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[2009] ZAGPJHC 25
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South African Broadcasting Corporation Ltd and Another v Mpofu (A5021/08) [2009] ZAGPJHC 25; [2009] 4 All SA 169 (GSJ) (11 June 2009)
Links to summary
IN THE SOUTH GAUTENG HIGH COURT
(JOHANNESBURG)
APPEAL CASE NO: A5021/08
CASE NO: 13815/08
In the matter between:
SOUTH AFRICAN BROADCASTING
CORPORATION LTD
First Appellant (First Respondent in court
a
quo
)
THE CHAIRPERSON: THE BOARD
OF
THE SOUTH AFRICAN BROADCASTING
CORPORATION
Second Appellant (Second Respondent in court
a
quo
)
and
DALI MPOFU
Respondent (Applicant in the court
a
quo
)
J U D G M E N T
Coram:
Victor
J
[1]
The first
appellant is the South African Broadcasting Corporation (SABC). On 6
May 2008 its Board of Directors (the second appellant)
held an urgent
meeting where a decision was taken to suspend the respondent who was
employed as its Group Chief Executive Officer.
The respondent is both
a director of the Board of SABC and an employee. The relief sought by
the respondent was not based on his
contract of employment.
[2] Pursuant to an urgent application, Tsoka J
set aside the meeting of 6 May 2008 of the SABC Board, the resolution
taken at
the meeting to suspend the respondent and granted costs on
the attorney and own client scale. This is an appeal from that
decision.
[
3] Since the decision
of the court a quo was based on company law provisions and not the
Promotion of Administrative Justice Act No 3 of 2000
, this appeal
turns on what is termed the company law complaint. The appellants
contend that the impugned meeting was incorrectly
set aside based on
both the law and the facts. The appellants submit that they had acted
in accordance with the relevant statutory
provisions as well as the
Articles of Association.
[4] The nub of the further submissions are that
the respondent was invited to attend the meeting, that he had no
entitlement to
participate since he was the subject matter of the
meeting and therefore had a conflict of interests; he acquiesced in
the proceedings
as did the other two executive directors, Mr
Nicholson and Ms Mampane. In addition it was only the non executive
directors who
could suspend him.
The
appellants contend that his suspension as Group CEO does not affect
his membership of the Board.
[5] The appellants submit that the respondent in
his capacity
qua
director/General Chief Executive Officer cannot litigate against the
SABC as the Articles of Association do not empower him to
do so. He
is not a member of the SABC and his remedy lies in the realm of his
employment contract.
RELEVANT BACKGROUND FACTS
[
6] On 1 August 2005
the respondent was appointed to his position as Group Chief Executive
Officer. The Board of the SABC consists
of 15 members
1
.
The respondent and two others are the executive members and the 12
other members of the Board are non executive. During the course
of
2008 the relationship between the respondent and the chairperson of
the Board Ms Khanyisiwe Mkonza become strained.
[7] During the early part of 2008 an induction
meeting of the Board was held. An expert in corporate governance and
author of the
King Code, Mr Mervyn King SC gave a presentation to the
Board on its oversight role and there was particular emphasis on the
delineation
of the role between management and the Board. During this
induction meeting the respondent requested that a meeting be held to
clarify the separate roles of management and the Board. The
respondent understood that as General CEO he was responsible for the
day to day operational matters of the SABC and not the Board.
[8
] On 4 April 2008 the
first meeting took place between the respondent and the Board. It was
cordial but immediately thereafter the
chairperson prepared a
memorandum expressing her concern about affecting her “
ability
to provide leadership to the Organization
”.
[
9] On 7 April 2008 the
chairperson gave the respondent notice of a meeting to be held on 9
April 2008 of the non-executive board
where the respondent, Ms
Mampane and Mr Nicholson were ordered to be “
on
stand by
”. The meeting was not
held at the premises of SABC but at the Hyatt Hotel in Rosebank. The
respondent and the other two
members attended the meeting but waited
outside throughout and were not called in. A few days thereafter a
Board memorandum was
leaked to the Sunday Times newspaper: “
NEW
BOARD GUNS FOR SABC BOSS
”
meaning the respondent. He requested a copy of the memorandum to no
avail. This step commenced the tormenting but extremely
damaging
approach by the Chairperson to let the respondent know the various
meetings concerned him but his participation was controlled
and
curtailed by her. This conduct must be weighed against the principle
that the Board in its entirety is the principal focal
point of good
corporate governance
2
and that the fiduciary duty the directors owed to each other is
paramount.
[10] The executive committee requested a meeting
with the Board to discuss the breach of confidentiality of the leaked
memorandum
to the press and this was rejected alternatively not acted
upon by the chairperson.
[11] On 23 April 2008 the chairperson sent a
letter inviting the respondent to a meeting of the non-executive
Board which was to
take place on the same day. The letter stated that
it would not be appropriate or desirable for him to be present. He
did not attend.
[1
2] On 24 April 2008 he
was invited to attend another non-executive directors’ meeting.
He presented himself and was told to
wait outside whilst the meeting
commenced. He was duly called in. The question of the memorandum was
raised. Members of the Board
especially Mr Peter Mavundla and Ms
Allison Gillwald were surprised that he had not seen it. Mr Andile
Mbeki a director and member
of the Board announced that a decision
had been taken to investigate the respondent around the issues
contained in the memorandum.
