About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Western Cape High Court, Cape Town
SAFLII
>>
Databases
>>
South Africa: Western Cape High Court, Cape Town
>>
2017
>>
[2017] ZAWCHC 104
|
|
Pretorius and Another v PB Meat (Pty) Ltd and Another (1057/2013) [2017] ZAWCHC 104 (14 June 2017)
Republic
of South Africa
IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE HIGH COURT, CAPE
TOWN)
Case
no: 1057/2013
In
the matter between:
JOHANNES
JACOBUS PRETORIUS
First
Applicant
WILLEM
HENDRIK PRETORIUS
Second
Applicant
and
PB
MEAT (PTY) LTD
First
Respondent
STEVEN
EDWARD TIMCKE
Second
Respondent
Court
:
Judge J I Cloete
Heard
:
8 and 9 May 2013, supplementary heads of argument filed on 22
and 27 May 2013
Delivered
:
14 June 2013
JUDGMENT
CLOETE
J:
[1]
This
application centres on the extent of the particularity required to be
furnished by a board of a company to a director who faces
possible
removal on the ground,
inter
alia
,
that he or she has been derelict in the performance of his or her
functions as director. In particular, the application relates
to what
is envisaged by the words ‘
a
statement setting out reasons for the resolution, with sufficient
specificity to reasonably permit
[a]
director
to prepare and present a response’
as they appear in s 71(4)(a) of the Companies Act 71 of 2008 (‘
the
Act’
).
[2]
The parties
have approached the matter on the basis that the applicants are still
directors of the first respondent (‘
the
company’
).
The second respondent
(‘Timcke’
)
is one of two remaining directors of the company (there is a dispute
about whether a further director has in fact been appointed).
[3]
On
21 November 2012 Timcke caused letters to be served upon the
applicants on behalf of the company to attend a board meeting
convened to consider a proposed resolution to remove them as
directors on the basis that they had been derelict in the performance
of their functions as such. Both applicants had previously resigned
as employees of the company with effect from 30 September
2012
and by choice have not been involved in the management of the company
since at least that date. Despite repeated requests
since July 2012
the applicants have refused to resign as directors notwithstanding a
clause contained in their respective service
agreements to the
contrary. They initially failed to provide any reason for their
refusal. On the day after this application was
launched they alleged,
for the first time, that the relevant clause (requiring them to
resign on request of the company upon termination
of their
employment) had been included in their respective service agreements
as a result of a common mistake. This is denied by
the company.
[4]
Attached to
the proposed resolution was a ‘
statement
of reasons’
.
The same reasons were supplied in respect of each applicant and I
will quote in full from the ‘
statement
of reasons’
pertaining to the first applicant:
‘
STATEMENT OF REASONS FOR
PROPOSED RESOLUTION TO REMOVE JOHANNES JACOBUS PRETORIUS AS A
DIRECTOR OF PB MEAT (PROPRIETARY) LIMITED
(“THE COMPANY”)
The following allegations made by
Steven Edward Timcke form the grounds for the proposed resolution to
remove Johannes Jacobus Pretorius
as a director of the Company:
1.
That Johannes Jacobus
Pretorius in conjunction with Willem Hendrik Pretorius unlawfully
removed equipment owned by the Company (namely
two Handtman meat
grinders depicted on Annexure A hereto) from the Company’s
premises and installed such equipment at premises
controlled by he
and Willem Hendrik Pretorius for the purposes of unlawfully utilising
such equipment for his and Willem Hendrik
Pretorius’ own
purposes.
2.
That Johannes Jacobus
Pretorius in conjunction with Willem Hendrik Pretorius unlawfully
disposed of equipment owned by the Company
(namely a Weiler meat
grinder) in or about August 2010 to Mountain Meat Traders and
unlawfully retained the proceeds of such disposal
which ought to have
been paid to the Company.
3.
That Johannes Jacobus
Pretorius in conjunction with Willem Hendrik Pretorius disposed of
equipment owned by the Company (namely
a Vemag sausage filler) to a
third party and unlawfully retained the proceeds of such disposal
which ought to have been paid to
the Company.
4.
That Johannes Jacobus
Pretorius, in conjunction with Willem Hendrik Pretorius, acquiesced
in Jacques Pretorius’ unlawful appropriation
of product
belonging to the Company in circumstances where his duties as a
director of the Company required of him to act against
Jacques
Pretorius’ aforementioned conduct.
5.
That Johannes Jacobus
Pretorius, in conjunction with Willem Hendrik Pretorius, acquiesced
in Jacques Pretorius’ unlawful appropriation
of cash belonging
to the Company in circumstances where his duties as a director of the
Company required of him to act against
Jacques Pretorius’
aforementioned conduct.
6.
That on 24 November
2011 Johannes Jacobus Pretorius in conjunction with Willem Hendrik
Pretorius and Jacques Pretorius arranged
for Henry Badenhorst of
Witvlei Meats (a supplier to the Company) to sell directly to
Coleridge Meats a container of frozen meat
products which would
otherwise have been sold to the Company and then sold by the Company
to customers including Coleridge Meats
resulting in the parties
thereto unlawfully making a secret profit from such transaction
amounting to R166, 000.00; which
profit ought to have accrued to
the Company.’
[5]
Jacques
Pretorius, who is referred to in the statement of reasons, is the son
of the second applicant. He was employed in the company’s
fresh
and frozen meat products trading section as head of logistics
(including bulk buying and selling of product). He resigned
with
effect from 31 December 2011.
