Brereton v Bateman Industrial Corporation Ltd and Others (JA80/99) [2002] ZALAC 38 (7 February 2002)

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[2002] ZALAC 38
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Brereton v Bateman Industrial Corporation Ltd and Others (JA80/99) [2002] ZALAC 38 (7 February 2002)

IN THE LABOUR
APPEAL COURT OF SOUTH AFRICA
HELD AT
JOHANNESBURG
Case no: JA80/99
In the matter
between
HPN
BRERETON APPELLANT
and
BATEMAN
INDUSTRIAL
CORPORATION
LTD 1
ST
RESPONDENT
EDWARD L.BATEMAN
LTD 2
ND
RESPONDENT
BATEMAN
INDUSTRIAL
HOLDING LTD 3
rd
RESPONDENT
BEL FINANCE
LTD 4
th
RESPONDENT
________________________________________________________________
JUDGEMENT
________________________________________________________________
ZONDO JP
[1] In this matter
Page AJA has prepared a very through and comprehensive judgement
which I have had the opportunity of reading.
That judgement appears
after this one. He has come to the conclusion that the appeal should
be dismissed with costs including
the costs consequent upon the
employment of two Counsel. I agree with that conclusion and the
order that he has proposed. Subject
to what follows below, I do so
for the same reasons that Page AJA has given.
[2] There are
certain matters that Page AJA deals with in his judgement and on
which he expresses certain views in respect of
which I consider it
unnecessary to express views in the light of the facts of this
matter and the issues between the parties.
I deal with them below.
[3] The reason that
was given by the respondents (as the employer party) for the
dismissal of the appellant was that they had
lost confidence in him.
The appellant did not take the attitude that our law did not
recognise loss of confidence as a ground
of dismissal. The matter
was argued before us on the basis that it was permissible for an
employer to dismiss a senior employee
on such a ground. All the
appellant challenged in this regard was the allegation by the
respondents that they had lost confidence
in him and that that is
why he was dismissed.
[4] From the middle
of par 34 to par 43 of his judgement Page AJA deals with the
question of whether or not an employer may dismiss
a senior employee
such as a chief executive officer of a company on the grounds that
he has lost confidence in the employee if
such loss of confidence is
genuine and is based on reasonable grounds. He concludes that that
is permissible.
I consider it
unnecessary to express a view in this matter on whether or not it is
permissible for an employer to dismiss a senior
employee on the
ground that he has lost confidence in such employee. The following
are my reasons for this view:-
1.
That was not in issue between the parties in
this matter. What was in issue between the parties in this regard
was whether or
not there had indeed been loss of confidence. Page
AJA has concluded, correctly in my view, that there was loss of
confidence
and that such loss of confidence was both genuine and
based on reasonable grounds.
2.
The evidence reveals that, as a matter of fact,
the appellant failed in the performance of his duties in a number
of material
respects which, in my view, were such as to render his
dismissal substantively fair. This appears in Page AJA

s
judgement. This provided a sufficient ground for the appellant

s
dismissal without the need to resort to the concept of loss of
confidence.
3.
This matter is governed by the Labour Relations
Act, 1956 (Act no28 of 1956) (

the
old Act

)
and this is one of the last few cases that this Court has to deal
with under that Act; accordingly any pronouncement on this
issue in
the context of that Act cannot be justified on the basis that this
Court is giving guidance for the future. The law
under the old Act
was not codified whereas under the Labour Relations Act, 1995, it
is, to a very large extent, codified.
4.
Great reliance is placed on certain English
cases in support of the proposition that the employer

s
loss of confidence in an employee is a ground for dismissal if it
is genuine and based on reasonable grounds. In my view great

caution must be exercised in relying on English decisions in this
regard because those decisions were based on a statute that

contained a provision to the effect that a dismissal is fair if it
is based on the employer

s
reasonable belief that the employee is guilty of misconduct. Our
present statute contains no corresponding provision nor did
the old
Act. Indeed, in our law that approach, which in effect is the
reasonable employer test, has been rejected by this Court.
(
see
in this regard what this Court said
per
Nicholson JA
, in
Toyota
SA Motors (Pty) Ltd v Radebe & Others (2000) 21 ILJ 340 (LAC)
at 342I - 354D
in
particular at par 49 at 353
).
[5] It is also not
necessary on the facts of this case to decide whether or not the
appellant was entitled to be warned of the
weaknesses in his
performance and to be given an opportunity of remedying the
situation before he could be dismissed. This is
so because, as it is
made very clear in Page AJA

s
judgement, Mr Bateman did on more than one occasion draw the
appellant

s
attention to the problems and urged him to take steps to address the
situation and the appellant failed over a lengthy period
of time to
do so. In those circumstances it doesn

t
matter whether or not there had been an obligation on the
respondents to draw the problems to the appellant

s
attention because, in any event, that is what they did.
[6] With regard to
the requirement of the audi alteram partem rule in this matter, I
wish to say no more than was said by this Court
in the majority
judgement in
JDG Trading (Pty) Ltd t/a Price

n
Pride v Brunsdon
(2000) 21
ILJ
501 (LAC)
and to emphasise that in this matter it was common
cause that the appellant was entitled to the observance of the audi
rule before
he could be dismissed. A committee was set up to which
the appellant made representations. The only issue between the
parties in
this regard was whether through that committee the
appellant was afforded a fair hearing. For the reasons given by Page
AJA I am
satisfied that, within the context of the observance of the
audi rule in the field of employment as opposed to the observance of

the audi rule in a court of law, the appellant was given a fair
hearing in this matter. Accordingly it is not necessary to express
a
view on the question of whether or not there was an obligation on the
employer to give the appellant a hearing before he could
be
dismissed.
RMM Zondo
Judge President
I agree.
CR Nicholson
Judge of Appeal
HELD
AT BRAAMFONTEIN
CASE NO: JA80/99
In
the matter IN THE LABOUR APPEAL COURT OF SOUTH AFRICA
between:
H
P N BRERETON
Appellant
(Applicant
in the Court
a quo
)
and
BATEMAN
INDUSTRIAL CORPORATION LTD
First Respondent
(First
Respondent in the Court
a quo
)
EDWARD
L BATEMAN LTD
Second Respondent
(Second
Respondent in the Court
a quo
)
BATEMAN
INDUSTRIAL HOLDINGS LTD
Third Respondent
(Third
Respondent in the Court
a quo
)
BEL
FINANCE LTD
Fourth Respondent
(Fourth
Respondent in the Court
a quo
)
JUDGMENT
PAGE
AJA
[1] The
Appellant applied to the Industrial Court of South Africa held at
Pretoria in terms of section 46 (9) of the Labour
Relations Act no
28 of 1956 for a determination in the following terms:
“
1. Declaring
the conduct of the Respondents herein, and dismissal of the
Applicant, to be both procedurally and substantively unfair
and to
constitute an unfair labour practice; and
2.
directing
the reinstatement of the Applicant retrospectively to the date of
the dismissal on terms and conditions no less favourable
than those
which prevailed at the time of the Applicant’s dismissal;
3.
directing
the Respondents to do the all things necessary,
including, but not limited to, the immediate payment to

Applicant of all monies which would have fallen due to him
had his employment not been unfairly
terminated and the
restoration of the Applicant to all his executive and/or
director’s positions
of all the Respondent companies
and their subsidiary companies and to do each and
everything necessary
to put the applicant back, in all
respects, in the position he would exactly have been
in had his services not
been unfairly terminated by
the Respondents; alternatively,
4.
that
the Respondents be ordered to pay the Applicant compensation
equivalent to that which the Appellant would have earned from
the
date of his dismissal until his normal retirement age;
…
.
and
5.
that
Respondents be ordered to take such steps as are necessary to ensure
that Applicant or his nominee receives all the Batecor
shares to
which Applicant is entitled in January 1997,1998 and 1999 and any
rights arising therefrom and that the Respondents
be ordered to
underwrite the share price in respect of each of the tranches of
shares at a value equivalent to the strike prices
set at the ELB 23
May 1996 board meeting referenced herein, alternatively that
Respondents be ordered to pay Applicant an amount
of at least R12
million in exchange for Applicant signing over the shares he is
entitled to in January 1997, 1998 and 1999 to
Respondents;
6.
costs
of suit;
7.
further
and/or alternative relief.”
[2] The
matter was duly heard by Advocate G J Rossouw, an Additional
Member of the Industrial Court of South Africa, who,
at the
conclusion of the hearing, made a determination in the following
terms:
“
1. The
Applicant’s application is hereby dismissed, with
costs, on the High Court scale, as between party
and
party, which costs include the costs occasioned by three
Counsel.
2. However,
in respect of the days spent by Respondents in the
cross-examination of the Applicant
regarding his
allegations of the rigged-figure case and the related
allegations of conspiracy, the costs should be
taxed on the highest
High Court scale, as between attorney and own client, which costs
include costs occasioned by three
Counsel.”
[3] The
Appellant has appealed to this Court against the whole of this
determination including the order as to costs.
[4] The
Appellant’s statement of case was a rambling document which
largely comprised a recital of the evidence which he proposed
to
lead. In essence, however, it alleged that the Appellant had been
employed by the Respondents in various capacities culminating
in his
appointment as executive chairman of the first Respondent in 1989. It
was alleged that on 19 June 1996 Mr Bill Bateman (“Bateman”),

purporting to act on behalf of the Respondents, unilaterally and
unfairly, and without any procedure whatsoever having been followed,

terminated Appellant’s employment with the Respondents without
any cause for such termination existing and without Appellant
being
advised of any cause and/or reasons for termination of his
employment. It was further alleged that, because such termination

was unlawful, the Appellant on 24 June 1996 insisted on being
reinstated. His employers allegedly refused to comply with this

demand and unlawfully suspended him, alleging that Batecor’s
poor performance and unacceptable financial results were in

