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[2008] ZASCA 110
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Da Silva and Others v C H Chemicals (Pty) Ltd (304/2007) [2008] ZASCA 110; 2008 (6) SA 620 (SCA) ; [2009] 1 All SA 216 (SCA) (23 September 2008)
Links to summary
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case no: 304/2007
In the matter between:
JOSE DUARTE COELHO DA SILVA
1
st
Appellant
RESINEX PLASTICS (PTY) LTD
2
nd
Appellant
RESINEX SOUTHERN AFRICA (PTY) LTD
3
rd
Appellant
and
C H CHEMICALS (PTY LTD
Respondent
Neutral citation:
Da
Silva v C H Chemicals (Pty) Ltd
(304/2007)
[2008] ZASCA
110
(23 September 2008)
______________________________________________________________
Coram
: SCOTT, FARLAM,
CAMERON, CACHALIA
JJA et LEACH AJA
Date of hearing
: 18
TH
and 19
TH
AUGUST
2008
Date of delivery
: 23
SEPTEMBER 2008
Corrected
:
Summary
: Whether there was a
breach of a director’s fiduciary duty by the exploitation of
various corporate opportunities after his
resignation – whether
there was a breach of the director’s fiduciary duty in other
respects – whether the second
and third appellants engaged in
unlawful competition.
_
_____________________________________________________________
ORDER
______________________________________________________________
On appeal from the High Court, Pretoria, (Seriti J
sitting as court of first instance).
(1) The appeal succeeds to the extent set out hereunder.
(2) The respondent is to pay the costs of the appellants
including, in the case of the second and third appellants, the costs
of
two counsel.
(3) The order of the court a quo is set aside and the
following is substituted in its stead:
(a) The plaintiff’s claims, save for those
relating to the LLDPE transaction, are dismissed with costs including
the costs
of two counsel where two counsel were employed.
(b) The first and second defendants are declared to be
liable to the plaintiff for such damages as may be proved to have
been suffered
by the plaintiff arising out of the LLDPE transaction.
In the event of either the first defendant or the second defendant
paying
any portion of such damages once determined, the other shall
be liable for the balance only.
(c) The issue of the costs in respect of the claims
arising out of the LLDPE transaction is to stand over for
determination by the
court when the issue of quantum is determined.
______________________________________________________________
JUDGMENT
______________________________________________________________
SCOTT JA
(Farlam,
Cameron, Cachalia JJA et Leach AJA concurring):
[1] The appellants were the defendants in an action
instituted by the respondent in the Pretoria High Court for the
disgorgement
of profits, alternatively for the payment of damages
arising from alleged breaches of the first appellant’s
fiduciary duties
as the respondent’s managing director, and, in
the case of the second and third appellants, for damages arising from
their
alleged unlawful competition with the respondent. The
respondent’s claims, as they ultimately unfolded following
several
amendments to its particulars of claim, were founded on a
number of separate but closely related causes of action. Broadly
stated,
some related to the exploitation by the first appellant of
two business opportunities which it was alleged were corporate
opportunities
and should have been exploited for the respondent’s
benefit and others related to alleged conduct on the part of the
first
appellant while still the respondent’s managing director
which in other respects was aimed at furthering his own interests
and
those of the second and third appellants to the detriment of the
respondent. The court a quo (Seriti J) found for the respondent
on
all its claims but in terms of an agreement between the parties
ordered that the issue of their quantification should stand
over for
later adjudication. The appeal is with the leave of the court a quo.
For the sake of convenience I shall refer to the
parties as in the
court below.
[2] Before attempting to outline the claims in greater
detail or to consider the issues to which they give rise it is
necessary
first to summarize, as briefly as the circumstances permit,
the facts which form the background to the dispute between the
parties.
They are largely common cause.
[3] The Dow group of companies is a large international
group which distributes chemicals, plastics and various other related
substances.
It had a local branch in South Africa until it
disinvested in 1987. Its business was then purchased by the plaintiff
company. The
latter’s shareholders were Mr Peter Columbine and
Mr Dennis Hellmann who had both been local managers of Dow. Hellmann
became
the chairman of the plaintiff and Columbine its managing
director. The plaintiff proceeded to serve as the local distributor
of
Dow products. The first defendant, Mr Jose Da Silva, joined the
plaintiff in 1987 and in 1989 became its managing director. Columbine
remained active in the business until 1997 when his share in the
business was bought out by Hellmann.
[4] After the advent of democracy Dow re-entered the
South African market in 1995. It incorporated a South African
subsidiary and
opened an office in Johannesburg. Mr Joaquin Schoch,
who had joined the Dow group in 1976, became its managing director.
It was
the policy of Dow to deal directly with its larger customers,
ie those who purchased their products in large quantities, and to
permit other distributors to serve those customers whose purchases
were in smaller quantities. In pursuance of this policy, Dow
South
Africa entered into a distribution contract with the plaintiff on 1
April 1995 which entitled the plaintiff to distribute
a number of
specified Dow products in South Africa. The contract was for a period
of five years subject to extension of a further
period of five years
and thereafter indefinitely subject to one year’s notice of
termination. In terms of clause 3 Dow was
entitled to delete any of
the listed products on six months’ notice to the plaintiff.
[5] In 1996 the Du Pont group, which had its base in the
USA and which was described as a giant in the chemical industry,
entered
into a joint venture agreement with the Dow group for the
marketing of thermo-plastic elastomers in the international market.
They
did so through a Swiss based company, Du Pont Dow Elastomers SA.
I shall refer to it simply as DDE. On 1 April 1996 DDE entered
into a
distribution contract with the plaintiff in terms of which the
plaintiff was to distribute a single DDE product called tyrin.
The
contract could be terminated on 90 days’ notice. DDE entered
into a similar contract with another South African company,
Chemserve, for the distribution of some four DDE products.
[6] Resinex NV, the European holding company of the
second and third defendants, is in turn a member of a larger group of
companies
ultimately controlled by Ravago SA. The latter is a
substantial multi-national conglomerate based in Belgium. The main
business
of Resinex is the international distribution of chemical and
plastic products. Dow’s relationship with the Ravago group is
of long standing and goes back to the late 1970’s. By the end
of 1996 Resinex was Dow’s largest distributor and distributed
the latter’s products in a number of countries. On 1 January
1998 Distriflex, a subsidiary of Resinex, entered into a distribution
contract with DDE. In pursuance of this contract Resinex distributed
DDE products in Eastern Europe, the Middle East and Africa
with the
exception of South Africa, Nigeria, Morocco, Tunisia and Egypt.
[7] In the mid 1990’s Resinex took a decision to
enter the South African market. Its decision to do so was well known
in the
industry and was known to Hellmann and Columbine of the
plaintiff. It was obvious that if Resinex were to enter the South
African
market it would do so in competition with the plaintiff and
would pose a significant threat to the latter’s Dow and DDE
business.
Resinex was a multi-national group that dwarfed the
plaintiff and had extensive personal and business ties with Dow and
DDE. When
DDE was established it immediately embarked upon a policy
of limiting the number of entities distributing its products. This
was
common knowledge in the industry.
