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[2015] ZAFSHC 40
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Netcare Hospital Group (Pty) Ltd v Afri Nnai Health (Pty) Ltd and Others (2530/2014) [2015] ZAFSHC 40 (26 February 2015)
IN THE HIGH COURT OF
SOUTH AFRICA
FREE STATE DIVISION:
BLOEMFONTEIN
Case No.: 2530/2014
DATE: 26 FEBRUARY 2015
In the matter between:-
NETCARE HOSPITAL GROUP (PTY)
LTD
........................................................................
Appellant
And
AFRI ‘NNAI HEALTH PTY LTD &
FIVE
OTHERS
......................................................
Respondents
CORAM: DAFFUE, J
JUDGMENT BY: DAFFUE, J
HEARD ON: 27 NOVEMBER 2014
DELIVERED ON: 26 FEBRUARY 2015
INTRODUCTION
[1] This is a rather unique and novel
application in terms whereof applicant seeks relief from this court
relating to the internal
affairs of another company. The leave, if
granted, will also have an effect on the directorships in a Lesotho
company. At the
heart of the dispute is the continued existence of
the Queen ‘Mamohato Memorial Hospital (“the hospital”)
in
Maseru, Kingdom of Lesotho and the rights of the people of Lesotho
to receive much needed medical care in a first-class facility.
II THE PARTIES
[2] Applicant is Netcare Hospital Group
Pty Ltd (“Netcare”). Afri ‘Nnai Health Pty Ltd
(“Afri ‘Nnai”)
is the first respondent and a
private individual and psychologist of profession, Lehlohonolo
Mosotho (“Mosotho”), a
shareholder and director of Afri
‘Nnai is cited as second respondent. Third respondent is
Tsepong (Pty) Ltd, (“Tsepong”)
and the fourth to sixth
respondents are respectively Excel Health Services (Pty) Ltd, D10
Investments (Pty) Ltd and Women Investment
Company (Pty) Ltd.
[3] The application is opposed by first
and second respondents only. Adv IP Green SC appeared with Adv YF
Saloojee for Netcare
and Adv MDJ Steenkamp represented first and
second respondents.
III RELIEF SOUGHT
[4] Netcare seeks a temporary interdict
pending the finalisation of arbitration proceedings between it and
Afri ‘Nnai in Lesotho.
It seeks the following relief:
4.1. that second respondent (Mosotho)
be removed as a director from the board of directors of third
respondent (Tsepong),
4.2. that first respondent (Afri ‘Nnai)
be interdicted and restrained from nominating or appointing the
second respondent
as its representative on the board of directors of
third respondent, and
4.3. that second respondent be
interdicted and restrained from accepting a nomination or an
appointment by the first respondent
to the board of directors of
third respondent.
4.4. Costs of suit are also sought from
first and second respondents jointly and severally, they being the
only respondents who
oppose the application.
IV THE ISSUES
[5] The nub of the dispute is whether
applicant is entitled to relief that can be regarded as nothing else
but interference by this
court with the internal affairs of Afri
‘Nnai and Tsepong, first and third respondents respectively,
especially insofar as
the relief relates to the directorships of
third respondent, a foreign company.
V SUMMARY OF THE SALIENT COMMON
CAUSE FACTS
[6] The following facts are common
cause:
6.1. The hospital is the pre-eminent
provider of much needed medical care to the people of the Kingdom of
Lesotho. There is no
other comparable hospital in Lesotho.
6.2. The hospital is owned through
Tsepong and is part of a private/public partnership.
6.3. Netcare, Afri ‘Nnai and
fourth to sixth respondents are shareholders in Tsepong and a
shareholders’ agreement regulates
the rights and obligations of
these parties. Tsepong and fourth to sixth respondents are companies
incorporated under the laws
of the Kingdom of Lesotho.
6.4. Netcare and Afri ‘Nnai are
South African companies and Mosotho is resident in Bloemfontein,
South Africa.
