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MTN loses appeal, must pay dealer R11.4m in damages

MTN claimed a dealer was trying to hide 15 items of obsolete stock from an internal auditor. The court didn’t buy this version.
Image: Moneyweb

The Supreme Court of Appeal this week threw out MTN’s appeal against a judgment ordering it to pay R11.4 million in damages, plus interest, to a dealer whose business was shut down in 2011 for breach of contract.

MTN had accused the dealer, Belet Industries, of dishonesty after an internal auditor arrived at one of the two stores operated by the company. The general manager of the store instructed shop assistants to place 15 obsolete items considered unnecessary to the audit in black bags and keep them outside the shop until the audit was complete.

To MTN, this looked like an attempt to hide something from the auditor.

Based on the Supreme Court judgment, this seems to have been a rather expensive audit for MTN. The auditor may have been looking for something that wasn’t there to be found.

MTN claimed the 15 “hidden” items were grey goods that the shop was not authorised to stock in terms of the contract with the network provider, and that by placing them outside, the store was obstructing the audit process. MTN felt it could no longer trust the dealer and cancelled its agreement with Belet in September 2011. The breach was so severe, claimed MTN, that it could not be remedied, not even by the payment of money.

Belet had an entirely different view of what transpired.

The 15 items were either obsolete or defective and did not form part of the MTN audit. Nor were they hidden. They were simply placed outside the store so as not to be counted as stock.

“MTN dispossessed Belet of its business by placing guards outside both stores and refusing Belet access to the stores, taking back all stock, terminating the electronic access to the systems needed to trade and refusing to supply further stock,” reads the judgment.

MTN then notified the landlords of the two stores that it had terminated the dealer agreement, and substituted itself as the lessee until new dealers could be appointed.

In December 2011, Belet sued for damages in the Joburg High Court on the basis that MTN had breached or repudiated the dealer agreement. The high court awarded R11.4 million plus interest, which was based on the expected profit had Belet been allowed to continue operating for another 10 years.

MTN defended the action, claiming that in addition to the dishonesty of hiding unauthorised stock from the auditor, Belet had failed to record stock on a new management operating system that dealers were obliged to use.

The Supreme Court found several inconsistencies in MTN’s arguments, among them changing reasons for the cancellation of the dealer agreement.

When it came to the issue of damages, MTN argued that the second store at Jubilee Mall in Gauteng was not part of the agreement with Belet, which had both stores shut down as a result of the cancellation of the agreement. Belet argued that it should be compensated for the closure of both stores.

“On the undisputed facts the (Johannesburg High Court) was correct in finding that MTN, having relied on the Jubilee Mall store being subject to the agreement, could not now, when sued, contend that it was not. MTN conducted two audits of this store. It would, but for the provisions of the agreement, have had no right to do so. It set performance targets for this store.”

MTN’s appeal against the earlier Joburg High Court ruling was dismissed with costs.

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This is a classic case of the pot calling the kettle black

Look at your own behaviour and the $1,5 billion hiding you received in Nigeria for not complying

So glad this dealer won the case against big brother..

So happy that Insurance companies have to fork out Covid 19 insurance

We need more stories like this..It’s very uplifting

I love these David and Goliath cases where the courts rule in favor of the smaller companies.

Always nice to have good news at the beginning of the year

Its forgotten how Mtn in Iran hands over voice records to the state police

Couldn’t have happened to a more deserving company. MTN must rank as the least ethical private business in SA – seemingly they treat their dealers with the same contempt they treat their customers to. I cannot wait until my contracts expire and I’m rid of MTN.

If there is something incorrect, legally or morally, MTN comes to the fore. Ignored the Nigerian regulator and was nearly bankrupted with a colossal fine, trouble with the US, sleaze in Iran, and now this. It does not stop. Sleaze all over!

Not one executive of MTN has been tried for criminal conduct yet the management continues to behave recklessly. Fair enough the new team is way, way better than the gangster executive team of the past.

No wonder the share is in the 60s when it used to be at R250- a fair reflection on the quality of the management.

As long as I can remember, MTN has always been on the wrong side of the law/people /tricks….
I wonder when will management turn the page or should competent management take over?

If you read the full article,
seems that the MTN auditors were following the correct procedure.

Looks like a “border line” case, “fluke” or one in million case.

How many times do we read of auditors not doing their jobs in the media?

Would be interesting to know who was “awarded” the new contract at that location.

End of comments.

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