[8] Negotiations between Resinex and the plaintiff with
a view to a joint venture or some other form of collaboration in
South Africa
commenced in 1996. Dow was aware of Resinex’s
intended expansion and it was Dow that instigated the talks. It would
have
been obvious that Dow wished to avoid having to choose between
Resinex and the plaintiff as its distributor in South Africa. The
negotiations were initially conducted on the plaintiff’s behalf
by Columbine, its then managing director. I shall describe
these
negotiations in greater detail later in this judgment. It suffices at
this stage to record that the negotiations culminated
in an offer
being made by Resinex in February 1997. In essence it was that
Resinex would immediately purchase 50% of plaintiff’s
chemical
performance products department and its plastics department and would
acquire the remaining 50% over a period of five
years, by which time
it would have total control. The offer was rejected in April 1997.
There was no counter offer.
[9] At about this time Columbine sold his shares to
Hellmann and withdrew from the plaintiff company. Thereafter Da
Silva assumed
responsibility for the talks with Resinex. Various
meetings were held and letters written. From the correspondence it
would appear
that the driving force behind the attempt to establish
some form of collaboration came from Da Silva. Although enthusiastic,
his
letters lacked what the managing director of Resinex, Mr Benoit
De Keyser, described in evidence as ‘specifics’. His
letters were in most instances simply left unanswered.
[10] Resinex had made it clear at an early stage that it
would be coming to South Africa, whether with or without the
plaintiff.
In 1998 Resinex took the decision not to enter the South
African market via an interest in the plaintiff’s business or
otherwise
in collaboration with the plaintiff but to establish its
own business in competition with the plaintiff. Just when that
decision
was taken and when it was conveyed to Da Silva was the
subject of some debate in this court. However, both De Keyser and Da
Silva
testified that the decision was communicated to Da Silva for
the first time in December 1998 when De Keyser invited Da Silva to
join Resinex and head-up the business which Resinex had decided to
establish in South Africa. Da Silva was reluctant to take a
decision
and stalled for time. According to De Keyser, Da Silva was still
intent on achieving some form of collaboration between
the plaintiff
and Resinex.
[11] In the following months De Keyser pressed Da Silva
for an answer. Da Silva eventually agreed in principle in May 1998
and asked
De Keyser to come to South Africa to discuss the details of
the offer. De Keyser did so and an agreement was reached in the
course
of discussions from 8 to 10 June 1999. Da Silva wanted it in
writing and De Keyser left it to Da Silva to draft the contract. The
latter did so, using a precedent. He gave it the heading: ‘Heads
of Agreement’. It was subsequently signed by both
parties on 16
July 1999. I shall return to this document in due course. At this
stage it is enough to say that it provided for
the establishment of
two South African subsidiaries of Resinex, a holding company and a
trading company. Da Silva would get a
25 percent interest in the
holding company and would be the managing director of both. All of
the Resinex (and Ravago) business
would be done through these
subsidiaries.
[12] On 11 June, being the day after the agreement was
reached, Da Silva told Hellmann about it. They discussed the date of
Da Silva’s
departure. Initially they agreed that he would stay
until the end of October 1999 but later agreed that he would leave at
the end
of August 1999.
[13] During his notice period Da Silva acquired two
shelf companies which became the second and third defendants. Their
names were
changed to Resinex Plastics (Pty) Ltd and Resinex Southern
Africa (Pty) Ltd respectively. Da Silva was appointed a director of
both on 19 August 1999. He hired premises for them from 1 September
1999 on which date they commenced business. While still with
the
plaintiff, but acting for and on behalf of the second defendant,
being the trading company, he also purchased three containers
of a
substance called linear low density polyethylene (‘LLDPE’)
which was subsequently on-sold by the second defendant
to a local
South African company.
[14] Meanwhile, in the latter part of 1997 Dow had made
a bid to acquire Sentrachem, a large South African company and
participant
in the chemical and plastics industry. It was generally
known in the industry and to the plaintiff that should Dow obtain
control
of Sentrachem and its subsidiaries it was likely, in
pursuance of its policy of dealing directly only with customers who
purchased
in large quantities, to pass on to another distributor that
part of the business which related to the sale of its products in
smaller
quantities. One subsidiary of Sentrachem was Plastomark (Pty)
Ltd which distributed chemical and plastic products and whose
business
the plaintiff would have had an interest in acquiring. Dow’s
bid was successful and it ultimately gained control over Plastomark,
but only in March 1999 after it had acquired the shares in that
company which had been held by a German partner. In accordance
with
its policy Dow in due course took the decision to sell off that part
of Plastomark’s business which related to the sale
of products
to customers who purchased in quantities of less than ‘a full
truck load per order’. Notwithstanding Dow’s
link with
the plaintiff in South Africa this part of Plastomark’s
business was sold to the third defendant and not to the
plaintiff.
The sale was in writing and dated 20 December 1999.
[15] Subsequent to the second defendant commencing
operations in South Africa and on 3 December 1999 Schoch (the
managing director
of Dow SA) gave the plaintiff six months' notice of
the deletion of a list of products from their distribution contract
concluded
in April 1995. It will be recalled that Dow was entitled to
do so in terms of clause 3. The deletion triggered a dispute between
Dow and the plaintiff. It was ultimately settled by agreement on 1
November 2000. In terms of the settlement the distribution agreement
was renewed but subject to the deletion of the products referred to
in the 3 December 1999 notice. Dow did not enter into a formal
distribution agreement with Resinex or its South African
subsidiaries, ie the second and third defendants. In fact it had
always
been the custom of Dow and Resinex internationally to do
business without a formal distribution contract. In due course Dow SA
gave to the second defendant the business it had deleted from the
plaintiff’s contract.
[16] On 7 September 1999 Hellmann was told by DDE that
it proposed to give the plaintiff three months’ notice of the
cancellation
of its distribution contract. The notice was formally
given on 13 September 1999. On the same day notice was given to
Chemserve,
the other South African company that had distributed DDE
products. On 25 October 1999 DDE and Distriflex (a subsidiary of
Resinex)
signed an agreement in terms of which the existing
distribution contract was extended to include South Africa. Following
the expiry
of the notice period DDE’s products which had
formerly been distributed by the plaintiff and Chemserve were
distributed by
the second defendant.
[17] The plaintiff’s claims are founded primarily
on alleged breaches of Da Silva’s fiduciary duty which he owed
to
the plaintiff as its managing director. The claims against the
second and third defendants are for damages and are founded either
on
the latter’s alleged dishonest complicity in Da Silva’s
breaches or on unlawful competition. The grounds on which
the
plaintiff relied for the allegation that Da Silva breached his
fiduciary duties are briefly the following: (a) the exploitation
for
his own benefit or for that of the second and third defendants of the
opportunity which the plaintiff had of establishing a
joint venture
or some other form of collaboration with Resinex (‘the Resinex
opportunity’); (b) the exploitation for
his own benefit, or for
that of the second and third defendants, of the plaintiff’s
opportunity to acquire the Plastomark
business (‘the Plastomark
opportunity’); (c) the procurement for his own benefit or for
that of the second and third
defendants of the existing business
which the plaintiff had with Dow (‘the Dow contract’);
(d) the procurement for
his own benefit or for that of the second and
third defendants of the existing business which the plaintiff had
with DDE (‘the
DDE contract’); and finally the purchase
and sale for his own benefit and for that of the second and third
defendants of
the LLDPE (the ‘LLDPE transaction’). I
shall deal with each in turn. Before doing so, however it is
necessary to say
something of the legal principles applicable to
claims of this kind.