[6]
The
procedure upon which the company relies to have the applicants
removed as directors is set out in s 71 of the Act. Subsections
(3) and (4) provide as follows:
‘
(3) If a company has more
than two directors, and a shareholder or director has alleged that a
director of the company ---
(a)
has become ---
(i)
ineligible or
disqualified in terms of section 69, other than on the grounds
contemplated in section 69 (8) (
a
);
or
(ii)
incapacitated to the
extent that the director is unable to perform the functions of a
director, and is unlikely to regain that capacity
within a reasonable
time; or
(b)
has neglected, or been
derelict in the performance of, the functions of a director,
the board, other than the director
concerned, must determine the matter by resolution, and may remove a
director whom it has determined
to be ineligible or disqualified,
incapacitated, or negligent or derelict, as the case may be.
(4) Before the board of a
company may consider a resolution contemplated in subsection (3), the
director concerned must be
given ---
(a) notice of the meeting,
including a copy of the proposed resolution and a statement setting
out reasons for the resolution,
with
sufficient specificity to
reasonably permit the director to prepare and present a response
;
and
(b) a reasonable opportunity to
make a presentation, in person or through a representative, to the
meeting before the resolution
is put to a vote.’
[emphasis
supplied]
[7]
After
receipt by them of the proposed resolution and statement of reasons
the applicants’ attorney delivered a ‘
request
for further particulars and specificity in terms of section 71(4)’
of the Act. It is in the form of a request for further particulars
for trial and runs to eight typed pages. The company duly furnished
a
written response. Some of the particulars requested were furnished by
way of factual averments contained in the response itself
and
supported by invoices and delivery notes. In response to other
particulars requested the applicants were referred to various
affidavits and annexures thereto which had been filed in support of
an earlier application launched by the company against the
applicants
on 14 November 2012 (‘
the
earlier
application’)
to prevent them from dealing with the two Handtman meat grinders
pending the finalisation of a vindicatory action
to be instituted by
the company. That application was settled on the basis that the
applicants undertook that they would neither
dispose of nor deal with
the two grinders pending the outcome of the vindicatory action. The
applicants did not deliver opposing
affidavits, so it is not
possible, in respect of that application, to establish what their
responses were to the allegations made
by the company against them.
It is common cause that the applicants did not avail themselves of
the provisions of rule 35(12) and
(13) of the uniform rules of court
with reference to the documents and tape recordings referred to in
the founding papers in that
application; but I do not believe that
any inference should be drawn from their failure to do so given that
no opposing affidavits
were filed and the application was settled. It
was in any event not suggested by the company’s counsel that
any such inference
should be drawn; and it is common cause that the
applicants deny all of the allegations of wrongdoing against them.
[8]
The
applicants formed the view that the further particulars supplied by
the company ‘
fell
short of reasonably enabling the applicants to prepare a response for
presentation at the board meeting’.
Their attorney thus delivered a “Request for Access to Record
of Private Body” in accordance with s 53(1) of the
Promotion of Access to Information Act 2 of 2000 (‘
PAIA’
).
The record of the company that was requested was the following (the
undated letter, annexure ‘
A1’,
referred to therein was the letter containing further particularity
provided by the company):
‘
1. All the original
telephone recordings between “Willem and Jacques”,
referred to in paragraph 2.3 of the undated letter
by PB Meat (Pty)
Ltd attached hereto as annexure “A1”.
2. All the original “telephone
recordings between Jacques Pretorius, J J Pretorius and Hendry
Badenhorst” referred to
in paragraph 6.7 of annexure “A1”.
3. All the original telephone
recordings and tape recordings referred to in paragraphs 21, 22 and
40.2 of the affidavit dated 14 November
2012 by Mr Timcke, which
forms part of the notice of motion in case number 21817/2012 (“the
Timcke affidavit”).
4. The “transactional
documentation” referred to in paragraph 13 of the Timcke
affidavit.
5. All source documents of PB Meat
(Pty) Ltd reflecting the “sales generated by the Applicant’s
major lines”,
referred to in paragraph 19 of the Timcke
affidavit.
6. All the source documents of PB
Meat (Pty) Ltd reflecting the “marked increase in the amount of
stock which was missing
and unaccounted for” as referred to in
paragraph 21 of the Timcke affidavit.
7.
All the source documents
and accounting documents of first entry including VAT invoices of PB
Meat (Pty) Ltd reflecting the alleged
“marked decline and the
income derived from the trade of fresh and frozen meat products,
which was an area of the business
controlled by PB Meats and Jacques
Pretorius” as referred to in paragraph 21 of the Timcke
affidavit.
8.
All the source documents
(including VAT invoices) of PB Meat (Pty) Ltd in substantiation of
the contention in paragraph 21 of the
Timcke affidavit that there was
an unlawful “diverting business away from the Applicant”.
9.
All the source documents
and stock sheets of PB Meat (Pty) Ltd referred to in paragraph 21 of
the Timcke affidavit to the effect
that there were “stock
losses”.
10.
All the monthly
management account statements of PB Meat (Pty) Ltd for the period
commencing 1 September 2010 to date hereof.
11.
The source documents of
PB Meat (Pty) Ltd containing the financial records of PB Meat (Pty)
Ltd supporting the allegation in paragraph 27
of the Timcke
affidavit regarding the Applicant’s “current financial
performance”.
12.
The financial statements
of PB Meat (Pty) Ltd for the periods ending 28 February 2010,
28 February 2011 and 28 February
2012.
13.
The “proceedings
against Mountain Meat Traders” referred to in paragraph 40.1 of
the Timcke affidavit.
14.
The documents relating
to the “forensic investigation” referred to in paragraph
40.2 of the Timcke affidavit.
15.
The “undertaking
given by Mountain Meat Traders”, referred to in paragraph 40.1
of the Timcke affidavit”.’
