Malherbe v S (A49/2021) [2021] ZAWCHC 177; [2021] 4 All SA 510 (WCC) (6 September 2021)

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[2021] ZAWCHC 177
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Malherbe v S (A49/2021) [2021] ZAWCHC 177; [2021] 4 All SA 510 (WCC) (6 September 2021)

Republic of South Africa
IN THE HIGH COURT OF SOUTH AFRICA
WESTERN CAPE DIVISION, CAPE TOWN
Case number: A49/2021
Before: The Hon. Ms Justice Goliath (Deputy Judge President)
The Hon. Mr Justice Binns-Ward
The Hon. Mrs Justice Steyn
Hearing:   20 July 2021
Judgment: 6 September 2021
In the
matter between:
DAWID
JOHANNES
MALHERBE
Appellant
and
THE
STATE
Respondent
JUDGMENT
(Delivered by email to the parties’ legal representatives
and by release to SAFLII.
The judgment shall be deemed to have been handed down at 10h00 on
6 September 2021.)
BINNS-WARD
J (GOLIATH DJP and STEYN J concurring):
[1]
The appellant, an erstwhile longstanding
employee and senior manager of Eskom, was convicted in the
Specialised Commercial Crimes
Court at Bellville on one count of
fraud and one count of money laundering in contravention of s 4 read
with ss 1 and 8 of
the Prevention of Organised Crimes Act 121 of
1998.
[1]
He was sentenced to an effective term of 15 years’
imprisonment; 10 years in respect each count, with five years
of
the sentence for money laundering ordered to run concurrently with
that imposed in respect of the count of fraud.
[2]
The money laundering charge related to the
appellant’s handling of the profits that had accrued to him
though the business
operations of Energy Utility Services (Pty) Ltd
(‘EUS’) (a company established by the appellant about
which much will
be said later in this judgment) in respect of two
outsourcing contracts between that company and PN Energy Services
(Pty) Ltd (‘PNES’).
PNES was at the time a wholly
owned subsidiary of Eskom Holdings Ltd.  The appellant had been
seconded by Eskom to serve as
the managing director of PNES.
[3]
The appellant’s role in bringing
about the conclusion of the contracts between EUS and PNES provided
the foundation for the
charge of fraud brought against him.
Both sides accepted before this court that if the appellant were
successful with his
appeal against the fraud conviction, a setting
aside of his conviction on the money laundering charge would
logically have to follow.
In the circumstances counsel confined
their oral argument to the appeal against the fraud conviction.
[4]
The appellant also faced a charge of having
contravened various provisions of the Public Finance Management Act 1
of 1999
[2]
(‘PFMA’) (‘failing to comply with the fiduciary
duties and general responsibilities of the accounting authority’).
[3]
The PFMA-related charges concerned the accused’s alleged
misfeasance in respect of the management of PNES.  The
PFMA
applied because Eskom is one of the ‘major public entities’
listed in Schedule 2 to the Act and any subsidiary
‘under the
ownership control’ of a major public entity is also treated for
the purposes of the statute as an entity
listed in Schedule 2.
He was acquitted on that count because the regional magistrate was of
the view (misdirectedly) that
it was a duplication of the fraud
charge.
[5]
The appellant was accused no. 2 in the
trial.  His co-accused were EUS, as accused no. 1, and
Matome Peter Sebola, as
accused no. 3.  Mr Sebola was
the general manager (distribution) for Eskom’s Western Region
of operations.
Sebola was discharged, in terms of s 174 of
the Criminal Procedure Act, after the closing of the state’s
case.
[6]
It had originally been the state’s
intention to join one Jacob Machinjike, who was a general manager in
the transmission division
of Eskom, as the fourth accused in the
case.  The charges against Mr Machinjike were withdrawn,
however, and he was used
instead by the prosecution as a state
witness.  Indeed, the trial court’s conviction of the
appellant on the charge
of fraud was ultimately founded on its
acceptance of the truth of Machinjike’s evidence, and its
rejection of the appellant’s
countervailing version of the
facts as not reasonably possibly true.
[7]
The appellant’s application for leave
to appeal was dismissed by the trial court and his subsequent
petition to the Judge
President, in terms of s309C of the Criminal
Procedure Act, was also unsuccessful.  The refusal of the
petition was reversed
by the appeal court; see
Malherbe
v S
[2019] ZASCA 120
(25 September
2019).  It was accordingly with leave granted by the Supreme
Court of Appeal that the appeal came before us
nearly five years
after the appellant had been sentenced.  Fortunately, the
appellant did not serve any time in prison during
that interval.
The appeal comes before a panel of three - rather than two –
judges, apparently by virtue of a determination
by the Judge
President in terms of s 14(1)(a) of the Superior Courts Act.
[4]
[8]
It is convenient to begin by describing the
factual backdrop for the charges brought against the appellant and
his co-accused.
[9]
PNES was established as joint venture
company in 1994.  It constituted the entity through which Eskom,
in partnership with
two other companies, one of them British and the
other French, embarked on a project for the electrification of the
rapidly growing
area of Khayelitsha on the Cape Flats.  The
British company withdrew from the venture in 2002 and the French
partner followed
suit in 2007, with the result that PNES then became
a wholly owned subsidiary of Eskom.
[10]
In January 2008 Eskom decided that there
was no longer any point in PNES’s functions - which were a
localised subset of those
undertaken nationally by Eskom itself -
being carried out by a separate company.  It was accordingly
resolved
[5]
that PNES should be ‘decorporatised’,
[6]
and its operations taken over by the parent company.  Eskom’s
Western Region’s distribution division was identified
by the
board, in May 2008, as the structure into which PNES’s
operations would be integrated.
[11]
The board of directors of PNES at the time
comprised Machinjike, who was the chairman, Sebola and the
appellant.  As already
noted, the appellant was the managing
director.  He had been seconded a few years earlier from another
Eskom subsidiary to
fill that position.  As also already
mentioned, Messrs Machinjike and Sebola were also very senior
managers in Eskom.
[12]
Mr Machinjike was the manager in the
Eskom group hierarchy to whom the appellant was directly accountable
for PNES’s
operations.  Machinjike was in turn answerable
up the line of authority to a certain Mr Mongezi Ntsokolo, the
managing director
of Eskom (Transmission).  Mr Ntsokolo was the
person designated by Eskom to represent its shareholder’s
interest in
PNES.  He was referred to in the evidence as ‘the
shareholder representative’.
[13]
Mr Sebola enjoyed official recognition
within Eskom as a high achieving executive credited with improving
the rating of the Western
Region distribution division to that of the
best performing distribution division nationally.  As the
general manager of Eskom
(Distribution) in the Western Region, Sebola
headed the division of Eskom designated to assume the functions of
PNES when it was
‘decorporatised’.  It was perhaps
for that reason that he was appointed to the PNES board at the
beginning of
2008.
[14]
The role played by PNES in respect of the
provision and maintenance of electricity services in Khayelitsha was
acknowledged by Eskom’s
management to be a highly important
one.  The carrying out of PNES’s functions in the area
required close engagement
with the local community.  Under the
appellant’s leadership, PNES’s personnel had built up an
intimate knowledge
of the Khayelitsha area and established a good
working relationship with the community.  Eskom’s top
management was
conscious that it was vital that the absorption of
PNES’s functions by the holding company should happen in a way
that would
not interrupt or dislocate the services being provided in
Khayelitsha.  It was appreciated that any hiccups in the
transitional
process could even lead to local unrest, with the
potential for the vandalising and destruction of existing
infrastructure.
As one of the Eskom witnesses stated,
Khayelitsha was ‘
a volatile
area
’.
[7]
The potential for service-related unrest was regarded by the
state-owned company as an especially sensitive matter at that
time
because the intended winding down of PNES coincided with the lead up
to the 2009 general election.
[15]
When the Eskom board made its decision, in
January 2008, to ‘decorporatise’ PNES, the intention was
that it should be
implemented by the end of March of that year.  The
idea was that PNES should be liquidated, and its assets taken over by
Eskom
by way of a liquidation dividend in specie.  It very soon
became apparent, however, that it had not been appreciated that
‘decorporatising’ PNES would involve a complex
undertaking requiring attention to a range of legal, tax and
logistical
questions.  Indeed, the ‘decorporatisation’
remained a still unfinished project at the time of the appellant’s

trial in 2015-2016.
[16]
In his capacity as managing director of
PNES, the appellant, having taken professional advice on the
practical aspects of implementing
the Eskom board’s resolution,
was proactive in highlighting to his superiors some of the
complicated issues that needed to
be addressed in the
‘decorporatising’ exercise.  He had sought such
advice from, amongst others, a senior partner
at Cliffe Dekker
attorneys, Mr Alan Jephta.  Jephta had been engaged for some
years as PNES’s attorney.  His initial
engagement followed
on a recommendation by the head of Eskom’s legal department.
Eskom then decided that Mr Jephta
should be jointly engaged to
provide ongoing advice to both Eskom and PNES about the steps to be
taken to implement the resolution.
The appellant also took
advice from the company that provided company secretarial services to
PNES in respect of the statutory
requirements that would need to be
complied with by PNES to achieve ‘decorporatisation’.
[17]
The questions that needed to be addressed
in the ‘decorporatising’ process were regarded as
sufficiently complex for
the Eskom board to assign a committee known
as TEXCO (Transmission Executive Committee) to guide the process.
TEXCO was chaired
by the aforementioned Mr Mongezi Ntsokolo, the
managing director of the transmission division of Eskom.  Mr
Machinjike
served as a member of the committee.
[18]
The Eskom employee responsible for advising
TEXCO on the process was Johanna (‘Ohna’) Smit, who
testified as a
state witness at the trial.  Ms Smit headed up a
task team of Eskom employees drawn from a variety of departments
within the
company set up for the purpose of dealing with the
technical aspects of the ‘decorporatisation’ of PNES and
the takeover
of its assets by Eskom.
[19]
Ms Smit’s evidence showed up vividly
the confusion and lack of clarity that prevailed during 2008 as Eskom
management worked
its way through the morass of practical issues that
confronted it in implementing the board’s ‘decorporatisation’