[18] It is a well-established rule of company law that
directors have a fiduciary duty to exercise their powers in good
faith and
in the best interests of the company. They may not make a
secret profit or otherwise place themselves in a position where their
fiduciary duties conflict with their personal interests (
Robinson
v Randfontein Estates Gold Mining Co Ltd
1921
AD 168
at 177). A consequence of the rule is that a director is in
certain circumstances obliged to acquire an economic opportunity for
the company, if it is acquired at all. Such an opportunity is said to
be a ‘corporate opportunity’ or one which is
the
‘property’ of the company. If it is acquired by the
director, not for the company but for himself, the law will
refuse to
give effect to the director’s intention and will treat the
acquisition as having been made for the company. The
opportunity may
then be claimed by the company from the delinquent director. Where
such a claim is no longer possible, the company
may in the
alternative claim any profits which the director may have made as a
result of the breach or damages in respect of any
loss it may have
suffered thereby (See
Blackman,
Jooste and Everingham,
Commentary on the
Companies Act
Vol 2 p 8-161 to 8-162).
[19] It is of no consequence that in the particular
circumstances of the case the opportunity would not or even could not
have been
taken up by the company (
Regal
(Hastings) Ltd v Gulliver
[1942] 1 All ER 378
(HL) at 389D, 392H-393A;
Phillips v Fieldstone
Africa (Pty) Ltd
2004 (3) SA 465
(SCA) para
31). But the opportunity in question must be one which can
properly be categorized as a ‘corporate opportunity’.
While any attempt at an all-embracing definition is likely to prove a
fruitless task, a corporate opportunity has been variously
described
as one which the company was ‘actively pursuing’
(
Canadian Aero Service v O’Malley
(1973)
40 DLR (3d) 371 SCC at 382) or one which can be said to fall within
‘the company’s existing or prospective business
activities’ (Davies,
Gower and Davies’
Principles of Modern Company Law
7ed at 422)
or which ‘related to the operations of the Company within the
scope of its business’ (
Bellairs v
Hodnett
1978 (1) SA 1109
(A) at 1132H) or
which falls within its ‘line of business’ (
Movie
Camera Company (Pty) Ltd v Van Wyk
[2003] 2
All SA 291
(C) at 308b; 313d-e). Ultimately, the inquiry will involve
in each case a close and careful examination of all the relevant
circumstances,
including in particular the opportunity in question,
to determine whether the exploitation of the opportunity by the
director,
whether for the director’s own benefit or for that of
another, gave rise to a conflict between the director's personal
interests
and those of the company which the director was then
duty-bound to protect and advance.
[20] A director will not escape liability by first
resigning before seeking to exploit an opportunity which the company
was actively
pursuing (
Canadian Aero Service v
O’Malley
supra) or one within the scope
of the company’s business activities of which the director
became aware in the performance
of the latter’s duties as a
director and which he or she deliberately concealed from the company
(
Industrial Developments Consultants v Cooley
[1972] 1 WLR 443
(Birmingham Assizes)). The opportunity remains that
of the company and the director will remain accountable. But if the
opportunity
is not of such a kind or if it is an opportunity which,
although within the scope of the company’s business activities,
only
arose after his resignation or was one of which he was unaware
prior to his resignation, he is at liberty in the absence of explicit
contractual restraints to exploit it to the full. It must be
emphasized that the expertise and experience acquired by a director
during his period of employment with the company and in general even
the personal relationships established by him during that
period
belong to him and not to the company. It is a well-established
principle of the common law, now enshrined in s 22 of the
Bill of
Rights, that all persons should in the interests of society be
productive and be permitted to engage in trade and commerce
or their
professions. (See eg
Reddy v Siemens
Telecommunications (Pty) Ltd
2007 (2) SA 486
(SCA) para 15.) The general policy of the courts is accordingly not
to impose undue restraints on post-resignation activities.
[21] Thus far, I have been dealing with corporate
opportunities in the sense in which they are generally understood.
But what has
been said applies equally to the case of a director who
in competition with the company and in breach of his fiduciary duty
procures
for his own benefit or for that of another, not a corporate
opportunity as such, but some part of the existing business of the
company. In that event the remedies available to the company will be
the same and the director will be liable even if he first resigns
before exploiting the business so procured. But in the absence of
such conduct and provided there are no contractual restraints
a
director is free to resign and set up business in competition with
his former company or obtain employment with a competing
company. In
that event, he is at liberty to compete with his former company even
to the extent of enticing away existing customers.
The Resinex opportunity
[22] The plaintiff’s contention, in short, was
that the contract entered into between Da Silva and Resinex NV in
terms of
which Da Silva was to establish and head-up Resinex’s
local office in South Africa was a corporate opportunity which Da
Silva
was obliged to obtain and exploit for the plaintiff’s
benefit. The contention was founded on the premise that the contract
was in truth no more than a variant of the transaction with Resinex
which the plaintiff had sought to achieve since 1996. It was
also
contended that the probabilities favoured the inference that Da Silva
and De Keyser had connived as early as May 1998 to procure
the
opportunity for Da Silva rather than for the plaintiff. The
defendants, on the other hand, argued that the contract between
Da
Silva and Resinex was fundamentally different from, and was the very
antithesis of, the transaction which the plaintiff had
pursued and
was accordingly not a corporate opportunity, ie a business
opportunity which Da Silva was obliged to obtain and exploit
for the
plaintiff. It was further argued that there was no basis for the
inference sought to be drawn by the plaintiff with regard
to the
events of May 1998.
[23] Before considering these issues it is necessary to
examine in somewhat more detail the events preceding the conclusion
of the
contract between Da Silva and Resinex NV. As previously
indicated, the talks between the plaintiff and Resinex were
instigated
by Dow in 1996 after the latter became aware that Resinex,
one of its major distributors, was contemplating coming to South
Africa.
Following the exchange of correspondence and several
meetings, Columbine wrote in July 1996 to Mr Theo Roussis, the chief
executive
officer of Ravago, recording by way of a summary what had
been discussed thus far.
‘
Resinex is interested in acquiring 50% of the
[Plaintiff’s] Chemicals/Performance Products . . . and
Plastics businesses
as a first step with a second step resulting in
total control. The second step would be accomplished over an agreed
time period
on a basis similar to that being used with Primoplast in
Switzerland. A suitable PE ratio should be agreed.’
The offer subsequently made by Resinex by letter dated
10 February 1997 embodied what had been discussed. In short, it was
that
Resinex would immediately purchase a 50 percent interest in the
two departments in question, ie the Chemical Performance Product
department and the Plastics department, and would acquire the other
50 percent over a period of five years. The proposal was that
Da
Silva would be the general manager of the new company to be
established to operate the two departments. The purchase price
offered was DM 3 million. The effect would be that Resinex and the
plaintiff would be partners in the business for the interim period
until Resinex took it over altogether. Columbine referred the offer
to Hellmann and noted in his accompanying memorandum that he
was
disinclined to accept it ‘even if Resinex sets up an operation
here and competes in this market’. The risk of such
an
eventuality was accordingly known to Hellmann at that early stage.
After some delay the proposal was rejected by the plaintiff
in a
letter dated 17 April 1997. It was written by Da Silva but its
substance was determined by Hellmann. The letter did not say
that the
price was too low or raise some other objection. It rejected the very
concept of the proposal. The second paragraph reads:
‘
After careful consideration, we must advise that
your offer to purchase our C & PP and Plastics businesses is
unfortunately
not of interest to us. The offer is thus not accepted.’