[9]
The issue
to be decided is whether the tape recordings and documents referred
to above must be produced by the company in order
to meet the
‘
sufficient
specificity’
requirement in s 71(4)(a) of the Act. There is no similar
requirement in the comparable provision, i.e. s 220(2) of the
old Companies Act 61 of 1973. There also appears to be no authority
on the meaning of the ‘
sufficient
specificity’
requirement. The closest that I have been able to come to obtaining
guidance in both local and foreign jurisdictions with comparable
company law jurisprudence is an article written by Caroline B Ncube,
who is a senior lecturer in the Faculty of Law at the University
of
Cape Town, in the 2011 South African Law Journal at p33 titled
‘
You’re
fired! The removal of directors under the
Companies Act 71 of 2008
’
where the author writes:
‘
Section 71(4)
provides that
a director whose removal is in issue must be given notice of the
meeting, plus a copy of the relevant resolution
accompanied
by
a statement of reasons for resolution which is detailed enough to
enable him to formulate a response
.
Whilst the English and Australian companies legislation make
provision for notice to be given to directors they do not go as far
as stating that
sufficiently
detailed reasons
must accompany the notice. In requiring this, the 2008 Act protects
directors by ensuring that
they
are in a position to mount a response to the case for their removal
.
Where the director concerned is also an employee, these provisions
ensure the fairness of a hearing that may lead to a dismissal.
In
that sense, the legislation also protects companies by requiring them
to ensure fair hearings.’
[emphasis
supplied]
[10]
The learned
author’s formulation of ‘
sufficient
specificity’
as
‘
sufficiently
detailed reasons to mount a response’
is a useful guide to employ. Inherent in this formulation is that
each case will ultimately depend upon its own particular facts.
I
intend to adopt this approach for purposes of determining this
matter; and to also take guidance, for comparative purposes, from
the
decision in
Avril
Elizabeth Home for the Mentally Handicapped v Commission for
Conciliation, Mediation & Arbitration & Others
(2006) 27 ILJ 1644 (LC) where the court, in dealing with the content
of the concept of procedural fairness in the
Labour Relations Act 66
of 1995
, held as follows at p1652:
‘
The signal of a move to an
informal approach to procedural fairness is clearly presaged by the
explanatory memorandum that accompanied
the draft Labour Relations
Bill. The memorandum stated the following:
“
The
draft Bill requires a fair, but brief, pre-dismissal procedure…
[It] opts for this more flexible, less onerous, approach
to
procedural fairness for various reasons: small employers, of whom
there are a very large number, are often not able to follow
elaborate
pre-dismissal procedures; and not all procedural defects result in
substantial prejudice to the employee.”
On this approach, there is clearly
no place for formal disciplinary procedures that incorporate all of
the accoutrements of a criminal
trial, including the leading of
witnesses, technical and complex “charge-sheets”,
requests for particulars, the application
of the rules of evidence,
legal arguments, and the like.’
[11]
The company
was informed that the right that each applicant wished to exercise or
protect (as set out in
s 50(1)(a)
as read with
s 53(1)(d)
of PAIA) was as follows:
‘
1. The requester is a
director of PB Meat (Pty) Ltd.
2. Mr S E Timcke has convened a
board meeting of PB Meat (Pty) Ltd at which meeting he will propose a
resolution that the requester
be removed as director of PB Meat (Pty)
Ltd, due to a dereliction in the performance of his functions as a
director.
3. The requester has the right to
defend the allegations.
4. The requester also has the right
to make representations at the forthcoming board meeting of PB Meat
(Pty) Ltd in terms of
section 71(4)
of the
Companies Act No 71 of
2008
;
4.1
that the allegations are incorrect;
4.2
that the requester was not derelict in his duties;
4.3
that the requester should not be removed as director.
5. The requester has the right to
protect himself from being removed as a director of PB Meat (Pty)
Ltd.’
[12]
The
applicants advised the company that the reasons why the record was
required (in accordance with
s 53(1)(d)
of PAIA) were that: (a)
they needed to listen to the tape recordings; and (b) they needed to
peruse all of the documents in order
to prepare a response and to
make a presentation at the board meeting. It was contended that if
they were denied this opportunity
they would be ‘
seriously
prejudiced’
in
their preparation.
[13]
Certain
telephone recordings (seven in all) have subsequently been provided
by the company. Four were provided before the application
was
launched and three were provided thereafter. Timcke had alleged in
the earlier application that he had installed call loggers
on the
company’s telephone system in November 2011; and that when
listening to the recordings it had rapidly become apparent
that the
applicants, together with Jacques Pretorius, had been ‘
working
with suppliers/competitors… to divert business’
away from the company. The applicants suggest that the first four
recordings provided do not support the company’s allegations.
Timcke states that the compact disk initially supplied to the
applicants contained, to the best of his knowledge, six recordings,
but tendered the missing recordings which, as I understand it, have
now been provided.
[14]
What is
significant is that Timcke stated that ‘
these
are the recordings which formed the basis for reasons 2 and 6 in the
statement of reasons together with the transcription
of the recording
attached as an annexure to the
[earlier]
application’
and similarly tendered the recording relating to that transcription.
If, as the applicants suggest, the first four recordings provided
do
not support Timcke’s allegations, one has to wonder why it is
necessary for the applicants to demand any further recordings.
That
leaves the other three recordings which the applicants, in their
replying affidavit, stated that they still needed to listen
to as
these had only been provided by the company on 17 April 2013.
The applicants did not seek leave to file a supplementary
affidavit
dealing with the content of these three recordings. In addition
the applicants have not claimed that, to the extent
that the
remaining three recordings might support allegations of wrongdoing,
there would be other recordings pertaining to them
of an exculpatory
nature. It is not as if the recordings were relied upon by the
company
in
vacuo
–
they have been referred to within the context of specific allegations
made against the applicants. The applicants nonetheless
contend that:
‘
The respondents did not
furnish all the relevant telephone recordings. The respondents
contend that they only have to furnish the
telephone recordings upon
which
they
rely. That contention is incorrect. The applicants are also entitled
to rely on other telephone conversations in support of their
defence….. All the telephone recordings are highly relevant in
order to prepare the applicant’s defence and the telephone
recordings have to be considered and used conjunctively to gainsay
the allegations of wrongful conduct. The telephone recordings
are
also highly relevant and necessary in order to consult with
witnesses, such as,
inter
alia
, Mr Jacques Pretorius,
Mr H Badenhorst, the relevant witnesses at Coleridge Meat, and
representatives of the relevant transport
contractor, and Mr Erich
Kuhn (ACT Logistics).’