6.5. Mosotho is a director of Tsepong,
he having been nominated by Afri ‘Nnai in accordance with the
provisions of the aforesaid
shareholders’ agreement. Mr S
Lejakane, who is also a member of Tsepong’s audit committee,
has been appointed Afri
‘Nnai’s alternate director in
Tsepong.
6.6. There is animosity amongst the
various role players and the objective facts indicate that Netcare’s
representatives and
Mosotho do not sit around the same fire. They do
not see eye to eye.
6.7. Netcare, believing that Mosotho in
his capacity as director of Afri ‘Nnai acted in a manner that
constituted a breach
of the shareholders’ agreement, exercised
its right to acquire Afri ‘Nnai’s shares in Tsepong in
accordance with
the shareholders’ agreement and at a price
determined through a mechanism set out therein.
6.8. In June 2013 Afri ‘Nnai
brought an application in the Lesotho High Court to interdict the
disposal and/or acquisition
of shares in Tsepong. The shareholders’
agreement contains an arbitration clause and consequently, the High
Court, after
several postponements eventually on 20 May 2014 referred
the matter to arbitration. Arbitration proceedings are now pending
in
Lesotho to resolve the dispute.
6.9. If Tsepong is allowed to fail, the
hospital will close down and it will have dire consequences for the
Lesotho people. Tsepong
admits about 50 percent of all in-patients
in Lesotho and provides a number of specialised health care services
that were not available
in Lesotho before.
6.10. Mosotho accused Netcare in the
past and in doing so attributed racial qualities to the parties -
Netcare being referred to
as a “big white South African
company” and the other shareholders in Tsepong as “poor
blacks”. Later on
Netcare was accused of corrupt activities
and at this point in time Mosotho refuse to approve Tsepong’s
annual financial
statements although these have been recommended for
approval by its audit committee, including Mr Lejakane of Afri ‘Nnai
who is a member of that committee. Mosotho also convinced fourth and
fifth respondents’ nominees on the Tsepong board not
to approve
the aforesaid financial statements. A deadlock has therefore arisen
in this regard.
6.11. The non-approval of the financial
statements has several consequences which may negatively influence
and seriously hamper
the running and existence of the hospital. No
annual general meeting of shareholders of Tsepong can be held. In
terms of an agreement
between the World Bank and Tsepong a grant of
over 6 million US Dollar was given to Tsepong on certain terms and
conditions, one
thereof that audited financial statements be
furnished from time to time. The financial statements for the year
ending 30 September
2012 should have been furnished by March 2013 and
these are still outstanding. The non-approval of the audited
financial statements
is also in breach of the Public/Private
Partnership Agreement with the Government of Lesotho, as well as the
Common Terms Agreement
entered into between the Development Bank of
Southern Africa and Tsepong and the other parties.
VI JURISDICTIONAL POINT
[7] Mr Steenkamp submitted on behalf of
1st and 2nd Respondents that this court does not have jurisdiction to
grant relief, based
on two foundations, i.e.:
1. Tsepong is registered under the laws
of Lesotho, and
2. the shareholders’ agreement
refers to the laws of Lesotho and all Tsepong’s affairs are
conducted in Lesotho.
[8] Mr Green submitted on behalf of
Netcare that the relief sought would not operate against Tsepong
directly and although the consequences
will be felt in Lesotho, this
court has jurisdiction over both Afri ‘Nnai, a South African
company with registered address
in Bloemfontein and Mosotho, a
resident of Bloemfontein, Free State Province. It is probably not
coincidental that Mosotho’s
residential address is also the
registered address of Afri ‘Nnai. Any relief granted will be
effective in respect of both
these respondents.
[9] My prima facie view was that this
court had jurisdiction to entertain the application. I reconsidered
the matter and am of
the view that this court has no jurisdiction in
respect of the real, main and primary issue, to wit whether or not
Mosotho shall
be removed from Tsepong’s board of directors.
