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[2019] ZAWCHC 78
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XXX CC v N (9138/2019) [2019] ZAWCHC 78 (24 June 2019)
The
name of this matter has been anonymised to maintain confidentiality.
Republic of South
Africa
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
No. 9138/2019
Before: The Hon. Mr
Justice Binns-Ward
Date
of hearing: 21 June 2019
Judgment:
24 June 2019
In
the matter between:
XXX
CC
Applicant
and
PHN
Respondent
JUDGMENT
BINNS-WARD
J:
[1]
The applicant close
corporation is a distributor of certain makes of condom to a high
street retailer. The respondent is a
member of the close
corporation, who is currently engaged in what appear to be
acrimonious and hotly contested arbitration proceedings
with one of
his fellow members in respect of the enforceability of a buy-out
agreement formalising his exit from the corporation.
Pending
the determination of those proceedings, the respondent retains his
registered proprietary interest in the applicant, but
he is no longer
involved practically in the conduct of its business.
[2]
In the matter before
me, on the extended return day of a rule
nisi
granted on 29 May 2019 in
ex
parte
proceedings
before Bozalek J, the applicant seeks to have made final an
interdict operating against the respondent under the
rule that
prohibits him, or any person acting on his instructions, from –
1.
disclosing confidential
information regarding the applicant to the high street retailer to
which the applicant supplies condoms;
2.
providing the said
retailer with any of the following:
2.1
the applicant’s bank statements,
2.2
the applicant’s bank statements,
2.3
the applicant’s management accounts,
2.4
the applicant’s supplier invoices,
2.5
the applicant’s supplier agreements,
2.6
details relating to the pending arbitration, and
2.7
any documentation obtained by the respondent through the discovery
process in the arbitration
proceedings;
3.
joining the high street
retailer as a party to the proceedings without the prior leave of the
court
4.
directly or indirectly
drawing the attention of the high street retailer to the existence of
the current application.
[3]
It is necessary to give
some background to the dispute between the members of the applicant
that has given rise to the unresolved
dispute between them that led
to the pending arbitration proceedings.
[4]
The respondent was
previously the chief executive officer and chief financial officer of
the applicant. There are two other
members of the corporation,
only one of whom also played an executive role in the conduct of its
business. The other active
member of the corporation was the
deponent to the applicant’s principal founding affidavit in the
current proceedings.
[5]
During 2018 the
respondent was placed on suspension from his executive positions in
the applicant’s business because it was
alleged that he had
made an unauthorised withdrawal of funds from his loan account.
One of the terms of his suspension was
that he was forbidden during
the period of suspension from having contact with the applicant’s
customers. In breach
of that condition, he reportedly made
contact with the relevant buyer in the employ of the high street
retailer that was the applicant’s
major customer, and also with
the overseas supplier of the condoms distributed locally by the
applicant. Consequent on the
findings in a disciplinary enquiry
into the aforementioned breach of his terms of suspension, the
respondent was dismissed from
his employment with the applicant.
[6]
The respondent
thereupon instituted proceedings for the liquidation of the applicant
on the grounds of deadlock with his fellow
members. Those
proceedings were adjudged by the fellow members to be critically
prejudicial to the survival of the applicant’s
business by
reason of a clause in its contract with the high street retailer
entitling the latter to terminate the agreement with
immediate effect
should the applicant be provisionally or finally wound up. The
respondent’s fellow members who currently
continue to manage
the applicant’s business aver that they felt constrained in the
circumstances to conclude a buy-out agreement
with the respondent to
avert any possibility of a winding-up order. In the result an
agreement was concluded in terms of
which the deponent to the
applicant’s principal founding affidavit in the current
proceedings undertook to purchase the respondent’s
member’s
interest for the sum of R5,5 million.