[15]
Nowhere in
the aforementioned passage (which was proffered in reply) have the
applicants stated that, for example, telephone conversations
with
other individuals will show that the company has taken the recordings
upon which it relies out of context. The company does
not rely on any
recordings other than the seven recordings that have now been
provided to the applicants; and accordingly the company
will have to
stand or fall by the contents thereof, taken together with any other
evidence to substantiate its allegations against
the applicants when
the proposed resolution is considered at the board meeting. The
applicants have the recordings relied upon
and there appears to be no
good reason why they should be permitted to trawl through every
recording of every telephone conversation
logged by the company
during the entire period from November 2011 until September 2012. It
would have been a simple matter for
them to direct the company’s
attention to any telephone calls that might have been made in support
of their denial of wrongdoing.
They were both previously actively
engaged in the business of the company and they would have known if
any such telephone conversations
had taken place since they were the
individuals who would have been party to them. This, coupled with
their suggestion that the
four recordings that they have listened to
do not support the company’s allegations, leads me to conclude
that in respect
of the telephone recordings the applicants have been
provided with sufficient specificity to reasonably permit them to
prepare
and present a response.
[16]
The company
refused to provide the applicants with any of the documents requested
by them on the following grounds. First, it was
contended that the
documents were not necessary in order to protect the applicants’
rights and the refusal to provide them
would not result in any
prejudice to the applicants. Second, it was contended that the
documents either constitute sensitive commercial
information as
envisaged in
s 68
of PAIA; or that, given that they had been
requested for the purpose of civil proceedings, they were not
required to be produced
in accordance with
s 7(1)(b)
of PAIA.
The company’s reliance on
s 7(1)(b)
of PAIA was not
pursued during argument, correctly in my view, and this ground for
refusal requires no further comment.
[17]
S 68
of PAIA is contained in chapter 4 thereof and reads as follows:
‘
68 Commercial information
of private body
(1)
Subject to subsection
(2), the head of a private body may refuse a request for access to a
record of the body if the record ---
(a)
contains trade secrets of
the private body;
(b)
contains financial,
commercial
,
scientific or technical
information
,
other than trade secrets,
of
the private body, the disclosure of which would be likely to cause
harm to the commercial or financial interests of the body
;
(c)
contains information, the
disclosure of which could reasonably be expected ---
(i)
to put the private body
at a disadvantage in contractual or other negotiations; or
(ii)
to prejudice the body in
commercial competition; or
(d)
is a computer program, as
defined in section 1(1) of the Copyright Act, 1978 (Act 98 of 1978),
owned by the private body, except
insofar as it is required to give
access to a record to which access is granted in terms of this Act.
(2)
A record may not be
refused in terms of subsection (1) insofar as it consists of
information about the results of any product or
environmental testing
or other investigation supplied by the private body or the results of
any such testing or investigation carried
out by or on behalf of the
private body and its disclosure would reveal a serious public safety
or environmental risk.
(3)
For the purposes of
subsection (2), the results of any product or environmental testing
or other investigation do not include the
results of preliminary
testing or other investigation conducted for the purpose of
developing methods of testing or other investigation.’
[emphasis
supplied]
[18]
After
receipt of the company’s refusal the applicants demanded that
in any event the documents should be made available to
them in their
capacities as directors of the company. This demand was similarly
refused.
[19]
The present
application is brought on two grounds, namely that the applicants are
entitled to the documents in their capacities
as directors of the
company; and that they are entitled to the documents in terms of
s 50(1) of PAIA, which provides as follows:
‘
50. Right of access
to records of private bodies
(1)
A requester must be
given access to any record of a private body if---
(a)
that record is required
for the exercise or protection of any rights;
(b)
that person complies
with the procedural requirements in this Act relating to a request
for access to that record; and
(c)
access to that record is
not refused in terms of any ground for refusal contemplated in
Chapter 4 of this Part.’
[20]
The
documents initially sought by the applicants in their notice of
motion were identical to those contained in their request delivered
to the company in terms of s 53(1) of PAIA. During argument the
request was revised and clarified and became restricted to
the
following:
18.1 The ‘
transactional
documentation’
concluded between the applicants and the company relating to the
previous sale of the applicants’ partnership business to
the
company;
18.2 all the stock
sheets, purchase invoices, VAT invoices and monthly management
accounts of the company for the period 1 September
2010 to
14 November 2012;
18.3 the financial
statements of the company for the periods ending 28 February
2010, 28 February 2011 and 28 February
2012;
18.4 the documents
relating to the ‘
forensic
investigation’
referred to at paragraph 40.2 of the affidavit of Timcke filed in
support of the earlier application; and
18.5 the undertaking
given by Mountain Meat Traders to the company.
[21]
The revised
relief sought by the applicants in relation to the documents
requested was accompanied by an open tender that the documents
be
placed in the possession of counsel for the company or a third party
of its choice, and that the applicants and their legal
representatives be entitled to view the documents for the purpose of
preparing for the forthcoming board meeting. The applicants
also
consented to an order directing that they would only be permitted to
use the documents for purposes of the board meeting and
for no other
purpose whatsoever.
[22]
Insofar as
their entitlement to the documents in their capacities as directors
is concerned, the applicants’ argument is essentially
that,
given that they each have a statutory obligation as directors to
manage the business and affairs of the company in terms
of s 66(1)
of the Act, they will effectively be precluded from fulfilling those
obligations if they are refused access to
the documents. In a
supplementary note filed by counsel for the applicants it was stated
that ‘in casu
,
the applicants seek certain documents only in order to preserve their
management functions as directors of
[the
company]
.