decision.  The witness conceded that she had not appreciated
some of the practical difficulties with pursuing Eskom’s

favoured route of liquidating PNES until these were pointed out to
her by the appellant.  Most important in that connection
had
been the consideration that any decision by PNES to go into voluntary
liquidation would have immediately disabled it from being
able to
contract with third parties, something that was essential for the
continuance of service provision in Khayelitsha until
Eskom’s
Western Region distribution division was ready to fully assume PNES’s
operational functions.  In this
regard it seems that PNES used
to carry on much of its on-site work in Khayelitsha in terms of ad
hoc contracts concluded as required
from time to time with various
small businesses in the local community.
[20]
Ms Smit conceded under cross-examination at
the trial that she was in no position to say whether Eskom had the
capacity to take
over PNES’s functions, even by the end of
2009.  Other evidence led during the trial established that it
was only during
2010 that Eskom was ready to fully take over PNES’s
operational functions.  Indeed, Mr Jannie Ehlers, a regional key

account manager in Eskom who was the chairperson of PNES at the time
of the trial, who testified for the state, had reported in
September
2006 that Eskom did ‘
not have the
resources to perform
[the work being
done in Khayelitsha by PNES]’ and that to replace PNES ‘
would
require appointing various contractors in the area of Khayelitsha,
which could result in higher costs for Eskom (ie the contractors

would have to go through a steep learning curve that PN Energy
Services (Pty) Ltd has already experienced).  This will also

have a detrimental effect on Eskom’s customers.
’
Ehlers’ report proceeded ‘
Alternatively
Eskom can appoint its own staff (approximately 47 people) which can
also take up to 12 months to train and equip
’.
Nothing in the evidence suggested that the circumstances had changed
materially between September 2006 and January
2009.
[21]
The efficient assumption of PNES’s
functions by Eskom’s Western Region distribution division was
obviously a matter
of special interest to Mr Sebola in his role as
general manager of the division.  It will be recalled that
Sebola was also
a director of PNES.  In his capacity as general
manager, Sebola constituted a special team headed by Trish da Silva,
a business
strategy and planning manager within Eskom, to advise on
and manage the practical aspects of smoothly transferring PNES’s

functions to his division.  The committee established by Sebola
was known as the ‘PN Integration Team’ or ‘PIIT’.

The team headed by Ms da Silva operated contemporaneously with that
headed by Ms Smit, although it seems that contact between the
two
teams was limited.
[22]
I have already mentioned that PNES’s
personnel had developed an intimate knowledge of the operational
environment in Khayelitsha
and established the sort of close
relationship with the community that was essential for the effective
carrying out of PNES’s
functions in the area.  The staff
complement concerned was not employed directly by PNES.  It
comprised of persons whose
services had been provided by Kelly
Personnel, a labour brokering business with which PNES had a
recurring fixed term contract.
[8]
[23]
The appellant and his fellow directors on
the board of PNES were acutely conscious of the importance of
retaining the core of the
existing staff complement if the desired
object of a smooth transfer of the company’s operations to
Eskom was to be successfully
achieved.  The cogency of their
views in this regard was not called into question at the trial.
However, the feasibility
of retaining the experienced staff was at
risk once the employees who had been supplied through Kelly Personnel
became aware of
the imminent restructuring of PNES’s operations
and grew concerned about the security of their continued engagement.

The position was not assisted by Eskom’s unwillingness to
commit to taking on the staff members hired by PNES through Kelly

Personnel.  An opinion given by senior counsel advised that
Eskom was not legally obligated to offer employment to the
operational
staff supplied to PNES by Kelly Personnel.  Eskom’s
legal department had also advised against Eskom taking cession of

PNES’s contract with Kelly Personnel.  The appellant
became concerned because the resultant uncertainty concerning their

future was leading the staff members supplied by Kelly Personnel to
begin to look at finding more secure employment elsewhere.
[24]
On 17 November 2008, Eskom’s
Investment and Finance Committee (IFC) adopted a resolution
concerning the ‘Disposal of
PN Energy Services (Pty) Ltd’
in the following terms (as recorded in the minutes of the IFC meeting
on that date):
‘
A
submission by the Managing Director (Transmission Division), was
considered and discussed.
RESOLVED
that
1.
The Investment and Finance Committee approves disposal
of PN Energy
Services (Pty) Ltd as a going concern through the following
transaction steps, subject to PFMA approval:
1.1
The sale and transfer of the whole or substantial portion of the
assets
of PNES to and in favour of Eskom as a going concern with
defined assets and liabilities.  PNES and Eskom elect to apply
section
45 of the Income Tax Act.
1.2
Declaration of dividend to Eskom.
1.3
Buy-back of shares from Eskom.
2.
Mr MM Ntsokolo, Managing Director (Transmission Division)
is
authorised[,] with the power to delegate further, to take all the
necessary steps to give effect to the above, including the
signing of
any agreements or other documentation necessary or related thereto.’
It is
striking that the resolution was expressed in terms that gave a very
wide mandate to those responsible for implementing the
decision as to
precisely how to go about it.  A copy of the IFC resolution was
provided to the appellant and Mr Machinjike
by the managing director
of Eskom’s transmission division, Mr Ntsokolo, on 5 December
2008.  The appellant thereupon
convened a PNES board meeting for
10 December 2008.
[25]
The correspondence introduced in evidence
at the trial showed that Mr Sebola only obtained sight of the IFC
resolution when it was
furnished to him at his request by Ms Smit
early on the morning of 10 December 2008.  Mr Sebola
acknowledged receipt of the
resolution in an email circulated to
unidentified ‘colleagues’ minutes after Ms Smit provided
him with the text of
the resolution.  The content of Mr Sebola’s
email indicated an appreciation on his part of a ‘
need
to address the risks of integration seriously
’.
[26]
It is also apparent from the
contemporaneous correspondence that Mr Sebola discussed the
integration process with Ms da Silva at
that time because she
thereafter produced for Sebola’s consideration a draft letter
setting out the transmission division’s
proposals on the
integration process to be sent to the appellant in his capacity as
managing director of PNES.  The draft
letter and a diagrammatic
attachment thereto depicting a three-phase process was submitted by
Ms da Silva on 11 December 2008.
[27]
Ms da Silva’s draft proposed a
three-phase model for the integration of PNES’s functions into
Eskom.  It was a
transposition of a model sketched out by Mr
Sebola after the latter had received the IFC resolution.  The
model initially
proposed by Ms da Silva showed that she envisaged
that PNES would continue to operate during the transitional period
using the
staff supplied in terms of that company’s contract
with Kelly Personnel.
[28]
After discussions with the appellant in
mid-December 2008, Ms da Silva amended the draft integration model to
excise reference to
the Kelly Personnel contract and instead indicate
an outsourcing of PNES’s LV and MV functions during the interim
phase.
The revised model did not identify to which entity the
proposed outsourcing would occur, but Ms da Silva conceded in
cross-examination
that that was not sinister as the non-disclosure of
procurement details to persons not directly involved in the
procurement process
was in line with Eskom corporate governance
policy.
[29]
The revised model was presented to the
Western Region’s regional executive committee meeting on 19
December 2008 and duly
endorsed.  Ms da Silva, Sebola and the
appellant were present at the regional committee meeting.  It
appeared from Ms
da Silva’s evidence at the trial that she may
not have been astute to the import of the revision of the model that
she had
originally produced that had expressly referred to the Kelly
Personnel contract.  Why that should have been so remained
unclear,
however.  The witness was constrained to concede that
the revised transitional model could reasonably be interpreted as
consistent
with the contractual arrangement entered into between PNES
and EUS.  Objectively considered, the amended model was in fact

not inconsistent with the arrangement subsequently put in place
between PNES and EUS.  And on any approach, the evidence
suggested that outsourcing via the Kelly Personnel contract with PNES
would not assist a smooth transition if the staff complement
that had
been provided to PNES through its contract with Kelly dissipated
because of uncertainty about their longer-term engagement.
Any
model proposed by the PIIT would not serve its purpose if it did not
realistically address the risks and challenges to which
the
integration exercise unavoidably gave rise.
[30]
Ms da Silva prepared a letter formally
recording the revised three-phase model to be sent by Eskom to the
appellant in his capacity
as managing director of PNES.  A copy
of the revised diagrammatic summary of the contemplated process was
attached to the
letter.  As noted later in this judgment, a copy
of the letter was attached to at least one (and probably both) of the
contentious
agreements subsequently concluded between PNES and EUS in
mid-January 2009.
[31]
It is necessary to take a step back in time
to contextualise the aforementioned revision by the appellant of the
model initially
put up by Ms da Silva and to understand how the
revised model would have been understood by Mr Sebola in his position
effectively
as Ms da Silva’s principal.  The appellant
testified that towards the end of 2008 he came to appreciate that
perhaps
the only way of securing the critical continuity of service
to Khayelitsha during a period of transition from PNES to Eskom would