themselves evidence of the Appellant’s lack of managerial
performance.
[5] Appellant
further alleged that he was then informed that an inquiry was to be
held into the poor performance of Batecor and
his role therein as
executive chairman of Batecor. An inquiry was held before a
committee of three members who recommended to
the board of Batecor
that the Appellant’s employment be terminated after which the
board passed a resolution to that effect.
The Appellant alleged that
these proceedings subsequent to 19 June 1996 were both procedurally
and substantively unfair for various
reasons. He based his case
firstly on the allegation that the unilateral unfair and unlawful
termination of his employment on
19 June 1996 amounted to an unfair
labour practice; secondly, on the allegation that the conduct of
Bateman, purporting to represent
the Respondents, over the period 19
June to 18 July 1996 was unfair and unlawful and constituted an
unfair labour practice; and,
furthermore, or alternatively, should
it be found that the Appellant was not dismissed on 19 June 1996,
that the subsequent dismissal
of the Appellant during or about August
1996 on both procedurally and substantively unfair.
[6] The
Respondents, in their reply to the Appellant’s statement of
case, alleged that the Appellant, by virtue of
his position
as executive chairman of the first Respondent and executive
chairman of the third Respondent, was given
profit
responsibility for the first Respondent and its subsidiaries.
They set forth various respects in which he was
alleged to
have failed properly to have discharged this responsibility.
It was impliedly denied that the Appellant’s
employment had
been terminated on 19 June 1996 and alleged that, based on the
findings of the sub-committee of the
inquiry which sat during
July and August 1996, the board of the second Respondent
resolved on 16 August 1996 that
the Appellant’s
employment with the Bateman group be terminated on three
months’ notice to go with a severance
package to be
negotiated (which was subsequently tendered to the Appellant
in the amount of R617 630,00).
[7] The
Respondents denied that their conduct was procedurally or
substantively unfair as alleged by the Appellant and pleaded
that the
termination of the Appellant’s employment took place for
fair and valid reasons and pursuant to a fair procedure.
They
accordingly prayed that the Appellant’s application be
dismissed with costs on the attorney and client scale.
[8] The
hearing of the application before the Court
a quo
took some
120 court days in the course of which the Respondents led 12
witnesses and the Appellant 3 witnesses.
The record of
viva
voce
evidence and documentary exhibits amounted to over 18
000 typed pages.
[9] Inevitably,
numerous and wide-ranging disputes of fact arose between the
parties at the trial. The court
a quo
resolved these
disputes in favour of the evidence given by the Respondents’
witnesses and rejected the testimony of
the Appellant in so far as it
conflicted with such evidence. Although counsel for the Appellant
criticized the Court
a quo’s
formulation of the approach
to be adopted to the conflicts of fact, he did not attack the
findings of fact made by the Court
a quo
, although he was not
prepared to go so far as to concede that they were correct. I find
it unnecessary to deal with the reasons
for those findings in detail
in this judgment: suffice it to say that I am satisfied that no
good grounds exist for this Court
to interfere with the findings of
credibility made by the Court
a quo
.
[10] The
judgment of the Court
a quo
, to my mind, comprises a
comprehensive and fair summary of the mass of evidence placed
before it in the course of
the trial. No point would be served in
repeating that recital in this judgment. I accordingly propose
only to
set forth those facts which are necessary in order to
render comprehensible the reasoning which follows.
[11] The
first aspect which requires to be explained is the corporate
structure of the group of companies to which the Respondents
belong.
Although the structure of the group underwent various changes in the
course of its development (which are set forth in
judgment of the
Court
a quo
), its composition was, at the time of the events
to which this appeal directly relates, as portrayed in the
organograms appearing
at in of the record.
[12] As
there reflected, the holding company of the group is the second
Respondent, Edward L Bateman Limited (“ELB”)
of which
Bateman was the chairman and the Appellant a joint managing
director together one Dr J Herselman (“Herselman”).

ELB was the controlling company of Bateman Industrial
Corporation Limited ("Batecor"), the first
Respondent, which controlled the equipment arm of the group and also
of Bateman Project Holdings Limited (“Batepro”)

which controlled the construction operations of the group. ELB was
also the controlling company of Elbex (Pty) Ltd, which is not
of
importance in this judgment.
[13] The
Appellant was the chairman and chief executive officer of
Batecor whilst Herselman was the executive chairman
of Batepro.
[14] Batecor
held all the shares in Bateman Industrial Holdings Limited
(“BIH”) the third Respondent, which
was the operational
company of Batecor. The Appellant was the Chief Executive
Officer of BIH.
[15] The
operations of BIH were divided into three main divisions: the
hitech division, of which the Appellant was the chairman;
the
infrastructure division, of which Mr E Gregor (“Gregor”)
was the chairman; and the mining and industrial
division, of
which Mr Max Vey (“Vey”) was the chairman.
[16] One
of the subsidiaries of BIH in the hightech division was Computer
Alliance (Pty) Ltd (“CA”). The Appellant
was the
chairman of the board of CA whilst the managing director was
Mr C Botha (“Botha”). Bateman was
also a member of
the board of CA. As the affairs of CA constituted the main
casus
belli
between the parties, I will have to revert to them in some
detail later in the judgment.
[17] The
fourth Respondent, Bel Finance Limited (“Belfin”), was
another subsidiary of Batecor which conducted
its overseas
operations and of which the Appellant was also an employee.
[18] During
the relevant period Mr J B Hooper (“Hooper”) was the
financial director of the ELB Group. Non-executive
directors of
the board of ELB included Messrs Guy Smith (“Smith”),
John Hall (“Hall”),
A L Leroy (“Leroy”)
and Dr Louw Alberts (“Alberts”). Alternative
directors of the board of ELB
included Mr D B Smith
(“Dudley Smith”) and Vey.
[19] Office-bearers
on the board of Batecor included, in addition to the
Appellant, as executive directors Messrs Vey,
Gregor, Graham
Jones (“Jones”), Don Passmore (“Passmore”)
and Dudley Smith. Alternative
directors on the board of
Batecor included Mr Fraser Russell (“Russell”),
Mr D Spirou (“Spirou”)
and Hooper. Bateman and Herselman
were amongst the non-executive directors of Batecor, whilst Vey,
Gregor, Spirou and Jones together
with the Appellant formed the
executive committee (“excom”) of Batecor.
[20] It
will next be necessary to refer briefly to the history of the
Appellant’s association with the Bateman group and,
in
particular, to his participation in a management share scheme in
Batecor, which played a major role in the dispute between
the
parties. The Appellant was recruited by first Respondent on 7
February 1978 as general manager of its general industries division.

The Appellant had at that time not only an impressive academic record
but was an accomplished and experienced company executive.

After he had been with the group for ten years he was
appointed joint managing director of ELB and shortly
thereafter
became chairman of the entity which subsequently
became Batecor. He held these positions,
inter
alia
,
until his employment was terminated.
[21] The
share scheme to which I have referred was, in its simplest terms, a
scheme whereby officers or other employees of the group
could be
offered shares for a nominal payment which would then be held in
trust until the purchaser became entitled to have them
released into
his ownership. His right to such release was contingent upon the
fulfilment of two conditions: the first being
that he should remain
in the employ of the group for the period prescribed in the trust
deed and the second being that the earn-out
stipulated in the trust
deed must have been achieved over that period. The scheme was
accordingly designed as a incentive to encourage
both continuity of
tenure and performance.
[22] The
scheme was created in terms of a deed of trust executed in
December 1988 by Elbquip Holdings (Pty) Ltd (which
was the
company designated to hold the shares in trust until they were
released to the ultimate purchasers) as
the party of the first
part, ELB as the party of the second part and Bateman, Anthony Garth
Fletcher (“Fletcher”) and
Ian Alan Richard Thompson
(being the prospective first trustees) as parties of the third part.
This deed appears in the record,
and need not be set out in full in
the judgment. Provisions which are of importance, include the
following.
[23] Shares
could only be purchased by an employee by accepting an offer
of those shares made to him by the trustees. Upon
acceptance
of the offer by him he would become contractually bound by the
provisions of the deed of trust governing
such transactions. In
terms thereof he was entitled to pay for the shares on acceptance but
they would remain vested in the trust
unless and until released to
him in terms of the provisions of the deed. Those provisions
stipulated that 40% of the shares might
be released to the purchaser
after five years and the remaining shares might be released in five
tranches of 12% each for
each additional year of service
completed.
[24] Clause
13.2 of the trust deed made provision for what should happen to
shares allocated to a particular executive in the event
of his
employment being terminated prior to the expiry of the ten-year
period. Shares to which he was entitled because
he had completed
the requisite period of service could be released to him
provided that he had paid or did pay
for them. The
remaining shares, which could not be released to him because
he had not completed the balance of
the requisite time
period, were required to be repurchased by ELB. Such
repurchase was to take place at the lesser
of the price which
they had been issued and the market price at the relevant time,
subject to the power of the
trustees in their discretion to
increase the purchase price to not more than middle market
price on the JSE at
the time.
[25] On
23rd January 1989 the trustees invited the Appellant to apply for
the purchase of 600 000 shares in terms of the
scheme at a price
of R1,00 per share. This offer was duly accepted by the
Appellant before the expiry date
of 31 January 1989, and the
purchase price paid. At the time of the termination of the
Appellant’s employment he
had accordingly qualified for the
release to him of the tranches of 40%, 12% and 12% of the
shares which fell due at the
end of January 1994, January
1995 and January 1996 respectively: a total thus 64% of the
shares in question.
[26] The
unreleased tranches for January 1997, January 1998 and
January 1999, comprising 36% of the shares and amounting
to
3.492.378 shares in total are those claimed by the Appellant in the
prayer referred to earlier in this judgment.
[27] The
Bateman group had, until approximately the beginning of 1992,
traditionally and primarily served the mining and
resources
industries. At that stage, and in the light of the mining industry
reducing the scale of its operations and expenditure,
the Appellant
deemed it necessary for Batecor to diversify its operations and
identified information technology (“IT”)
as the field in
which such diversification should be implemented. The hightech
division of Batecor was already in existence and
the Appellant
recommended to the boards of Batecor and ELB that they extend it by
entering the field of IT, which recommendations
were accepted. As a
result, in February 1992 BIH required a majority stake in CA and
also a stake in a company called Workgroup
Holdings (Pty) Ltd, both
of which companies were active in the IT field and thereupon formed
part of Batecor’s hightech division
under the control of the
Appellant.
[28] CA
was purchased
inter
alia
because it sold computer
network systems which comprised a branch of IT in which large
profit margins could be achieved.
It was also involved, however, in
the sale of desk-top computers on which the profit margins are
relatively small. Furthermore,
the speed with which computer
technology was advancing rendered existing stock obsolete
within a short time, so
that it was a matter of some nicety to
achieve a balance between holding sufficient stock to fulfil
orders and not being
saddled with obsolete and therefore
unsaleable stock. Despite the dangers inherent in this
procedure, however, CA
from late 1993 concentrated on the sale
of personal computers at the expense of its networking
activities.
[29]
When CA was acquired it initially remained under the control of its
original
managing director, Botha. The relationship between the
Appellant and Botha deteriorated, however, and Botha ultimately