In the penultimate paragraph it was suggested that the
plaintiff could start marketing some of Resinex’s brands and
‘some
form of representations agreement’ could be
reached. In the event nothing ever came of this for the reason that
the involvement
of more than one distributor resulted in a
non-competitive price. According to De Keyser, who testified on
behalf of the defendants,
he was persuaded by the letter that a joint
venture or other form of business alliance with the plaintiff was no
longer a viable
prospect. He testified, too, that shortly before the
offer was made a final decision was taken by Resinex to extend its
operations
to South Africa. What was not finalized was whether it
would do so by collaborating in some way with the plaintiff or by
establishing
its own business in competition with the plaintiff.
[24] It appears that in June 1997 Da Silva had a meeting
with De Keyser in Brussels at which some form of joint venture was
discussed.
On 11 September 1997 Da Silva wrote to De Keyser reporting
that their June discussions ‘are still very much on track’
and that he had discussed with Hellmann the idea that Resinex take a
stake in the plaintiff of 50 percent or more and that the
former was
‘quite positive and open to suggestions’. In the same
letter Da Silva mentioned that Dow was attempting
to acquire
Sentrachem and that ‘this could be of interest when Dow starts
selling off what it does not want’. Significantly,
the purchase
of a 50 percent interest or more in the plaintiff was not dissimilar
to the offer Resinex had made in February 1997,
yet that offer had
been rejected without a counter offer.
[25] In the meantime in August 1997, Hellmann had met
with Mr Jean-Louis Raynaud, the president for Europe of DDE, and the
latter
had insisted that Hellmann approach Roussis of Ravago with a
view to establishing a joint venture with the Ravago group in South
Africa. In October 1997 Hellmann wrote to Roussis to say that he and
Da Silva would be in Europe in December and that he would
like to use
the opportunity to meet Roussis. In February 1998 Hellmann wrote to
Raynaud to report that he had met Roussis and
De Keyser in December
1997 and that he had found Roussis to be ‘a fine upstanding
person as is Benoit de Keyser’.
[26] On 23 December 1997, being the day after the
meeting, Da Silva wrote an enthusiastic letter to Roussis and De
Keyser which
commenced: ‘We agreed to immediately start with
establishing a joint venture partnership with yourselves’. It
was clear,
however, that what was agreed was no more than that they
should attempt to agree. The letter proceeded to propose that each
party
should pool components of their respective businesses which
they would run in partnership with each other. This was a shift from
what had previously been proposed. Nonetheless, despite Da Silva’s
enthusiasm, the letter elicited no response and nothing
came of it. A
further meeting was held in February 1998 and on 26 February 1998 Da
Silva wrote: ‘As discussed, we will start
by purchasing on open
account at 60 days end of month’. This in effect was a reversal
to what had been proposed in Da Silva’s
letter of 17 April 1997
refusing Resinex’s offer. Da Silva explained that Hellmann had
told him rather to focus on getting
some trade going with Resinex.
This would account for the absence of any reference to the proposal
made in his letter of 23 December
1997.
[27] There was a further meeting between Da Silva and De
Keyser in May 1998. Da Silva testified that he had been invited by
Dow
to attend a World Cup football match and that he had used the
opportunity to see De Keyser. He said that although a business
meeting
may have been scheduled his recollection was that they had
only met socially for dinner. De Keyser said he had no recollection
of the meeting. Da Silva was cross-examined at some length as to what
passed between the two. He said he did recall De Keyser telling
him
that Resinex was definitely coming to South Africa, whether with or
without the plaintiff. But other than that he could not
remember what
was said about a joint venture which, he said, was by then on the
‘back burner’.
[28] In this court counsel for the plaintiff argued that
the circumstances justified the inference that De Keyser had told Da
Silva
at this meeting that Resinex was establishing a local office in
South Africa in competition with the plaintiff and had invited Da
Silva to join Resinex. Building on this inference it was contended,
admittedly somewhat tentatively, that it could also be inferred
that
De Keyser and Da Silva from then on conspired to procure the Resinex
opportunity for Da Silva. In support of the inferences
sought to be
drawn, counsel relied first on the fact that from then on no further
negotiations took place, second on a somewhat
ambiguous statement by
De Keyser in his evidence as to when the decision was taken to
abandon some form of collaboration with the
plaintiff, and third on
the fact Da Silva failed to inform Hellmann of Resinex’s
decision to establish an office in South
Africa in competition with
the plaintiff. In my view the inferences contended for are
speculative, unjustified and lack any proper
factual basis. De Keyser
was adamant that he informed Da Silva of Resinex’s decision for
the first time in December 1998
when he made Da Silva the job offer.
This was also the evidence of Da Silva. The evidence of neither was
challenged in cross-examination
and nor was the inference sought to
be drawn by counsel put to either of the witnesses. The fact that the
negotiations came to
a standstill in the first half of 1998 is hardly
surprising having regard to the letter of 26 February 1998 which in
effect put
the clock back to April 1997.
[29] In view of the criticism by the trial court of Da
Silva’s evidence it is necessary at this juncture to comment
briefly
on the evidence of De Keyser which largely corroborated that
of Da Silva in relation to the Resinex opportunity. Apart from the
ambiguous statement to which I have referred – mainly as a
result of incorrect dates being put to him by counsel –
De
Keyser’s evidence, although in English and not his home
language of French, was clear and unequivocal and he emerged
unscathed from cross-examination. The only comment the court a quo
made regarding his credibility was to label as ‘false’
his evidence that the ‘Heads of Agreement’ contract
constituted an employment contract. This was a misdirection. First,
it was not a statement of fact but an opinion by a layman as to the
categorization of a contract and, second, as I shall demonstrate
later, the contract, if not in substance a contract of employment,
was at least analogous to one. No reason was advanced in this
court
for rejecting De Keyser’s evidence.
[30] To continue the narrative, in September 1998 Da
Silva wrote to Roussis enclosing two press reports that Dow had
bought out
the other shareholder in Sentrachem’s subsidiary,
Plastomark. Da Silva explained that the purpose of the letter was no
more
than an attempt to resurrect the talks. This is how De Keyser
understood the letter when it was redirected to him. Some attempt
was
made by plaintiff's counsel to suggest that Da Silva wrote the letter
in pursuance of a conspiracy between De Keyser and Da
Silva to obtain
for Resinex any business of Plastomark that Dow may not wish to
retain, but once again there was no factual basis
for such a
far-reaching inference.
[31] In December 1998 Da Silva and Hellmann travelled to
Flimms, Switzerland, to attend a distributors' conference organised
by
Dow. While there, De Keyser invited Da Silva to his hotel room and
told him that nothing had come of their talks over a period of
more
than two years and that Resinex had decided to come to South Africa
in competition with the plaintiff. De Keyser offered Da
Silva a
position as head of Resinex’s operations in South Africa and
they proceeded to discuss the kind of remuneration package
Da Silva
could expect to receive, which De Keyser said would include a
shareholding in the local company that would be formed.
De Keyser’s
attitude was that Da Silva could virtually have whatever he wanted.
However, even at that late stage, according
to De Keyser, Da Silva
attempted yet again to explore the possibility of some form of
collaboration with the plaintiff. But by
then, as far as Resinex was
concerned, it was too late; a final decision had been taken to set up
an operation in South Africa.
[32] As previously indicated, Da Silva stalled for time
and after being pressed by De Keyser agreed in principle in May 1999
to
the terms offered. He asked De Keyser to come to South Africa to
discuss the details of the proposal and the latter did so from
8 to
10 June 1999. Da Silva drafted a contract headed ‘Heads of
Agreement’ which, as I have said, was subsequently
signed by
the parties on 16 July 1999. Da Silva testified that he had told
Hellmann of the job offer in February 1999. This was
denied by
Hellmann. But the dispute is of little consequence. It is common
cause that on 11 June 1999 Da Silva tendered his resignation
to
Hellmann and told him that he had accepted Resinex’s offer to
head-up the latter’s operation in South Africa. Da
Silva’s
resignation and decision to join Resinex was accepted by Hellmann
without animosity and when Da Silva finally left
at the end of August
a party was held in his honour and he was given a handsome present.
