More than 11 years ago specialist software company Neil Harvey & Associates (NHA) lodged a claim against Medscheme for just under R70 million. The company alleged that, while Medscheme was using NHA software under a licence agreement, it copied the source code and misappropriated its intellectual property.
The parties agreed to deal with the matter in confidential arbitration, but due to numerous delays, this has still not begun.
In recent court papers in a matter relating to the arbitration, Medscheme, which is now majority-owned by JSE-listed AfroCentric, noted that the potential liability it faces in this case has grown to close to R1 billion. However, AfroCentric is carrying a provision on its balance sheet for just R8.35 million.
AfroCentric maintains that this provision is sufficient because it does not believe NHA can substantiate the claim. It argues that it will not end up being liable for any damages at all.
“The group’s legal advisors have consistently advised the board that the NHA claim has no merit,” the company noted in a recent Sens announcement.
In addition, AfroCentric’s head of legal, Billy Mokale, told Moneyweb that:
“The body of evidence, in the considered view of our legal representatives, is indicative of a claim that will flounder at trial. After 11 years of litigation NHA has failed to lead a day’s evidence in support of its claims. This itself is reflective of the immense difficulties we believe NHA has in actually proving what is after all these years still only a paper case.”
AfroCentric has been adamant in this position, at least in its communication to shareholders.
However any legal matter does, of course, have two sides. And one of NHA’s former directors, Gavin Harvey (no relation to Neil Harvey), argues that AfroCentric’s view is ‘misinformed’.
“Over the course of the last 11 years, the parties to the arbitration have been engaged in no fewer than 10 interlocutory applications, including two applications which Medscheme filed in the high court, one of which went all the way to the supreme court of appeal,” Gavin Harvey notes. “In the course of those applications, NHA has on a number of occasions placed evidence in support of its claims before the arbitration tribunal and the high court.”
Most recently Neil Harvey filed an affidavit in response to Medscheme’s approach to the High Court applying for a security of costs order. Attached to this affidavit are copies of emails from senior Medscheme staff which NHA argues show an intention to copy at least the form of its software. The company also suggests that these emails indicate that some of its confidential information was shared with a competitor.
Gavin Harvey adds that the arguments made by Medscheme in court are also not entirely in line with what AfroCentric is telling its shareholders.
“I was present at that application and Medscheme conceded in Court that NHA’s claims were not vexatious,” he notes. “It is very noteworthy that Medscheme did not allege that NHA’s claims were baseless or without merit. The absence of such allegation is conspicuous.”
The company’s founder, Neil Harvey, adds that the company is very confident about the strength of its case.
“Medscheme’s own documents, which were secured through a protracted discovery process, provide the evidence which support NHA’s claims,” he says. “If NHA’s claims were destined to ‘flounder’, as suggested by Mr Mokale, then Medscheme would have sought to dismiss those claims years ago rather than spend close to R100 million defending them. No such application has ever been filed against NHA because the parties on both sides know full well that these claims are meritorious.”
Moneyweb has previously asked AfroCentric why it has spent so much time and money defending a claim it says is without merit. According to Medscheme’s own court papers, it expects its total legal bill to be close to R100 million.
AfroCentric however declined to provide an answer. It said that it could not “delve into the details of the case”.
For its part, NHA explains that it has been willing to pursue the matter because it believes that the truth must be established.
“The fact that this legal battle has been waged for 11 years now is due in part to the fact that the claims are not your run-of-the-mill lawsuits,” says Neil Harvey. “The claims are complex, highly technical and involve copyright infringement, misappropriation of NHA’s confidential information, misrepresentation and unlawful competition. In addition, some of the issues in this arbitration have never before been decided in South African law.”
The delayed start to the arbitration, and the associated court applications launched by Medscheme, have not affected the company’s desire to see the matter dealt with.
“The protraction of this arbitration will not discourage NHA in the pursuit of its claim,” Neil Harvey says. “This is a matter of principle. If you want evidence of how strongly I, and other former directors of NHA, believe in these claims, look no further than the fact that we have personally undertaken to satisfy any costs orders made against NHA that NHA may not be able to satisfy.”