[7]
Payment of the agreed
purchase price was thereafter withheld however when it was discovered
in an investigation into the applicant’s
financial affairs by
an independent auditing firm that the respondent appeared to have
misled the other members as to ‘the
extent of his loan account
as well as the extent of the applicant’s liability to SARS’.
The respondent referred
the dispute concerning those allegations to
arbitration in terms of the sale of member’s interest
agreement. The respondent’s
claim in those proceedings
has been defended and also met with a larger counterclaim. It
is common ground that the conduct
of the arbitration proceedings will
necessitate the disclosure, within that forum, of a considerable
amount of the applicant’s
confidential information. For
reasons that it not necessary to detail for present purposes, the
arbitration proceedings have
not proceeded smoothly. I have
gained the impression that the acrimony between the contesting sides
has in large part contributed
to the difficulties.
[8]
Against that
background, the matter that gave rise to the application brought
ex
parte
as a matter
of urgency before Bozalek J for immediate interdictory relief
was the intimation to one of the applicant’s
members by an
employee of the high street retailer (‘Mr J’) that he had
been contacted by the respondent and told that
the latter considered
that he (the employee) might ‘be implicated in wrongdoing in
relation to payments made by the applicant
as reflected in the
applicant’s bank statements’. Mr J reported
that the respondent had suggested that he
should accompany the
respondent to a meeting with the head of the high street retailer’s
legal department ‘in order
to make a full disclosure relating
to these payments’.
[9]
Mr J claims to
have no knowledge of any irregular payments, but reported the
approach by the respondent to the applicant’s
current chief
executive because he was unsettled by the allegations and concerned
that they could negatively affect his employment
by the high street
retailer. Mr J was aware of payments that had been made
into his banking account by the applicant
periodically over a period
of some years, but those were in respect of amounts due to his wife,
who had been engaged by the applicant
as a self-employed sales
reporter and merchandiser
[10]
The applicant avers
that Mr J had been an employee of the high street retailer at the
time it had commenced negotiating its business
relationship with the
retailer, but that he had not been in a position to have any
influence whatsoever on the contract that had
been entered into
between the applicant and the high street retailer in 2012. It
also pointed out that during the period
2011-2014, Mr J had broken
his employment with the retailer to pursue his own interests,
starting up a merchandising business with
his wife. On becoming
re-employed by the retailer, Mr J again occupied a post that did
not place him in any position
to influence the established business
relationship between the applicant and the retailer.
[11]
The respondent in his
answering affidavit, however, whilst admitting that Mr J was not
in the employ of the high street retailer
when the contract was
concluded between the applicant and the retailer, maintained that
Mr J had been involved in the applicant’s
initial
approaches to the retailer, and that after the conclusion of the
contract he had approached the respondent and one of the
other
members of the applicant to suggest that the applicant should use the
services of his wife’s business and pay her a
one per cent
commission on the applicant’s turnover on the contract ‘in
return for [Mr J’s] pivotal role
in securing the
contract’. He said that he and the deponent to the
applicant’s principal founding affidavit
‘felt compelled
to accommodate [Mr J] as he was the reason the applicant had
secured the business of [the high street
retailer] even though the
applicant had no need to engage the services of his wife’.
The respondent’s evidence
does not, however, explain how or why
[Mr J’s] role was pivotal to the contractual engagement
between the applicant
and the high street retailer; it does not
identify any impropriety attending or influencing the conclusion of
the contract; and
it therefore leaves one mystified as to quite why
precisely he should have felt compelled to agree to the applicant
acceding to
[Mr J’s] alleged extortion of a
‘gratification’ within the meaning of that word in the
Prevention and Combatting
of Corrupt Activities Act 12 of 2004.
[12]
It was averred on the
applicant’s behalf that the respondent’s approach to Mr J
was perceived as an obvious attempt
by the respondent to stir up
trouble between the applicant and its major customer. The
deponent to the principal founding
affidavit said that the
applicant’s members were aware that the respondent had started
a new business under the name Halo
Healthcare to conduct business in
competition with the applicant. His reported conduct was seen
as a form of unlawful competition.