The other relief claimed are in essence side issues in order to
convince this
court that it has jurisdiction. Section 21(1) of the
Superior Court’s Act, 10 of 2013 reads:
“A division has jurisdiction over
all persons residing in, or being in, and in relation to all causes
arising…. triable
within, its area of jurisdiction ....”
My initial reaction was to dismiss the
point in limine. The court has jurisdiction over the entity, Afri
‘Nnai and the person,
Mosotho, but this appears to be beside
the point as I’ll indicate infra. However, and even if the
point in limine was to
be dismissed, it is an entirely different
matter whether relief should be granted based on the requirements of
temporary interdicts
and I shall deal with this aspect infra when the
law is applied to the facts.
[10] Mosotho is a duly appointed
director of Tsepong, a foreign company. His appointment was effected
in terms of the shareholders’
agreement entered into in Lesotho
which agreement stipulates that the laws of the Kingdom of Lesotho
shall apply in respect of
any business and/or disputes arising from
the agreement. The relief claimed in paragraphs 1.2 and 1.3 of the
notice of motion
is immaterial at this moment in time. Mosotho is
Afri ‘Nnai’s incumbent director on Tsepong’s board
and it is
not anticipated that he might be appointed in that
position. If Mosotho was not appointed as yet, and relief in terms
of paragraphs
1.2 and 1.3 only was sought, I would not have any
hesitation to find that this court has jurisdiction. The converse is
true.
This court lacks jurisdiction to grant an order removing
Mosotho from Tsepong’s board of directors.
[11] Mr Green summarised respondents’
jurisdictional attack incorrectly. He submitted that the challenge
to this court’s
jurisdiction is wrong for two reasons, to wit
(a) both Mosotho and Afri ‘Nnai are domiciled within the
court’s jurisdiction
and the relief claimed will be effective
against them and can be enforced within this court’s
jurisdiction and (b) the removal
of Mosotho as a director of Afri
‘Nnai is relief that operates against Mosotho who is within the
court’s jurisdiction.
I do not agree. Firstly as to (a), he
may be correct in respect of the relief sought in paragraphs 1.2 and
1.3 as mentioned,
but not in respect of the main relief. Secondly as
to (b), no relief is sought that Mosotho be removed as director from
Afri ‘Nnai’s
board, but from Tsepong’s board. The
first entity is a South African company domiciled in the Free State
Province, but the
other clearly not. Mr Green also submitted that
the suggestion that Tsepong’s domicile is relevant misses the
point as the
relief sought does not operate against Tsepong. Such
argument in in direct conflict with paragraph 1.1 of the notice of
motion,
the primary relief sought and the rationale which runs like a
golden thread through applicant’s papers. It wants to get rid
of Mosotho’s interference and the only effective means is to
achieve this is to have him removed as director and thus eliminated
from Tsepong’s board meetings.
[12] I do not agree with Mr Green’s
submission that the fact that Tsepong is a Lesotho company does not
bar the granting of
an order that has an effect on it. The judgment
in Multi-Links Telecommunications Ltd v Africa Prepaid Services
Nigeria Ltd
2014 (3) SA 265
(GP) relied upon does not assist him.
The facts are not on all fours with the facts in casu. It is true
that a more relaxed view
as to jurisdiction has been adopted by the
court recently. Considerations of appropriateness and convenience
have to prevail.
The judgment in Multi-Links is distinguishable.
The Nigerian company, APSN, was found to be a necessary party to the
proceedings.
It was common cause that the court had jurisdiction
over APS, a company which concluded the Super Dealer Agreement (SDA)
and ceded
or purported to cede the SDA to APSN with the consent of
Multi-Links. The determination of the dispute between Multi-Links
and
APS would determine the same issue which is in dispute between
Multi-Links and APSN. APSN instituted a money claim against
Multi-Links
under the auspices of the Arbitration Foundation of South
Africa (AFSA) and the parties concluded a deed of submission to
arbitration
in order to allow the arbitrators to determine the
validity of the SDA. The arbitration was pending when the matter was
heard
by the court. Both Telkom and Multi-Links instituted action
against inter alia APSN, Telkom claiming money from it and several
other defendants, and Multi-Links claiming damages and an order that
the arbitration proceedings will cease to have effect in respect
of
certain specified issues. The SDA was central to all disputes and
claims. All the defendants, save for APSN, were persons residing
or
being in the court’s jurisdiction. APSN was controlled by APS,
a South African company.