be by establishing a separate entity which would take over the
personnel, local knowledge and skills necessary to provide the
service to be preserved.  Such an entity would provide assured
employment to the corps of staff used by PNES pursuant to its

contract with Kelly Personnel and thereby avoid the dissolution of
that group that was threatening because of the continuing uncertainty

as to its job security because of Eskom’s unwillingness or
indecisiveness about committing to its employment when PNES’s

functions were integrated into those of the parent company.
[32]
The appellant understood that the
implementation of his proposal would be incompatible with the
continuation of his own employment
by Eskom, about which there were
also uncertainties.  He therefore mentioned the proposal to Mr
Willem Theron, a general manager
in Eskom’s transmission
division, who at that time had been newly assigned as the manager
exercising human relations oversight
over him.
[9]
He did this during a familiarisation visit by Theron to Cape Town in
November 2008.  The appellant testified that Theron
was
supportive of his idea, telling him ‘
to
go for it
’.
[33]
The appellant also discussed his idea with
Ronaldé Truter of Edonai Secretarial Compliance Services, the
company that provided
company secretarial services to PNES.
Ms Truter, who was informed that the appellant intended to take
his proposal to
the PNES board of directors in early December 2008,
advised him that it would be wise to acquire a shelf company right
away because
if the board accepted the proposal there might be
logistical problems in setting up a company at short notice over the
end of year
holiday season when the CIPRO’s service level was
reduced.
[10]
Pursuant to that advice the appellant, on 3 December 2008, at a
nominal cost, acquired the shelf company, Bold Moves 449
(Pty) Ltd,
which in due course was renamed as EUS.
[34]
The appellant put his proposal up to the
directors of PNES at a board meeting on 10 December 2008.
He had previously
discussed it with Mr Sebola in an email exchange
between the two men in early November 2008.  They also had a
face-to-face
meeting to discuss the appellant’s idea.  The
appellant was led to understand that Sebola would discuss the
proposal
with his team, the PIIT.  Mr Machinjike testified that
the December board meeting had been specially convened at the
instance
of the appellant but, like much else in his testimony, his
evidence in that regard was unreliable, for it appears that the
meeting
was that scheduled at the board’s previous meeting in
May 2008 to take place in November 2008.  It is evident from the

agenda and minutes of the December meeting that there had not been a
board meeting in November and that besides the appellant’s

proposal there were several matters of ordinary business on the
agenda, including the approval of PNES’s three-year business

plan for 2009 -2012 and the company’s annual budget for
2009/2010.  According to the minutes, the meeting lasted for

three hours.
[35]
An outline of the appellant’s
proposal was included in the document pack provided to the directors
ahead of the meeting.
The outline indicated, amongst other
things, that EUS would become a broad-based black economic
empowerment company.  The
information was contained on one of
the pages of the proposal document s.v. ‘Energy Utility
Services –Key Elements’.
The page in question read
as follows:
Energy Utility Services –Key Elements’
v
S1 Response and minor MV/LV
network incidents/faults
v
Purchase PN Energy Services
related assets at Book value including goodwill – short
transfer period
v
Core functions of Customer
Service, Maintenance and Vending not included as to transferred (sic)
to Eskom
v
Renewable 3 year contract
(aligned with existing PNES contract)
v
Broad Based Black Economic
Empowerment Company
v
External
share BEE Empowerment
v
Limited share
per Employee Empowerment
v
Non EUS Employee migration from
PNES to Eskom
The language
was plainly that of a proposal – that is of a state of affairs
that it was contemplated might be brought into
being; it was not
couched as a representation of existing fact.  The appellant
testified that the bullet points were intended
to serve as ‘talking
references’ to assist him in structuring his presentation to
the board.
[36]
The appellant declared his obvious conflict
of interest in the proposal by virtue of his ‘
substantial
shareholding
’ in EUS.
Accordingly, after explaining the proposal to the board, he
withdrew from the board meeting to allow the remaining
directors,
Messrs Machinjike and Sebola, to consider it in his absence.
The appellant testified that he expressly stated
in his explanation
that Bold Moves/EUS was a shelf company.
[37]
The appellant’s declaration of
interest was duly recorded in the minutes of the meeting.  The
prosecutor, nevertheless
sought to make something at the trial about
the alleged non-compliance by the appellant with the prescripts of
the 1973 Companies
Act in respect of directors’ disclosures of
interest; in particular, that his disclosure had not been made in
writing and
that it did not adequately describe the nature and extent
of the appellant’s interest in EUS.  The prosecutor relied

in this regard on s 234(3) of the Act, which applies to ‘general
notices’ given by directors.
[11]
The disclosure made by the appellant was not a ‘general notice’
within the meaning of s 234(3), and the
subsection was therefore
not
of
application in the circumstances.  Whether there had been any
statutory non-compliance or non-adherence to Eskom’s
pertinent
corporate policy in respect of employee disclosures was in any event
irrelevant.  The appellant was not charged
with statutory
non-compliance regarding the adequacy of his disclosure of interest.
Insofar as a non-disclosure of his interest
might have been a factor
relevant to establishing his state of mind for the purpose of
adjudicating the charge of fraud, a reasonable
court could have been
left in no doubt that the appellant made an effective disclosure of
his interest in the proposal that PNES
contract with EUS.
[38]
After privately deliberating on the matter,
Machinjike and Sebola called the appellant back into the board
meeting and expressed
a positive interest in PNES pursuing the
proposal.  They mandated the appellant to obtain a legal opinion
on the implications
of accepting it for them to consider at a
follow-up board meeting in January 2009 and requested that draft
contracts be prepared.
[39]
The requested legal opinion was provided by
the aforementioned Mr Jephta of Cliffe Dekker attorneys in a
memorandum forwarded under
cover of a letter to the appellant, dated
5 January 2009.  The subject line of the covering letter
was ‘
Winding-Down
’.
It is evident from the content of both the covering letter and the
memorandum that the advice was furnished with
reference to the IFC
minute and resolution of 17 November 2008, reports prepared by Trish
da Silva concerning the resolution and
a report produced by Eskom
Distribution in respect of the ‘
Khayelitsha
Transition Model for Integration into Eskom Distribution Western
Region
’, dated 19 December 2008.
[40]
It is not necessary to describe the content
of the attorney’s memorandum of advice in detail.  Suffice
it to say that
the attorney deduced from the documentation with which
he had been instructed that the transition period for the integration
of
PNES’s functions into Eskom distribution would stretch over
an anticipated period of 18 months.  Provision needed to
be made
for the purposes of a so-called ‘interim model’ that
would apply during the transition period for the disparate
treatment
of PNES’s ‘core functions’, which were to be taken
over by Eskom at the end of 12 months and its ‘non-core

functions’, which would be absorbed by Eskom after a further
six-month period.  The attorney understood that the non-core

functions would continue to be undertaken on an outsourced basis
going forward after the dissolution of PNES.  It was also
clear
that the attorney apprehended that high importance was attached by
all concerned to the importance of the uninterrupted supply
of
services to Khayelitsha during the transition period, with
recognition of the critical role that the retention of the Kelly

Personnel provided staff would play in the achievement of that.
[41]
The following paragraph in the attorney’s
memorandum became of particular relevance in the prosecution of the
appellant. It
was the basis for the allegation that he had
misrepresented EUS’s B-BBEE status.
‘
We
are advised that a consortium with BEE shareholding close to 45% and
that will involve certain members of management and staff
under a
company Bold-Moves Pty Ltd, registration number 2008/028214/07, and
in the process of changing its name to Energy Utility
Services Pty
Ltd or such name as CIPRO will allow, is seeking to be the third
party service supplier that will be used in the interim
model as
proposed by Eskom Distribution and PNES to take on the outsourcing of
the core services and non-core services. This would
be an interim
step whilst the sale [to Eskom] of the [PNES] business as a going
concern is finalized and which will allow for the
transfer and
integration in due course of the core business into Eskom and then
the taking on by Eskom of the outsource contract
with the third party
service supplier in respect of the non-core services.’
[42]
At PNES’s director’s meeting on
14 January 2009, the appellant again recused himself from the meeting
when the legal
opinion and draft contracts prepared by Cliffe Dekker
attorneys were considered by Machinjike and Sebola.  His fellow
directors
decided at that meeting to accept the proposal and
authorised the conclusion of the agreements with EUS set out in the
draft deeds
of contract that had been prepared for their
consideration.  The contracts were not put out for open tender.
Mr Machinjike
testified that during their deliberations at the
January meeting Mr Sebola had informed him that subsequent to the
December board
meeting he (Sebola) had independently verified the
existence of the risks that the appellant had represented could be
attenuated
by the proposed outsourcing to EUS.
[43]
The board of PNES authorised the conclusion
of two contracts with PNES.  One in respect of the rendering of
PNES’s so-called
‘core services’ and the other in
respect of its ‘non-core services’.
[12]
The anticipated duration of the contract in respect of the core
services was 12 months.  The contract in respect
of
non-core services was to endure until at least 31 December 2012
and would then be automatically renewed for a further period
unless
either party had given notice to terminate the contract before the
initial expiry date.  The non-core services contract
included an
undertaking by PNES to ensure that Eskom took over PNES’s
rights and obligations under that agreement when Eskom
acquired
PNES’s business in terms of the contemplated intra-group
transaction within the meaning of s 45 of the Income
Tax
Act.
[13]
[44]
Both deeds of agreement contained an
identically worded clause 2, in the nature of a preamble, that
recorded the context in which
the parties were entering into the
agreements.  Significantly, the preamble clause expressly
referred to the resolution adopted
by Eskom’s Investment and
Finance Committee in respect of the integration of PNES’s
operations into Eskom and the plan
for that to be achieved in a
phased process.  It also acknowledged the importance of
maintaining an uninterrupted service
delivery to the Khayelitsha area
and the critical importance of retaining the services of the staff
complement provided to PNES
from Kelly Personnel to the achievement
of that object.  The preamble read as follows:
‘
2.
INTRODUCTION
2.1
PNES, a wholly owned subsidiary of Eskom Holdings Limited, is a
company
registered with the purpose of rendering construction,
maintenance, operation, and administration and development services
in respect
of the reticulation of electricity on behalf of Eskom
Holdings Limited to customers in Khayelitsha where Eskom is the
holder of
the supply rights in respect of electricity in Khayelitsha,
as per boundaries of the NERSA Licence area.
2.2
On 17 November 2008 the Investment and Finance Committee (“IFC”)