resigned, to be replaced by Passmore. Problems which arose during
Passmore’s period of office, however, eventually
led the
Appellant to reinstate Botha. Passmore was ultimately
requested to leave.
[30] From
the time of its acquisition CA showed substantial and increasing
losses which were, according to the evidence adduced
by the
Respondents, attributable in the main to the lack of proper financial
controls and its excessive holdings of stock.
[31] The
unsatisfactory performance of CA inevitably affected adversely
the performance of the hightech division of Batecor
of which it was
a part and thus the performance of Batecor itself. Jones,
the financial director of Batecor,
presented in evidence
detailed figures relating to these companies over the
relevant period which reflected the scale of
the deterioration.
Although the latest figures he gave differed to some extent
from those available at the time when
the Appellant’s
services were terminated, because the accounts had not yet at that
stage been audited, those
differences are not sufficient
materially to affect the position. The figures he presented showed
that for the year ended
June 1994 the hightech division in
Batecor budgeted for a profit of approximately R6, 9 million
but it achieved a loss
of R352 000. For the year ended 1995,
the hightech division budgeted for a profit of R9,3 million
and achieved
a loss of just over R1 million. For the year ended June
1996, the hightech division budgeted for a profit of R14, 3 million
but
achieved a loss of R32,6 million.
[32] The
figures for Batecor for the same three years showed in 1994 and 1995
it achieved a profit substantially less than that
for which it had
budgeted whilst for the year ended June 1996 it budgeted for a profit
of R30,2 million but reported a loss of
R22 million.
[33] The
figures presented by Jones further demonstrated that the
unsatisfactory performance of CA was the main contributor
to the
losses in the hightech division and the consequent losses to
Batecor. Thus, for the year ending June 1996 CA budgeted
for a profit
R7,7 million but reported a loss for the period of R34,5 million.
Furthermore the BIH/Batecor group’s
total investment in CA
had grown by 1996 to a disproportionately large amount of
its total funds, which Jones justifiably
described as a very
unhealthy position.
[34] It
was primarily upon these losses incurred by CA whilst the Appellant
was at the helm of the hightech division that the Respondents
relied
as a justification for terminating his employment. It was contended
that his failure to detect, control, stem and rectify
the causes of
those losses constituted reasonable grounds for a loss of confidence
in his fitness to occupy the position which
he held and so justified
the termination of his services. Before considering this
proposition in detail, it will be necessary
to advert to the law
regulating the requirements for fairness in the termination of the
employment of employees in senior managerial
positions and, in
particular, chief executive officers.
[35] Although
the basic requirements for substantive and procedural
fairness in the dismissal of employees remain constant
across the
whole spectrum of employment, common sense dictates that they
need to be adapted to the nature of the employment
relationship and
the type of dismissal to which they are being applied. The law
will not insist upon the observance of
norms and procedures which are
inappropriate to, or unnecessary in the particular situation
under consideration.
[36] The
nature of the employment relationship between a chief executive
officer and the chairman and board of the company
which employs him
differs in several respects from that between an employer and a
employee whose mandate is more circumscribed
and calls for less
independent initiative. He is not told what to do by his
employers; he is, in essence, employed
himself to make the
decisions necessary for the successful and profitable operation of
the company or companies under his control.
He is required
independently to see the necessity for such a decision, to make the
correct decision called for, and to ensure
that it is effectively
implemented. He is employed in that position because he has the
insight, ability and experience to do so,
and his remuneration is
ordinarily proportionate to the responsibility of that task. On the
other hand, because of the gravity
of the responsibility he bears,
and the dire consequences which can ensue if he fails properly to
discharge his duty, the standard
with which his performance must
comply is an exacting one.
[37] Because
of the difficulty of establishing precise criteria against which
the individual actions of such an employee
can be measured, the
only practical test by which his performance can be assessed is the
efficacy of his management of the
company or companies under his
control, measured in terms of their success and profitability.
For the same reason,
the decision as to whether the employee
holding such a position is unsuited to continue in that position is
that of the
employer, provided only that his decision is
genuine and based on reasonable grounds.
[38]
There is a dearth of authority on the point, but some support for
the views expressed above is to be found in the judgment
of
CONRADIE JA in
JDG Trading (Pty) Ltd t/a Price ‘n Pride
v Brunsdon (2000) 21 ILJ 501(LAC) at pp 517-8 paras [73] and [74],
where the learned Judge said:
“
I
would think that where an employer on reasonable grounds comes to the
conclusion that a senior management employee is unsuited
to the
position which he holds, the scope for having such a conclusion
overturned in a court of law is small. It is in the highest
degree
desirable that a employer should, in the interests of efficiency, be
entitled to choose with as much freedom as is compatible
with the
honest exercise of a discretion, who it wants at or near the helm of
its enterprise. Qualities like leadership, resolve,
business acumen,
judgment and effective administration are not readily provable in a
court. A deficiency in such qualities
is not readily provable
either. I agree with what is said in Smith
& Wood
Industrial Law (6
ed) at 405:
“
In
the realm of dismissal for incapability, it is important that the
employer’s business should not have to suffer, to the

detriment of all concerned, through the ineptitude or inefficiency
of a particular employee. However, it is also important that
the
employee whose work is causing dissatisfaction should be treated
fairly. The question for the tribunal is whether the
employer has
satisfied them that he genuinely believed on reasonable grounds that
the employee was incapable.””
Much
has been made by Counsel for the Appellant of the fact that this
passage appears in a minority judgment, but a reading of the
whole
report reveals that it was not on this point that in CONRADIE  J
A differed from the other members of the Court, and
that what he said
in the passage quoted is entirely compatible with the
ratio
of
the majority judgment.
[39] The
proposition that an employer is entitled to set the standard it
requires its employees to meet and that the court
will not
intervene unless those standards are grossly unreasonable, was
affirmed in
Empangeni Transport (Pty) Ltd v Zulu (1992) 13
ILJ 352 (LAC)
and in
Eskom v Mokoena
[1997] 8 BLLR 965
(LAC) at 797 E – F.
See also
Palmer v S Mazor
Aluminum CC 1997(2) 3 LLD 108.
[40] The
Eskom
and
Palmer
cases are also authority for the
further proposition that it is within the employer’s
province to make the
assessment whether or not those standards
have been met and again the court will not interfere, unless the
assessment is grossly
unreasonable.
[41] The
distinction drawn between employees who occupy senior
management positions and ordinary employees is also drawn
by the
learned authors of Le Roux & van Niekerk,
The South African
Law of Unfair Dismissal
, at pp 80 – 81, in which
they say the following:
“
That
the general managerial employee is no less deserving of
protection against unfair dismissal than ordinary
employees
seems clear. Nevertheless, there are categories of senior
managers who, by reason of their seniority and
relationship with
other senior staff or the owners (or controllers) of the business
occupy a completely different position to that
of ordinary employees.
In this situation aspects such as personality conflicts, management
style, and simple lack of
confidence in the ability or
willingness of the manager to do the job in the way the owners or
senior colleagues desire could justify
dismissal. The use of formal
procedures prior to dismissal also seems to be less relevant in these
circumstances. Here the court
should less willing to intervene
unless there is clear evidence of bad faith or improper motives. In
most cases these employees
will have had the necessary ability to
negotiate favorable conditions of service and might prefer to rely on
any contractual remedies
they may have.”
[42] The
position laid down in these authorities also accords with the
approach in England as set out in
E C Cook v Thomas Linnell &
Sons, [1977] IRLP 132,
a decision of the Employment Appeal
Tribunal which was referred to by Counsel on both sides in this case,
and which seems particularly
apposite. The relevant portion of the
headnote (which accurately summarises the decision) reads as
follows:
“
The
appellant had been fairly dismissed from his post as manager of the
Respondents’ food depot on grounds of the employers’

genuine loss of confidence in his ability. Although employers must
act reasonably when removing from a particular post an employee
whom
they consider to be unsatisfactory, it is important that the
operation of unfair dismissal legislation should not impede employers

unreasonably in the efficient management of their business. The
quality of management is an imponderable which it may be difficult
to
assess precisely. Therefore, when responsible employers have
genuinely come to the conclusion over a reasonable period of time

that a manager is incompetent, that is some evidence that he is
incompetent, although it is then necessary to look to see whether

there is any other supporting evidence. In the present case, the
employers had quickly and genuinely formed the impression that
the
appellant was not measuring up to his new post. This was confirmed
by a fall-off in trade. Whilst it could not be positively

established that the fail-off in trade was directly attributable to
the appellant’s incapacity as a manager, where a fall-off
in
trade is of genuine concern and continuing, it is reasonable for
employers who have no confidence in their manager to come to
the
conclusion that he shares some responsibility for it.
The
issue in the present case was not whether the employer had
affirmatively established that the fall-off in trade was due to the

appellant’s incapability and in suggesting in his dissenting
opinion that para. 6 (1) AND (2) of Schedule 1 to TULRA required

employers to prove that the comparative failure of the
employee’s depot was due to his lack of skill, the Industrial
Tribunal
Chairman had misdirected himself. Para. 6 (1) and (2) is
concerned only with the identification of the reason for dismissal.
That reason having been identified, it is then for the employers to
show that in the circumstances, having regard to equity and
the
substantial merits of the case, they acted reasonably in treating
that reason as a sufficient reason for dismissing the employee.”
[43] I
am satisfied on the strength of the foregoing that the employment of
a employee in a senior executive position such as that
occupied by
the Appellant can be legitimately and fairly terminated by his
employer on the ground that the employer has lost confidence
in the
employee’s ability to perform his duties effectively, provided
only that such loss of confidence is (a) genuine and
(b) based upon
reasonable grounds. What will constitute reasonable grounds clearly
depends upon the circumstances of each case,
but without derogating
from the generality of the foregoing, I venture the view that a
failure of the part of the employee effectively
and successfully to
discharge his duties would constitute such grounds unless he were
able to show that such failure was due to
circumstances beyond his
control.
[44] I
turn next to an examination of the procedural requirements for the
fair termination of the employment of a senior
executive such as
the Appellant. The first question to be considered is whether
it is incumbent upon his employer
to warn him that his
performance is falling short of the standards required of him
and so afford him a opportunity
to rectify the position before
steps are taken to terminate his employment.
[45] It
has been recognised by the courts that in respect of this
requirement, too, the position of a senior manager differs
from that
of an ordinary employee. Because of his situation and the overall
view of the business which he enjoys as a result
thereof, he will
ordinarily be aware of the shortcomings in his performance and the
adverse consequences to the business resulting
therefrom. He will
likewise himself appreciate the necessity to remedy the position
without it been drawn to his attention by
another. It would be
pointless to insist upon his being warned of a situation of which he
must already be fully aware.
[46] A
second situation recognised by the courts in which the necessity for
a warning may be dispensed with is where the poor performance
of the
officer concerned is so gross, and its consequences so serious, that
it would be unfair to require the employer to suffer
any further
delay in terminating his employment.
[47] Recognition
of these exceptions was first extended by the Industrial
Court in
Stevenson v Sterns Jewellers (Pty) Ltd (1986) 7 ILJ 318
at p. 324 F – I
where FABRICIUS A M
stated:
“
I
appreciate one should not easily and without a certain reservation
transplant foreign legal principles onto ours –

very often they are based on particular statutes and cannot
readily be read outside that context. However,
the
following seems to be an apposite dictum:
“
If
an employee is not measuring up to the job, it may be
because he is not exercising himself sufficiently or maybe

because he really lacks the capacity to do so. An
employer should be very slow to dismiss upon the ground