[13] In Bid Industrial Holdings (Pty)
Ltd v Strang
2008 (3) SA 355
(SCA) the court had to deal with the
constitutionality of arrest to found or confirm jurisdiction. The
court commented on the
jurisdictional principles that have
originated, and particularly the principle of effectiveness, and
stated at para [55] that “courts
have always sought to avoid
having to try cases where their judgments will, or at least could,
prove hollow because of the absence
of any possibility of meaningful
execution in the plaintiff’s jurisdiction.” It proceeded
at para [57] as follows:
“As to the principle of effectiveness,
despite it having been described as ‘the basic principle of
jurisdiction in
our law’ it is clear that the importance and
significance of attachment has been so eroded that the value of
attached property
has sometimes been ‘trifling’.”
[14] Mr Green correctly submitted that
the continetia causae rule is recognised in our law. This is evident
from judgments such
as Roberts Construction Co Ltd v Willcox Bros
(Pty) Ltd
1962 (4) SA 326
(A) and Permanent Secretary, Department of
Welfare, Eastern Cape and Another v Ngxuza and Others
2001 (4) SA
1184
(SCA) at para [22]. In terms of this principle a court having
jurisdiction over a part of a cause will be justified in exercising
jurisdiction over the whole cause of action based on considerations
of convenience, justice and good sense. I respectfully agree
with
the conclusions arrived at in these judgments, but the facts therein
are clearly distinguishable from the facts in casu.
It is
unnecessary to examine the judgments, save to mention the following.
In Roberts Construction the parties to a construction
contract
concluded in Johannesburg in respect of a bridge built across the
river between the Free State and Cape Province were
peregrini of the
Free State. Certain of the contractual obligations had to be
performed in the Free State and the court a quo
ruled that it had
jurisdiction to adjudicate the dispute as well as the alternative
claim. The Appeal Court dismissed an appeal
against the court a
quo’s finding that it had jurisdiction on the basis that the
two claims really constituted one case and
that it would be
inconvenient if the alternative claim had to be instituted in another
court. In Ngxuza several persons entitled
to disability grants
decided to launch a class action against the Provincial Government.
Some of these persons were not resident
in the jurisdiction of the
Eastern Cape Division, but within the jurisdiction of the Ciskei High
Court. The Supreme Court of Appeal
dismissed an appeal against the
judgment of the High Court that it had jurisdiction, relying on
Roberts Construction. It found
that the High Court had “jurisdiction
over the original applicants and over members of the class entitled
to payment of their
pensions within its domain.” This,
according to the SCA, was sufficient to give the court a quo
jurisdiction over the whole
class. These two judgments are
distinguishable from the matter before me and therefore, I am not
bound to find that this court
has jurisdiction in casu. I shall
however consider the further arguments on the basis that I may be
mistaken in this regard,
VII REQUISITES FOR TEMPORARY
INTERDICTS
[15] An applicant applying for an
interim interdict must demonstrate that the following well-known
requirements have been met:
1. a prima facie right;
2. a well-grounded apprehension of
irreparable harm if the interim relief is not granted and the
ultimate relief is eventually granted;
3. the balance of convenience favours
the granting of an interdict; and
4. the applicant has no other
satisfactory remedy.
[16] Regarding the establishment of a
prima facie right it was submitted on behalf of Netcare that it is
entitled to protect its
financial interest in Tsepong, and if
Tsepong’s management is not restored there is a real risk of
its funders declaring
it to be in breach of their funding agreements
and this will lead to Tsepong’s winding up, with significant
loss to Netcare.