[13] He was asked for his comment and told them he
was aggrieved by the manner in which the matter was being handled as
the issues
raised pertained to his alleged poor performance and not
to misconduct. He reminded them about the procedures in the SABC
disciplinary
code when it came to performance related issues and
questioned the decision why an independent person with no exposure to
SABC
functions was to investigate him. The next day the chairperson
telephoned to advise him that the meeting had reversed its decision
on the investigation. Instead she would give him a copy of the
memorandum but she was revising it.
[14] On 29 April 2008 the respondent attended a
scheduled parliamentary Portfolio Committee briefing in Cape Town on
Communications
for the purpose of advising on budget and strategy.
The meeting was aborted since none of the non-executive members were
present.
The meeting was rescheduled for the next day. At the
meeting the next day there was a show down. The Parliamentary
Committee insisted
to know whether the memorandum was the view of all
the Board members. After being pressed on this Ms Mkonza informed the
Portfolio
Committee that she was the author of the memorandum. The
Committee invited the Board members to speak openly. The Committee
expressed
dissatisfaction with the contents of the memorandum and
that it had been leaked to the press as also the refusal of Ms Mkonza
to
meet with the respondent to try and resolve the impasse.
A member of the Portfolio Committee noted that the respondent was at
the mercy of the media for three weeks with the oblique criticism
that the chairperson had failed to produce a final memorandum.
[15] It also became apparent that the respondent’s
repeated requests to the chairperson for a meeting to clarify the
respective
roles of management i.e. the executive directors and the
Board had not been brought to the attention of all the members of the
Board. Some members were unaware that respondent had been making
requests for this role clarification workshop. At the Portfolio
Committee meeting Ms Mkonza promised to give the respondent a copy of
the updated or revised memorandum. No mention was made of
his
suspension yet within days of that meeting he was suspended.
[16] From the Saturday, a few days prior to the
fateful Board meeting of Tuesday 6 May 2009, the respondent had been
trying to reach
the chairperson to meet with her about certain urgent
matters. She advised she did not take calls over the weekend. When he
managed
to reach her on the Sunday she promised to come back to him.
On Tuesday 6 May 2008 the respondent after what he considered proper
legal process decided to suspend a senior employee Dr Zikalala who
admitted to leaking confidential material to third parties.
The
respondent suspended Dr Zikalala in accordance with the SABC
Disciplinary Code.
He
wished to address the staff about the suspension at 16h00 that day
and then the Press. Prior to making this decision public,
the
respondent tried to convey his decision to the Chairperson and
requested a meeting with her. He attempted to contact her through
the
company secretary and left voice messages on her cell phone.
He
eventually sent her a letter urging her to make time to meet him
about a senior employee who leaked information to third parties.
By
the said Tuesday they had s
till not
met. By 16h00 he had still not made contact with the Chairperson. At
16h00 he made the announcement as planned.
[17] The Chairperson contacted him at 17h00 and
said her cell phone battery had been flat. She advised that she did
not recognize
the suspension of Dr Zikalala. She advised that there
would be a meeting with him on 7 May 2008 about the matter.
[18] Rather precipitously and during the evening
of 6 May 2008 at about 19h59 and whilst the respondent was meeting
with the executive
members he was informed that there would be a
non-executive Board meeting to commence at 20h00 and that the
executive members were
required “to remain on standby.”
When he together with Ms Mampane and Mr Nicholson were finally called
in, there were
four Board members present and some of the other Board
members were on teleconference. The status of Ms Mampane and Mr
Nicholson
as directors was not questioned at all for the purposes of
this meeting. The respondent was called upon to explain the
suspension
of Dr Zikalala. He explained inter alia that such
suspension was within his powers as Group CEO. Since Dr Zikalala had
admitted
to leaking the confidential material to third parties the
respondent was of the view that he had acted within the powers as
Group
CEO of the SABC and the delegation authority framework to
suspend him. In terms of the disciplinary code duly adopted by the
Board,
discipline was a management function. Dr Zikalala was on
precautionary suspension.
[19]
She then requested
them to leave the meeting. At 01h40 he received a telephone call from
the Chairperson advising that he had been
suspended. When he asked
the reason she said it was serious. He later read the resolution
passed. The respondent contends that
the reference in the resolution
to suspend him referred to his “divisive and disruptive
conduct”. He felt this was
included as an afterthought so as to
conceal the real reasons for suspending him viz Dr Zikalala.
RELEVANT
STATUTORY FRAMEWORK.
[20] In order to determine the validity of the
decisions taken at the meeting of 6 May 2008 it is necessary to
consider the statutory
framework.
[21] The SABC was established pursuant to the
Broadcasting No 4 of 1999 (“
the
Broadcasting Act
”) having been
converted from the former SABC to a company now deemed to be a public
company incorporated in terms of the
Companies Act 61 of 1973, (the
Companies Act). Since the date of the conversion the state is the
sole shareholder and thus its
only member. The memorandum and the
Articles of Association of the SABC were registered in terms the
Companies Act. Section 8A
of the Broadcasting Act excludes section 65
of the Companies Act in particular Section 65(2) which provides that
the Memorandum
and Articles of Association are binding on the
company.
[
22] Notwithstanding
the SABC did register the Memorandum and its own Articles of
Association. It was registered as a company having
a share capital
not adopting Schedule 1. Words and expressions in the Articles had to
bear the meaning as assigned in certain Statutes
referred to in the
Articles
inter alia
the Broadcasting Act, the Companies Act, the
Public Finance
Management Act No. 1 of 1999
,
Telecommunications Act No 103 of 1996
,
Treasury Regulations for Departments 2002 and other statutes.
