Legal View

Twist in Net1, AllPay squabble

Read time 3min 40sec
The legal wrangle between AllPay and Net1 continues as Net1 now wants R478 million in damages.
The legal wrangle between AllPay and Net1 continues as Net1 now wants R478 million in damages.

Dual-listed Net1 UEPS Technologies, which is under investigation by US authorities over its R10 billion social security tender, is suing rival AllPay for R478 million for allegedly injuring its reputation.

Net1 alleges AllPay, an Absa subsidiary, injured it by providing false information to the local media, which hurt it and its share price. Although Net1's stock has recovered somewhat to R51.50, the day after it announced it was being investigated by US authorities, its share plummeted 47.84% to a new five-year low.

AllPay's lawyer has said the company will defend the action. Net1 wants damages of R478 million, as well as interest and costs.

The companies have been involved in a legal battle for some time after AllPay alleged Net1's win of a R10 billion deal to distribute social security grants was unlawful. The North Gauteng High Court ruled, in August, that, while the deal was illegal and invalid, it would remain in place so that payments continue.

Net1 has appealed the decision to the Supreme Court of Appeals. Subsequently, the company has come under investigation by the US's Securities and Exchange Commission and the US Department of Justice's Criminal Division (DOJ) to determine whether there was bribery involved in the contract with the South African Social Security Agency (SASSA).

Bad intentions?

Net1 says in a statement to shareholders that AllPay has "wrongfully and unlawfully and with the intention of injuring Net1's reputation, infringing Net1's and its subsidiaries' goodwill and reducing Net1's share price, competed unlawfully with Net 1".

The company alleges AllPay, which lost out on the tender, did this by making false reports and providing false information to the local media. This created the "basis for false media reports which alleged or implied that the SASSA tender process was tainted by corruption through bribes by or on behalf of Net1's subsidiary, Cash Paymaster Services".

AllPay also caused an "unfounded" report to be made to the JSE relating to disclosures that Net1 made about the deal. In September, AllPay complained to the bourse that Net1's disclosures were inadequate or inaccurate, which was dismissed by the JSE.

Net1 also argues that AllPay made a report to the DOJ around the corruption allegations and the media reports, as well as repeating the allegations made in the report to the JSE.

AllPay also allegedly falsely sought to "create the impression in media reports and radio interviews" that the court found that the tender process was tainted by corruption.

No basis

Anthony Norton, director at Nortons Inc, which is advising AllPay, says the company will defend the action as it does not believe there is either a legal or factual basis for the claims.

The legal battle is unlikely to continue any time soon as court is currently in recess, says Norton. He explains that, because of the break, opposing papers will only be filed in the new year.

AllPay confirms it received a summons yesterday afternoon from Net1, which makes "a number of unfounded claims against AllPay". It says the claims are factually and legally flawed, and it intends opposing the relief sought by Net1.

The Absa unit says there have been a number of investigations into the tender over an extended period of time, which it did not orchestrate. It adds that the US decision to investigate the deal was the prerogative of the US authorities, but that it has an obligation to report suspicious activity.

"AllPay will oppose the relief sought by Net1 and will continue to act responsibly and co-operate fully with the relevant regulatory authorities." It points out that the summons has no bearing on the High Court judgement.

Net1 previously had a contract to distribute grants in five of SA's nine provinces, while AllPay handled payments in the Free State, Western Cape, Gauteng and Eastern Cape for a decade.

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