[13]
The applicant therefore
instructed its attorneys to address the attorneys then representing
the respondent in the pending arbitration
proceedings to demand that
the respondent (who, it will be recalled, is still a member of the
applicant close corporation) refrain
from –
1.
contacting the high
street retailer or any of its representatives;
2.
making defamatory
statements regarding the applicant;
3.
conducting himself in a
manner that tarnishes the applicant’s good name; and
4.
attempting to solicit
business from the applicant’s customers.
A written demand to that
effect was addressed by the applicant’s attorneys to the
respondent’s attorneys on 24 May
2019.
[14]
The response, dated
26 May 2019, by the respondent’s then attorneys to the
applicant’s demand contained the following
statements:
Our instructions are that
our client did meet with an employee at [the retailer], [Mr J] …
to advise him as a courtesy
that the dispute regarding [the
applicant] (“the close corporation”) is subject to
arbitration, that the presentation
of evidence will commence shortly
and that the financial statements of the close corporation submitted
by your client are materially
in dispute in the arbitration, the
source documents on which they have been compiled will be
interrogated at length in that process.
…
Our client further
advised [Mr J] that the bank records of the close corporation
reflect numerous payments made to [Mr J],
which do not appear to
have been accounted for in the financial statements submitted by your
client, whether properly or at all,
and that accordingly our client
has been advised to make full disclosure to [the high street
retailer] regarding the background
and nature of these payments.
…
As it appears that our
client’s approach to [Mr J] has been misconstrued by your
client and/or [Mr J] for ulterior reasons,
we have now advised our
client to propose a meeting between members of the close corporation
…with …the head of legal
and Company Secretary of [the
high street retailer] and that they jointly make a full disclosure of
the nature of the relationship
between the close corporation and
[Mr J] with reference to the payments reflected in its bank
statements as that would best
provide for a transparent disclosure of
all matters relating to that relationship consistent with the
requirements of good corporate
governance.
…
We further place on
record that in the event that your client does not respond positively
to our client’s proposal by or before
16h00 on Monday, 27 May
2019, our client will arrange a meeting with Mr [X] at [the high
street retailer] without further
notice to and/or participation by
the remaining members of the corporation or [Mr J].
…
We also place on record
that in the event that your client nevertheless proceeds with an
urgent application against your client,
but fails to cite [the high
street retailer] in those proceedings, our client will join [the high
street retailer] as it has a
material interest in the matters that
will be addressed by our Client in responding to that litigation.
The letter did not allege
that the respondent and the deponent to the applicant’s
principal founding affidavit had agreed
to pay Mr J a
gratification and that the payments in respect of services ostensibly
rendered by Mrs J’s merchandising
business were used as a
disguise for any gratification paid to Mr J.
[15]
The applicant alleges
that the respondent’s aforementioned conduct infringes or
prejudices its right –
1.
not to be defamed;
2.
not to have its
confidential information disclosed to its clients or any third party;
3.
to carry on its
business without undue [?unlawful] interference;
4.
not to have its
business relationships unjustly interfered with
5.
not to have the
information contained in the confidential arbitration disclosed;
6.
not to have
documentation produced during confidential discovery processes
disclosed
7.
to the respect by the
respondent of his fiduciary duties to the applicant; and
8.
not to be subjected to
undue influence to enter into agreements.
The essence of the
applicant’s complaint is that the respondent’s conduct is
directed at unlawfully prejudicing its
business and seeking to place
it under pressure in an extortionate manner to compromise its
(actually one of its member’s)
position in the pending
arbitration. It fears that even a whiff of scandal might prompt
the high street retailer, which is
a listed company, to terminate its
business relationship with the applicant
[16]
The respondent alleges
that the payments into Mr J’s account, of which, on his
own version, he was aware and party to
from the outset, were a matter
that came up with his advisors in the context of the preparation of
his case in the pending arbitration.