[23] The Articles
3
provide that general meetings of Directors are to be called whenever
the Board thinks it fit. Notices
4
provide
that the notice of the general meeting shall comply with the
provisions of the Statutes, which of course includes the Companies
Act. The Articles
5
provide
that notice of a general meeting shall be given on not less than 14
clear days and notice must be given to such persons
who are in
accordance with the provisions of the Articles entitled to receive
notice of all meetings. The notice shall specify
the venue, date and
time of the meeting and if it is special business the nature of such
business. Special business is not defined.
The Articles
6
provide that the Board may regulate its meetings as it thinks fit
provided that the Board shall meet regularly. A quorum must consist
of nine members.
[
24] Executive directors
conclude contracts of employment for 5 years. The Articles
7
deal with the duties of the Board. The Board controls the affairs of
the Corporation in accordance with the Statutes. The directors
have
to exercise the utmost good faith, honesty and integrity in all their
dealings with or on behalf of the SABC and always act
in its best
interests. Article 12.2.9 ensures that matters of confidential nature
should be treated as such and not be divulged
to anyone without the
authority of the SABC. Provision is made
8
that each director must be in a position to make informed decisions.
[25] The powers of the Board are defined
9
.
The management of the business and control of the Corporation is
vested in the directors. The directors must ensure that any
decision
taken is not inconsistent with the Statutes or the Articles and
complies with the statutes or any resolution passed by
a general
meeting. The Articles define the proceedings of the Board. The
chairperson may and the secretary at the request of a
director shall
at any time convene a meeting. The Articles
10
define the notice required for such a meeting. The Board shall
determine the number of days notice to be given for the Board
meetings
and the form and the medium for giving that notice.
[2
6] The Articles
11
provides
for directors’ written resolutions. Article 18.1 provides that
“
Subject to the statutes, a duly
minuted resolution in writing signed by all the directors shall be as
valid and effectual as a resolution
passed at a meeting of the Board
duly called and constituted.
”
Article 18.3 provides that the written resolution shall be deemed to
have been passed on the day it was signed by the last
director unless
a statement to the contrary is made in the written resolution.
Article 18.4 provides that a written resolution
which is not signed
by all the directors shall be inoperative until confirmed by a
meeting of the Board.
[27] It is the appellants’ approach that the
resolution is reflected as an extract of the minute book and
therefore the minute
does not have to be signed by all the directors
to be valid. The respondent relies in his founding affidavit upon the
fact that
the resolution was not signed by all the directors as is
required in terms of the Articles. Upon a proper analysis of this
submission
it is clear that the actual resolution was not signed by
all directors.
[2
8] A further feature
of importance is whether the Board in making the decision to suspend
the respondent was mindful of and indeed
applied proper corporate
governance principles in coming to their decision. The central issue
of corporate governance is the accountability
of senior management
and the Board of a company because of the extensive powers vested in
them.
12
[29] The King Report on Corporate Governance for
South Africa 2002 deals with public sector enterprises. The first
appellant is
a public company and is a public sector enterprise as
defined in terms of the
Public Finance Management Act No 1 of 1999
.
Companies and their Boards are required to measure up to the
principles set out in the Code. King recommends that public
enterprise
should try and apply the appropriate principles set out in
the Code. The Code sets out principles and does not determine
detailed
conduct. The conduct of public enterprises must be measured
against the relevant principles of the Code and must adhere to best
practices. The Code regulates directors and their conduct not only
with a view to complying with the minimum statutory standard
but also
to seek to adhere to the best available practice that may be relevant
to the company in its particular circumstances.
[30] The Board and its directors are ultimately
accountable and responsible for the performance and affairs of the
company. King
noted that given the synergy which takes place between
individuals of different skills, experience and background, the
unitary
board structure with executive and non-executive directors
interacting remains appropriate for a South African company. In
terms
of the King Code, Board meetings should include mechanisms that
are efficient and timely. Board members should be briefed prior
to
meetings and Board members should take the responsibility of being
objectively satisfied that they have been furnished with
all the
relevant information and facts before making a decision. Although
non-executive directors may meet separately the attendance
of
executive directors at Board meetings is of value. The diversity of
views is important. The Board has a collective responsibility
to
provide effective corporate governance and should exercise
leadership, enterprise, integrity and judgment in directing the
company.
13
[31] In this case the absence of meaningful
notice, the exclusion of not only the respondent from a substantial
portion of the Board
meeting juxtaposed to the manner in which two
executive members of the Board were intentionally excluded, then
included and thereafter
excluded from a debate among Board members is
an issue of crucial concern. The importance of the deliberation by
all members of
the Board could not have escaped the chairperson. The
issues which had surrounded the memorandum had smouldered throughout
April
2008 had certainly after the parliamentary Portfolio Committee
meeting become an inflammable issue. The potential suspension of
the
respondent was an issue which required the attention of the entire
Board as defined in the Broadcasting Act and the Articles.
In
addition the Board had to be in a position to make informed decisions
as required by the Articles.
14
The events surrounding the convening of the meeting and the execution
thereof correctly led the court a quo to the inescapable
conclusion
that it had to be set aside.
THE VALIDITY OF THE MEETING
OF
6 MAY 2008 AT WHICH THE RESOLUTION WAS TAKEN IN THE ABSENCE OF THE
RESPONDENT AND THE TWO OTHER EXECUTIVE DIRECTORS
The a
bsence
of the respondent, Ms Mampane and Mr Nicholson at the moment critique
when the decision to suspend him was taken.
[
32] The appellants
contend that the court a quo erred in fact by finding that the
decision was taken in the absence of the respondent
at the meeting.