It was also submitted that Netcare has an
obligation to attempt to ensure that the hospital remains open.
[17] With reference to the second
requirement of a temporary interdict it was submitted on behalf of
Netcare that the efficient
running of Tsepong’s business has
been compromised and if this is allowed to proceed, the hospital may
close down its doors
with enormous financial harm and it may also
result in the dying of patients.
[18] It was submitted that the balance
of convenience clearly favours Netcare insofar as the interim
interdict will not result in
any harm to Mosotho, whilst Netcare will
suffer harm if the interim interdict is not granted. If Mosotho
stays on as director
of Tsepong, the company will remain
dysfunctional and its hospital business will be compromised.
[19] Lastly and with reference to an
alternative remedy, it was submitted that a simple vote to remove
Mosotho is not readily available
under the Lesotho Company’s
Act. It was acknowledged that Mosotho’s actions resulted in
the formation of shareholder
factions that is not in the best
interest of Tsepong. In this regard it is clear from the papers that
the nominees of fourth and
fifth respondents on Tsepong’s board
have sided with Afri ‘Nnai and Mosotho in the past.
VIII DIRECTOR’S DUTIES
[20] It goes without saying that
directors owe fiduciary duties to the company. If a director acts in
breach of a fiduciary duty,
he may depending on the circumstances
also act in breach of his duty of skill and care. See Henochsberg on
the Company’s
Act, 71 of 2008, p 295. A director must exercise
his duties honestly and in the company’s interest. An
obstructive approach
is not an honest exercise by a director of his
duty. Animosity demonstrated by a director may be a factor to be
considered as
a breach of a duty as director.
[21] It is also true that a director
has a duty to question conduct, agreements and transactions which
appear to be not in the interest
of the company. A director must
exercise an independent and unfettered discretion and he should not
be a mere dummy or puppet,
blindly following instructions of another.
He may also not shut his eyes to corporate misconduct.
[22] Much more can be said about the
roles and functions of directors and their duties of good faith
towards the companies that
they serve. Bearing in mind the
conclusion at which I arrive herein, it is not necessary to go into
further detail.
[23] Whilst admitting that the
interdict sought in this application may appear to be novel it was
submitted on behalf of Netcare
that Mosotho’s conduct brings
him squarely within Section 162(7)(a)(ii) of the South African
Companies Act, although it was
conceded that the South African
Companies Act does not apply to Tsepong, being a Lesotho registered
company. Section 162 was merely
referred to, not to establish an
independent ground to seek interdictory relief, but to illustrate
that the scope of the relief
sought is in substance recognised in the
Act.
[24] I was not referred to any
authorities with specific reference to the application of Section
162, and I will deal with this
aspect again when I apply the law to
the facts. It is also necessary to refer to the Lesotho Companies
Act, 18 of 2011, bearing
in mind that this court is required to
remove Mosotho as a director from the board of directors of Tsepong,
a Lesotho registered
company, it being the primary objective of
Netcare.
[25] Section 73 of the Lesotho Act
provides for the removal of directors and to achieve this, a board of
directors shall call a
special meeting for the purpose of removing
one or more directors. A director of a company may be removed from
office by ordinary
resolution passed at a special meeting called for
that purpose or for purposes that include the removal of the
director.
[26] Section 76 of the Lesotho Act
stipulates that if the company or a director proposes to engage in
conduct that contravenes the
articles of incorporation of the company
or the Act, the company, a director or shareholder of the company may
apply to court for
an order interdicting the company or the director
from so acting. It is clear that if Mosotho or any other director of
Tsepong
engages in conduct contravening the Lesotho Act or the
articles of association of the company, an interdict can be obtained
and
if such is granted the court may also grant consequential relief
as it deems fit.
[27] The fundamental duties of
directors are recognised in Section 63 of the Lesotho Act. In terms
of Section 63(1) a director,
when exercising powers or performing
duties, shall act in good faith and on reasonable grounds in the
interest of the company.