He says that he was
advised by his then legal representatives (the authors of the letter
quoted from in paragraph [14]
above]
to make a full disclosure of them to the high street retailer.
He averred that that his understanding of the reasons
for his duty to
make this disclosure was –
1.
that his and his fellow
member’s conduct in that connection would be exposed in the
arbitration process and he was advised
that ‘it would be
prudent to make a full disclosure of the nature of the relationship
to [the high street retailer] in anticipation
of it coming under
scrutiny at the arbitration;
2.
his erstwhile attorneys
had been placed in a conflict of interest situation by the disclosure
of the unlawful payments as [the high
street retailer] is a client of
theirs. He had been informed that unless he was prepared to
make a full disclosure to [the
high street retailer] the attorneys
would not be able to act for him in the arbitration; and
3.
‘
any prospect of
the applicant continuing its relationship with [the high street
retailer] would require the unsolicited and unconditional
disclosure
to [the high street retailer] of the nature of the relationship with
[Mr J]. The applicant would then be
in [the high street
retailer’s] hands as to whether it wished to continue with the
contract. [His fellow member and
he] would then have been
afforded the opportunity to persuade [the high street retailer] not
to terminate the contract and thereby
protect [their] member’s
interest in the applicant’.
[17]
The respondent said
that he had been advised to give Mr J prior notice about his
intention to make the disclosure; this ‘as
a matter of
courtesy’. He had done so on 21 May 2019. The
respondent notably did not offer any explanation,
however, why he had
not approached his co-member to join him in making the disclosure
until after the applicant’s abovementioned
demand through its
attorneys, dated 24 May 2019, that he refrain from prejudicing
its commercial relationship with the high
street retailer.
[18]
The respondent’s
claim to have wanted to make the disclosure motivated by a concern to
facilitate the protection of the applicant’s
relationship with
the high street retailer in order ‘
to
protect his member’s interest in the applicant
’
is singularly unconvincing. The value of the respondent’s
interest was by that stage represented in the R5,5
million purchase
price stipulated in the agreement with his co-member that is the
subject matter of the arbitration proceedings.
On the face of
it, his entitlement to that amount falls to be determined
irrespective of the fate of the continuing business relationship
between the applicant and the high street retailer.
[19]
When I pressed the
respondent’s counsel during argument as to the legal basis for
the respondent’s professed pressing
duty to make a disclosure
to the high street retailer in respect of matter that was not only
generally in dispute, but apparently
contentious in pending
arbitration proceedings - and especially at this stage, rather than
after the arbitrator had pronounced
on it - counsel mentioned s 34
of the Prevention and Combatting of Corrupt Activities Act. The
respondent, however,
did not refer to the Act in his answering
affidavit at all. That the Act
might
be applicable was only hinted at obliquely by way of the reference to
the payments made into [Mr J’s] banking account
as
‘unlawful’ and the suggestion that in some or other
unspecified way the contractual relationship between the applicant
and the high street retailer was associated with, or the product of,
corruption to which Mr J, the respondent and his active
co-member in the applicant had been party.
[20]
The Act creates a
number of offences that might, depending on the facts, be implicated
in the current matter were the respondent’s
vague allegations
of impropriety to be fleshed out and substantiated. There is
the ‘general offence of corruption’
defined in s 3
of the Act, the ‘offences of receiving or offering of
unauthorised gratification by or to party to an
employment
relationship’ defined in s 10 and the ‘offences in
respect of corrupt activities relating to contracts’
in s 12.
Section 34 is a provision that imposes a duty on persons in
authority (which, in terms of the definition in
subsection (4), would
include the respondent in the current case) who know or ought
reasonably to have known or suspected that
any
other person
has
committed any of the aforementioned offences involving an amount of
R100 000 or more to report such knowledge or suspicion,
or cause
such knowledge or suspicion to be reported, to the police official in
the Directorate for Priority Crime Investigation
referred to in
section 17C
of the
South African Police Service Act, 1995
.