of Eskom resolved under delegation of authority of the Board of Eskom
to approve the disposal of PNES subject to PFMA approval
being
obtained. The resolution provides for the sale and transfer of the
whole or a substantial portion of the assets or the business
of PNES
to and in favour of Eskom as a going concern with defined assets and
liabilities, and which sale is to include the application
of Section
45 of the Income Tax Act to such transaction and the declaration of a
dividend to Eskom.
2.3
The Western Region of Eskom being the region in which PNES provides
the
services described in clause 2.1 above is the division of Eskom
responsible for the integration into Eskom Western Region of the

business to be sold by PNES.
2.4
Arising out of the integration steps and actions to be undertaken by
PNES
and the Western Region of Eskom, Eskom requires that as an
interim measure the core services provided by PNES are to be
integrated
into the said division in a phased manner provided that
such services are provided in an uninterrupted manner and without any
reduction
or diminution in the standards by which such core services
are rendered to the said customers in Khayelitsha.
2.5
In order to secure the continuation of such services it is necessary
to
secure the human resource capital, skills, knowledge, expertise
and working experience of the workers responsible for the
reticulation
of electricity in Khayelitsha.  The said workers
are employees of Kelly Personnel.
2.6
Energy Utility Services is agreeable to employing such workers so as
to
secure and retain the said skills base if in turn PNES is willing
to appoint Energy Utility Services to provide the following:
2.6.1       The core
electricity services for and on behalf of PNES until 31 December
2009 or
such extended date as agreed to and as provided for in terms
of this agreement; and
2.6.2
The non-core electricity services for and on behalf of PNES and its
successors until 31
December 2012 and as provided for in terms of the
non-core electricity services
contract
.’
[45]
A copy of the abovementioned letter dated
19 December 2008 sent by Trish da Silva to the appellant concerning
the implementation
of the IFC resolution was attached to the core
services agreement as annexure C.  It seems that a copy of the
letter must
also have been attached to the non-core services
agreement.  The copy of the core services agreement in the
appeal record
was incomplete and had several pages missing, including
the part that must have referred to annexure C.  The copy of the
non-core
services agreement in the record on the other hand contained
the clause that referred to annexure C, but did not have the annexure

attached.  There is no reason to think that the relevant
provisions in the two agreements that referred to and incorporated

the said annexure C differed from each other.  Both agreements
contained a clause 5, each with the subheading ‘
Appointment
’.
Clause 5.3 in the non-core services agreement (which, as I have
noted, probably mirrored clause 5.3 in the core services
agreement)
provided –
‘
EUS
hereby accepts the
Eskom Western Region interim model as described in the attached
organogram, annex “C” hereto, and
agrees to the interim
model structure that Eskom has submitted to PNES.  EUS agrees to
carry out the core services for and
on behalf of PNES and in terms of
the phases set out in the interim model until PNES and Eskom have
integrated the core services
into Eskom and in any event until 31
December 2009 for such extended date as agreed to.’
[46]
In line with the revised model drafted by
Ms da Silva after her mid-December 2008 discussions with the
appellant, the letter proposed
a three-phase integration model to be
implemented over a period of 18 months.  The first phase would
comprise of a 12-month
period followed by two three-month phases.
The diagrammatic representation of the proposal attached to the
letter reflected
that during the 12-month phase PNES would ‘Manage
Outsourced MV/LV contract’ and that in the second phase Eskom
would
‘(t)
ake over outsourced
contract
’ and that in the third
phase Eskom would ‘(r)
eview
outsourcing model
’.
[47]
I understood it to have been argued by the
appellant’s legal representatives, consistently with the
appellant’s (strictly
speaking, inadmissible) evidence on his
understanding of its import, that the effect of clause 5.3 was that
Eskom was at liberty
to terminate the non-core services agreement
earlier than 31 December 2012 in accordance with the
reconsideration of the outsourcing
arrangement provided for in the
diagram (or ‘organogram’) attached to annexure C to the
agreement.  Whether that
actually was so or not is a matter of
construction.  Had it been necessary to determine the
question
[14]
I would probably have answered it adversely to the argument.
The contradiction between the provisions expressly regulating
the
duration of the agreement and the incorporation of the diagrammatic
model in terms of clause 5.3 did undoubtedly give rise
to an
unfortunate ambiguity, however.  The appellant did state
unequivocally that he had every expectation that the non-core

services agreement would remain operative beyond the 18-month
three-phase period described in the revised model drawn up by
Ms da Silva.
Indeed, it was apparent from his
evidence that it was only in the context of such a longer-term
contractual relationship with Eskom
that it would have been feasible
to attract a BEE partner into a consortium with EUS.
[48]
Both contracts were subject to a condition
that EUS secure the services of the majority of the personnel
supplied to PNES by Kelly
Personnel by no later than 1 April 2009 or
such extended date as agreed to.  It was not in contention that
all or at least
most of the Kelly staff did take up employment with
EUS.
[49]
It is apparent from the evidence of Ms da
Silva that she had not been privy to the idea considered by the PNES
board at its meeting
on 10 December 2008.  She testified that
she became aware of the scheme to outsource PNES’s functions to
EUS only on
27 January 2009, when she had a discussion with the
appellant.  Ms da Silva then informed the other members of PIIT
of the
scheme via email.  Her email sketched the arrangement put
in place between PNES and EUS without raising any concerns that it

did not align with the IFC resolution or indeed making any suggestion
that it was problematic in any other way.  Under
cross-examination,
she conceded that having had the rationale for the
completion of the agreements explained to her in separate meetings
that she
had with Mr Sebola and the appellant, she had no problem
with their effectiveness in addressing the operational aspects of the
integration exercise.  Her only concerns were that there was an
obvious conflict between the appellant’s roles as managing

director of PNES and also chief executive of EUS and the extended
timeline of the contract for EUS to render non-core services
until at
least the end of 2012.  She said that the appellant had put her
mind at rest on the first of those considerations
by explaining that
his resignation from Eskom and PNES was in the course of being
processed, as was in fact the case.  She
was not asked whether
she had discussed the second concern with either the appellant or Mr
Sebola.
[50]
Upon the acceptance of the proposal by the
PNES board, the appellant immediately put in train steps to achieve
his resignation from
Eskom before the commencement of the contracts
that PNES had concluded with EUS.  His dealings in this regard
were with the
aforementioned Willem Theron.  He telephoned
Theron on 15 January 2009 to tell him that the contracts had been
signed so that
Theron could arrange the termination of his (the
appellant’s) employment by Eskom.  Theron was concerned
that the appellant
had not completed a pro forma written declaration
of interest as provided for in terms of Eskom’s standard
policies and procedures.
The appellant rectified the position
and provided Theron with a duly completed Eskom form in which,
amongst other things, he expressly
disclosed his 100% shareholding in
EUS.
[51]
Inconsistently with the encouragement he
had given the appellant regarding the proposal when he saw him in
November 2008, Theron,
who by all accounts had no responsibility for
PNES’s operations, seems to have taken a dim view of the
conclusion of the
contracts.  Theron did not however say
anything to the appellant to suggest that he considered that the
appellant had acted
unlawfully.  Indeed, according to Johanna
Smit, Theron requested her not to speak to the appellant about the
matter when she
discussed the PNES/EUS contracts with Theron during
February 2009.  Theron did, however, request Machinjike and
Sebola to
provide him with an explanation of the rationale for PNES’s
decision to conclude the contracts.  He seemed to be concerned

that the conclusion of the contracts was inconsistent with Eskom’s
Internal Finance Committee’s resolution concerning
the
‘decorporatisation’ of PNES.
[52]
Machinjike’s response to Theron was
given in an email dated 17 February 2009.  It bears extensive
quotation because its
content provides an almost contemporaneous
exposition of the reasoning of the PNES board in support of accepting
the appellant’s
proposal:
‘
The
outsourcing of activities to Energy Utility Services does not
contradict the above resolution [ie IFC resolution] and it forms
a
crucial part of PN Energy Services board’s reason for following
this particular risk mitigation strategy in response to
risks
identified, to ensure a smooth implementation and integration of the
business of PN Energy Services as a going concern into
the local
Eskom distribution region.
The bulk of current staff utilised by PN Energy is
employed through a labour broker “Kelly” and the position
conveyed
by the local Eskom region and confirmed by PN Energy’s
legal counsel is that no legal obligation rests on Eskom to employ