They contend that he was at the meeting and he did participate. The
respondent’s limited participation at
the meeting is common
cause. He was called in and only allowed to deal with the matter of
Dr Zikalala. Such participation was
neither meaningful nor in
accordance with the best practice as described in the King Report
particularly when regard is had to
the fact that the SABC is a public
enterprise. The limitation on the participation of the other two
executive members is also
not in accordance with best practice. The
court a quo was correct in finding that a Board meeting must consist
of all Board members.
The suggested justification by the appellants
for their exclusion was based on the fact that they report to the
respondent and
presumably are his subordinates. This approach is
inconsistent with the Articles which gives the executive directors
full status.
There is no suggestion in the appellants’ papers
that the conflict of interests issue was debated that evening, and if
it
was, it would have had to be dealt with in accordance with section
17 (2) of the Broadcasting Act. It was not.
“
If at any stage during the course of
any proceedings before the Board it appears that any Board member has
or may have an interest
which may cause such conflict of interest to
arise ………………leave the
meeting so as to
enable the remaining Board members to discuss the
matter and determine whether such Board member is preclude from
participating
in such meeting ………….and
such disclosure and decision taken by the remaining Board members
regarding
such determination, must be recorded in the minutes of the
meeting in question.”
In
any event it does not
appear that the type of conflict of interest in question here falls
into this category. The chairperson appears
to have unilaterally and
without proper deliberation with all the members of the Board made a
decision to exclude the respondent
based on a perceived conflict of
interest. The entire deliberation on this aspect should have been
debated by the directors and
minuted.
Locus Standi
of the respondent
[33] The appellants complain that even if the SABC
breached its Articles this does not confer any right on the
respondent as a director
to launch the litigation. He should have
proceeded by way of interdict proceedings against the other
directors.
15
The respondent did not initiate proceedings on behalf of SABC in
order to vindicate its rights. Obviously if he had done there
would
have to be compliance with the Companies Act.
16
The suggestion that the respondent remained a Board member is
inconsistent with the entire manner in which the chairperson
proceeded
against the respondent thereafter. I am of the view that
the respondent cannot be restricted to relief solely in terms of his
employment
contract. The issues here are far wider than his
employment contract. The respondent has a real and substantial
interest in the
decision taken and should not be limited in
approaching the courts.
See also
Van Tonder
v Pienaar and Others
17
“
It was also submitted that, since the
applicant had only been suspended, not dismissed, and was still being
paid his salary, he
had no cause of action. Even if he had been
dismissed, so it was argued, he would only have been entitled to
damages and not a
declaratory order. These submissions overlook the
fact that the applicant brings his application as a director not as
an employee
of the company.
”
[34
]
In determining the question of locus standi Davis J in McCarthy and
others v Constantia Property Owners Association and others
18
referred to the very wide and flexible interpretation placed on locus
standi. In Jacobs en 'n Ander v Waks en Andere
19
,
Botha JA held that it was not necessary that a litigant should have a
financial or legal interest in a business in order to establish
locus
standi. Any person who was a director and in full control of a
company which was trading and anyone who was the manager of
a
business had a real interest that the business should survive and
that its profitability should not be harmed. Botha JA held
at 534A:
'Dit is nie 'n tegniese begrip met vas omlynde grense nie.”
[35] The Waks case involved an issue of locus standi within the
context of public law. Botha JA in Waks' case held that the
Carletonville
City Council was in a position of trust in relation to
ratepayers’ funds and that for this reason the ratepayers had
locus
standi to review what was claimed to be an unlawful expenditure
of such funds by the Council. In Gross and Others v Pentz
20
,
Harms JA in dealing with the locus standi of a contingent beneficiary
to institute an action against a trustee for maladministration
held:
'The question of locus standi is in a sense a procedural matter,
but it is also a matter of substance. It concerns the sufficiency
and
directness of interest in the litigation in order to be accepted as
litigating party. . . . The sufficiency of interest is
''altyd
afhanklik van die besondere feite van elke afsonderlike geval, en
geen vaste of algemeen geldene reëls kan neergelê
word vir
die beantwoording van die vraag nie . . . ''. . . . The general rule
is ''that it is for the party instituting proceedings
to allege and
prove. . . that he has locus standi, the onus of establishing that
issue rests upon the applicant''.' In Steel and
Engineering
Industries Federation and Others v National Union of Metal Workers of
South Africa (1)
1993 (4) SA 190
(T) at A 194J-195A Myburgh J said,
with reference to the dictum regarding locus standi in Patz v Greene
& Co
1907 TS 427
at 433:
'I have doubts whether such a formalistic approach is acceptable
in today's circumstances.'
Adhering to a less formalistic approach, he followed a dictum in
Attorney-General of the Gambia v N'Jie
[1961] 2 All ER 504
(PC) at
511 that locus standi concerns a party not being 'a mere busybody who
is interfering with things which do not concern him'.
[3
6]
In
would be impermissible to non-suit the respondent on the basis of his
lack of
locus standi
when he seeks to vindicate his rights. In addition to what is stated
above the respondent has cited the SABC as a company but has
also
cited the Board represented by the chairperson in her representative
capacity. Reference is made to the Board as comprising
15 members.
However inelegant the citation may be, all 15 members are before the
court duly represented by its chairperson. There
is no reason why the
respondent should not be entitled to seek relief against them.