[21]
The respondent has
given no indication of any intention of making a report in terms of
s 34
, as one might have expected him to do were his professed
concern about the unlawfulness of the payments to [Mr J] genuine
and the need to tell the high street retailer about them bona fide.
There is in any event nothing in the interdict, nor could
there
competently be, that prohibits the respondent from complying with
s 34
if he does indeed know or suspect that any of the offences
under the Act have been committed.
[22]
On the other hand, if
the respondent were to mala fide report allegations of corrupt
activity, unfounded as he might actually know
them to be, to the
listed entity with which the applicant does considerable business,
that could very conceivably be extremely
prejudicial to the
applicant. The high street retailer might well feel bound in
the context of receiving such a report itself
to make a report in
terms of 34 of the Act, and to leave it to the relevant authorities
to undertake whatever investigations they
might deem meet. The
high street retailer might in such circumstances understandably have
a measure of discomfort of remaining
in a business relationship with
a close corporation that was subject of a relevant report in terms of
s 34, at least until
after the relevant authorities had
determined there was no substance in the allegations.
[23]
I cannot accept that in
the context of the content of their response to the applicant’s
demand of 24 May 2019, the respondent’s
attorneys would
not have advised him of the provisions of s 34 of Prevention and
Combatting of Corrupt Activities Act and that,
if he were bona fide,
he would not have been concerned rather with reporting his knowledge
or suspicions to the relevant authority
rather than to the high
street retailer. In the context of the surrounding
circumstances described above the evidence points
very much towards
the respondent’s conduct in making it known that he was intent
in making a prejudicial report to the applicant’s
major
customer being part of an improper strategy in the resolution of the
pending dispute arising from his co-member’s repudiation
of the
buy-out agreement.
[24]
The impression that the
respondent has been, and, but for the interdict, may well have
continued to act in bad faith in this connection
is reinforced by the
fact that when legal proceedings were threatened by the applicant, he
responded by indicating that he would
join the high street retailer
to them. That threat was unambiguously issued in the face of an
appreciation by him that the
joinder of the retailer would, by
itself, defeat the effectiveness of the interdictory remedy that the
applicant had indicated
that it might be forced to seek. It was
redolent of malice.
[25]
In all the
circumstances I have been satisfied that the rule should be
confirmed, and the interdict against the respondent made
final.
Nothing in the confirmation of the rule will prevent him from
applying for the discharge of the interdict after the
completion of
the arbitration should he in the circumstances then prevailing still
feel a need, and be able to make out a case
for being permitted, to
make a report to the high street retailer at that stage.
[26]
The respondent’s
counsel argued, however, that, irrespective of its merit, the
application should be dismissed because in
bringing the application
on an
ex parte
basis, the
applicant, in breach of its duty of utmost good faith to disclose any
evidence that
might
– not necessarily
would
- have persuaded the court not to grant the relief without first
hearing the respondent, had failed to attach to its founding papers
a
copy of the respondent’s attorneys’ aforementioned letter
of 26 May 2019, from which, as apparent from paragraph
[14]
above, selected passages were quoted
in the principal founding affidavit. Counsel relied heavily in
this connection on the
well-known jurisprudence, notably
Schlesinger
v Schlesinger
1979
(4) SA 342
(W), in which Le Roux J highlighted that
established authority holds that:
‘
(1)
in
ex parte
applications
all material facts must be disclosed which
might
influence
a court in coming to a decision;
(2)
the non-disclosure or suppression of facts need not be wilful or
mala
fide
to incur the penalty of rescission; and
(3)
the court, apprised of the true facts, has a discretion to set aside
the former order or to preserve
it.’