Insofar as the applicants’ conduct
[sic]
is aimed
at preserving their managerial functions as directors, a court should
not prevent them in the exercise of those rights’.
[23]
The
difficulty with this argument is that the applicants, on their own
version, do not require the documents in order to manage
the business
and affairs of the company. They wish to have sight of the documents,
and to consider them, in order to prepare and
present a response to
the allegations made against them. They have not attempted to manage
the business and affairs of the company
and thus execute their
functions as directors since they resigned from their employment with
effect from 30 September 2012.
This does not mean that as
‘
non-executive’
directors their duties became any less onerous: see
Howard
v Herrigel and Another NNO
[1991] ZASCA 7
;
1991 (2) SA 660
(AD) at 678A-D. It is simply that the applicants do
not wish to be provided with the documents for any purpose other than
safeguarding
themselves from possible removal.
[24]
The
question which then arises is whether a director’s right of
access to company records is absolute. Blackman in
Commentary
on the
Companies Act
Vol
2 at p8-26 writes that ‘
Because
a director’s right to inspect the books of account of his
company is not a statutory right, the court has a discretion
whether
or not to order inspection’.
S 76(2)
and (3) of the Act deal with the standard of conduct required of a
director and provide as follows:
‘
(2) A director of a company
must---
(a)
not use the position of
director, or any information obtained while acting in the capacity of
a director---
(i)
to gain an advantage for
the director, or for another person other than the company or a
wholly-owned subsidiary of the company;
or
(ii)
to knowingly cause harm
to the company or a subsidiary of the company; and
(b)
communicate to the board
at the earliest practicable opportunity any information that comes to
the director’s attention, unless
the director---
(i)
reasonably believes that
the information is---
(aa) immaterial to the company; or
(bb) generally available to the
public, or known to the other directors; or
(ii)
is bound not to disclose
that information by a legal or ethical obligation of confidentiality.
(3) Subject to subsections (4) and
(5), a director of a company, when acting in that capacity,
must
exercise the powers and perform the functions of director
---
(a) in good faith and for a proper
purpose;
(b) in the best interests of the
company; and
(c) with the degree of care, skill
and diligence that may reasonably be expected of a person---
(i) carrying out the same functions
in relation to the company as those carried out by that director; and
(ii) having the general knowledge,
skill and experience of that director.’
[emphasis
supplied]
[25]
In
Henochsberg
on The
Companies Act 71 of 2008
it is stated at p248 that:
‘
The significance of the
power to manage
[the]
business and affairs in
terms of
section 66
are two-fold. In the first instance this power
(and obligation) is now original and not delegated (from the
shareholders through
the Memorandum of Incorporation) as it was under
the 1973 Act (through the articles). Secondly the ultimate power in
the company
is now with the board of directors, and not with the
shareholders…’
[26]
Directors’
powers and duties are now partially codified in the Act (see
Henochsberg at p287). The directors of a company are
obliged, in
terms of s 76(3)(a) and (b) of the Act, to exercise their powers
as directors
bona
fide
and in the best interests of the company. ‘
A
director of a company must not use the position of director, or any
information obtained while acting in the capacity of a director,
to
gain an advantage for the director, or for another person other than
the company, or knowingly cause harm to the company.
“Knowingly”
means
that the person either had actual knowledge of that matter or was in
a position in which the person reasonably ought to have
had actual
knowledge or reasonably ought to have investigated the matter to an
extent that would have provided the person with
actual knowledge, or
reasonably ought to have taken other measures which, if taken, would
reasonably be expected to have provided
the person with actual
knowledge of the matter’
:
Henochsberg at p288.
[27]
The
allegations levelled at the applicants are essentially that they have
not acted
bona
fide
and in the best interests of the company. The request for
documentation is not for the purpose of exercising their powers, and
to perform their functions, in the best interests of the company; nor
for seeking to ensure that the other directors have done
so. On the
applicants’ own version it is for the purpose of defending
allegations which go to the root of their s 76
obligations. Put
differently, the applicants do not seek to protect the company, but
to protect themselves as individual directors.
The applicants thus
wish to exercise their powers, not for the benefit of the company,
but for the benefit of themselves. It is
my view that in these
circumstances the applicants’ access to the company records
must be fettered by the purpose for which
such access is sought.
[28]
The
applicants also rely on
Erasmus
v Pentamed Investments (Pty) Ltd
1982
(1) SA 178
(W), cited with approval in
Apco
Africa (Pty) Ltd v Apco Worldwide Inc
[2008] ZASCA 64
;
2008
(5) SA 615
(SCA). In my view the
Erasmus
case is
distinguishable. First, it involved an application for the winding-up
of a company on the ground that it would be just and
equitable to do
so, and different considerations thus applied. Second, the court
found that it was apparent that the relationship
between the warring
directors was more than a purely commercial one, which is not the
case in the present matter. Third, the court
found that the applicant
director’s complaint was not only directed at dissatisfaction
with the way in which the affairs
of the respondent company were
being conducted, but also that the notice to remove him as a
director, constituting as it did an
attempt to exclude him from
participating in the management of the company, was a repudiation of
the special relationship already
referred to. None of those
considerations apply in the present matter. The
Apco
case is also distinguishable. It is therefore my view that the
applicants, in their capacities as directors, are not entitled to
the
documents as of right.