Sufficiency of
Notice
[3
7] It was common cause
that on 6 May 2008 the respondent and the other two executive
directors were notified of the meeting on 1
minutes notice. The
respondent and the two executive directors were called into the
meeting for a short period. The respondent
addressed the meeting
where after he and the two executives were asked to leave. Therefore
the respondent was not present inside
the meeting of 6 May 2008 when
the decision was taken. The submission that the respondent was part
of the meeting (albeit a portion
thereof) is to overlook the ambit
and purport of what a properly constituted Board meeting should be.
In my view the Board was
not properly assembled.
[38] In Majola Investments (Pty) Ltd v Uitsigt
Properties (Pty) Ltd
21
Broome J, came to the following conclusion at 241:
'I therefore accept the principles that notice of a directors'
meeting must be given to every director who is within reach and that
the question whether a director is within reach depends upon the
circumstances, including the nature of the business to be transacted.
If the business to be transacted were contentious the degree of
inaccessibility would have to be very great. If, on the other hand,
the business were not contentious but required immediate attention,
the degree of inaccessibility would be very much less, particularly
where the absent director knew and approved of the formal business
to be transacted.'
[39
] These principles
were followed in Burstein v Yale
22
,
a case in which two out of three directors had purportedly authorised
a cession by the company without prior consultation with
the third
director who was readily accessible.
Fair
and reasonable notice to attend a directors’ meeting depends on
the circumstances and on the structure, practice and
affairs of the
company.
In casu
only four of the 12 non executive directors were present. The others
were on teleconference. This is not a satisfactory situation
where a
matter of the suspension of the General CEO was being deliberated.
The haste was unnecessary as there was already a meeting
scheduled
for 7 April 2008 when the chairperson’s non acceptance of the
suspension of Dr Zikalala was to be discussed.
[40] The Articles of Association deal with meetings and do allow for
the Board to define the conduct of its own meeting. Upon a
proper
interpretation of the Articles the Board must mean the Board and not
the deliberate exclusion of a portion of the Board
to determine how
meetings must be conducted, again a corporate governance issue.
Although teleconference is permissible in terms
of the Articles, the
question to be determined is whether in these circumstances it was
necessary to conduct the meeting in this
way and in addition whether
the decision had to be made in the early hours of the morning when a
meeting had already been scheduled
for 7 May 2008.
[41] The respondent and his two executive directors were given one
minutes notice of the meeting and thereafter kept out of the
meeting
except for a short period. These issues go to the crux of whether the
meeting was properly convened. Furthermore it is
not in accordance
with proper corporate governance to keep directors out of a Board
meeting then allow them in for a selected period
and when the vote is
taken to remove them from the meeting. The question is whether this
procedure was permissible. The above
circumstances
in my view do not make it possible to hold that there was a properly
convened meeting of the first appellant’s
directors and that
the business transacted was valid.
The proper conduct of the me
eting
[
42] Seligson JA in
Transcash Swd (Pty) Ltd v Smith
23
referred to a number of cases involving the proper conduct of Board
meetings. In De Villiers and another NNO v Boe Bank Ltd
24
Navsa
JA stated
“
Of course, principles of good governance
of companies dictate that resolutions should be properly taken at
general meetings or meetings
of directors after due and proper
deliberation. This does not mean, however, that in instances where
this course is not strictly
followed the directors cannot otherwise
bind a company”.
In other words the particular circumstances are of
importance when assessing the validity or otherwise of the
resolution. The suspension
of a high profile General CEO in a public
sector enterprise which is particularly directed to observe
principles of good corporate
governance
and
best practice must ensure that it adheres to the principles referred
to above. There could not have “due and proper”
deliberation” in the absence of the three Board members.
[43] See African Organic Fertilizer and Associated
Industries Ltd v Premier Fertilizers Ltd
25
.
In Transcash supra reference was made to the case Burstein v Yale
26
where Kuper J held at 771B-C:
“
'The general rule is that directors of a
company can only act validly when assembled at a board meeting unless
the Articles otherwise
provide”.
at 771G:
“
'The plaintiff has not established that the cession was in
fact authorised by the directors of the company because he has failed
to prove that a proper meeting was held or that notice was given to
all the directors of the company who were within reach of the
cession
and that they approved of the cession.”
[
44] In Silver Garbus
and Co (Pty) Ltd v Teichert
27
,
formalities can be dispensed with provided that a board meeting of
all the directors agree to what is done. This is not such a
case. At
least three directors have not agreed to the resolution taken at the
meeting.
[45] None of the directors were given sufficient
opportunity to consider the matter. See De Villiers JP in the case
of Robinson
v Imroth and Others
28
the
principle is apposite:
'For the acts of a majority to bind a minority
it is essential that the minority should at least have been given an
opportunity of stating their views and to this again that the
minority should have been given time to consider the matter and
furnished with or had access to whatever information may be necessary
to form an opinion.'
[46] This principle was again advanced by Colman
J in Novick and Another v Comair Holdings Ltd and Others
1979 (2) SA
11
6 (W) at 128D at 128D stated:
'
I was
referred to the authorities which hold that the company is entitled
to the benefit of the collective wisdom of all the directors
present
at a meeting, and not merely to that of a majority. The minority, it
is said, is entitled to all relevant information,
and to an
opportunity of stating its views, even though it may ultimately have
to submit to a majority decision.
The
legal basis for this defence was the well-known doctrine that
directors of a company are under a duty to use their voting powers
for the benefit and in the interests of that company and not of any
other person.
[
47] In Transcash SWD
(Pty) Ltd v Smith supra Seligson AJ this principle was again adopted:
“
But the principles cited illustrate the
need for directors to have notice of board meetings so that, if they
so wish, they can attend
and attempt to influence the outcome. It is
not enough to suggest, as Mr Rosenthal did, that one must take a
robust view that,
if the result would be the same were a further
regular meeting to be held, the Court should condone the
irregularity. This approach
may be permissible in certain
circumstances where there is a purely technical irregularity or where
objection was not raised timeously
.