the staff. This gave rise to the untenable situation in that
PN Energy Services is required to maintain its services during

the course of the integration using the Kelly staff whilst no
commitment of employment exists. Energy Utility Services were
prepared
to offer employment to the affected staff to ensure
stability of the resource, an action which neither PN Energy Services
nor Eskom
were prepared to commit to.
The local Eskom region conveyed to PN Energy Services in
writing their need, due to resource and integration period
constraints,
to address the integration in two phases.
The first being the integration of the customers
service-related activities (core) to be concluded by the end of this
year [2009].
The second phase second being the integration of the
fault management and construction activities during 2010 as an
out-sourced
contract.
Energy Utility Services being fully conversant with PN
Energy Services’ business operations were in the best position
to offer
these services seamlessly to PN Energy Services whose
contract expires end 2009.
Based on the above request from the Eskom region and the
risks of continuity of service from a staffing resource perspective
and
seen in the light of the intent of Eskom Holdings, the PN Energy
Services board taking due care and consideration of the above
resolution, ensured the effective management and conclusion of the
course of action as determined by Eskom Holdings and the local
Eskom
Region.’
That remained
Machinjike’s view when he deposed to an affidavit for Eskom
Forensic in August 2009.  At para 13 of the
affidavit,
Machinjike answered Forensic’s question ‘
Please
confirm for Forensic if Eskom’s Investment and Finance
Committee (IFC) gave PNES a mandate or approval to conclude

agreements with
[EUS]?
If so please explain why?
’
as follows: ‘
Eskom’s Investment and Finance Committee
did not give the mandate.  This was deemed to be a PNES
operational matter,
as regards all other operational contracts
concluded by PNES over the years.  The decision to conclude on
agreements is not
seen as contravening the IFC resolution.
’
At para 40 he responded to a question asking him to explain ‘
why
the PNES Board concluded contracts with
[EUS]
when the Eskom
IFC made a decision on 17 November 2008 to dissolve PNES
’
as follows: ‘
The contracting strategy was seen as in line
with the resolutions.  This was a mechanism to address risks in
the efforts to
implement the resolution
’.
[53]
The contracts were thereafter duly
implemented, and by all accounts successfully.  So much so that
service delivery in Khayelitsha
was actually improved.
[15]
The operation of the non-core services agreement was extended for
three months beyond the end of 2009 because Eskom was not
ready by
then to fully take over those functions.  In January 2010,
however, Eskom unilaterally terminated the contracts.
In 2011
Eskom obtained an order declaring that the contracts were unlawful
and null and void.  The judgment in the nullity
suit was not
part of the appeal record, but we were informed from the bar that the
ratio was that the agreements offended against
certain regulatory
legislation that was applicable.  The setting aside of the
contracts had no connection with the allegedly
fraudulent conduct of
the appellant.
[54]
So much for the factual context.  It
is time now to examine the character of the allegations of fraud made
against the appellant
and his co-accused in count one of the charge
sheet.  The charge was ineptly drafted.  It bears setting
out in full because
its content demonstrates the muddled
conceptualisation upon which the prosecution proceeded.  The
charge was formulated as
follows:
‘
NOW
THEREFORE
the Accused are guilty of the
offences hereunder read with the relevant provisions of the
Criminal
Law Amendment Act 105 of 1997
:
COUNT 1:
FRAUD
In that
during the period February 2008 till January 2009 at or near
Bellville in the Regional Division of the Cape and various
places in
Johannesburg in the Regional Division of Johannesburg the accused
unlawfully, falsely and with intent to defraud misrepresented
to
Trish da Silva, Johanna Smit, Willem Theron, Awie Lester, MacGloria
Mdingi and/or Eskom and/or PNES:
-
Accused 2 had disclosed his conflict of
interest in the outsourcing of work as contemplated in Eskom’s
integration and decorporatization
plan of Accused 1 (sic) at the
appropriate time and in accordance with the Companies Act and PFMA
-
That he (
sic
)
had obtained prior approval from Willem Theron or the PIIT to enter
into contracts with PNES for the outsourcing of PNES’s
core and
non-core activities
-
That the contracts presented were aligned
to the PIIT integration plan
-
That the contracts were in the best
interests of ensuring smooth integration of PNES’s activities
into Eskom
-
That Accused 1 was a broad based Black
Economic Empowerment Company and/or it was 45% Black owned
-
That the award of the contracts complied
with Eskom and PNES’s procurement policies and procedures.
-
That the award of the contracts were (sic)
in the best interests of PNES and/or Eskom.
to the loss and or potential prejudice of Eskom in the amount of
R65 184 259.04
and the reputational damage emanating
from the irregular award of the contract
Whereas the Accused well knew that
-
Accused 2 deliberately omitted to disclose
his conflict of interest at the appropriate time as he would have not
obtained approval
to continue and/or he would have been excluded from
the processes relating to the integration.
-
The accused misused sensitive information
for the personal benefit of Accused 1 and 2.
-
Accused 1 omitted to exclude himself from
all deliberations and processes where his personal interests were in
conflict with that
(
sic
)
of PNES and/or Eskom
-
Accused 2 did not have prior approval from
either Willem Theron and/or the PIIT to propose to the board of PNES
and/or enter into
any contracts for the outsourcing of work as
proposed by the PIIT either in his personal capacity or on behalf of
Accused 1
-
The contracts were not aligned to the PIIT
integration plan
-
The contracts were not in the best
interests of PNES and/or Eskom as they lost the profit that would
ordinarily be earned by PNES.
-
The accused did not have shareholder
approval to enter into the contracts with accused 1 and 2.
-
Eskom and PNES’s procurement
processes were deliberately subverted to favour Accused 1 and 2.
-
Accused 1 was not a broad based Black
Economic Empowerment Company as Accused 2 was its sole shareholder
Thus the accused committed the crime of Fraud.’
[55]
The way in which the charge sheet was
framed and certain aspects of the conduct of the trial make it
appropriate to recapitulate
the elements of the common law crime of
fraud.  As Heher JA observed in
S v
Gardener and Another
2011 (1) SACR 570
(SCA) at para 29, ‘
It is trite
that: “Fraud consists in unlawfully making, with the intent to
defraud, a misrepresentation which causes actual
prejudice or which
is potentially prejudicial to another”.  JRL Milton South
African
Criminal Law and
Procedure
3 ed. Vol 2 at
702.  And see
S v Van den
Berg
1991 (1) SACR 104
(T) at
106b.
’  The phrase ‘
with
the intent to defraud
’ relates to
the intention to cause actual or potential prejudice that the
fraudster must have when he makes the misrepresentation.
[56]
The alleged prejudice in the current matter
was the conclusion of the contracts between PNES and EUS with
allegedly adverse financial
consequences for PNES or Eskom.  The
prosecutor who framed the charge must surely have known, when making
the decision to
prosecute, that the conclusion of the contracts in
question was authorised by PNES’s board (constituted for the
purpose only
by Machinjike and Sebola) in response to a proposal by
the appellant.  The PNES board was persuaded to authorise the
conclusion
of the contracts by virtue of the representations made to
it.  The board did not make any representations in order to
conclude
the contracts.  Sebola and Machinjike were the
representees, not the representors.  That should have been
obvious to
the framer of the charge.  What then was the basis
for the charge of fraud against Sebola and Machinjike?  There
was
none, and that should have been appreciated by the prosecution
from the outset.
[57]
The alleged failure by the appellant to
disclose his interest in the conclusion of the contracts (for which
there was no factual
foundation in the evidence) could not on any
approach be regarded as a fraudulent misrepresentation by Sebola or
Machinjike, who
were accused 3 and 4, respectively, when the charge
was framed.  If established, such non-disclosure might,
depending on the
circumstances, amount to a fraudulent
misrepresentation by the appellant, but how could it possibly amount
to a fraudulent misrepresentation
by Sebola or Machinjike?  The
charge sheet does not explain, and a sensible answer does not suggest
itself.
[58]
Considering that it was the representations
made
to PNES’s board of directors
that led to that company concluding the contracts with EUS, allegedly
prejudicially, it is difficult to conceive how the charge
sheet’s
allegation that the accused misrepresented that ‘
Accused
2
[i.e. the appellant]
had
disclosed his conflict of interest in the outsourcing of work as
contemplated in Eskom’s integration and decorporatization
(sic)
plan of Accused 1
(sic)
at the appropriate time and in
accordance with the Companies Act and PFMA
’
could bear meaningfully as a representation bearing on the conclusion
of the contracts.  If established, it would be
a representation
that could sensibly pertain only by way of an ex post facto
justification of a decision by the PNES board to authorise
the
conclusion of the contracts, whereas the charge of fraud was
predicated on alleged misrepresentations
inducing
the conclusion of the contracts.
[59]
It is also impossible to understand how
diverse misrepresentations by different persons to different persons
at different times
and places, which is the import of the charge as
framed, could competently be brought within the ambit of a single
count of fraud
against four accused charged jointly.  Absent
allegations of common purpose or agency, each accused should have
been charged
separately in respect of the misrepresentations
allegedly made by him or it, and in relation to the date and place,
and with reference
to whom specifically it was made.  The manner
in which a mélange of alleged representations by a gallery of
alleged
representors to an assortment of representees was
indiscriminately advanced in a single charge against all of the
representors
was wholly unacceptable.  I have little doubt that
it contributed materially to the lack of direction and exploration of
irrelevant
matter that characterised the conduct of too much of the
lengthy trial.
[16]
[60]
Some of the alleged misrepresentations were
also plainly recognisable as expressions of opinion rather than
representations of fact.
All the various human representees
identified in the charge were employees of Eskom who were involved in
or knowledgeable about
the ‘decorporatisation’ project.
With the knowledge at their disposal, they were as capable as the
appellant
or Sebola or Machinjike of forming their own opinions as to
the degree of alignment of the appellant’s proposal with the
PIIT integration plan or of the extent to which the conclusion of the
contracts might or might not be in the best interests of Eskom
or
PNES.  In the given circumstances it was misguided of the
prosecution to rely on expressions of opinion by certain employees
of
Eskom to other employees of Eskom who were sufficiently equipped to
form their own opinions on the issues involved as fraudulent