that the employee is incapable of performing the work
which he is employed to do, without first telling
the
employee of the respects in which he is failing to do his
job adequately, warning him of the possibility
or likelihood of
dismissal on this ground, and giving him an opportunity of
improving his performance.
But those employed in
senior management may by the nature of their job be fully
aware what is required
of them and fully capable judging
for themselves whether they are achieving that
requirement. In such circumstances,
the need for warning
and an opportunity for improvement is much less apparent.
Again, cases can arise in
which the inadequacy is so
extreme that there must be an irredeemable incapacity. In
such circumstances,
exceptional though they are, a
warning and opportunity for improvement are of no benefit
to the employee
and may constitute a unfair burden on the
business.”
See
James v Waltham Holy Cross Urban District Council
(1973) ICR 398.
”
[48] The
first exception recognised in the
Stevenson’s
case was
approved by the Labour Appeal Court in
Blue Circle Materials
(Pty) Ltd v Haskins (1992) 1 LCD 6 (LAC)
.
[49] These
decisions have also been approved and applied by the Labour Appeal
Court as constituted under the present Labour Relations
Act in
Somyo
v Ross Poultry Breeders (Pty) Ltd [1997] 7 BLLR (LAC) at pp 866 C –
F
where MYBURGH J P said the following:
“
An
employer who is concerned about the poor performance of an
employee is normally required to appraise the
employee’s
work performance; to warn the employee that if his work
performance does not improve,
he might be dismissed; and
to allow the employee a reasonable opportunity to improve
his performance:
Craig v Rubdec (Pty) Ltd t/a Guys
and Girls (1992) 1 LCD 29 (IC); James v Waltham
Holy Cross Urban District
Council
[1973] IRLR 202.
Those
requirements may not apply in two cases which are relevant to this
matter. The first is the manager or senior employee
whose knowledge
and experience qualify him to judge for himself whether he is meeting
the standards set by the employer:
Stevenson v Sterns Jewellers
(Pty) Ltd (1986) 7 ILJ 318 (IC) at 342 F-G; Blue Circle Materials
(Pty) Ltd v Haskins (1992) 1 LCD
6 (LAC)
. The second is where
“....the degree of professional skill which must be
required is so high, and
the potential consequences of
the smallest departure from that high standard are so
serious, that one failure
to perform in accordance with
those standards is enough to justify dismissal. ”
Taylor v
Alidair Limited
[1978] IRLR 82
.”
[50] Counsel
for the Appellant disputed that the
Somyo
decision
correctly reflected the law and quoted a number of earlier cases in
which the courts did require senior employees
to be warned of the
deficiencies in their performance and to be given an opportunity to
remedy them before being dismissed. He
sought to distinguish the
Somyo
decision on the grounds that the dicta therein relied
upon by the Respondents and applied by the the Court
a quo
were not couched in peremptory terms in that it was said that
the requirement may not apply to the cases under consideration.
[51] A
reading of the whole decision the
Somyo
matter, however,
reveals that the employer did not satisfy the requirements of
appraisal, warning and opportunity to improve, which
would apply in
the case of an ordinary employee, and that that omission was held not
to render the dismissal of the employee unfair
because he was himself
aware of his failure in performance and its potential consequences.
By not couching the exception in absolute
terms the Court was doing
nothing more than leaving the door open for a warning to be required
where fairness demanded it despite
the fact that the employee
occupied a senior managerial position: as, for instance, where
through no fault of his own he was in
fact unaware of the
shortcomings in his performance and their consequences. I am
satisfied, however, that the intention and effect
of the decision in
Somyo’s
case was to lay down that it is unnecessary to
warn a senior managerial employee of the shortcomings in his
performance and the
consequences thereof when he is already aware, by
virtue of his position, of those shortcomings and consequences. The
decision
is furthermore binding on this Court unless it has been
shown to be clearly wrong, which it has not.
[52] The
next aspect of the procedural requirements for the dismissal of a
senior managerial employee which has to be considered,
is the
necessity of affording the employee a hearing before terminating
his employment on the grounds of his incapacity.
[53] It
is never been the case for the Respondents, nor was it the view of
the Court
a quo,
that the Appellant was not entitled to a
proper hearing before any decision to terminate his
employment was taken. The
contention for the Respondents was,
however, that there was a difference in the form which such a hearing
was required to take
in the case of the alleged incapacity of a
senior managerial official as opposed to an allegation, for example,
of misconduct on
the part of a ordinary employee. That such a
distinction exists was held in the majority judgment in
Brunsdon’s
case
(loc. cit.) at para. [61] and [62],
where ZONDO AJP (as
he then was) said the following:
“
Some
argument was also advanced by the Appellant’s Counsel
that the Respondent was employed as a senior
manager and
that he knew what his shortcomings were. That an employee is a senior
manager does not, in my view, give the employer
the licence to
dispense with the observance of the
audi alteram partem
rule.
Such an employee is also entitled to the observance of the
audi
alteram partem
rule. What may be relaxed in the case of a senior
manager may be the form which the observance of the rule
may take
(see what Vivier J A said in
Unilong Freight Distributors
(Pty) Ltd v Muller (1998) 19 ILJ 229 (SCA) at 238 (A-B)
.“
The
opportunity which is given to a senior employee must still meet at
least the two basic requirements of the
audi alteram partem
rule,
namely, he must be given notice of the contemplated action and a
proper opportunity to be heard. The reference to “notice
of
the
contemplated
action necessarily implies that the action
has not been decided upon finally as yet but that it is one which may
or may not be
taken depending on the representations of which the
affected person may give.”
[54] It
is the submission of the Respondents that a senior managerial
employee, faced with an allegation that his employer
has lost
confidence in him by reason of his inadequate performance or
incapacity, should be afforded a hearing
at which he should be
given the opportunity to challenge whether the alleged loss of
confidence is (a) genuine and
(b) based upon reasonable grounds.
He should further be afforded the opportunity to debate what
steps should be
taken if the loss of confidence proves to be
genuine and well-founded.
[55] The
Appellant has not seriously challenged this formulation of the
requirements of the hearing to which a senior managerial
official is
entitled: the gravamen of his complaints in this regard is
that the hearing which he was accorded failed
to satisfy any
of those requirements.
[56] I
proceed now to a summary of the evidence relevant to the
application of these principles in the present case.
[57] The
standards with which the Respondents required their chief
executive officer to comply were described by Bateman
before the
Smith Committee (with which I will deal in detail in a later stage)
and reaffirmed by him in his evidence
at the trial. Important
statements made by him in this regard include the following.
“
Any
business, ELB as well, and I as well, require a CEO to run his
operation profitably and efficiently for the long term. It
means
that the shareholders need a good return on their funds that they
have invested in the business and it means that he must
exercise all
those qualities of management, of leadership, motivation,
control which are required to achieve this.”
“
.....In
fact, one of the most important attributes of the Chief Executive
Officer is that because he is a position where his skills
are meant
to be multiplied by other people that he puts in place, one of the
most important things is that he has got to have the
ability to make
sure that things get done.”
“
The
end result of the many talents he has to bring to his task is
measured in the audited accounts over a number of years. These

numbers are the measure of his success or otherwise in fulfilling the
demanding requirements of the CEO’s spot.”
[58] In
an analogy which provoked a great deal of cross-examination,
Bateman likened the position of a CEO to the head coach
of a
football team whose position depended on and was measured by the
results which he produced. In describing the relative
functions of
the board of a company and its CEO, Bateman said the following.
“
The
shareholders expect a profit from their investment and look to the
elected representatives to look after their interests. These
in turn
watch the appointed CEO.
One
of the most important duties of the board is to continually review,
implicitly or explicitly the performance of the CEO. He
is the man
upon whom the responsibility lies to look after the shareholders by
way of increasing their wealth, not diminishing
it. If they have to
tell him how to do his job then he is the wrong man.”
[59] Bateman
claimed in the light of the foregoing that he was not entitled
but obliged to take the action which he did.
He said:
“
When
a CEO has nearly put the company under and then appoints a person to
the major trouble-spot with inappropriate experience,
then that to my
mind is a watershed and action must be taken. If I had not taken
action, then I am sure the board of ELB would
have taken me to task
exactly because we have strong non-executive directors as required by
the King Report.”
[60] He
stressed, however, that the primary responsibility for operating
and running the company rested with the CEO and
that he could
not shift that responsibility to the board of directors. He said:
“
The
fact that the board of directors thinks that he is saying sensible
things does not absolve the Chief Executive of making sure
that the
right things happen. It is often quite easy to say, “this is
the problem; this is the obvious solution.”
The difficult
thing, the thing that requires the talents for which people are paid
large sums of money, is to make it happen,
to make the business
successful. To say the it is the fault of the board that the
Applicant was unable to make a success is only
true in respect that
they did not replace the Applicant at an earlier time.”
[61] This
formulation of the duties of a CEO was supported in the
testimony of Hall, who spoke of the authority of many years
of
experience as one of South Africa’s leading corporate
executives. He stated that the chief executive officer’s
job
was to plan, lead, organise and control the company so as to ensure
that profit targets are met and, importantly, to ensure
that in the
final analysis, shareholders see and have confidence in him and the
company: confidence that he will protect and increase
their assets
in the company. In order to fulfil this task he was given the
necessary mandate and power by the board. He was
obliged to use
those powers to ensure that the proper people with the correct
experience were in place in the company; to ensure
that proper
systems to protect the assets of the company were in place; to
ensure that the organisation of the company was so
structured as to
protect its assets, and to ensure that those assets were in fact
protected.
[62] He
stressed that, just as it was not open to a CEO to shift the
responsibility which rested upon him to the board of
directors, it
was equally no answer for him to blame the performance of the
persons under him, whom he had appointed
and whom he
controlled, for continuing lack of performance by the
company. As he said, with reference to the Appellant’s

endeavours to blame the people under him for the problems,
“
Eventually
one has to say that he is no longer part of the solution, he is now
becoming part of the problem, that he has had adequate
time and he
has had the confidence of the board to actually resolve
the problems, put a proper team in place and
be effective. This
sticks in my mind all the time, the responsibility to be effective,
and my view was that Mr Brereton had not
been effective. He had all
the power, all the mandate and he had not used these in a manner
which resulted in an effective resolution
of the problems, and that
was his responsibility.”
[63] These
criteria have been criticised by counsel for the Appellant as
being arbitrary and rendering the employment a CEO
dependent
upon the whim of the board. I do not agree: they constitute as
objective a set of standards as can be
formulated when dealing with
a matter so difficult to assess objectively. Whilst they are
undoubtedly stringent,
that stringency is fully in keeping
with harsh realities of the business world in which the
rewards for success are
commensurate with the high standard
performance required to achieve such success and severity of
the penalties for
failure are commensurate with the seriousness of
the consequences for failing to do so. I am satisfied that the
criteria adopted
by the Respondents were reasonable in the
circumstances of the case, particularly bearing in mind the
authorities referred to earlier
in this judgment to the effect that
it lies within the province of the employer to set its own standards
for the performance of
managerial employees and that the court will
not interfere with those standards unless they are grossly
unreasonable.
[64] Before
dealing with the respects in which the Respondents contended
that the Appellant fell short of those standards,
it is
important to stress that the grounds upon which they relied did not
comprise misconduct by the Appellant but
a lack on his part of
the capacity to comply satisfactorily with those standards
required of him properly to perform his
duties and a consequent loss
of confidence in his ability to do so. This distinction is of
importance, particularly when one comes
to consider the procedural
requirements for terminating his employment on these grounds.
[65] The
cornerstone of this portion of the Respondent’s case consisted
of the disastrous performance of CA during the period
when it was
under the control of the Appellant. The Appellant bitterly
contested the figures upon which the Respondents
based their
assessment of his performance and went so far as to allege
that they had been falsely manipulated or
“rigged”
so as to enable Bateman to terminate his employment and appoint
Bateman’s son-in-law, Fletcher, in his
place. In support of
his allegation that the alleged loss of confidence was neither
genuine nor based upon reasonable grounds,
he not only disputed any
failure on his part to perform satisfactorily, but also relied upon a
number of incidents which occurred
during his tenure of office which,
he contended, demonstrated a belief in his ability and performance
at odds with the alleged
loss of confidence.
[66] The
dispute about the figures relating to the performance of CA over
the relevant period occupied an inordinate amount
of time during
the hearing and accounted for a vast number of the exhibits
with which the record has been burdened.
At the end of the
day, however, it clearly emerged that the Appellant had no
valid grounds for disputing the accuracy
of those figures, and
he was constrained to admit as much. I need therefore do no
more than refer to the summary
of Jones’s evidence given
earlier.
[67] Jones
testified that one of the major problems in CA was the
uncontrolled escalation in stock held by it. He prepared
various
schedules reflecting the stock position in CA from 1993 to 1996.
The figures there given reflect the gross value
of stock which
comprises with both inventory and work-in-progress. They reveal that
the gross value of stock in CA increased from
R10 million in 1993 to
R16 million in 1994 and R35,8 million in 1995. The final figure for
June 1996 was R32,1 million. These
escalating stock figures were
accompanied by a corresponding increase in provision for obsolescence
which grew from R132 000,00
in 1993 to R1,4 million in 1994, R2,7
million in 1995 and R18,2 million in June 1996. This last figure
represent 57,7% of the
gross value of the stock then held. It was
the testimony of Jones that these figures reflected bad stock
procurement and bad
stock management.
[68] Jones
also testified that the operating expenses in CA rose from R7,4
million for the year ended June 1995 to R16,4 million
for the year
ended June 1996: a increase of 120%.
[69] The
evidence of Jones as to the adverse effects which the
performance of CA had upon Batecor during the year ended June