After Da Silva’s departure a copy
of the Heads of Agreement
came into the possession of Hellmann in circumstances which need not
be considered. It was on the strength
of this document that the
plaintiff contended that Da Silva had usurped for himself a business
opportunity which as a director
of the plaintiff he had been
duty-bound to obtain and exploit for the company.
[33] It is necessary to quote the contract in full:
‘
HEADS OF AGREEMENT
Made and entered into by and between:
Jose Duarte Coelho da Silva
(hereinafter referred to as JDS)
and
Resinex NV, represented by Theo Roussis and Benoi
t
De Keyser
(hereinafter referred to as RNV)
Whereas JDS and RNV desire to enter an agreement to
start an operation in South Africa with the objective of carrying on
a business
in the distribution of plastic raw materials and other
products represented by the Resinex / Ravago Group.
NOW THEREFORE IT IS AGREED AS FOLLOWS:
1. The Holding Company will be formed called Resinex
Holdings (Pty) Limited, with the share capital being 75% RNV and 25%
JDS.
2. A subsidiary company will be formed called Resinex
Plastics (Pty) Limited with the share capital being 90% owned by
Resinex Holdings
(Pty) Limited and 10% by Leon van der Merwe.
3. All products sold by the Resinex Group companies
including Distribution products of Ravago will be sold exclusively
through Resinex
Plastics (Pty) Limited for the following territories.
- South Africa - Mozambique
- Namibia - Swaziland
- Botswana - Zimbabwe
- Zambia
4. Any sales done direct (indent) to customers for the
above territories by Resinex and Ravago companies will attract
commission
of between 3% - 5% depending on products and profit
margins obtained.
5. Any future acquisitions, with particular reference to
Mobil or Plastomark, will be done through Resinex Holdings (Pty)
Limited
and any new agencies obtained in future by either Resinex
Holdings (Pty) Limited, Resinex Plastics (Pty) Limited or any
subsidiaries
or Group Companies of Resinex/Ravago where markets exist
in the listed territories will form part of the Resinex Holdings
Group
and such sales recorded into the appropriate Group Companies.
6. Sales of share capital in future by any of the
shareholders of the Resinex Group in South Africa will form part of
the Global
policy, namely, the average profits of the last two
trading years and the year in operation multiplied by a price
earnings ratio
of 4 plus the share of the selling Shareholders
Capital Employed.
7. All companies will have 5% of profits before tax
available for distribution to key staff decided by the Managing
Director of
Resinex Holdings (Pty) Limited.
8. In the initial start of Resinex Plastics (Pty)
Limited, JDS will, for the first 2 years, not receive a profit share
of less
than R120 000 00 p a.
9. Any dividends distributed will be in accordance with
Group policy, namely, that the companies must return 20% returns
before
tax on shareholders capital (including retained earnings). Any
excess return is available as dividend provided the capitalisation
ratio of the companies remain between 25% - 33 1/3% shareholders
capital to 75% - 66 2/3% external finance.
10. Share capital into the Resinex companies are
interest free and initial start-up capital will be determined later
for operations
of Resinex Plastics (Pty) Limited. Share capital will
in principle represent the value of stock holding.
11. JDS will be the Managing Director of Resinex
Holdings (Pty) Limited and Resinex Plastics (Pty) Limited. His
remuneration package
will be:
Cash salary R416 000.00 per annum
Car allowance
R 84 000.00 per
annum
Total
R500 000.00
Leon van der Merwe will be the Business Manager for
Thermoplastics and Olefins. His remuneration package will be:
Cash salary R338 000.00 per annum
Car allowance
R 66 000.00 per
annum
Total
R404 000.00
12. Medical aid will be provided by Momentum Discovery,
the cost to be borne 50% by employees – 50% by the company in
line
with SA standards and in existence with CHC today.
13. A pension scheme will be set up wherein the employee
contributes 6% of earnings and the company 9.12% in line with the CHC
scheme
in existence.
14. All Fringe Benefits, including golf subscriptions,
etc that exist today in their personal employment will apply to JDS
and Leon
van der Merwe.’
[34] In the course of his judgment Seriti J observed
that:
‘
The language used in the agreement under
consideration is simple and understandable. When interpreting it,
[the] court must assign
ordinary grammatical meaning to the words
used, unless absurdity or inconsistency with the rest of the
[document] might arise from
such an approach.’
After referring to the identity of the parties to the
agreement, ie Da Silva and
Resinex NV, and the wording of the preamble which he
said had ‘nothing to do with an employment contract’, the
learned
judge continued:
‘
Certain clauses, particularly clauses 1 and 2,
which deal with the structure of the business operations to be
established in South
Africa, and the allocation of shares to the
[signatory] of the agreement and Mr Leon van der Merwe, and clause 5
which,
inter alia
makes provision for the acquisition of future opportunities, which
future opportunities include Plastomark and Mobil, underpin
the
conclusion that the “Heads of Agreement” under
consideration is not an employment contract, but a contract of a
joint business venture. It regulates the relationship between Da
Silva and Resinex NV/Ravago NV and not [the] employment of [Da
Silva]
by second or third defendant, nor Resinex NV/Ravago NV.’
The judge referred to a submission made by Da Silva‘s
counsel and proceeded:
‘
The main feature of the ‘Heads of
Agreement’ entered into between Resinex NV and the first
defendant is that a business
relationship between [Da Silva] and
Resinex was established. The fact that first defendant was also made
the managing director
of the second and third defendant does not
diminish the fact that a business relationship was established.’
In the result he concluded that:
‘
[Da Silva] breached his fiduciary duties by
negotiating for himself, a business opportunity he should have
negotiated on behalf
of the plaintiff.’
In this court the reasoning of the trial court was
largely adopted by the plaintiff’s counsel who placed
particular emphasis
on the heading, the identity of the parties and
the wording of the preamble.
[35] It is necessary for the purposes of the present
inquiry to view the agreement between Da Silva and Resinex NV against
the background
of the events leading up to its conclusion. It is for
this reason that I have set out in some detail the sequence of those
events
and the course of the negotiations between the plaintiff and
Resinex. What is readily apparent is that at a relatively early stage
Resinex took the decision to extend its operations to South Africa.
It had a choice of either entering the market in competition
with
plaintiff or doing so in collaboration with the plaintiff, whether in
the form of a joint venture, a take-over of its chemical
and plastics
departments or some other form of business alliance. It was either
the one or the other and the plaintiff was fully
aware of this. The
very object of the negotiations and the establishment of some form of
business alliance with Resinex was to
avoid the consequence of the
latter adopting the other course of entering the market in
competition with the plaintiff. That other
course was the very
antithesis of what the plaintiff sought to achieve by negotiating
with Resinex. The only business opportunity
which the plaintiff
pursued and sought to exploit was therefore a joint venture or other
business alliance with Resinex. But that
opportunity did not
materialize. The negotiations came to nought and Resinex set up
business in competition with the plaintiff.
Once Resinex took the
decision to do so, it put paid to any joint venture or business
alliance of the kind the plaintiff had pursued.
Da Silva was not
precluded by reason of a restraint of trade agreement from joining
the opposition, and that is what he did.