[29]
The
applicants contend that they are entitled to the documents sought in
terms of PAIA on the basis that they are relevant ‘
to
disprove’
the allegations against them. They point out that the company has not
alleged that the documents do not exist. The defences are
that,
although the documents exist: (a) the production thereof is
‘
unnecessary’
;
(b) that the company’s refusal to grant access to the documents
will in no manner prejudice the applicants in their preparation
for
the board meeting; and (c) that all the relevant information is
already at the applicants’ disposal. The applicants also
argue
that the production of the documents would provide them with a
substantial advantage. In
Claase
v Information Officer, South African Airways (Pty) Ltd
2007
(5) SA 469
(SCA) at paragraph [9] the Supreme Court of Appeal
explained the ‘
substantial
advantage’
principle
as follows:
‘
[9] The next question is
whether access to the record sought is “required” for the
protection
of the right. In
Clutchco
in
para
[13] (followed in
Unitas
in
para [17]), this Court said:
“
I
think that ‘reasonably required’ in the circumstances is
about as precise a formulation as can be achieved, provided
that it
is understood to connote a substantial advantage or an element of
need.”
The substantial
advantage in this matter consists in the fact that the contents of
the record would be decisive. (
Unitas
in
para [54]),
ie
they would bring
a short sharp end to the dispute (
Van
Niekerk v Pretoria City Council
1997
(3) SA 839
(T) ([1997]
1 All SA 305)
in para [103]).) They would
either confirm the appellant’s contentions, in which event SAA
would apparently have no defence,
or they would support the latter’s
case, in which event the appellant would obviously, as his counsel
said in argument, not
proceed with the proposed litigation. SAA’s
reluctance to produce the document in these circumstances is
inexplicable.’
[30]
In an
application of this nature an applicant is not required to establish
a clear right worthy of protection. All that is required
of an
applicant is to ‘
put
up facts which
prima
facie
,
though open to some doubt, establish that he has a right which access
to the record is required to exercise or protect:’
see
Claase
at paragraph [8]. The applicants contend that they have established
facts which
prima
facie
show
that the documents are reasonably required to protect their rights.
It is not in dispute that the applicants have shown that
they have a
prima
facie
right worthy of protection; but I do not understand
Claase
to mean that therefore all that the applicants are required to show
is that,
prima
facie
,
the documents are reasonably required to protect their rights. I say
this because of the authorities referred to below.
[31]
Rule
3(4)(c) of the procedural rules of PAIA makes it incumbent upon an
applicant in an application of this nature to explain the
relevance
of each document upon which he or she intends to rely. It is thus
necessary to have regard to the content given by our
courts to the
concept of ‘
required
for the protection of any rights’
in s 50 of PAIA. In
Unitas
Hospital v Van Wyk and Another
[2006] ZASCA 34
;
2006 (4) SA 436
(SCA) at paragraphs [6] and [16] to [18] the Supreme
Court of Appeal held as follows:
31.1 Generally speaking,
the question whether a particular record is ‘
required’
for the exercise or protection of a particular right is inextricably
bound up with the facts of that matter;
31.2 Our courts have been
reluctant to make any positive statements at to what the expression
‘
require’
means. The inclination is rather to define the expression in terms of
what it does not mean. ‘
So,
for example, it is said that it does not mean the subjective attitude
of
“want”
or
“desire”
on the
part of the requester; that, at the one end of the scale,
“useful”
or
“relevant”
for the
exercise or protection of a right is not enough, but that, at the
other end of the scale, the requester does not have to
establish that
the information is
“essential”
or
“necessary”
for the
stated purpose’
;
31.3 Although the
threshold requirement is that of ‘
assistance’
,
if the requester cannot show that the information will be of
assistance for the stated purpose, access to that information will
be
denied;
31.4 ‘
Reasonably
required’
connotes ‘
a
substantial advantage or an element of need’.
[32]
In
Cape
Metropolitan Council v Metro Inspection Services (Western Cape) CC
and Others
2001 (3) SA 1013
(SCA) at paragraph [28] the Supreme Court of Appeal
formulated the test as follows:
‘
Information can only be
required for the exercise or protection of a right if it will be of
assistance in the exercise or protection
of a right. It follows that,
in order to make out a case for access to information… an
applicant has to state what the right
is that he wishes to exercise
or protect, what the information is which is required and
how
that information would assist him in exercising or protecting that
right
.’
[emphasis
supplied]
[33]
The
applicants have set out the rights that they wish to exercise or
protect, namely to safeguard their removal as directors of
the
company. They have also set out the information that is required. It
is the third leg, namely, how that information will assist
them in
exercising or protecting that right, which requires scrutiny, i.e.
the element of need. Also to be considered is whether
the provision
of the documentation now sought will provide the applicants with a
substantial advantage in the sense that it will
bring a ‘
short,
sharp end’
to the dispute as set out in the
Claase
case.
[34]
The
applicants claim that the documents that they require are crucial to
enable them to prepare and present a response. They contend
that the
company’s incorporation by reference in the further particulars
provided of the papers in the earlier application
have ‘
significantly
enlarged the scope of the allegations contained in the statement of
reasons’
.
The difficulty however is that instead of dealing fully with these
averments the applicants focused on the reasons advanced by
the
company in support of the refusal to furnish the record. I intend to
quote the relevant part of the founding affidavit in full:
‘
The documents are
unnecessary
44. The documents are necessary in
order to prepare our response, and to prepare for the board meeting.
By way of example, I refer
to the charge that Jacques Pretorius
appropriated product by PB Meat, and that the Applicants acquiesced
therein. All the documents
called for are relevant. Amongst others,
the VAT invoices of PB Meat, the stock sheets, the monthly management
account statements,
the financial records relating to the current
financial performance and the financial statements of PB Meat, are
inter alia
vital
to disprove the aforegoing charges.
The refusal will not prejudice
the requesters
45. The Respondents are clearly in
possession of the documents. They will suffer no prejudice if the
Applicants are afforded access
to the documents. If the Respondents
are allowed to keep the documents secret, the Applicants will be
prejudiced in preparing a
proper response to refute Timcke’s
charges. The documents are clearly relevant to the charges made
against the Applicants.