1996 is of particular significance to demonstrate not only the extent
of the problem but also the Appellant’s reaction
to it. It
will be recalled that Batecor initially budgeted for a profit of
R30,2 million for the year in question. The Appellant
had already
claimed in a preliminary profit announcement and dividend declaration
in September 1995 that decisive action had been
taken to remedy the
problems that occurred in CA and that they looked to the future with
confidence. He repeated this claim
in the 1995 annual report and
expressed the expectation that the group would resume its growth
pattern in the following financial
year. He also stated that the
degree of the growth was largely dependent on the recovery of the IT
sub-group which was currently
the focal point of the executive
management’s effort and support. Despite this sanguine
forecast, the Batecor interim report
for the 6 months ended 31
December 1995 (signed by Appellant on 15 March 1996) revealed a loss
for that period of R5 million.
These figures included restructuring
costs and stock provision of R9,2 million in the Computer Alliance
group. Despite this
loss, the Appellant stated in the interim
report:
“
Having
taken the necessary corrective action in under-performing operations,
and given the strength of performance in other divisions,
it is
anticipated that group profitability will improve considerably in the
second 6 months. Whilst it is anticipated that the
full year results
may be up to 20% lower than the R16,548,000 achieved in 1995, it is
possible, with the successful completion
with the contracts, to equal
or exceed those results”.
This
20% reduction would still have left the group profits at
approximately R13,2 million, for which it had originally budgeted.
[70] It
is difficult to appreciate on what the Appellant could have based
this optimistic forecast in the light of the loss sustained
in the
first 6 months of the year. One is compelled to the conclusion
that he either did not properly appreciate the position
or was
deliberately misleading the shareholders as to the group’s
prospects. As Jones stated in evidence, in
order to achieve
this target, the group would have had to have made a profit of
R19 million for the second 6 months;
whereas at the time when
the Appellant signed the report an additional loss of R2 million had
been incurred in the first 2 months
of 1996.
[71] These
losses in Batecor necessitated a revision of the forecast for
BIH, its operating company. On 18 April 1996 Jones
presented a
revised forecast for BIH reflecting a loss of almost R2 million.
In the week preceding 10 May 1996
he prepared a further
revised forecast predicting a loss of R3,221 million. He also
prepared a memorandum to be
presented to the BIH executive
committee together with this forecast on 10 May 1996 which
drew attention to two features
which further aggravated the
position in CA. The first was that there was a necessity
further to increase the stock
provision in CA because of the
deteriorating position to which I have already referred. The
second was that no interest
had been charged on the loans made by BIH
to CA up to that stage, and Jones was concerned about the tax
implications of this omission
which he considered should be remedied.
[72] This
memorandum is of importance firstly, because it refutes the
Appellant’s suggestion that the subsequent steps
taken along
the lines of these recommendations were designed to create an
artificially adverse position in CA for
which he could be
blamed. Secondly, the Appellant’s reaction to the
memorandum is highly significant. He
instructed Jones not to
table it at the BIH excom meeting on 10 May 1996 because they
had just lost the arbitration
proceedings relating to
Workgroup Holdings and Appellant expressed the view that they had had
enough bad news for the day.
[73] A
meeting of the Batecor board was scheduled for 22 May 1996 and
Jones was charged with the preparation of the documents
to be
laid before the board. The Appellant was at that stage in possession
of his memorandum forecasting a loss of R3,221
million but instructed
Jones once again to omit this forecast from the papers and include
the old forecast of R10 million profit,
saying that he would address
the R3 million loss forecast verbally. He claimed that this
omission was necessary in order to preserve
confidentiality.
[74] When
this was put to the Appellant in cross-examination he initially
claimed that Jones was giving false evidence but
subsequently
admitted that he had instructed him to withhold the memorandum
from the board and claimed that he had
verbally informed the board
that their anticipation was a loss of R3 million and not a
profit of R3 million. Reference
to the minutes of the
meeting, however, reveal what he in fact said was that the
forecast in the board’s papers was
not in line with
what management believed would happen and that it now
appeared that the forecast for the year
could vary from a loss of R3
million to a profit of R3 million.
[75] The
adverse effects of excessive holdings of stock in CA and the
consequent losses due to its becoming obsolete, were
exacerbated
by the discovery of two substantial stock deficiencies for which
the Appellant could not give a satisfactory
explanation. The
first, which was revealed in June 1994, was a stock shortage of at
least R7 million in CA. The magnitude of
this shortage is
demonstrated by the fact that the total stock of CA at the time was
supposed to be approximately R16 million.
It was not suggested that
this shortfall was due to any short delivery of stock when CA was
taken over by Batecor; and, although
the shortage was said to be due
to theft, thereafter the Appellant conceded in evidence that the
cause remained unknown.
[76] Although
the Appellant claimed that controls then put in place to
prevent a recurrence of the loss, a further stock
shortage of R7,3
million was revealed in the middle of June 1995. Once again, no
satisfactory explanation for this
massive shortfall was
forthcoming, and all that the Appellant could say about it in
evidence was that it was due
to a “different aspect”
of the lack of financial controls.
[77] The
foregoing is by no means a exhaustive catalogue of the
manifestations of a lack of proper administration and control
in CA
under the Appellant over the relevant period; but it is
sufficiently illustrative of the situation for purposes
of
this judgment, and no point would be served by a recital of every
shortcoming revealed by the evidence.
[78] Another
aspect of the Appellant’s performance which elicited criticism
and which allegedly contributed to the poor results
in CA was his
failure to relate properly to the persons to whom he entrusted
administrative functions under him, and his poor judgment
in
selecting unsuitable persons for those positions. Thus, his
relationship with the chief executive of Workgroup Holdings, Dana

Buys, and with the managing director of Computer Alliance, Botha,
was strained and unsatisfactory from the time that Batecor
acquired a
interest in those companies. As Bateman expressed it in his
evidence, he treated them not as partners but as adversaries.
The
problems with Buys led to litigation which Batecor lost whilst those
with Botha led to the latter’s resignation and
further
litigation, although Botha was rehired by the Appellant some two
years later.
[79] After
Botha’s resignation, one, Greeff, was given greater
responsibilities in controlling the finances of CA
whilst Passmore
was appointed to replace Botha. Both these appointments were
made by the Appellant who, by virtue
of his position, had the
right to “hire and fire” the executives under him
and his decisions were presented
to the board as a
fait
accompli
and accepted by it without question. Although Appellant
attempted to shift the blame for Passmore’s appointment onto
Fletcher,
whose friend Passmore was, and who had suggested him as a
possible appointee, it was clear that the ultimate decision to
appoint
him and the responsibility for it rested with the Appellant.
[80] Both
these appointees proved to be ill-suited to the posts to which
they were appointed. Greeff left the company
in about
November 1995 after a threatened disciplinary inquiry and
Passmore suffered the same fate at about the same
time. It
was during Passmore’s period of office that extensive
and unnecessary purchases of stock took place
which contributed
substantially to the unsatisfactory stock position referred to
above.
[81] After
Passmore’s departure Bateman requested Fraser Russell to
attempt to rehabilitate CA, which was at that stage
losing money at a
alarming rate.
[82] He
also made other suggestions to improve the administration of the
company. One of the major sources of dissatisfaction
with the
Appellant’s performance, apart from the identity of his
appointees, was his tendency to leave the
immediate control of
the company in the hands of those appointees and to avoid
direct “hands-on” involvement
himself. What
Bateman suggested was that the Appellant’s functions be
divided between the Appellant as executive
officer (or CEO)
and a chief operating officer (or COO), who would directly control
the operations of the company. He had in mind
the appointment of
Gregor to the latter position. Bateman discussed these plans with the
Appellant, but before they could be brought
to finality, Appellant
forestalled him by appointing Dudley Smith a managing director of CA.
Bateman’s reaction to this
appointment was one of amazement.
He had been aware that Dudley Smith (who had previously been employed
in Batepro) was seeking
another position in the organisation and had
suggested to the Appellant that it might be possible to accommodate
him in CA. He
had, however, expressly warned the Appellant against
appointing him as COO, because of his total lack of experience in
the IT
business. He accordingly regarded the appointment of Dudley
Smith as head of CA to be wholly inappropriate.
[83] Because
of the Appellant’s denial that there was any genuine
dissatisfaction with his performance or any intimation
to him of such
dissatisfaction until the confrontation between him and
Bateman on 19 June 1996, it will be necessary to
traverse in some
detail the events leading up to that occasion.
[84] The
Appellant’s failure to maintain satisfactory working
relationships with the original managers of Workgroup
and CA
was noticed by Bateman, who suggested to Appellant that he
refrain from dealing with them as adversaries,
which was no
way to deal with somebody who was a partner of theirs. This
criticism was also recorded in a confidential
memo from
Bateman to the Appellant on 30 August 1994 which was a direct result
of Buys having complained to Bateman about the
way the Appellant
had treated him.
[85] During
1995 it was recorded that at a Batecor directors’ meeting held
on 6 July Bateman stressed the importance of reducing
the risks in
the computer companies, which would clearly have implied that
Appellant should exercise tighter control over them.
This was
expressly stated by Bateman at a CA board meeting held on 1
August 1995 when he said that they must make
sure that they do not
let CAC/CAN (a reference to CA Cape and CA Natal) “just run,
and must stay on top of the management
of these companies”.
This was once again a clear indication to the Appellant that he
should keep abreast of what was happening
in those companies and
exercise the proper financial controls.
[86] The
incident when Bateman mooted the possibility of appointing
Gregor as COO of CA was also relied upon by the Respondents
as
constituting a clear message to the Appellant that his performance as
an executive was lacking in the requisite “hands-on”