In terms of Section 63(2) a director, when
exercising powers or performing duties as a director, shall exercise
the care, diligence
and skill that a reasonable director would
exercise in the same circumstances, taking into account the nature of
the business of
the company, the nature of the decision taken, the
position of the director and the nature of the responsibilities
undertaken by
that director. Mosotho’s conduct will have to be
measured in terms hereof and if it is found by the Lesotho court that
he
is in breach of his fundamental duties as a director, there
appears to be no reason why relief should not be granted, but that
judgment is the prerogative of the Lesotho court and not this court.
[28] Section 80 of the Lesotho Act
provides for further relief in the event of breach of a duty owed by
the company to a shareholder.
A shareholder may therefore apply to
the court for an order requiring the board to take any action that is
required to be taken
by the articles of incorporation of the company
or the Act and the court may, if satisfied that it is just and
equitable to do
so, make an order and grant such other consequential
relief as it deems fit. Netcare as a shareholder of Tsepong would
therefore
be entitled to apply to the court in Lesotho to direct the
board to accept the financial statements if a proper case can be made
out that those audited statements should be approved. Again, it
remains the prerogative of the Lesotho court and not this court.
IX APPLICATION OF THE LAW TO THE
FACTS
[29] I am not persuaded that Netcare
has proved a prima facie right. There is no doubt that it has
financial interests in Tsepong
that need protection. Although this
court has jurisdiction to entertain the application, especially
pertaining to prayers 1.2
and 1.3 of the Notice of Motion, it does
not have jurisdiction to grant the relief in paragraph 1.1 which is
the primary relief
sought. Even if I am mistaken in this regard, I
firmly hold the view that this court, a South African court should
not and cannot
interfere in the internal affairs of Tsepong, a
Lesotho registered company, and in doing so directly interfere with
the autonomy
of the Lesotho High Court and the sovereignty of the
Kingdom of Lesotho. In any event, the referral to Section 162 of
the South
African Companies Act does not support Netcare at all. As
conceded, Netcare does not seek an order from this court placing
Mosotho
on probation in respect of his directorship of Afri ‘Nnai,
the South African company. It wants Mosotho to be removed as
director of Tsepong, albeit on a temporary basis.
[30] I wish to emphasise that my
finding that Netcare does not have a prima facie right and that the
first requisite for interim
interdicts has not been met, does not
mean that I agree with and/or condone Mosotho’s criticism and
viewpoint. If I had
to act as presiding officer in Lesotho, applying
the laws of that country, I would probably be inclined to grant
interim relief
to ensure that the business of Tsepong and the
operation of the hospital are not jeopardised.
[31] I accept that severe financial
prejudice may follow if the dispute cannot be resolved sooner than
later. It is not necessary
to consider the second and third
requisites of interim interdicts as it may be accepted that these
have been proven.
[32] I am not convinced that Netcare
does not have any other satisfactory remedy. It is the business of
Tsepong and the running
of the hospital in Lesotho that are under the
spotlight. The Lesotho Companies Act provides sufficient relief for
aggrieved shareholders
and/or directors and/or companies as mentioned
supra. No reasons have been advised as to why a special board
meeting could not
be convened in order to oust Mosotho. If such
action is not successful because Netcare cannot obtain a majority
vote, it would
still be entitled to approach the Lesotho court in
terms of Section 76 and/or Section 80 of the Lesotho Act.
[33] Finally, any court should be weary
of interfering in the internal affairs of companies, but more
importantly, it would be advisable
not to interfere with the
adjudication of disputes falling within the domain of a foreign
country and in this case, our neighbour
the Kingdom of Lesotho.
X ORDER
[34] Consequently the following order
is issued:
1. The application is dismissed with
costs.
J. P. DAFFUE, J
On behalf of the applicant: Adv. IP
Green SC and YF Saloojee
Instructed by: Webbers Attorneys
BLOEMFONTEIN
On behalf of the respondents: Adv.
MDJ Steenkamp
Instructed by: Bezuidenhouts Inc
BLOEMFONTEIN