All relevant information is
already at the disposal of the Applicants
46. I dispute the contention that
all the relevant information is already at the disposal of the
Applicants. The Applicants do not
have all the required documents.
The documents called for, are in the possession of the Respondents. I
fail to understand why the
Applicants are not allowed to have sight
of those documents.
47. Upon a proper interpretation of
the third and fourth paragraphs of the letter dated 14 January
2013 by Keller Snyman Schelhase,
it is clear that the Respondents
refuse to give the documents to the Applicants that were required in
paragraphs 3 to 15 of annexure
“A” to the Request for
Access to Record of Private Body. That means, properly construed,
that the Applicants are not
in possession of the documents.
48. The objective effect of the
Respondents’ refusal, is to prejudice the Applicants.
49. I invite the Respondents to
show how and when the Applicants came into possession of the required
documents.
The record constitutes
commercial information
50. The record is not commercial
information as meant in PAIA. In the alternative and in any event, I
submit that the Applicants
in their capacity as directors of PB Meat
have the right of access to all documents and information of PB Meat.
Timcke has no right
to determine unilaterally that the Applicants, as
co-directors, are denied access to certain records of PB Meat.’
[35]
Insofar as
the relevance of the documents sought is concerned, the only
averments made by the applicants are that:
‘
THE RELEVANCE OF THE
DOCUMENTS THAT THE APPLICANTS REQUIRE
57. All the documents are relevant
with regard to the charges which Timcke has made in support of his
attempt to have the Applicants
removed as directors. The Applicants
require those documents, as explained above, to prepare a response
and to present the response
at the proposed board meeting.’
[36]
In the
concluding paragraphs of the affidavit the applicants allege that:
‘
69. This application had to
be prepared on an urgent basis under severe time constraints. Given
the uncompromising attitude of the
Respondents the Applicants have
not enjoyed 30 days within which to prepare this application. In the
premises the Applicants reserve
the right to seek leave to supplement
these papers, should the need arise.’
[37]
It is
common cause that the applicants did not seek leave to supplement
their founding papers and were thus presumably of the view
that there
was no need to do so. It was only in reply that specific reasons were
advanced by the applicants for why they consider
the documents to be
‘
crucial’
to enable them to prepare and present a response.
[38]
In summary,
the reasons advanced by the applicants were as follows (I will deal
only with the restricted version of the documents
now sought):
The ‘
transactional
documentation’ concluded between the applicants and the company
relating to the sale of the applicants’
partnership business to
the company
38.1 The documentation
sought will show that the company did not acquire ownership of either
the two Handtman meat grinders or the
Weiler meat grinder. It will
also show that there is no asset register in existence to prove that
the company is the owner of the
grinders concerned. (These documents
relate to charges 1 and 2 in the statement of reasons.)
All the stock
sheets, purchase invoices, VAT invoices and monthly management
accounts of the company for the period 1 September
2010 to
14 November 2012
38.2 These documents will
show that there was no stock shortage and/or appropriation of product
and/or cash belonging to the company
as alleged. They will also show
that there was no decline in the business of the company (within the
context of the allegations),
and that therefore no business was
diverted by the applicants to third parties. ‘
When
the applicants are placed in possession of the source documents of
[the
company]
the
necessary graphs and statistics will be prepared by our expert and we
will then be in a position to show that no business was
diverted by
us.’
(These documents relate to charges 4, 5 and 6 in the statement of
reasons.)
The financial
statements of the company for the periods ending 28 February
2010, 28 February 2011 and 28 February
2012
38.3 The financial
statements ‘
will
probably show’
that there was no decline in income (within the context of the
allegations), and consequently no lost business as alleged. They
will
also deal with the alleged stock losses and alleged theft. ‘
It
is important to see what has been reported by the directors, in
keeping with their obligation of corporate governance relating
to
risk management… the financial statements should contain
details of the assets of
[the
company]
,
and depreciation that has been claimed in respect of those assets. It
would be important to see whether the financial statements
list the…
grinders… as assets of
[the
company]
.’
The documents
relating to the ‘
forensic
investigation’
referred to in the affidavit of Timcke in the earlier application
38.4 These documents are
required in relation
inter
alia
to
the telephone recordings and the alleged fraudulent scheme pertaining
to the sale of a machine to Mountain Meat Traders. (These
documents
relate to charge 3 in the statement of reasons.)
The undertaking
given by Mountain Meat Traders to the company
38.5 This document is
similarly required for the purpose set out in the immediately
preceding paragraph.
[39]
Although
this was valiantly pursued by the applicants’ counsel during
argument, I am not satisfied that the company’s
incorporation
by reference of the papers in the earlier application when providing
the further particulars sought has widened the
ambit of the
allegations made. But even if this were the case the point is that
the company is nonetheless bound by the allegations
contained in the
statement of reasons initially provided by it in terms of s 71(4)(a)
of the Act. It is in relation to those
allegations that the
applicants’ request for documentation must be assessed.
[40]
Although
there is merit in the company’s complaint that the applicants
have bolstered their case in reply, I must also consider
that the
company did not deem it necessary to apply to strike out the
offending paragraphs; nor did it seek leave to file a further
affidavit dealing with the explanations provided by the applicants.
It is indeed so that the company pertinently raised the issue
during
argument and sought an order that the application be dismissed on
that ground alone; but in my view it cannot be said that
the
applicants had failed to make out any case at all in their founding
papers, particularly if regard is had to the history of
the matter as
set out therein. Taking these factors into account it seems to me
that it would not serve the interests of justice
to adopt what might
well be considered to be an overly technical approach. In any event,
during argument on the merits, the debate
centred on the requirement
of sufficient specificity and not whether the explanations provided
by the applicants constituted new
matter in themselves.