control to such an extent that Bateman deemed it necessary for
someone else to take over those functions from him. This was
clearly appreciated by the Appellant, who asked Bateman whether the
moving of Gregor up to COO was threatening his position, to
which
Bateman answered in the negative. The Appellant sought to rely upon
this answer as a indication that there was no dissatisfaction
with
his performance, but Bateman testified that he had chosen to take the
Appellant’s question literally and answer in the
negative
because he did not at that stage contemplate terminating the
Appellant’s employment as CEO even if Gregor were
to be
appointed at COO.
[87]
A further indication that the Appellant was well aware at this stage
that his performance was being viewed as unsatisfactory
was
that he told Bateman that if Bateman could find someone who could run
Batecor better than the Appellant, he should
do so as this
would be in the Appellant’s interests as well. The latter part
of this statement related to the fact
that the Appellant was
at that stage already a substantial shareholder in Batecor
and it was accordingly in his
interests that it should
perform well. Bateman was under the impression that this
offer has already been made by the
Appellant on a previous occasion,
but whether these words were said once or twice is of no
moment: the Appellant admitted
having said them and they show a
clear appreciation on his part that there was dissatisfaction
about his performance.
[88] The
Appellant also sought to rely upon the fact that in January –
February 1996 he was accorded a 10% increase
in his emolument
which, he claimed, reflected satisfaction with his
performance. This, however, proved to be a
two-edged sword:
for the 10% increase which he received was less than that
accorded to other comparable executives
in the group and he
was informed when it was announced that it would have been
more had it not been for CA. This,
once again, reflected
dissatisfaction with his performance as head of CA.
[89] Appellant
further sought to place reliance upon the wording of a
cautionary notice issued by the board of Batecor on
20 May 1996
when, as is apparent from what has already been said, it was clear
that there was no prospect of Batecor
reaching the forecast which
had been made at the half year. On the other hand, because of the
suppression of Jones’s
memorandum mentioned earlier, the
board was not fully informed as to the extent of the
anticipated shortfall. Nonetheless,
even on those figures, the
shortfall was sufficient to render it incumbent upon Batecor as
a listed company to warn its
shareholders of the anticipated
deficit. The last two paragraphs of the notice read as follows:
“
Corrective
action taken at Computer Alliance has resulted in improved
performance with the third quarter. The outcome of the Workgroup

arbitration will not have a negative effect on Batecor’s
earnings for the full year.
The
hightech operations, which include Computer Alliance, have been
further strengthened by the appointment of Dudley Smith, formerly

head of Batepro’s South African activities, who has taken over
as executive director.”
[90] Although
the statement was signed by the Appellant, there can be no doubt that
it was issued with the knowledge and approval
of Bateman, and that it
not only paints an unrealistically rosy picture of the situation at
CA but also lauds the appointment of
Dudley Smith which Bateman
claims to have regarded as a disaster. When confronted with this
notice in cross-examination, Bateman
was forced to concede that it
did not accord with his personal view of the situation and sought to
justify his approval of it
by the necessity for maintaining
shareholder confidence in the company. Whilst his preparedness this
to go along with the contents
of this statement smacks of
opportunism, I do not think that it is sufficient in itself to cast
any real doubt upon his testimony
that he regarded the appointment of
Dudley Smith as managing director of CA as a grave error.
[91] Finally,
the Appellant relied upon the manner in which Batecor dealt with CA
after the appointment of Dudley Smith as indicative
of the fact that
there was no genuine loss of confidence in the way it had been run
whilst under the control of the Appellant.
The Batecor
management considered, but decided against, placing CA in
liquidation, and instead resolved to entrust
it to Fletcher and
Gregor to rehabilitate as far as they could before selling it. This
they attempted with little success and it
was ultimately sold towards
the end of 1966. This to my mind does not negate in any way the
Respondents’ contention that
their loss of confidence in the
Appellant was justified. On the contrary, they concluded that the
company could not be saved and
had to be sold as soon as this was
economically feasible.
[92] Bateman
testified that the cumulative effect of the Appellant’s conduct
culminating in the appointment of Dudley Smith
was to destroy his
confidence in the Appellant’s ability properly to discharge his
duties as chief executive officer. His
attempts to remedy the
situation by persuading the Appellant to play a “hands-on”
role in CA had failed. Likewise,
his attempt to remedy the
Appellant’s shortcomings by the appointment of Gregor as COO in
Batecor was unsuccessful as Gregor
was unwilling to accept the
position with Appellant. It was becoming apparent to him that he was
running out of options and that
Appellant would sooner or later have
to be replaced. The problem was further complicated, however, by the
fact that there did
not appear to be anyone immediately available who
would be a suitable replacement.
[93] On
1 April 1996, after learning of Dudley Smith’s appointment,
Bateman consulted with Hall who was, as already
stated, a very
experienced and competent company administrator and who sat on
the board of ELB as a non-executive director.
Bateman disclosed to
Hall his loss of confidence in Appellant and the grounds upon which
it was based, and sought his advice
as what course he should follow
to remedy the situation. He told Hall that he was thinking that he
was going to have to replace
the Appellant and Hall advised him that
when that stage was reached his experience was that one tended to
delay necessary action;
but that when one finally took action after
delaying it one wished that one had done it right away.
[94] Bateman
testified that he was unable to act immediately on this advice
because he had not that time identified anyone as a
suitable
replacement for the Appellant. He explained that he had for that
reason been avoiding a direct confrontation
with the Appellant
During the course of June 1996, however, and some time after
Bateman had spoken to Hall about the
problem, Bateman’s
son-in-law, Fletcher, who had been employed as the chief executive
of a listed company called Rhoex Limited,
resigned from his post and
sold his shareholding in that company. Bateman immediately
identified him as a suitable, possible replacement
for the Appellant.
What he contemplated was the replacement of the Appellant with
Fletcher as chief executive officer and Gregor
as chief operating
officer reporting to Fletcher: an arrangement which Gregor had
previously rejected because he was not prepared
to work with the
Appellant.
[95] Bateman
discussed this possibility with Gregor who reacted favourably to the
suggestion, and also with Hall, whose response
was more guarded.
Hall refrained from directly advising Bateman as to whether or not he
should take the contemplated step, but
did advise him to proceed with
caution, since the Appellant, being litigious by nature, might
resist his plans and the fact that
Fletcher was his son-in-law might
provide a basis for the accusation that his actions had been
motivated by nepotism. Hall discussed
with Bateman in considerable
detail the possible courses open to him and the implications and
likely consequences of each.
[96] Bateman
also mooted with Fletcher the possibility of his coming into
the ELB Group and assisting in sorting out the
problems at Batecor.
Fletcher received the proposal favourably, but indicated that
he would prefer his activities to extend
to Batepro as well as
Batecor, and also made it clear that he would only join the group if
the Appellant was replaced.
[97] After
fully considering the position, Bateman decided that the best
solution to the problem would be to attempt to negotiate
an amicable
agreement with the Appellant whereby he would leave the employ of the
group on mutually acceptable terms. The Appellant
was at the time
away on a overseas trip, but Bateman set up a meeting to discuss the
matter with him on his return. That meeting
took place on 19 June
1996.
[98] Bateman’s
version of what transpired at the meeting (which was accepted
by the Court
a quo
) was as follows. He told the Appellant
that he had wanted to see him because he wanted to take up the
Appellant’s
offer to have somebody else do his job and
wanted to bring in Anthony Fletcher. The Appellant did not express
any disagreement
with this proposal but immediately asked “What
about my shares?”, which Bateman understood to be a reference
to his
unreleased shares in the share scheme. Bateman responded
“Well, this is a no fault”, by which he intended to
convey
that the Appellant was not being charged with any misconduct,
and continued “I think you get them, but we had better look
at
the trust deed”. Bateman fetched the copy of the trust deed
and after they had perused it, said : “No, you do not
get them,
the trustees have the right to buy them from you at any price up to
market price. I do not think that there will be
a problem with
that.” Bateman testified that he was of the view that he
would be able to persuade the trustees to
exercise their discretion
in favour of buying the shares at the market price, and that is why
he said what he did.
[99] Appellant’s
response was to the effect that he thought that the current market
price of the shares was on the low side
anyway and that he would much
rather keep the shares. Bateman responded that he would have to
consult with the trustees about
that. He was aware when he said this
that the trust deed did not permit it.
[100] They
then discussed the period of notice which the Appellant
would receive and Bateman mentioned that a period of
three
months was normal for a person in his position. There was some
discussion about allowing the Appellant
an extended period of
notice long enough to enable him to become entitled to the
tranche of shares due to be
released to him in January of
1997, but nothing conclusive was decided. They also
discussed his entitlement under
the provident fund and his
position under the medical aid scheme.
[101] Bateman
was adamant that the only thing which on which consensus had
been reached at this meeting was the understanding
that the
Appellant’s departure from the Bateman group was to be an
amicable one.
[102] The
version put forward by the Appellant when he came to testify
was that he and Bateman had concluded a bilateral
agreement of
settlement on 19 June 1996 in terms of which his employment was
to be terminated in return for
a certain agreed benefits,
including of the release to the Appellant of all shares as yet
unreleased to him under the
share scheme, to which he would
ultimately have become entitled had he continued in the employ of the
Respondents.
[103] It
will be appreciated that this claim bore no resemblance
whatsoever to the Appellant’s main cause of action
as
formulated in his statement of claim, which was that his employment
was unfairly and unilaterally terminated by Bateman on 19
June 1996.
There is no way in which a unilateral and unfair termination of his
employment can be reconciled with the consensual
termination to which
he subsequently testified: although the Appellant did make some
attempt to do so, as will appear hereafter.
[104] On
the following day, 20 June 1996, the Appellant’s departure was
announced to a informal meeting of excom
and a notice drafted
and signed by Bateman but settled by the Appellant was
distributed. It read as follows:
“
ANNOUNCEMENT
Edward
L Bateman Limited announces the the appointment of Anthony Fletcher
as Executor Chairman of Batecor. Also Errol Gregor,
currently a
director, has been appointed Managing Director.
Peter
Brereton, the previous Executive Chairman, will maintain a
substantial interest in Batecor, and will remain a non-executive