misrepresentations.  The lack of attention in the formulation of
the charge in this regard was underscored by the evidence
that the
opinions concerned were not expressed to any of the human
representees named in charge before the conclusion of the contracts

in question, they were instead representations by the appellant to
Sebola (accused 3) and Machinjike (accused 4 when the charge
was
formulated).
[61]
I have dwelt at some length on the
defective formulation of the fraud charge because the professional
and effective prosecution
of white-collar crime is a significant
concern in the aftermath of state capture which has featured
prominently in the public conversation
about the revelations
emanating from the Commission of Inquiry into Allegations of State
Capture that feature almost daily in the
news media.
Ironically, many of those revelations have been concerned with Eskom.
And the scale of the reported depredations
makes the alleged
irregularities regarding the contracts between PNES and EUS that
informed the charges against the accused in
the current matter small
beer.  It is accordingly desirable as a matter of national
importance that the prosecuting authority
take particular care to
avoid repetitions of the shortcomings that characterised the current
matter.  Drafting charge sheets
and indictments with care and
focussed attention is of vital importance in the selection of the
right cases to prosecute, the efficient
conduct of the trials and
improving the prospects of soundly based convictions.  It is
therefore only right for us to voice
our concerns when it appears
that material deficiencies have manifested in these areas.
[62]
All but one of the seven alleged
misrepresentations relied on by the state in the charge sheet can be
disposed of summarily.
[63]
The evidence established clearly that the
appellant did disclose his interest in the conclusion of the
contracts.  The fact
is borne out in the minutes of the relevant
meetings.
[64]
The evidence did not establish that the
appellant had represented that he had the approval of Willem Theron
or the PIIT for the
proposal that PNES contract with EUS.  He
did not require such approval, nor had he sought it.  The
conversation that
the appellant had with Theron concerning his
thoughts about establishing his own company to undertake the
Khayelitsha operation
during the ‘decorporatisation’ of
PNES did not amount to seeking Theron’s permission.  If
the appellant
referred to such conversation, including Theron’s
words of encouragement, in his presentation to the PNES board, which
is
not clear, it would not have constituted a misrepresentation.
There is in any event nothing to suggest that Sebola or Machinjike

would have regarded Theron’s opinion as particularly relevant.
Theron was not involved in or responsible for operational
matters in
Khayelitsha.  Eskom’s ‘shareholder representative’
in PNES was Mr Ntsokolo, to whom Mr Machinjike
was also directly
accountable in the Eskom hierarchy.  Machinjike testified that
it was to Ntsokolo that he would refer any
issues of concern related
to PNES that could affect Eskom.  Ntsokolo would furnish
Machinjike with a proxy to represent Eskom
as sole shareholder at
PNES’s annual general meetings.
[65]
The PIIT was Sebola’s own team.
Not only was permission not required from the PIIT, but it is also
inherently improbable
that the appellant would fraudulently
misrepresent to Sebola the views or opinions of a body constituted by
Sebola to advise him
directly.  He would expect the PIIT to
convey its views directly to Sebola; after all that was the very
purpose of the PIIT.
As it was, as already mentioned, when
Trish da Silva, who headed the PIIT, became aware of the contracts in
January 2009 –
that is before they came into operation –
she raised no concerns about their supposed incompatibility with the
PIIT integration
plan.
[66]
As already touched upon, any statement by
the appellant to Sebola or Machinjike concerning the extent to which
his proposal concerning
the conclusion of the contracts between PNES
and EUS would align with the PIIT integration plan or best serve the
interests of
Eskom or PNES would, in the circumstances of the
positions held by Sebola and Machinjike and their respective
involvement in the
implementation of the integration exercise, be
plainly recognisable by them as expressions of opinion rather than
representations
of fact.  The facts upon which any such opinions
could be based were common knowledge to each of the three members of
the
PNES board.  The appellant’s declaration of interest
served to alert his fellow directors to the need for them to give

appropriately critical scrutiny to any of his opinions.  The
unchallenged evidence was that Mr Sebola did take the opportunity

during the interval between the December and January PNES board
meetings to interrogate the proposal.
[67]
It was not established that the appellant
misrepresented that the conclusion of the contracts complied with the
applicable procurement
policies.  Sebola and Machinjike were
expected to have been as knowledgeable and cognisant of such policies
as the appellant.
The three directors were, after all, jointly
responsible, in terms of s 51 of the PFMA, to ensure that PNES
had and maintained
‘
an appropriate
procurement and provisioning system which
[was]
fair, equitable, transparent,
competitive and cost-effective
’.
There was no evidence before the court a quo that established exactly
what PNES’s procurement policy was.
Machinjike was
apparently not fully astute to his PFMA-imposed responsibilities as a
director, for he testified in evidence in
chief that he was not aware
of how the procurement processes worked in PNES.
[68]
There was much talk at the trial about the
incidence of the
Preferential Procurement Policy Framework Act 5 of
2000
.  It was also referred to in the magistrate’s
judgment.  No-one involved in the trial appears to have
appreciated
that the Procurement Act did not apply to Eskom or PNES
in 2008 or 2009.  The Act applies to national and provincial
departments,
Parliament and provincial legislatures and
constitutional institutions.  It applies to organs of state such
as Eskom only
if ‘
recognised by
the Minister by notice in the Government Gazette as an institution
... to which
[the]
Act
applies
’.
[17]
The Minister of Finance published a notice making the Act applicable
to all public entities listed in Schedules 2 and 3 of
the PFMA (which
include Eskom and its subsidiaries) only on 6 June 2011.  The
recognition became effective as of 7 December
2011.
[18]
[69]
Eskom and PNES were nevertheless subject to
the provisions of the PFMA and the Broad-Based Black Economic
Empowerment Act 53 of
2003 (‘B-BBEEA’) in respect of
matters of procurement.  Section 51(1)(a)(iii) of the PFMA
imposed a responsibility
on the board of PNES to ensure that the
company had and maintained an appropriate procurement and
provisioning system.  Section
76(4) of the Act empowers the
National Treasury to make regulations and issue instructions to all
institutions to which the Act
applies concerning, amongst other
matters, ‘
the determination of a
framework for an appropriate procurement and provisioning system
’.
Our attention was not directed to any applicable regulation that
required an open tender process to be followed by
a public entity
where it would be impractical to invite competitive bids.  The
2005 Treasury Regulations, although they were
not applicable to Eskom
or its subsidiaries in the relevant respect,
[19]
expressly permitted procurement ‘
by
other means
’ in such
circumstances.
[20]
Mr Machinjike confirmed in the course of his evidence that EUS
was (for quite obvious reasons
[21]
)
regarded by the board of PNES as ‘a sole source supplier’.
The fact that the board of PNES authorised the conclusion
of the
contracts without putting them out for open tender was in any event
not germane to the allegations of fraud against the
appellant.
[70]
Section 10 of the B-BBEEA required every
organ of state to apply any relevant code of good practice issued in
terms of s 9
of that Act in the development and implementation
of a preferential procurement policy.  The Code of Good Practice
issued
by the Minister of Trade and Industry on 9 February 2007
[22]
applied to all public entities listed in Schedule 2 to the PFMA.
[23]
[71]
Notwithstanding the absence of any clear
evidence concerning the content of PNES’s procurement system,
the unchallenged evidence
was that B-BBEE criteria did form part of
it.  That is borne out by the appellant’s inclusion of
black empowerment considerations
in the proposal he submitted to
PNES’s board at the December 2008 board meeting.  It was
in that context that the alleged
misrepresentation that EUS was a
broad based black economic empowerment company and/or it was 45%
Black owned became relevant.
It will be recalled that the
statement was contained in the legal opinion dated 5 January 2009
rendered to the PNES board for consideration
at the directors’
meeting on 14 January at which the decision was made to authorise the
conclusion of the contracts between
PNES and EUS.
[72]
It appears from the judgment of the court a
quo that it was only in respect of the alleged misrepresentation
about the B-BBEE status
of EUS that the magistrate found that the
state had established its case on the count of fraud.  The
state’s case was
reliant in this respect on the evidence of Mr
Machinjike, even though he was not one of the representees named in
the charge sheet.
As the appeal court observed in its judgment
in the appeal from the decision of two judges of this court refusing
the appellant’s
petition for leave to appeal, Machinjike’s
evidence on this issue was inconsistent and self-contradictory.
It was not
for the appeal court to make any determinative finding,
but its judgment leaves no doubt that it was the identifiably dubious
quality
of Machinjike’s evidence that led that court to
conclude that an appeal by the appellant against his conviction would
enjoy
reasonable prospects of success.
[24]
[73]
As already mentioned, the statement that
EUS was 45% black owned was contained in the opinion given by Mr
Jephta of Cliffe Dekker
attorneys, dated 5 January 2009.  It was
conceded that the opinion was drafted based on the instructions
provided to Mr Jephta
by the appellant.  The appellant’s
evidence was that the opinion had incorrectly stated his BEE- related
future intentions
for EUS as if they were existing fact.  The
appellant also appeared to concede that nothing had been said at the
board meeting
on 14 January 2009 to point out the mistake in Jephta’s
opinion.  He testified that it had not been material to do so