[36] Much emphasis was sought to be placed on the format
and wording of the agreement, particularly the preamble. But in an
enquiry
of this nature it is the substance of the agreement that must
be looked at, not the form in which it is cast (
Bellairs
v Hodnett
1978 (1) SA 1109
(A) at 1130E-F).
In this regard, it must also not be overlooked that Da Silva who
drafted the agreement had no legal training or
expertise in the
drafting of contracts. As he explained, the draft was based on a
precedent he had managed to obtain. In substance
the agreement was
for the employment of Da Silva as the managing director of two local
subsidiaries of Resinex. (These subsequently
became the second and
third defendants.) One would be the holding company of the other. Da
Silva would have a 25 percent shareholding
in the holding company and
Mr Leon van der Merwe (a friend of Da Silva who was then employed by
Dow and who was to be the business
manager for certain products)
would have a 10 percent shareholding in the other company, which was
presumably intended to be the
trading company. The remaining 75
percent of the shares in the holding company would be held by Resinex
NV. The agreement contained
detailed provisions as to Da Silva’s
remuneration package which included medical aid, a pension scheme and
fringe benefits.
It also made provision for a five percent
participation in the profit of the companies by the key staff ‘as
decided by the
managing director of [the holding company]’, ie
Da Silva. It is important to observe at this stage that the structure
of
Da Silva’s employment package with the plaintiff was no
different. He earned a salary and received similar medical aid,
pension
fund and fringe benefits. He was entitled to a 15 percent
shareholding in the plaintiff. According to the evidence he had
received
an initial four percent free and a further four percent
which had been paid for out of dividends, but he had elected not to
take
up the remaining seven percent to which he would have been
entitled. He was also entitled to a two percent share in the profits
of the plaintiff. This compared with the five percent of the profits
of the second and third defendants but which in his discretion
he
would have to share with other key staff members. As far as Da
Silva’s shareholding in the holding company was concerned,
De
Keyser testified that it was Resinex’s policy to make provision
for the managing directors of their foreign subsidiaries
to have a
substantial shareholding in the subsidiary concerned. He said Da
Silva would have to pay for his shares but the payment
would come
from his share of the profits. In the event, Da Silva took up only a
20 percent shareholding.
[37] The agreement also contains various provisions
relating to the nature of the business of the trading company. Clause
3, for
example, provides that all Resinex group products sold in a
number of listed countries, including South Africa, would be sold
through
the trading company. Da Silva explained that as far as
Resinex as an employer was concerned, it was an unknown quantity. He
did
not want to find himself in a position where Resinex was
by-passing him and selling its products through some other company.
Similarly,
clause 5 made provision for any future acquisitions to be
directed through the trading company. In this regard counsel for the
plaintiff sought to make something of the reference to Mobil and
Plastomark. But the possibility of the Plastomark business becoming
available was common knowledge in the industry. Again, once the
Resinex operation in South Africa commenced it would have been
free
to compete with the plaintiff for the Mobil business. In the event,
Mobil remained with the plaintiff. The object of these
provisions was
therefore to define the parameters of the business of the second and
third defendants. Given that Da Silva was to
be employed as the
managing director of those companies, the provisions were analogous
to those relating to a job description in
a typical contract of
employment. It is true that the agreement does not amount to a
contract of employment between Resinex NV
and Da Silva in the formal
sense. It made provision instead for the employment of Da Silva by
Resinex’s subsidiaries to be
established for the purpose of
Resinex’s operation in South Africa. Da Silva was to contribute
nothing more than his services
as managing director. Whether one
categorizes the contract as a contract of employment or one which is
analogous to or in substance
such a contract is of no consequence.
The point is, it was not the transaction pursued by the plaintiff; it
was the very antithesis
of what was pursued and Da Silva was under no
duty to obtain and exploit it for the plaintiff. It follows that in
my view the plaintiff’s
claims under the rubric of the Resinex
opportunity had to fail and the court a quo’s finding to the
contrary was wrong.
The Plastomark opportunity
[38] The plaintiff’s contention in this regard was
that the opportunity to buy that part of the distribution business of
Dow’s
subsidiary, Plastomark (Pty) Ltd, which the former
subsequently decided to sell was a corporate opportunity which Da
Silva was
obliged to have obtained and exploited for the plaintiff’s
benefit.
[39] It is clear, however, from the evidence of Schoch
that although it was generally anticipated that Dow would dispose of
part
of the Plastomark business, the final decision to do so was
taken some while after Da Silva had left the plaintiff and commenced
his employment with the second and third defendants. Schoch’s
evidence to this effect was fully supported by the internal
memoranda
exchanged between Schoch and other employees of Dow. Schoch explained
that it was only in March 1999 that Dow finally
gained control of
Plastomark after buying out the other shareholder. Dow commenced in
May 1999 what was termed a value-based management
evaluation in order
to determine the extent of Plastomark’s business that should be
sold. The evaluation was conducted by
a team of employees who
reported directly to Mr Romeo Kreinberg who was the head of the
plastics division of Dow and who operated
from Switzerland. The
decision to sell the part of the Plastomark business so identified
was taken in October 1999. Schoch testified
that it was only at this
stage that he contacted Da Silva to enter into negotiations for the
purchase of the Plastomark business.
In the event, the negotiations
were conducted in Europe and Schoch was not involved. They culminated
in the third defendant purchasing
the Plastomark business in terms of
a written contract dated 20 December 1999.
[40] The plaintiff’s contention was, however, that
Da Silva and Schoch, and for that matter also De Keyser, were party
to
what was alleged to be a conspiracy to procure the Plastomark
business for Resinex’s South African subsidiaries. The basis
for this assertion was that, as revealed from Da Silva’s
electronic diary which he had deleted from his computer when he
left
but was subsequently retrieved, Da Silva had in 1999 arranged various
lunch and dinner dates with Schoch, one of which included
De Keyser
and Mr Gabbard of DDE and had also gone on holiday to Namibia with
Schoch in August 1999. But, as Da Silva explained,
he and Schoch were
on friendly terms. They met socially and also for business reasons.
The holiday in August 1999, he said, had
been arranged in January and
involved four families including the children of each. This was
confirmed by Schoch. At best for the
plaintiff, the deletion by Da
Silva of various folders in his computer and his contact with Schoch
may have given rise to some
suspicion. But that is a far cry from
establishing the conspiracy theory advanced by the plaintiff.
[41] There were, in any event, other sound reasons why
Dow should have chosen to sell the Plastomark business to the Resinex
group
in preference to the plaintiff. By the end of 1996 Resinex was
Dow’s largest distributor in the international market and their
relationship was one of long standing. It will be recalled that it
was Dow that had first instigated the talks between the plaintiff
and
Resinex. The reason would have been Dow’s preference to do
business in South Africa with its major distributor rather
than with
a smaller competitor and an alliance between the two would have
rendered it unnecessary for Dow to have to take the South
African
business away from the competitor. The plaintiff, and in particular
Hellmann, could hardly have been unaware of this. Indeed,
it was
inevitable that Resinex’s South African subsidiaries would
capture some if not all of the Dow business in South Africa.
The fact
that it did so does not therefore suggest that Da Silva was guilty of
any breach of his fiduciary duties to the plaintiff
while he was in
its employ.