director for a period. He will be devoting his time to other
interests.”
[105] A
weekend then intervened, but on Monday 24 June Bateman
spoke to Hooper, one of the trustees, about the position
of
Appellant’s unreleased shares. Hooper reverted to him and
informed him that there was definitely
no discretion in the
trustees to allow anybody to retain shares which had not
been released to him at the time
when his employment was
terminated. He further said that he personally was really
unhappy with the idea of buying
all the Appellant’s
unreleased shares at market prices because it would
establish an undesirable precedent.
Bateman then asked the
Appellant to come and see him in order to convey the position
to him.
[106] When
Appellant entered his office, Bateman told him that he was
having trouble with the trustees. Appellant showed
no concern at
these tidings, but merely smiled and said “Do not worry,
I am writing you a letter”.
Bateman then said to him
that the position was not terminal, for he still hoped that
he could prevail upon the trustees
to buy back the shares
at market prices – although in fact the other
trustees subsequently confirmed
Hooper’s view that they should
not exercise their discretion to do so. Appellant, however
maintained
his attitude of unconcern and responded “Never
mind, just wait until you get my letter.” He then
got up
and left.
[107] Later
that day Bateman received a memorandum from the Appellant
dated the same day. In it he expressed shock at
Bateman’s
actions on the 19
th
and claimed that he had had
no intimation or warning prior to that day that the company
was dissatisfied with his
performance. He claimed that he
never offered to be replaced as executive chairman but merely
to have a COO appointed
to assist
him.
He continued :
“
Your
offer to pay me out at JSE market price for the unreleased Batecor
shares has obviously made me compliant with your wishes
to date;
which offer I may yet take up”
.
He
went on, however, to deny that any valid grounds existed for the
termination of his employment, and, while protesting that he
had no
wish not to settle the matter amicably, insisted upon his immediate
public reinstatement.
[108] The
contents of this memo, and, in particular, the allegation that
Bateman had made the Appellant an offer which
he might yet
accept, were clearly inconsistent with Appellant’s testimony
in the Court
a quo
that a firm agreement had been
reached between him and Bateman on 19 June and bore out
Bateman’s version that all
that had been agreed was
that the parties would endeavour to achieve an amicable
separation on terms yet to
be settled.
[109] When
testifying, the Appellant sought to overcome this contradiction
in his evidence by claiming that the memo
had been written in
reaction to Bateman informing him that the trustees were not
prepared to purchase
his unreleased shares at the
current market price, which he regarded as a repudiation by
Bateman of the firm
agreement which he alleged had been
concluded on 19 June. He testified that he had a
written a letter to Bateman
over the weekend (which was
never produced in evidence) but when Bateman informed him
of the attitude of the
trustees on the Monday morning, he
wrote another letter in response to that information, which
was the memo
produced in evidence.
[110] The
Court
a quo
, in my view correctly, rejected this evidence as
false. Not only did Appellant not react in any way to
Bateman’s
statement that the trustees were not
prepared to repurchase the shares at market value, other
than to say that
he was writing Bateman a letter (which
implied that it was in process of preparation and was not
going to be
written in future in response to what Bateman
told him), there is also no reference whatsoever in the memo
itself
to what Bateman had told him that morning. The
inference is irresistible that Appellant had had second thoughts
about
his agreement amicably to leave the group and that he seized
upon Bateman’s statement as an excuse to regard himself

at large to refuse to resign unless the much more onerous
demands which he made thereafter were met.
[111] Bateman
responded to the Appellant’s memo of 24 June by way of
a letter dated 26 June. In it he pointed out
that the Appellant’s
memo amounted to a repudiation of the agreement reached on
the 19 June to negotiate
an amicable separation with a
suitable severance package. He pointed out that he had
attempted to reach an
amicable settlement as an alternative
to an inquiry into the Appellant’s poor managerial
performance, with all the
unpleasantness, acrimony and
trauma attendant upon such a procedure. He further alleged
that the current state
of Batecor certainly warranted the
institution of such proceedings against the Appellant who,
as executive chairman
of Batecor, was entrusted with the
entire management of its operations. He observed Batecor’s
poor performance
and unacceptable financial results were in
themselves evidence of lack of managerial performance on the
part
of the Appellant and pointed out that his responsibility and
culpability in this regard had been brought to his attention
as
recently as the ELB board meeting held on the March 7, 1996.
Despite
the attitude of the trustees, Bateman expressed the view
that if the spirit of goodwill prevailed it should still
be possible
to negotiate an appropriate settlement which should satisfy
the Appellant’s reasonable expectations,
and inquired
whether he was to regard Appellant’s memo as a
termination of negotiations, in which case
it was the
intention of the company forthwith to commence an
inquiry into the Appellant’s poor performance.
[112] Finally,
as regards the Appellant’s demand for reinstatement,
Bateman pointed out that Appellant’s employment
had not been
terminated as yet.
[113] The
Appellant replied to this letter by letter dated 28 June 1996
stating that he was still prepared to settle the
matter amicably but
categorically denying that any cause existed for the
termination of his employment and disputing
all allegations
of poor performance on his part.
[114] There
followed a meeting between the parties on 2 July 1996 in
which the Appellant tabled a document setting forth
his demands for
a settlement. They commenced with requiring a series of
admissions on the part of the Respondents
entirely exonerating the
Appellant from all blame. Further demands included
inter
alia
that Batecor keep Appellant on the payroll on full
benefits until the end of June 2003, despite the fact that
he
was to remain a free agent in every sense throughout that
period. There was also provision for escalation
of those
benefits over the period.
[115] Secondly,
he demanded that he be guaranteed his rights to the
unreleased Batecor shares.
[116] Thirdly,
he required an undertaking by ELB (underwritten by the
Bateman family personally) to purchase part or all
of the Batecor
shares held by the Appellant’s family for cash at prices
calculated in accordance with
the “strike price”
at which Gregor would have qualified to exercise an option
to purchase shares at that time.
This reference to a
“strike price” requires some explanation. It is derived
from a form of share incentive
scheme which Gregor requested be
included in his conditions of employment. Instead of granting the
employee an option to buy
shares over the ensuing period at a price
established at the outset, this scheme afforded the employee the
option to buy certain
numbers of shares at certain future dates at
prices calculated in accordance with a fixed formula which was based
on anticipated
growth and took into account the inflation rate.
Since such options would not be worth exercising unless the market
price of
the shares exceeded the strike price at the time, this
scheme provided an incentive to promote growth in the company.
Because
of the adverse effects which the poor results of the hitech
division had had and were continuing to have on the price of Batecor

shares, the Appellant sought to introduce this criterion
(for which there was no warrant) in place of the market

price.
[117] In
order to appreciate the full enormity of these demands, it is
necessary to place them in their proper perspective
financially.
Bateman testified that, although it was not possible to place an
exact value on the demands because
this depended on a
number of imponderables, they represented a figure of
between R30 and R33 million. When
this figure is viewed in
the light of the fact that Batecor’s entire net
income before taxation for the year ended
June 1995 was in
the region of R21 million and the total value of ELB’s
shareholding in Batecor was in the
region of R40 million, then the
truly exorbitant nature of these demands becomes apparent.
Needless to say,
Bateman was not prepared to accede to them.
[118] Although
it seemed clear that there was little prospect of a
amicable settlement, and that the Appellant’s
employment could
only be terminated by following the proper legal procedure,
a period of further negotiation ensued,
which was categorised by
unbridled accusations and threats on the part of the Appellant in the
form, not only of letters written
by himself and his legal
representatives but also statements circulated to members of the
board and press releases. It is unnecessary
for purposes of this
judgment to deal in any detail with these exchanges which are fully
set forth in the judgment of the Court
a quo
. When taxed with
this behavior on his part, he sought to explain it as “improving
his bargaining position”. In reality,
it is quite clear that
he could have entertained no genuine hope of his demands being
voluntarily met, and that he was concerned
primarily with attempting
to fortify by his position in the litigation which he anticipated
would ensue, by missing no opportunity
to show that he had been
unfairly treated.
[119] It
is also clear that this conduct of the Appellant over the period
in question so exacerbated the relationship between
him and his
colleagues that there was no prospect of their ever being
able to work together in amity in the
future.
[120] As
a result of the meeting on the 2
nd
July and in pursuance
of Bateman’s conviction that there was little or no
room for a amicable settlement,
a meeting of the ELB board
was convened for the 4
th
July at which the
appointment of Fletcher as director and deputy chairman of
the board was confirmed; Gregor
was appointed managing
director of Batecor; and Fletcher was appointed as acting chairman
of Batecor. In addition,
the following took place:
“
The
chairman reported that discussions had been held with Mr H P N
Brereton regarding his future position in the company with the

objective of achieving an amicable settlement in separation. It did
appear that this had been achieved but subsequently Mr Brereton
has
made certain demands which negated a possible early settlement. The
company is now required to follow the procedures of the
Labour
Relations Act and to hold an inquiry and to give Mr Brereton a full
opportunity to answer any allegations against him.
The inquiry will
be conducted by a committee of non-executive directors drawn from
..... Dr L Alberts, Mr J C Hall and Mr R G
H Smith. In the interim
the services of Mr Brereton will be suspended and no
discussion on this matter will take place
at this meeting.”
[121] On
4 July 1996 Bateman also published a further announcement in
the following terms.
“
ANNOUNCEMENT
RE:
MR PETER BRERETON
The
previous announcement issued on 29 June 1996 was made on the basis
that the Company had, at that date, reached an amicable agreement

with Peter Brereton regarding his position in the company.
Subsequent events indicate that this was not the case.
The
purpose of this notice is to replace the announcement made on 20 June
1996 with the following:
Edward
L Bateman announces the proposal of the promotion of Errol Gregor to
Chief Executive of Batecor, subject to Batecor board
approval.
It
also announces the appointment of Anthony Fletcher to the board of
ELB Limited, as Deputy Chairman. As a consequence thereof
he has
been appointed a director of Batepro, and will be proposed as a
director of Batecor.
Peter
Brereton’s services have not been terminated. Discussions are
taking place with him regarding his position. A further
announcement
will be made in due course”.
[122] Despite
the foregoing, the Respondents through their attorneys made
an offer of settlement to the Appellant on 9
th
July 1996
in terms thereof he would continue in their employ at his
full emolument, without being required to
discharge any
duties, for a further period of six months and would also
receive the next tranche of shares which
was due to be
released in January 1997. This offer, which was worth
approximately R3 million, was rejected. The
Respondents
accordingly proceeded to hold the proposed inquiry.
[123] Before
dealing with the inquiry itself and the question of whether it
complied with the requirements of procedural
fairness, I should
advert briefly to the Appellant’s contention that
Bateman’s intimation to him
on 19 June that his
performance was regarded as unsatisfactory, came as an
complete surprise, and that he had
no inkling or warning of
any dissatisfaction about his performance prior to that
date. A survey of the evidence, however,
reveals that there
were a number of warnings directed to him or known to him as to the
unsatisfactory state of affairs
in CA and as to the necessity for
him, as the person responsible for the administration of that
company, to remedy the position.
As far back as 27
th
September 1993, Vey addressed a memorandum to the Appellant
expressing concern about the excessively high increase in overheads

and advising him that it would be necessary for them as a priority
to address the management and ensure that they have the business

under control.
[124] On
6
th
September 1994 Fletcher at a board meeting of BIH,
gave an emphatic warning regarding inadequate controls in
place in
CA.
[125] On
6
th
January 1995 Bruce Young, the legal adviser to BIH,
addressed a memorandum to the Appellant in which he stated “I