because both Machinjike and Sebola were aware that EUS was a shelf
company which he had recently acquired.  Mr Machinjike

conceded under cross-examination that he had been aware that Bold
Moves/EUS was not an established business, but an entity that
the
appellant would use to establish the business that would undertake
the work outsourced by PNES.
[74]
On the common cause facts, the
representation that EUS was 45% black owned was made by the
attorneys, not by the appellant.
Properly considered, the
relevant question was therefore not whether
the
appellant
had positively misrepresented
the position, but rather whether, by failing to point out the
apparent error, he had made himself
guilty of a fraudulent
non-disclosure.  The essence of his defence in this regard was
that he had not been under a duty to
speak up because of the
directors’ own knowledge of the facts and that his silence on
the point had in any event not been
informed by any intention to
defraud.  The applicable test did not require the trial court to
believe his evidence; he was
entitled to an acquittal if there was a
reasonable possibility that his evidence could be true.
[75]
Machinjike’s evidence was, to say the
least, fuzzy on the point of his understanding of EUS’s BEE
status.  He initially
testified that he was led to believe that
EUS was a B-BBEE company.  He materially qualified that evidence
under cross-examination
by maintaining that whilst he had appreciated
at the 10 December 2008 board meeting that that was not the case, he
thought that
everything had been done to make it so by the 14 January
2009 meeting.
[25]
He did not refer to anything – let alone any representation by
Malherbe - that could have informed his professed belief
as to what
might have transpired between 10 December and 14 January to
change the BEE status of EUS.
[76]
The indications are that Machinjike
actually did not concern himself with the B-BBEE requirements.
He showed no interest in
the matter until asked questions about it by
Eskom Forensics.  It is evident from his answers at that stage
that he was content
to authorise PNES to proceed with the contracts
based on his understanding that a B-BBEE component would be
introduced as part
of EUS’s business model.  As described
above, that, according to the appellant, is precisely what the
appellant had
represented.
[77]
Machinjike professed to be concerned to be
satisfied that B-BBEE requirements would be complied with, and at
some stage in his evidence
he seemed to suggest that he would not
have supported the conclusion of the agreements with EUS if he had
appreciated that the
appellant was the sole shareholder and director
of EUS.  It is notable, however, that he did not at any stage
request any
substantiating particularity about what he supposedly
thought was the BEE interest in EUS.  He gave no indication of
compliance
with paragraph 2.6 of the applicable Code of Practice
issued in terms of the Broad B-BBEEA, which stated:
‘
Any
representation made by an Entity about its B-BBEE compliance must be
supported by suitable evidence or documentation. An Entity
that does
not provide evidence or documentation supporting any initiative, must
not receive any recognition for that initiative.’
The fact that
there was no evidence that Sebola or Machinjike required such
evidence or documentation supported the reasonable possibility,

indeed the probability, that the appellant’s evidence that they
were not brought under any misapprehension about existing
black
shareholding in EUS was truthful.  The magistrate gave no
attention to this in her judgment.  She also appears
to have
overlooked that, in his written declaration of conflict of interest
provided at the insistence of Theron, the appellant
declared that he
held a 100% shareholding in EUS.  That express declaration, made
before the two contracts between PNES and
EUS came into operation,
was inconsistent with any intention by him at any stage to
misrepresent that the company was 45% black
owned.
[78]
The trial court treated of Machinjike’s
evidence in a single one-sentence paragraph in its judgment:
The
court found that state witness and director, Machinjike, told the
truth when he testified that accused 2 informed the PNES
board
that accused 1 was (already) a Broad-Based Economic Empowerment
Company and/or it was 45% black owned.
The
magistrate made no acknowledgement of the many shortcomings and
contradictions in the witness’s evidence, which extended
well
beyond those I have chosen to specifically identify for illustrative
purposes in this judgment.  She also did not explain
how, in the
face of them, she was able to reject the appellant’s evidence
that Machinjike and Sebola were both fully aware
that EUS, as a
start-up enterprise, did not yet have a black ownership component and
of the appellant’s intention to take
steps to address that if
the proposed contracts with PNES were concluded and put into effect.
It was evident from the questions
put to Machinjike in
cross-examination, without objection from the prosecutor, that Mr
Sebola had explained in written answers
to questions put to him Eskom
Forensics that he was aware, when the conclusion of the contracts was
approved by the PNES board,
that EUS had still to establish a B-BBEE
component to its business.
[79]
The magistrate was also misdirected in her
finding that the appellant did not deny that he had informed his
fellow directors that
EUS was 45% black owned.  Indeed, her
treatment of the subject (again in a single-sentence paragraph) was
internally contradictory:
‘
Accused
2 does not deny that he informed the PNES board of those facts, he
only added that he told the board that was his future
BEE plan for
his company EUS
’.
[80]
For all these reasons the conviction on the
count of fraud cannot be sustained and the appeal against it must be
upheld.
[81]
Whether EUS in fact qualified in terms of
the B-BBEEA to be awarded the contract work was not material because
the appellant was
charged with fraud, not with non-compliance with
the B-BBEEA.  B-BBEE status verification is a specialist field,
but the fact
that the appellant was the sole shareholder in EUS when
PNES’s board authorised PNES to contract with it was in any
event
probably not legally problematic at the time.  As a
start-up enterprise, EUS qualified, in terms of paragraph 6 of the
2007
Code of Good Practice, for a deemed B-BBEE status of ‘Level
Four Contributor’ with a B-BBEE procurement recognition
of
100%.  It should perhaps also be recorded that the appellant did
arrange the establishment of a shareholding trust for
the benefit of
the employees of EUS, the vast majority of whom were black.
[26]
Dividends were paid to the employees as beneficiaries of the trust.
Furthermore, the appellant’s evidence that
in late 2009 and
early 2010 he had been in discussion with a number of black-owned
businesses about a joint venture arrangement
with EUS was not
challenged or contradicted.  He said that those discussions had
been undertaken with a view to expanding
EUS’s base of
operations.  The discussions ended when PNES terminated its
contract with EUS and thereby eliminated any
attractiveness for
involvement in EUS by outside concerns.
[82]
Before us, the prosecutor contended that
the conclusion of the contracts between PNES and EUS had nevertheless
not complied with
the Code of Good Practice because a generic score
card had not been submitted, as prescribed in terms of paragraph 6.4
of the Code.
The point was well made.  Indeed, it seems to
me that it may not have been the only instance of non-compliance
involved.
However, establishing non-compliance with certain
aspects of the Code went no way towards justifying the appellant’s
conviction
on the charge of fraud.
[83]
As mentioned at the outset, it was accepted
that if the fraud conviction were set aside, the foundation for the
conviction on the
money laundering charge would also fall away.
It follows that the appeal against the conviction on count three must
aslo
be upheld.  Whilst strictly unnecessary in the
circumstances to do so, I think it would nevertheless be appropriate
to remark
that I consider that the state in any event failed to
establish a case of money laundering.  Quite apart from the fact
that
it was not proven that the appellant believed or reasonably
should have known that EUS’s discharge of its contractual
obligations
to PNES constituted ‘unlawful activity’ as
defined,
[27]
I do not think that the evidence concerning the appellant’s
dealing with the profits that accrued to him from EUS’s

operations established that they were undertaken with the intention
to conceal or disguise the nature, source, location, disposition
or
movement of the said property or the ownership thereof or any
interest which anyone may have in respect thereof.  The funds

were invested in property and entities in which the appellant had an
open and undisguised interest, and his evidence that the transactions

were fully documented in a readily accessible paper trail was not
challenged.
[84]
There is no appeal before us by EUS
regarding the company’s conviction on counts one and two.
The company was sentenced
to a fine on both counts, such being
conditionally suspended for a period of five years.  The
magistrate’s judgment
does not make the basis on which she
convicted the company clear.  There was no justification for
convicting the company on
the count of fraud.  The evidence did
not establish that EUS made any representations inducing the
contracts.  The representations
were made by the appellant at a
time that EUS was a dormant shelf company in which he happened to
hold all the shares.  It
was only if his proposal were accepted
that he would employ EUS for the purpose of the implementing his
proposed scheme.
Likewise on the money laundering charge, the
conduct on which the charge was founded was that of the appellant,
not EUS.
It is patent that the company was wrongly convicted.
In the circumstances it would be appropriate for this court, in the
interests of justice, also to exercise its review jurisdiction to set
aside the conviction and associated sentences in respect of
EUS.
[85]
The following orders are made:
1.
The appeal is upheld.
2.
The orders by the court a quo convicting
and sentencing the appellant on counts one (fraud) and three (money
laundering) are set
aside and replaced with an order in the following
terms:
‘
Accused
no. 2 is acquitted and discharged on counts one and three.
’
3.
The orders made by the Specialised
Commercial Crimes Court (Bellville) in case no. SH7/77/13 convicting
and sentencing accused no.
1 (Energy Utility Services (Pty) Ltd) on
on counts one (fraud) and three (money laundering) are reviewed set
aside and replaced
with an order in the following terms:
‘
Accused
no. 1 is acquitted and discharged on counts one and three.
’
A.G BINNS-WARD
Judge of the High Court
P.L. GOLIATH
Deputy Judge President
E.T. STEYN
Judge
of the High Court
APPEARANCES
Appellant’s
counsel:

C. Webster SC
Appellant’s
attorneys:

Keith Gess Attorney
Cape Town
Respondent’s
counsel:

M. Govender
Directorate of Public Prosecutions
Western Cape, Cape Town
[1]
It appears from s 4 of Act 121 of 1998 that
‘
money laundering
’,
in the sense relevant in the current matter, involves performing any
act in respect of property that is or forms part
of the proceeds of
unlawful activities which has or is likely to have the effect of
concealing or disguising the nature, source,
location, disposition
or movement of the said property or the ownership thereof or any
interest which anyone may have in respect
thereof.
[2]
Sections 49, 50 and 51.
[3]
The quotation is from the charge sheet.
[4]
Appeals to this court from the lower courts are
ordinarily heard by a panel of two judges, as provided in terms of
s 14(3)
of the
Superior Courts Act 10 of 2013
, a third judge
being added only if the two judges originally appointed are not in
agreement.
[5]
The decision does not appear to have been
incorporated in a formally adopted resolution.  A factor which
appears to have
led to some confusion later in determining the
status of the decision and what required to be done to formalise it.
[6]
Apparently Eskom jargon.  Its meaning is
imprecise.  Eskom’s object was that PNES should cease to
be a functioning
separate corporate entity within the Eskom group.
‘Decorporatising’ seems to have been a catch-all label
to
cover any method of achieving that, so the fuzziness of its
import is by no means unfitting.  The word was used by all
sides
in the trial court and in the court’s judgment.  It
is so inculcated in the fabric of the case that, like the SCA, we

have found it convenient to keep it in use.
[7]
The appellant testified, without contradiction,
that when he became managing director of PNES in 2002, the company
was in a bad
state, beset with both staff and community-related
problems.  He said vehicles were being burnt out and the
company’s
offices were being petrol bombed.
[8]
The contract in place at the relevant time was
due to expire at the end of December 2009, but was terminable
earlier by either
party on three months’ notice.
[9]
Like Mr Machinjike, Theron also reported directly
to Mr Mongezi Ntsokolo up the Eskom chain of command.
[10]
The Companies and Intellectual Property
Registration Office.
[11]
Section 234(3) of the Companies Act, 1973,
provided:
‘
(3)(a)
For the purposes of subsection (1) a general notice in writing given
to the directors of a company by a director thereof
to the effect
that he is a member of a specified company or firm and is to be
regarded as interested in any contract which may
after the date of
the notice and before the date of its expiry be made with that
company or firm, shall be deemed to be a sufficient
declaration of
interest in relation to any contract or proposed contract so made or
to be made, if-
(i)      the nature and extent of the
interest of the said director in such company or firm is indicated

in the said notice; and
(ii)     at the time the question of confirming
or entering into the contract in question is first considered
or at
the time such director becomes interested in a contract after it has
been entered into, the extent of his interest in such
company or
firm is not greater than is stated in the notice.
(b) A
general notice under paragraph (a) may from time to time be amended
and shall not be effective beyond the end of the financial
year of
the company but may from time to time be renewed.’
[12]
The ‘
core
services
’ were defined in the
core services agreement as ‘customer services integration,
vending services integration and
routine planned maintenance of the
reticulation network in the supply area.  The ‘
non-core
services
’ were defined in the
other agreement as ‘the management and operation of the
reticulation network in the service
area’.
[13]
Act 58 of 1962.
[14]
It is unnecessary to answer the question because
although an adverse determination of the appellant’s legal
representative’s
contentions would imply that the non-core
services agreement was
not
aligned to the PIIT model approved at the Western Region executive
committee meeting on 19 December 2008, the presentation of
the
non-core services agreement to Messrs. Sebola and Machinjike for the
purpose of the 14 January 2009 PNES board meeting was
not a basis
for any of the alleged fraudulent misrepresentations relied on in
support of the charge of fraud in the charge sheet.

Furthermore, there was no evidence that the appellant had, prior to
the conclusion of the agreements, made a representation to
any of
the representees named in the charge sheet that the draft non-core
services agreement was in alignment with the PIIT model
approved at
the 19 December 2008 Western Region Exco meeting.
[15]
The trial court held that ‘
the
actual loss caused was proven beyond reasonable doubt.  Eskom
and PNES lost more than 10,2 million in profits between
February ’09
and March 2010, and accused 1 and 2 benefitted more than 65 million
(sic) from the award of these contracts
’.
The magistrate’s assessment in this respect was wholly
misdirected in my view.  It was by no means clear
that PNES
would have made any profit at all during the period had it not
entered into the contracts with EUS.  On the contrary,
the
dubiousness of PNES’s ability to discharge its functions if it
lost its experienced personnel was highlighted by the
evidence.
The evidence also showed that the dissipation of the core personnel
supplied by Kelly Personnel was perceived
by all the informed
parties to be a real risk in the face of the uncertainty created by
the ‘decorporatisation’ process.
The evidence also
established that Eskom was not ready to take on PNES’s
functions during 2009.  An interruption of
PNES’s
operations due to the loss of the core personnel during the extended
‘decorporatisation’ was considered
likely to lead to
unrest with associated vandalism of the company’s and Eskom’s
infrastructure.  The magistrate
completely ignored the import
of the evidence on these aspects.  She also overlooked the
concession that the efficient discharge
of its contractual
obligations by EUS had had an enhancing influence on Eskom’s
revenue flow.  The R65 million referred
to by the magistrate
did not constitute ‘a benefit’ in EUS’s hands, the
sum represented the company’s
operational revenue.  The
company’s profit was a small fraction of it.  If Eskom or
PNES suffered any loss in
consequence of the conclusion of the
contracts (which is by no means clear), the sum thereof remained
unquantified.  It
was unrealistic to predicate an estimate of
PNES’s profit during the period in issue on the company’s
past performance
in quite distinguishable circumstances or on the
profit earned by EUS in the context of the contracts specially
entered into
for the purpose of mitigating the risks attendant on
the ‘decorporatisation’ of PNES.
[16]
The trial ran in fits and starts over two years
and gave rise to a record on appeal running to 69 volumes.
[17]
See s 1(f) of Act 5 of 2000.  A
provision in regulations made by the National Treasury in 2005 (GN
R225 of 2005 published
in GG 27388 of 15 March 2005) that a public
entity’s supply chain management system must be consistent
with, amongst other
things, the Preferential Procurement Policy
Framework Act, 2000 (see reg 16A3.2) could obviously not apply to an
entity to which
that Act did not apply.  That much is
recognised in regulation 1.2.1(c), which sets forth the limited
extent to which the
2005 Treasury Regulations apply to public
entities listed in Schedule 2 to the PFMA such as Eskom and its
subsidiaries.
[18]
GN R501; GG 34350 dated 8 June 2011.
[19]
See note 6 above.
[20]
Regulation 16A6.4.
[21]
Several of which were identified in a memorandum
produced for Mr Sebola by Cliffe Dekker attorneys in June 2009 that
was referred
to in evidence at the trial and also in Mr Machinjike’s
written response in August 2009 to questions put to him by Eskom

Forensics.
[22]
GN 112 of 2007 published in Government Gazette
29617 dated 9 February 2007.
[23]
Para 3.1.1 of the Code of Good Practice (2007).
[24]
Malherbe v S
supra,
in para 7-9.
[25]
In answer to a proposition put to him in
cross-examination by the appellant’s attorney that he
(Machinjike) was aware that
making EUS B-BBEE compliant was ‘
a
process that had to happen and that ... even after 14
th
January 2009, that had still to happen
’,
the witness replied ‘
Your Worship
I was clearly aware that there would be certain steps that was in
December 2008 but as for 14
th
January 2009 I was under the impression that all that was in
place
’.  Later in his
evidence, Machinjike further contradicted himself on this point in
the following exchange with the
appellant’s attorney:
‘
Mr
GESS: ...
on this aspect you said “If
I had known there was no BEE involvement I would not have consented
to the approval”,
alright?
Mr
MACHINJIKE:
Yes
Mr GESS:
But
that it was going to be happening post that time, after the 14
th
January?
Mr
MACHINJIKE:
The implementation and the paperwork, yes.
’
[26]
The appellant testified that 29 out of the
31employees supplied to PNES by Kelly Personnel
were
black.
He used the term ‘previously
disadvantaged’.
[27]
‘
Unlawful activity’ is defined in s 1
of Act 121 of 1998 as meaning ‘
conduct
which constitutes a crime or which contravenes any law whether such
conduct occurred before or after the commencement
of this Act and
whether such conduct occurred in the Republic or elsewhere
’.