[
48] In regard to the
will of the majority Seligson in Transcash
supra
was of the view
“
In any event I am by no means convinced
that where, as in the instant case, there is a dispute between the
majority and minority
shareholders directors of a private company,
the majority can, on the strength of its view that the minority has
been guilty of
unlawful conduct, exclude the minority from board
meetings or from voting thereat on the simple basis that the minority
is precluded
from voting because of a conflict of interest. Such a
principle would be fraught with difficulty and provide a temptation
to the
majority to manufacture conflict of interest situations. Even
if there is alleged misconduct of a serious nature against him, in
my
judgment, a director, particularly one who is also a shareholder, is
entitled to exercise his rights as a director until he
has been
validly removed as such. “
This principle is particularly appropriate in this
case where a public enterprise is involved and best practice must be
adhered
to. T
he respondent’s rights
remain intact throughout until he is removed as a director as
provided for in the Articles.
[4
9] In the result the
court a quo correctly held that the respondent was fully entitled to
participate fully throughout the entire
meeting of 6 May 2008. The
chairperson’s decision to exclude the respondent and the two
executive members when the decision
was taken to suspend him
precipitated a fatal flaw in the process as found by the court a quo.
The reliance on a conflict of interest
as a reason to exclude the
respondent from the meeting resulted in preventing him from
discharging his duties as a director. The
same applies to the other
two executive directors who could not possibly have had a conflict of
interest.
Acquiescence
[
50] Insofar as the
appellants rely on the acquiescence of the respondent and the two
directors upon leaving the meeting this onus
has not been discharged
by the appellants. Acquiescence is akin to waiver The dictum of
Innes, C.J. about waiver is apposite as
set out in Laws v Rutherford
29
and as applied in Hepner v Roodepoort-Maraisburg Town Council
30
is of application namely:
"The onus is strictly on the appellant. He
must show that the respondent, with full
knowledge of her right, decided to abandon it, whether expressly or
by conduct plainly inconsistent with an intention to enforce
it."
This the appellants have not done. The immediate
reaction of the respondent was to launch an urgent application. It
cannot be held
that he or the other executive directors acquiesced.
Notwithstanding the respondent’s qualification as an advocate
and the skills of the Ms Mampane and Mr Nicholson their leaving
the
meeting upon the chairperson’s instruction does not alleviate
the appellants’ obligation to demonstrate that they
decided to
abandon their rights.
Costs
[
51] In regard to the
appeal against costs I find that the conduct of the chairperson when
assessed against the relevant background
facts and the principles of
corporate governance is not to be encouraged. The chairperson had a
fiduciary duty to act objectively.
She clearly got caught up in an
emotional response to the suspension of Dr Zikalala. A meeting had
been called for 7 May 2008 and
yet she reacted by bringing forward
that meeting which went on into the early hours of the morning. In
addition the procedure of
calling fellow directors to meetings,
telling them to be on standby and then not allowing them into the
meeting and have them
wait outside the meeting all indicates a
degree of imperiousness which is not to be condoned in corporate
governance. In particular
the meeting at the Hyatt Hotel meant that
the three executive directors had a futile wait. If the meeting had
been at the premises
of the SABC they could have carried on with
their other work.
[52] In the result the appeal is dismissed with
costs including the cost of two counsel.
_________________________
VICTOR J
JUDGE OF THE HIGH COURT
JAJ
BHAY,
J
:
[
53] I have read the
judgment of Victor J. I agree with the order which she proposes. I
consider the following reasons important
in support of that order.
[54] The background facts material to the
decision of this matter are set out in the judgment of Victor J and
need not be repeated
here. The essence of the approach adopted by
Tsoka J is set out in the following parts of his judgment:
“
[28] In the present matter the GCEO,
the COO and the CFO were not invited to the meeting of 6 May 2008.
This is common cause.
In fact the GCEO, the COO and the CFO were in
an executive directors meeting when the meeting of 6 May 2008 was
held. Although
Mpofu was invited and addressed the meeting on the
issue of the suspension of Dr S Zikalala (Dr Zikalala), he was not
party to
the said meeting. It appears that a deliberate decision was
taken to exclude the executive directors. In these circumstances, it
is disingenuous to refer to the meeting of 6 May 2008 as the meeting
of the Board of SABC. The meeting falls foul of the provisions
of
the Act, the Charter, the Articles, Protocol and the Companies Act.
”
The learned Judge in the court
a
quo
then went on to set out the
following:
“
[36] Ms Mkonza is a businesswoman. She
is the chairperson of the Board of SABC. She is a non-executive
director who must act
independently and objectively. The Board she
chairs is accountable to the National Assembly through the
Communication Portfolio
Committee. In exercising her duties it is
expected of her to show fidelity, honesty, integrity and act in the
best interest of
the SABC. In fact this is what Article 6.11 of the
Charter demands of her.
”
[55] The Constitution of the Republic of South
Africa (Act No. 108 of 1996) recognises the importance of good
governance: Section
195 deals with basic values and principles
governing public administration. In terms of this section there must
be a high standard
of professional ethics. In fact this standard
must be promoted and maintained. These principles apply to organs of
state and
public enterprises: Section 195 (2). This is not
surprising, given our history and the advent of our new democratic
era. Our
Constitution compels government in all of its forms, both
through government departments and organs of state (including
state-owned
enterprises) to adhere to principles of good governance.