[41]
The
company’s stance is as follows. The nature of the conduct
complained of is such that, even should the applicants succeed
in
showing that the grinders were not reflected on its asset register;
that there are no records of stock shortages; and that there
was no
decline in income recorded in the company’s financial
statements, the applicant will still not have answered the
allegations levelled against them, as the substantiation of the
allegations is not dependent on the documents requested. The
applicants’
contention that the company relies on the existence
of documents other than those provided is therefore misplaced. In
addition,
the documentation can only constitute sensitive commercial
information which, in light of the allegations made, would enable the
applicants to cause significant commercial and financial harm to the
company should they be provided with the information. It is
nothing
short of ludicrous to demand that – as initially sought by the
applicants and still persisted with in various respects
–
virtually every source document utilised in the business must be
disclosed to them in order to enable them to prepare and
present a
response to the statement of reasons.
[42]
Annexed to
the applicants’ founding affidavit is the set of papers filed
by the company in support of the earlier application.
These papers
contain the following:
42.1 The allegation that
the applicants caused the two Handtman meat grinders to be removed
from the company’s premises after
the company took control of
the business. Two employees of the company have deposed to affidavits
in support of this allegation;
42.2 The allegation that
the applicants disposed of the Weiler meat grinder which had been on
the company’s premises, albeit
briefly, after the company took
control of the business; and sold it to an entity known as Mountain
Meat Traders, keeping the proceeds
of the sale for themselves. The
company has produced an affidavit by an employee to this effect and
has also provided the applicants
with a telephone recording as well
as the transcription thereof;
42.3 The allegation that
the undertaking provided by Mountain Meat Traders related to a
dispute concerning unlawful passing off
and it thus has no relevance
to the complaints levelled at the applicants. It was referred to
solely in the context of Timcke’s
allegation that it was at a
meeting at the premises of Mountain Meat Traders to resolve the
unlawful passing off dispute that Timcke
saw the Weiler meat grinder;
and
42.4 The allegation that
Jacques Pretorius had on more than one occasion misappropriated both
product and cash from the company’s
cash register. An employee
has deposed to an affidavit confirming that she personally witnessed
this and that she reported it to
the second applicant who failed to
take any action. Misappropriation of cash by Jacques Pretorius was
also reported to the company
by another employee, and the details
thereof were similarly contained in an affidavit by the employee
concerned.
[43]
In the
further particulars supplied by the company it was alleged that the
applicants disposed of a Vermag sausage filler to Striker
Meat for a
purchase consideration of R35 000 but only paid over R10 000
of this amount to the company. This had been
confirmed by both the
company’s bookkeeper and the manager of Striker Meat. The
allegations relating to the diversion of
the company’s business
to Coleridge Meats are said to be supported by certain of the
telephone recordings. The quantification
of the secret profit alleged
is supported by documents already supplied to the applicants relating
to market related prices as
well as prices achieved for similar
products.
[44]
If one
scrutinises the statement of reasons dispassionately and objectively,
the allegations made are in fact simple. When regard
is had to the
further particulars provided by the company it is evident that the
information and documentation produced in substantiation
of the
allegations are equally uncomplicated, and largely comprise of
eyewitness testimony. There is no suggestion by the company
that the
applicants are guilty of complex commercial fraud. Had that been the
case the position might well have been different.
However, having
regard to the aforegoing I am not persuaded that the production of
the financial and commercial records of the
company as sought by the
applicants will assist them in any meaningful way in admitting or
denying the allegations levelled against
them. In other words, the
documents sought will not assist them in exercising or protecting
their rights.
[45]
What the
applicants seek, in effect, is to embark on a full-scale forensic
audit of the company, and to employ the services of an
expert to
prepare ‘
graphs
and statistics’
and the like. It is difficult to envisage how, in these
circumstances, the production of the record sought will bring a
‘
short
sharp end’
to the dispute and thus provide the applicants with a substantial
advantage in the sense that it will be decisive of the matter.
If
anything, it is likely to rather escalate it into a full-blown,
costly, elaborate and lengthy exercise. This is not what is
envisaged
by s 71(4)(a) of the Act in the circumstances of this matter.
[46]
I am thus
persuaded that the applicants have already been provided with
sufficiently detailed reasons to mount a response to the
allegations
levelled against them. It is accordingly not necessary to consider
the company’s defence of sensitive commercial
information (in
accordance with s 68 of PAIA).
[47]
Two further
aspects require mention. First, the applicants also claimed that in
their capacities as shareholders of the company
they are entitled to
copies of its annual financial statements in accordance with s 26
and s 31 of the Act. The company
denies that they are
shareholders, and avers that the applicants are the holders of a 25%
stake in the holding company, PB Meat
Holdings (Pty) Ltd, which in
turn holds 72% of the share capital in the company. This averment was
met with a bare denial in reply;
and whether, in these circumstances,
the applicants hold a beneficial interest in the securities issued by
the company was not
pursued with any vigour by their counsel during
argument. In any event this was not advanced as a ground for the
relief sought;
and it is thus not necessary to consider it any
further.
[48]
Second, as
pointed out by counsel for the company, should the applicants for
whatever reason be dissatisfied with the determination
of the board,
they can avail themselves of the provisions of s 71(5) of the
Act which affords them a remedy in the form of
an absolute right to
have a court review the board’s determination.
[49]
In the
result I make the following order:
The
application is dismissed with costs, including all reserved costs
orders.
_______________
J
I CLOETE
Cape Town
Wednesday, 8 May 2013
Coram: CLOETE J
Case no: 1057/2013
JOHANNES JACOBUS PRETORIUS
WILLEM HENDRIK PRETORIUS
v
PB MEAT (PTY) LTD
STEVEN EDWARD TIMCKE
For applicants: Adv Wesley Vos –
4221335
Instructed by: Badenhort
Attorneys – A H Badenhorst – 0741008412
For respondents: Adv Hanri
Loots – 4261771
Instructed by: KSS Attorneys