The learned judge
proceeded from that observation to say ‘
Although these broad
principles appear well-settled, I have not come across an
authoritative statement as to when a Court will exercise
its
discretion in favour of a party who has been remiss in its duty to
disclose, rather than to set aside the order obtained by
it on
incomplete facts. On the other hand, the circumstances may be so
divergent and variegated that it is impossible to lay down
any
guideline at all
’. He nevertheless later concluded
‘
It appears to me that unless there are very cogent
practical reasons why an order should not be rescinded, the Court
will always
frown on an order obtained ex parte on incomplete
information and will set it aside even if relief could be obtained on
a subsequent
application by the same applicant
’.
[27]
In my respectful view,
there is no rational reason for the exercise of the court’s
discretion in circumstances when there
has been a failure by the
applicant in an
ex
parte
application
to disclose evidence that should have been included in the supporting
papers in deciding whether or not on subsequent
consideration to
rescind the relief granted to be informed by an à priori
presumption in favour of setting the order that
was obtained
ex
parte
aside.
I would rather subscribe to the approach enunciated by Howie P
in
Phillips and
others v National Director of Public Prosecutions
[2003] 4 All SA 16
(SCA),
2003 (6) SA 447
,
2003 (2) SACR 410
, at
para. 29, where the learned President of the appeal court
stated: ‘
It is
trite that an
ex
parte
applicant
must disclose all material facts which might influence the court in
deciding the application. If the applicant fails in
this regard and
the application is nevertheless granted in provisional form, the
court hearing the matter on the return day has
a discretion, when
given the full facts, to set aside the provisional order or confirm
it. In exercising that discretion the later
court will have regard to
the extent of the non-disclosure; the question whether the first
court might have been influenced by
proper disclosure; the reasons
for non-disclosure and the consequences of setting the provisional
order aside
’.
[28]
I have no doubt that a
copy of the respondent’s attorneys letter should indeed have
been attached to the applicant’s
founding affidavit. I
have no reason, however, to believe that there was any intention by
the applicant to withhold the letter
from the court’s notice.
Indeed, the very reliance on the letter in the founding affidavit
points to the contrary.
The copious quotation from the letter
in the founding affidavit virtually invited the court seized of the
ex parte
application to notice the failure to annex it and enquire as to why a
copy had not been made available. The applicant explained
in an
affidavit by its attorney,
jurat
7 June 2019,
that due to the urgency that had attended the institution of the
application, the annexure of the letter had been
‘erroneously
omitted’. I have no reason not to accept this
explanation. Having had regard to the content
of the letter as
a whole, I consider that it is possible, but unlikely, that if
Bozalek J had seen it he might have required
very short notice
to the respondent before granting the relief. I do not think
that anything in the letter would have persuaded
him not to grant the
relief. Indeed, in the applicant’s replying affidavit it
was averred that ‘[d]
uring
the presentation of the
ex
parte
application to the Honourable Mr Justice Bozalek, counsel for the
applicant sought to draw his attention to the letter in support
of
the application. It was at this stage when it became apparent
that the letter had been omitted erroneously. A request
was
made to the court that the matter stand down in order for the letter
to be filed, the request was declined, and the court indicated
that
it did not require the letter itself to grant the interim relief
’.
[29]
No practical purpose
would be served by setting aside an order that I am satisfied on a
consideration of all the evidence the applicant
was entitled to have
obtained. If I were minded that this was a matter in which the
court should mark its disapproval of
the applicant’s omission
by some form of censure (which I am not), I would consider that an
order depriving it of some or
all of its costs would suffice, and be
more appropriate in the circumstances than discharging the rule.
[30]
For all these reasons
an order in the following terms will issue:
1.
That the rule nisi
issued on 29 May 2019 is confirmed and the interdict against the
respondent in terms of sub-paragraphs 2.1
to 2.4 of the rule is made
final.
2.
The respondent is
ordered to pay the applicant’s costs of suit.
A.G. BINNS-WARD
Judge of the High
Court