek to promote the transformation of the private equity industry by incentivising investors to invest with black fund managers. They provide that the assets of a fund managed by a black fund manager (a “BEE fund”) will be deemed to be black owned. These rules do not dictate that black fund managers can only manage black capital because such a rule would prejudice black fund managers and necessarily inhibit transformation. The BEE rating derives exclusively from management by a black fund manager irrespective of the source of funds under management.
Certain of the executives indirectly participated in the Areti Partnership, which is a partner in the fund. They did so on the basis that NTT had always intended to sell The Campus as part of the MBO, that for the MBO to proceed, the BEE rating had to be improved, that negotiations on all other aspects of the MBO were proceeding and that this structure facilitated any investor participating. NTT was sensitive to an inadvertent announcement of the MBO through public disclosures and steps were therefore taken to ensure that the public did not become aware of the MBO through The Campus sale process.
The executives’ indirect participation was managed, in the first instance, by an expert property manager, and in the second instance by Identity Partners. The executives had no control over Areti or the fund or The Campus asset, but held only an indirect, passive participation. That participation comprised less than 5% of the capital required to purchase The Campus with the remaining 95% being provided by NTT, who also retained control of The Campus through the loan terms. Those terms prohibited the fund from selling the asset or refinancing the loan without NTT’s permission.
Read: Dimension Data to be renamed NTT Data
NTT decided, in March 2021, not to complete the MBO. Shortly thereafter, in October 2021, NTT approached the fund with a view to retaining the BEE consequences of the fund while exiting the executives. All the parties, including NTT, agreed to the principle and all of the parties except NTT agreed to a proposal to achieve that.
On 25 January 2022, Dimension Data announced to its clients and the press that The Campus transaction had been ratified on that day. NTT proceeded to rely on the validity of The Campus Transaction until August 2022.
Subsequently, NTT states that it decided not to settle as a “matter of principle”. It instead purported to revert to the position that The Campus transaction was void and made application to court. In its founding papers, NTT made no mention of the MBO nor of the ratification. It denied the executives access to documentation giving them only the documents NTT had selected as relevant. Because it brought its case as an application, no witnesses were heard or cross-examined. When confronted, NTT claimed that the MBO was not relevant and explained its misleading January 2022 announcement as “crisis control”.
NTT’s application was granted on 25 November by the Gauteng high court and it was immediately appealed. Leave to appeal was granted today and the applicants are confident that the appeal will be successful and the application by NTT will be dismissed.
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