Former joint chief executive of the defunct LeisureNet group Peter Gardener on Monday defended his non-disclosure of a substantial interest in an offshore company that the group entered into multimillion-rand deals with.
He has taken the stand in the Cape High Court to rebut multiple charges of fraud, money laundering and contraventions of the Companies Act.
LeisureNet, former owner of the Health and Racquet Club chain of fitness centres, was provisionally liquidated in October 2000 with liabilities of R1,2-billion and assets of only R302-million.
Gardener, wearing a dark suit and tie, told the court that in early 1996, LeisureNet concluded an agreement that gave the German franchise for the Health and Racquet brand to a company named Dalmore, registered in Jersey and controlled by an Austrian named Hans Moser.
Because Moser needed the expertise of Gardener and his co-accused Rod Mitchell, the other LeisureNet CEO, the three men concluded an oral agreement in terms of which Gardener and Mitchell would each have a 20% interest in Dalmore.
At that time, Gardener told the court, LeisureNet was not investing offshore at all, and he and Mitchell were ”very comfortable” that in terms of their service agreements with the group, they were entitled to have interests in offshore businesses.
In 1997, when the South African Reserve Bank significantly relaxed restrictions on foreign investment by South African companies, the LeisureNet board told Gardener and Mitchell to seek a joint venture agreement with Dalmore instead of the franchise.
This they did, and Gardener told the court he believed they negotiated an ”amazingly good deal” for LeisureNet in a situation where Moser held ”a lot of the cards”.
No goodwill amount was paid to Dalmore or Moser for the work he had done towards establishing fitness centres in Berlin, and LeisureNet also secured control of the joint venture.
In addition, Moser had agreed Dalmore would pay LeisureNet 20 000 Deutschmark (DM) per fitness centre a month as a management fee, which was almost double the normal franchise fee.
Questioned by his advocate, Francois van Zyl, Gardener said he had not disclosed to the LeisureNet board his interest in Dalmore.
”At the time, we had obtained our interest legitimately through Hans Moser and the franchise agreement,” he said.
”This was a continuation. At the time of the negotiations we believed LeisureNet was in a situation where it was extremely important for them to get a stake in Germany.”
The most important consideration at that point had been getting the very best deal for LeisureNet.
”We believe that’s what we did,” Mitchell said.
He did not at that time even consider disclosing his interest.
Gardener said it was only the following year that he suggested to Moser’s South African associate Joubert Rabie that the oral agreement should be put in writing ”in case he [Rabie] or Hans Moser got knocked over by a bus”.
Rabie informed him some time later that he had notified the trustees of an offshore trust that Gardener had set up as a vehicle for his offshore earnings, of the agreement.
The state claims the two men had a fiduciary duty to disclose their interest in Dalmore, which netted them DM2-million each in 1999 when LeisureNet bought out Dalmore’s share in the joint venture.
Moser was originally a co-accused in the current trial, along with Mitchell’s wife Suzanne. Both were, however, discharged at the conclusion of the state’s case last month.
Gardener and Mitchell were themselves discharged last week on one count of fraud, related to alleged kickbacks in the acquisition of an architectural firm by LeisureNet, but not on the alternatives to that count, of contraventions of the Companies Act and theft.
The trial continues on Tuesday. — Sapa