[42] Another important factor was the ongoing mutual
animosity between Hellmann and Schoch. As early as 17 May 1996
Hellman wrote
to Schoch’s superior, Mr Vincent Sinnott, saying
that Schoch was ‘unpredictable, deceitful, and quite frankly
has erred
on the untruthful side on a number of occasions’. On
10 September 1999 Hellmann had a meeting with Sinnott. In his
aide
memoir
of their meeting Hellmann recorded
that he had told Sinnott ‘once again that Schoch is a liar, a
crook, a fraud and only
after his own agenda’. This was at the
very time that the question had arisen as to whether the plaintiff or
Resinex should
be given the Plastomark business. While the decision
was not that of Schoch alone, it is clear from the exchange of emails
between
Schoch and other senior employees of Dow that Schoch went out
of his way to persuade his colleagues not to offer the Plastomark
business to the plaintiff. In an email dated 13 September 1999 sent
to Sinnott and Dow’s legal advisor, Mr Blackhurst, he
described
Hellmann as someone who 'has "fun" taking people and
companies to court and who has "expressed the intention"
to
take Dow to court in SA’. He concluded by saying: ‘I am
not interested in working with [the plaintiff]’. Again,
in an
email dated 20 September 1999 he wrote to Sinnott: ‘It is not
the first time that we hear that Hellmann is after suing
Dow (in the
USA, so he can get more money) – whether he will or not, it is
a liability to have someone like him as a partner’.
When these
emails were written the final decision to sell off part of the
Plastomark business had not yet been taken. At the time
both Hellmann
and his son, Mr Neil Hellmann, who had taken over as managing
director of the plaintiff, were in contact with Sinnott
in an attempt
to persuade the latter that in terms of the agreement dated 1 April
1995 Dow was obliged to offer the Plastomark
business to the
plaintiff and even went so far as to threaten to sue Dow.
[43] From the aforegoing, it is apparent that while Da
Silva was with the plaintiff there was a possibility, indeed a strong
possibility,
that Dow would sell off parts of the Plastomark
business. Da Silva knew of the possibility as did everyone else,
including Hellmann
and his son who actively engaged with Dow to
obtain the business. Dow’s decision ultimately to sell the
Plastomark business
to the third defendant is explicable on grounds
wholly unrelated to any intervention on the part of Da Silva in
breach of his fiduciary
duties to the plaintiff. The plaintiff’s
conspiracy theory lacked any proper factual basis and was not
established. It follows
that in my view the plaintiff’s claims,
in relation to the ‘Plastomark opportunity’ were
similarly unsubstantiated
and the court a quo erred in upholding
them.
The Dow contract
[44] The essence of the claim under this heading is that
while still employed by the plaintiff, Da Silva persuaded Dow,
whether
directly or indirectly, to delete some of the products from
the plaintiff’s distribution contract which it was entitled to
do on six months written notice in terms of clause 3.
[45] I have previously referred to the close
relationship that existed between Dow and Resinex. According to De
Keyser he had talks
with Dow in Europe at about the time the Resinex
subsidiaries commenced business in South Africa with a view to
acquiring some
of Dow’s South African business. The possibility
of deleting some of the products distributed by the plaintiff was
raised
by Sinnott at a meeting with Hellmann on 13 September 1999. At
a meeting between Schoch and Hellmann Jnr on 5 November 1999 Schoch
informed the latter of Dow’s decision to do so. Written notice
in terms of clause 3 of the distribution contract was subsequently
given on 3 December 1999 and in due course the products so deleted
were distributed by the second defendant.
[46] From what has been said previously, it follows that
it would have been clear to all that in the event of Resinex
establishing
a presence in South Africa it was to be expected that it
would capture all or some of Dow’s business in South Africa.
Added
to this was the animosity that existed between Hellmann and
Schoch. As in the case of the Plastomark opportunity, the mere fact
that the plaintiff lost some of Dow’s business to the second
defendant does not suggest that Da Silva was guilty of any breach
of
his fiduciary duties while employed by the plaintiff. The loss of
that business accordingly adds no credence to the plaintiff’s
conspiracy theory, which as I have said, lacked a proper factual
basis. In my view the court a quo erred in upholding the claims
under
this heading.
The DDE contract
[47] It will be recalled that on 7 September 1999
Hellmann was informed that DDE proposed to give the plaintiff three
months’
notice of the cancellation of their distribution
contract of April 1996 in terms of which the plaintiff distributed a
product called
tyrin. The notice was formally given on 13 September
1999. On the same day notice was given to DDE’s other South
African
distributor, Chemserve. On 25 October 1999 DDE and a
subsidiary of Resinex NV, Distriflex, signed an agreement extending
their
distribution contract of 1 January 1998 so as to include South
Africa. After the expiry of the notice period tyrin was distributed
in South Africa by the second defendant in pursuance of the latter
contract. The plaintiff’s contention in essence was that
while
employed by the plaintiff and in breach of his fiduciary duties, Da
Silva actively promoted the cancellation of the plaintiff’s
distribution contract with DDE or at least failed to alert the
plaintiff to the risk that it might be cancelled. The claim under
this heading was limited to one for damages.
[48] When DDE was established in 1996 there were about
60 international distributors distributing Dow and Du Pont products
which
in terms of the joint venture agreement were to be dealt with
by DDE. DDE immediately embarked upon a policy of rationalisation
aimed at reducing the number of its distributors to five. That DDE
was reducing the number of its distributors was known to all
the
distributors and was known to Hellmann. Distriflex was one of the
chosen five and in terms of its contract dated 1 January
1998 it
distributed DDE’s products in a number of countries including
several in Africa. Initially DDE’s policy posed
no threat to
the plaintiff’s distribution of tyrin because DDE’s
African distributors, Resinex (acting through its
subsidiary
Distriflex), did not do business in South Africa. When DDE became
aware that Resinex was contemplating moving into South
Africa, DDE,
it will be recalled, insisted that Hellmann approach Roussis of
Ravago with a view to establishing some form of a
joint venture with
the Ravago group in South Africa. In view of DDE’s policy, the
likelihood of DDE switching its South African
business to Resinex in
the event of the latter's coming to South Africa would therefore have
been obvious to all concerned, including
Hellmann.
[49] Towards the end of 1998 De Keyser informed DDE of
Resinex’s decision to move into South Africa on its own and not
in
collaboration with the plaintiff. Mr Pierre Burelli, the
commercial director of DDE for Europe, the Middle East and Africa,
who
gave evidence on behalf of the defendants at the trial, testified
that in about the middle of 1999 DDE decided to switch its business
in South Africa to Resinex once the latter commenced its operations
there. He explained that the decision was taken at the highest
level
by a leadership team headed by no lesser a person than Mr Don Faught
who by then had replaced Raynaud as the president of
DDE for Europe.
He said Da Silva played no role in the decision and it was
inconceivable that he could have done so as the decision
was taken
regardless of the persons involved in the distribution companies
concerned. He explained that underlying the decision
was DDE’s
experience that distributors operating on a large scale and in a
number of countries were able to achieve a greater
efficiency and a
lower service cost per unit. The decision affected not only the
plaintiff but also Chemserve. He confirmed that
once the decision had
been taken he informed De Keyser.
[50] Burelli’s evidence that Da Silva played no
role in DDE’s decision to give its South African business to
the Resinex
subsidiaries was not challenged in cross-examination, nor
was there any evidence to gainsay it. Nonetheless, the court a quo
appears
simply to have ignored it. There can be no reason for
rejecting Burelli’s evidence and it follows that the plaintiff
failed
to establish its contention that in breach of his fiduciary
duty Da Silva had promoted or procured the cancellation of the DDE
contract.