State-owned enterprises such as the SABC are included in the
definition
of “
organ of state
”.
It is for this reason that the provisions of the Constitution as
well as the legislation enacted in terms thereof are
applicable to
state-owned enterprises:
Goodman
Brothers (Pty) Ltd v Transnet Ltd
1998
(4) SA 989
(W). Our Constitution has enshrined certain rights that
also have a direct bearing on the corporate governance of state-owned
enterprises.
[56] The
Public Finance Management Act No. 1 of
1999
as amended was promulgated to give effect to Chapter 13 of the
Constitution. According to the then Minister of Finance, “
The
aim of this Act is to modernise the system of financial management in
the public sector. It represents a fundamental break
from the past
regime of opaqueness, hierarchical systems of management, poor
information and weak accountability. The Act will
lay the basis for
a more effective corporate governance framework for the public
sector: Minister of Finance, Trevor Manuel, in
the foreword to the
Public Finance Management Act.
”
[57
] According to Khoza and Adam in
The
Power of Governance
, (2005), Pan
MacMillan and Business in Africa: Johannesburg:
“
The Constitution imposes a number of
general obligations on all organs of state to promote cooperative
government. In particular,
organs of state involved in
intergovernmental disputes are required to make every effort to
settle the dispute and exhaust all
other remedies before approaching
the courts. This does not prevent organs of state seeking relief
from the courts and is therefore
a workable model.
”
[58] The facts in this matter indicate that the
leadership qualities of Ms Mkonza as well as the other non executive
directors
were wanting. It is clear from Ms Mkonza’s own words
that when the meeting of the evening of 6 May 2008 was convened, the
non-executive directors were “
outraged
at what they perceived and understood as yet a further example of the
applicant’s unaccountable conduct and his conduct
in disregard
of and contempt for the Board
”.
She goes on and further complains that “
the
applicant was called in to the meeting and asked to explain his
unwarranted and highly irregular conduct. In his explanation
the
applicant indicated that he sought legal advice prior to the
suspension of Zikalala
”. In the
same affidavit, she then sets out that:
“
The Board debated the consequences
(
sic
)
the applicant’s actions in light of the current climate that
existed within the first respondent, took the view that it was
yet a
further example of the applicant’s unaccountable conduct and
behaviour and that took the view that the first respondent
could not
be required to continue to tolerate the applicant’s disruptive
presence during the investigation. It was clear
that by 6 May 2008
the applicant had become a disruptive presence within the first
respondent. It was feared that if he continued
in his post he would
interfere with and disrupt the investigation into the allegations
raised in the memorandum.
”
[59] Here, Mr Maleka SC correctly argued that the
appellant’s decision to suspend Dr Zikalala was the real and
true reason,
for triggering the decision by the non-executive members
of the Board to suspend the respondent on 6 May 2008, with immediate
effect.
Adv Maleka SC further stated:
“
They wasted no time in communicating
that decision to the respondent, for they found it proper to notify
him, of the suspension
on the morning of 7 May 2008, at 01:40.
”
[60] In state-owned enterprises, like other
organisations, good corporate governance is ultimately about
effective leadership.
An organisation depends on its board to
provide it with direction, and the directors need to understand what
that leadership role
entails. Khoza and Adam in
The
Power of Governance
correctly set out
that the concept of leadership in state-owned enterprises is not
always understood. The learned authors set
out at page 49:
“
In the case of state-owned enterprises,
this problem may be magnified: here one needs to consider the
respective roles not only
of the Board and management, but also the
role of government as a shareholder. It is critical that there is an
understanding by
government, in its capacity as shareholder, of its
leadership role in directing and guiding the state-owned enterprise.
The concept
of a shareholder performance agreement can assist in
clarifying the respective roles of the Board and shareholder …
”
“…
The solution begins with a
proper understanding of what leadership means to the Board and to the
shareholder.
”
[61] The Board of Directors in state-owned
enterprises are not only enjoined to consider their responsibilities
in terms of the
King Report 2002. They must also consider their
responsibilities in our constitutional democracy in terms of the
African leadership
philosophy and values. In the present millennium,
and in our African continent, we must be determined to emerge from
the past
of subjugation and exploitation, as was expressed by Khoza
(2001):
“
Africa has struggled under a multitude
of crushing burdens that many have come to regard as a matter of
course, as afflictions rather
than as effects.
”
There are “
…
those without a historical perspective of the degradation of the
continent as a result of slavery and colonialism …
”
and there are “
… those who
appreciate the deep seated impact of the historical imports of
slavery, colonialism, imperialism and more lately
of globalisation
and the venality of Africa’s leadership, those who do not
accept this as ordained, inevitable or even characteristic
of the
continent … they believe that Africa’s destiny will not
be a consequence of pre-destination, but the consequence
of human
will and application hence the concept of Renaissance, a rebirth, a
return to greatness, or simply the coming of a new
age … the
catalytic element that is crucial and central to that transformation
is leadership
”.
[62] History has bestowed on our generation in
our country the gift of a rare opportunity to manage our freedom as a
nation and
to nurture it towards its maturity. This obliges all of
us as citizens of this country to speak, and to act in very special
ways.
Section 1 of the Constitution informs us that:
“
The Republic of South Africa is one,
sovereign, democratic state founded on the following values:
human dignity; the achievement of equality and
the advancement of human rights and freedoms.
”
This means that there are in existence dominant values as well as an
ethos that binds us as communities to ensure social cohesion.
In
South Africa we have a value system based on the culture of ubuntu.
[63] This in effect is the capacity to express
compassion, justice, reciprocity, dignity, harmony and humanity in
the interests
of building, maintaining and strengthening the
community. Ubuntu speaks to our inter-connectedness, our common
humanity and the
responsibility to each that flows from our
connection. Ubuntu is a culture which places some emphasis on the
commonality and on
the interdependence of the members of the
community. It recognises a person’s status as a human being,
entitled to unconditional
respect, dignity, value and acceptance from
the members of the community, that such a person may be part of. In
South Africa
ubuntu must become a notion with particular resonance in
the building of our constitutional democracy. All directors serving
on
state-owned enterprises must take cognisance of these factors in
the determination of their duties as directors. Ubuntu manifests
itself through various human acts and behaviour patterns in different
social situations. This was clearly lacking when the determination
to suspend the respondent was made. The actions of the chairperson
as well as her other Board members were made in haste whilst
they
were “
upset
”.
To my mind, Tsoka J was correct when he concluded that “
the
conduct of Mkonza falls short of a director who should act
independently, without fear or favour, openly with integrity and
honesty
”.
[64] Integrity is a key principle underpinning
good corporate governance. Put clearly, good corporate governance is
based on a
clear code of ethical behaviour and personal integrity
exercised by the board, where communications are shared openly.
There are
no opportunities in this environment for cloaks and
daggers. Such important decisions are not made in haste or in anger.
There
must be ethical behaviour in the exercise of dealings with
fellow board members. These dealings must be dealt with in such a
manner
so as to ensure due process and sensitivity.
[65] The objective of developing African
leadership philosophy and values is consistent with the
constitutional values of ubuntu-botho.
In the case of
Dikoko
v Mokhatla
2006 (6) SA 235
,
Sachs J
said:
“Ubuntu-botho is more than
a phrase to be invoked from time to time to add a gracious and
affirmative gloss to a legal finding
already arrived at. It is
intrinsic to and constitutive of our constitutional culture.
Historically it was foundational to the
spirit of reconciliation and
bridge-building that enabled our deeply traumatised society to
overcome and transcend the divisions
of the past: (See the Epilogue
to the interim Constitution, extensively discussed in Azanian Peoples
Organisation (AZAPO) and
Others v President of the Republic of South
Africa and Others
[1996] ZACC 16
;
1996 (4) SA 671
(CC)
(1996 (8) BCLR 1015)
at para
[48]
). In present-day terms it has an enduring and creative
character, representing the element of human solidarity that binds
together
liberty and equality to create an affirmative and mutually
supportive triad of central constitutional values. It feeds
pervasively
into and enriches the fundamental rights enshrined in the
Constitution. As this court said in Port Elizabeth Municipality v
Various
Occupiers
[2004] ZACC 7
;
2005 (1) SA 217
(CC)
(2004 (12) BCLR 1268):
“
The spirit of ubuntu, part of the deep cultural heritage of
the majority of the population, suffuses the whole constitutional
order.
It combines individual rights with a communitarian
philosophy. It is a unifying motif of the Bill of Rights, which is
nothing
if not a structured, institutionalised and operational
declaration in our evolving new society of the need for human
interdependence,
respect and concern.”
[66] Ubuntu-botho is deeply rooted in our society.
These values should assist in informing corporate decisions made by
directors
in state owned enterprises. Proper and constructive
dialogue would enable better outcomes in the decision making process.
Heated
and impetuous decision making is the stuff of irrational
outcomes. This must be avoided. This form of governance is
underpinned
by the philosophy of ubuntu-botho. The time is right to
incorporate the views of umuntu ngumuntu ngabantu in the King code of
good governance.
[67] It is for the above reasons that I agree
with the order set out by
Victor J.
_________________________
M JAJBHAY
JUDGE OF THE HIGH COURT
I concur
:
Horn J
JUDGE OF THE HIGH COURT
I concur:
Jajbhay J,
JUDGE OF THE HIGH COURT
Date of Argument:
11 May
2009
Date of Judgment: 11 June 2009
Counsel for Appellants: PJ Pretorius SC together with A Cockrell
Attorneys for the Appellants: Bowman Gillfillan
Counsel for
Respondent:
I V Maleka SC together with TJB Bokaba SC
Attorneys for the Respondent: Werksmans Attorneys
1
Article 11
2
The King Report page 12 of 235
3
Article 8.1.2 (b)
4
Article 8.2.1
5
Article 8.2.2
6
Article 16.1.1
7
Article 12
8
Article 12.2.11
9
Article 14
10
Article 16.4
11
Article 18
12
Gower and Davies Principles of Modern Company Law
7
th
edition London Sweet & Maxwell 2003
13
King Report
14
Article 12.2.11
15
Pulbrook vs Richmond Consolidated Mining Co
(1978) 9Chat 612-613
16
Section 266 of the Companies Act
17
1982 (2) SA 336
(SE)
18
1999 (4) SA 847 (C)
19
[1991] ZASCA 152
;
1992 (1) SA 521
(A)
20
[1996] ZASCA 78
;
1996 (4) SA 617
(A) at 632C-E
21
1961 (4) SA 705
(T)
22
1958 (1) SA 768
(W)
23
1994 (2) SA 295
(C)
24
2004 (3) SA 1
SCA
25
1948 (3) SA 233
(N)
26
1958 (1) SA 768
(W)
27
1954 (2) SA 98
(N) at 102
28
1917 WLD 159
at 171 at 171
29
1924 AD 261
at p. 263
30
1962 (4) SA 772
(AD) at p. 778D - G