[51] Da Silva testified that he repeatedly warned
Hellmann of the risk of losing DDE’s business in South Africa.
Hellmann
denied this. But whether he was actually warned or not seems
to me to be of little consequence. Hellmann knew that Resinex was a
major distributor of DDE products in a number of countries. He knew
that DDE was drastically reducing the number of its distributors.
He
knew that if Resinex came to South Africa it would compete with the
plaintiff and he knew that Raynaud of DDE had insisted that
he open
talks with the Ravago group with a view to establishing some form of
a joint venture in South Africa. The reason for Raynaud’s
insistence could hardly have escaped Hellmann and in all the
circumstances he must have been fully aware of the very real danger
of losing the DDE business in the event of Resinex coming to South
Africa and competing with the plaintiff. I should add that it
strikes
me as highly unlikely that Da Silva and Hellmann would never have
discussed the danger of losing the DDE business.
[52] Finally, some reliance was placed on Da Silva’s
failure to inform Hellman that DDE had decided to switch its business
to Resinex when this information was conveyed to him in June 1999.
But by then it was too late, the decision had been taken. The
plaintiff’s claim under this head is one for damages. Whether
Hellmann had been told or not would have made no difference
to the
loss it suffered by reason of the cancellation of the DDE contract.
In any event, after being told of DDE’s decision
on 7 September
1999 Hellmann Jnr made a considerable effort to persuade DDE to
change its mind but without success. DDE was not
prepared to depart
from the decision it had taken.
[53] It follows that in my view the court a quo
similarly erred in finding for the plaintiff on the issue of the DDE
contract.
The LLDPE transaction
[54] In
Atlas Organic Fertilizers
(Pty) Ltd v Pikkewyn Ghwano (Pty) Ltd
1981
(2) 173 (T) at 198H-199A Van Dijkhorst J observed:
‘
[C]ommon sense dictates that the mere creation by
a managing director, whose services have been terminated and who is
serving his
month’s notice, of a future alternative means of
employment, albeit in competition with his present company, need not
necessarily
create a conflict of interest greater than that of an
ordinary director serving on the boards of two competing companies.’
The learned judge gave two examples of conduct which in
the circumstances described would not amount to a breach of a
director’s
fiduciary duty. One was the mere incorporation of a
company which was in the future to compete with the director’s
existing
employer; the other was the obtaining of suitable premises
for that company’s operation. Such conduct, said the judge,
could
similarly not be regarded as amounting to unfair competition.
He explained at 199C:
‘
The planning of [the director’s] future and
the preparatory steps taken to enable him to obtain alternative
employment and
earn a living even if taken during his month of notice
cannot be regarded as against public policy and therefore unlawful.
It can
therefore not be branded as unfair competition.’
These statements of the law have not to my knowledge
been departed from and I readily endorse them.
[55] It is common cause that in the present case Da
Silva acquired two shelf companies, changed their names, and was
appointed a
director of both while still employed by the plaintiff
and serving out his notice period. He also hired premises so that the
companies
could commence business on 1 September 1999. Adopting Van
Dijkhorst J’s ‘common sense’ approach, this conduct
cannot be said to amount to a breach of Da Silva’s fiduciary
duty or to unfair competition on the part of the second defendant
on
whose behalf the steps were taken. But Da Silva went further. It will
be recalled that while still with the plaintiff, but acting
for and
on behalf of the second defendant, he purchased three containers of
LLDPE, which is a plastic product and which he arranged
to be on-sold
by the second defendant. He sought to justify his conduct on the
basis that it did not amount to competition with
the plaintiff
because the latter did nor normally deal in ‘off specification’
products, which the LLDPE was, and that
the purchasers were not
existing clients of the plaintiff. But Hellmann’s evidence was
to the effect that any transaction
involving the purchase and sale of
plastic products, whether off specification or not, fell within the
scope of the plaintiff’s
business and that any purchaser of
plastic products in South Africa was a potential customer of the
plaintiff. Given the nature
of the plaintiff’s business, I
think Hellmann must be correct. While it may be difficult in certain
circumstances to decide
just where to draw the line when adopting a
‘common sense’ approach, I am satisfied that the
transaction in the instant
case was one which Da Silva while still
the managing director of the plaintiff was obliged to pursue for the
benefit of the plaintiff
and not for the benefit of the second
defendant. In my view, therefore, his conduct amounted to a breach of
his fiduciary duty
owed to the plaintiff and to unfair competition on
the part of the second defendant on whose behalf the transaction was
concluded.
[56] Da Silva testified, however, that the second
defendant in fact made no profit but a loss on the LLDPE transaction.
It was contended
on his behalf that the plaintiff could accordingly
have no claim for damages. The true inquiry, however, is not whether
the second
defendant made a loss but whether Da Silva’s
wrongful conduct caused the plaintiff to suffer a loss. Hellmann
testified that
the plaintiff could have made a profit from the
purchase and sale of the LLDPE and therefore it suffered damage to
the extent of
the profit it would have made. There was nothing to
gainsay this evidence. In my view, therefore, liability for damages
arising
from Da Silva’s breach of his fiduciary duty in
relation to the LLDPE transaction was duly established, as was the
second
defendant’s liability for unlawful competition. The
quantum of the plaintiff’s damages was an issue that was
ordered
to stand over for later adjudication. The extent of the
plaintiff’s loss (if any) is therefore an issue which must be
decided
later.
[57] It follows that the appeal must succeed save in so
far as it relates to the claims of the plaintiff against the first
and second
defendants arising from the LLDPE transaction. These
claims are relatively minor in relation to the others and the
defendants have
achieved substantial success on appeal. The
defendants are accordingly entitled to their costs of appeal. The
first defendant was
represented separately from the second and third
defendants and each is entitled to its costs of appeal, including in
the case
of the second and third defendants the costs of two counsel.
The outcome on the issue of costs in respect of the LLDPE claims will
depend on the quantum, if any, of those claims once this has been
determined. In the circumstances, the order of the court a quo
which
I propose to substitute will provide for those costs to stand over
for decision by the court that determines the issue of
quantum.
[58] The following order is made:
(1) The appeal succeeds to the extent set out hereunder.
(2) The respondent is to pay the costs of the appellants
including, in the case of the second and third appellants, the costs
of
two counsel.
(3) The order of the court a quo is set aside and the
following is substituted in its stead:
(a) The plaintiff’s claims, save for those
relating to the LLDPE transaction, are dismissed with costs including
the costs
of two counsel where two counsel were employed.
(b) The first and second defendants are declared to be
liable to the plaintiff for such damages as may be proved to have
been suffered
by the plaintiff arising out of the LLDPE transaction.
In the event of either the first defendant or the second defendant
paying
any portion of such damages once determined, the other shall
be liable for the balance only.
(c) The issue of the costs in respect of the claims
arising out of the LLDPE transaction is to stand over for
determination by the
court when the issue of quantum is determined.
D G SCOTT
JUDGE OF APPEAL
Appearances
:
For Appellant
: 1
st
: M C Maritz SC
2
nd
and 3
rd
: W H
Trengove SC
J F Roos SC
Instructed by
: 1
st
: Phillip Silver Sweidan Inc Pretoria
c/o Shapiro & Shapiro Inc Pretoria
2
nd
and 3
rd
: Webber
Wentzel Bowens Pretoria
Symington & De Kok Bloemfontein
For Respondent
: B W Burman
SC
B Leech
Instructed by
: Deneys Reitz
c/o Savage Jooste & Adams Inc Pretoria
Webbers Attorneys Bloemfontein