am troubled by the deep-seated fear that we maybe unable to
run Computer Alliance profitably”.
[126] On
6
th
July 1995 Bateman at a Batecor board meeting, stressed
importance of reducing the risks in the computer
companies.
[127] During
August 1995, the financial director of CA, Craig Smith,
addressed a memorandum to Passmore which was forwarded
to the
Appellant stating “The CA group is sitting with too much
invested in stock and debtors, which is
funded by creditors
which are overdue for payment.”
[128] In
the same month Passmore himself submitted a memorandum to
Brereton in which he highlighted the build-up of stock
and debtors in
the Cape in CA (amongst other things). Although the latter
two memoranda were handled by Vey
because the Appellant was
overseas at the time he discussed them with the Appellant.
Strangely, however, neither
memorandum reached the financial
directors.
[129] At
a CA board meeting held on 27
th
June 1995, Bateman warned
about the lax management of CA Cape and CA Natal; questioned
the escalation of overheads
in those two concerns and also
questioned the escalation of stock levels in the Cape.
[130] On
3 July 1995 Bateman addressed a memorandum to the Appellant
and Herselman drawing attention to faults in both
Batecor
and Batepro in which he pointed out,
inter alia
, that in
Batecor there were known weaknesses in finance and
insufficient depth of strength in general management.
He
added that the thoroughness and accuracy of financial
controls might also be suspect and advised Appellant
and
Herselman to make sure that they had excellent people in
those areas, as they had not given enough attention
to
getting more top-notch people and had tolerated under-
performers for too long.
[131] On
various occasions in 1995 Bateman repeated to the Appellant
that CA was his responsibility; and towards the end
of that year he
told the Appellant that he would have to get personally
involved in the problems of CA in an
attempt to sort them
out. He advised the Appellant to spend a lot of time on
CA; in fact, as he put it, “to
live there”.
Appellant’s reaction was, however, that he was not prepared
to do so because the rest
of the business would suffer.
[132] Perhaps
the most striking expression of concern over the state of
affairs at CA was made by Hall at a board meeting
of ELB held on 7
March 1996, to which Bateman specifically referred in his
letter of 26
th
June 1996 in answer to the
Appellant’s complaint that he had received no warning.
It appears from the extract from
the transcription of the
meeting which was included in the evidence that the board was
discussing the adverse
consequences of CA moving away from
the networking side of the business. Dealing with the fact
that CA had
stock worth R60 million when the Appellant thought he
had R30 million, Hall is recorded as saying
“
I
mean if it was my business somebody would be falling on his sword and
the blood would be running in the gutters in it. Maybe
you should –
you’re the boss.”
[133] Hall,
when questioned about this statement in evidence, stressed
that although what he said might perhaps been seen
by some of the
members of the board as being somewhat humorous, he meant this
comment seriously because the situation
was seen by him to be
very serious. He was also under the impression that this had
been appreciated by the other
members of the board.
[134] Apart
from these instances in which the shortcomings of the
Appellant’s performance and the necessity for him
to take
remedial measures were expressly brought to his attention, I
am of the view that he must in any event
have been aware of
those shortcomings by virtue of the disastrous performance of the
business of CA and the failure of such measures
as he had put in
place to remedy the situation. These were matters of which
he was fully aware at all relevant
times. As an experienced
executive and a highly intelligent man, he could not have
failed to appreciate that his performance
was inadequate and
that that inadequacy was occasioning grave concern to his
colleagues and employers.
[135] A
further unmistakable indication of the unfavorable light in which
his performance was viewed was given to the Appellant
shortly
before June 19 when he approached Bateman to inquire whether or
not ELB would underwrite a rights issue
for Batecor to
alleviate the dire financial straits in which Batecor found
itself as a result of its involvement
in CA. Bateman
testified that he had no hesitation in refusing to recommend
such a step and expressed in view that he
would have thought
this refusal was as clear a signal of lack of confidence as
one could send.
[136] I
revert now to the hearing of the inquiry which took place before
what was referred to as “the Smith Committee”.
The
committee consisted of Messrs Smith, Hall and Hooper (the
last-mentioned having been appointed in the
place of Dr
Alberts, who unavailable).
[137] The
Appellant was apprised of the board’s decision to proceed with
the inquiry by a letter dated 11 July 1996.
This was
followed by a more detailed notice on 22 July 1996, which
called upon the Appellant to attend a hearing
on 30 July
1996 into the poor performance of Batecor and his role
therein. It apprised him of the time and place
of the
hearing and then notified him in detail of the issues to be
considered. They were described as follows.
“
1. The
adequacy of your managerial ability and competency in the
planning, direction and control of Batecor and, in

particular, relating to Batecor’s entry into the information
technology industry. Specific reference will
be made to the
management and performance of the Hitech division. In
respect of the foregoing, the following
issues and allegations
will be considered –
1.1 Batecor
has a disproportionately high investment in the Hitech Division
in relation to its shareholder funds.
Computer
Alliance (“CA”) alone has ingested cash and
guarantees in excess of Sixty Million
Rand;
2.3
The
appointment of unsuitable and/or inexperienced persons to
executive positions particularly within the Hitech division;
2.4
Your
ability to maintain effective working relationships with people
appointed to run the business within Batecor and particularly
the
Hitech division;
2.5
The
control of executives reporting to you in Batecor and particularly
in the Hitech division;
2.6
The
control of overhead expenditure at CA;
2.7
The
absence of a adequate stock valuation system and accounting policy
to take cognizance of obsolescence in hi-tech stock
during the
financial year ended June 1996 and prior years.”
[138] The
next paragraph dealt with Workgroup Systems and the
allegations contained therein were subsequently withdrawn
from
consideration by the inquiry.
[139] The
next issue raised in the letter was the following:
“
Your
competency to grasp problematic issues and take effective corrective
action. It will be alleged that you displayed an inability
to
recognize, assess and take effective corrective action in regard
to the problems within Batecor and particularly within the
Hitech
division. In this regard reference will be made
inter alia
,
to –
2
The
1994/1995 and 1995/1996 budgets you presented before Batecor with
particular reference to Hitech division and Metquip;”
(The
issues relating to Metquip were subsequently withdrawn from
consideration by the Committee).
“
2. The
inaccurate and unrealistic forecasts from time of listing and
resultant need to issue two cautionary warnings to Batecor’s

shareholders and one cautionary warning to ELB’s shareholders.”
[140] The
following issue was:
“The nature of the relationship between Batecor, its investors
and bankers. It will be alleged that you, in your capacity
as
executive chairman of Batecor, have lost credibility with Batecor’s
bankers and investors to the detriment of Batecor
and the Bateman
group.”
[141] The
next issued raised was:
“
The
nature of your relationship with your superiors, colleagues
and subordinates. It will be alleged that you have
failed -
1. to
engender the confidence of your superiors, colleagues and
subordinates;
2. to
display adequate and appropriate leadership by giving proper
direction, guidance and support to your subordinates.”
[142] Finally
it was stated the inquiry would also relate to:
“
The
anticipated financial results of Batecor (based on the trading
results to end May 1996) for the year ended 30 June 1996, Batecor’s

current financial position and how this poor performance has been
building up over a number of years.”
[143] As
regards the procedure, it was stated in the letter that the inquiry
would not be a formal disciplinary hearing
but rather take the
form of a consultative process. It informed the Appellant
that both he and the so-called
“initiator” would
have the right to present evidence and make submissions on
the issues mentioned. It also
informed the Appellant that he
would be entitled to the assistance of a colleague and advised
him to contact Mr.
Young who would assist him in arranging
for such representation and also in obtaining such
information as might
be reasonably necessary for the preparation of
his submissions.
[144] The
letter further apprised the Appellant of the composition of the
sub-committee of the ELB board which would conduct
the inquiry
and explained that after hearing the evidence it would be asked
to make a recommendation to the ELB
board on the appropriate
course of action to be taken. A full board meeting would
then consider those recommendations.
[145] Finally
the letter warned the Appellant that the issues to be
considered by the committee went to the root of his
employment
relationship with the Bateman group.
[146] In
a written response to this notification the Appellant objected
inter
alia
to the composition of the committee.
[147] All
three of the members were directors, who were fully aware of
the state of affairs in CA and Batecor. Indeed,
it would have
been wellnigh impossible to put together a committee whose members
did not have such knowledge unless complete
outsiders were
brought in to conduct the inquiry which would have been wholly
impractical. However, this
was not the basis of the
Appellant’s objection, although he did suggest that
the committee should be
composed of directors from the
board of Batecor rather directors from ELB. The gravamen
of his complaint was that all
three of the members had
served on the audit committee and had therefore been
directly involved in many of
the issues which would have to be
considered by the committee.
[148] The
Appellant also objected to Bateman acting as “initiator”,
on the basis that the members of the committee,
being
subservient to him, would be likely to uphold his
position. He also complained that he might wish
himself
to call Bateman as a witness.
[149] Finally,
the Appellant included in his letter a 19-page request for
documents and admissions ranging over a vast
field of company
activities and covering a considerable period. This was the
first manifestation of the
strategy to be employed by the
Appellant throughout the inquiry and, indeed, during the
subsequent trial, of
attempting to broaden the issues to
such a extent as to make the whole process so unwieldy as to
be virtually unworkable.
This strategy involved,
inter
alia
, requiring full information and documentation of
all the Appellant’s activities in the Batecor group
since he joined it, ostensibly to show that his performance had
been satisfactory in all respects apart from CA. Since
there
were no allegations of inadequate performance on his part in
any other field except CA and Batecor as
far as it was
effected thereby (save for the subsequently abandoned
allegations regarding Workgroup and Metquip),
this material
was not relevant to the inquiry.
[150] The
second major respect in which the Appellant sought to extend
the scope of the inquiry was by requiring, under
the guise of
demanding consistency, full details of all disciplinary proceedings
against other employees of
the group who were alleged to
have exhibited inadequacy in the performance of their
duties. Since each case
depends on its own facts, this
type of comparison inevitably results in a multiplicity of
inquiries into the correctness
of what happened in the other
cases sought to be relied upon. Furthermore, because there
are inevitably material
differences in the facts of each
case, no real assistance can be derived from such an investigation.
[151] Bateman
responded to this letter, pointing out that it was the
prerogative of the employer to decide upon the procedure
to be
followed at the inquiry and the composition of the body conducting
it, and indicated that he was not prepared
to make any
changes in the identity of the members of the committee. He
invited the Appellant to make such objections
as he desired
on the procedural aspects of the inquiry at the commencement
of the hearing.
[152] As
regards the Appellant’s request for documentation, he once
again invited Appellant to contact Young, who
would assist him in
obtaining the information necessary for his case. Any
requests for further discovery or
postponement would be
considered at the hearing.
[153] The
Appellant’s response was merely to reserve his rights.
[154] The
hearing before the committee commenced on 30 July 1996. At the
outset of proceedings Smith explained the procedure and

stated that if the Appellant needed further time to collect the
documents he required and prepare his case
the committee would
afford him the opportunity to do so.
[155] With
reference to the Appellant’s suggestion that the members of
the committee would not be impartial, Smith
placed on record
that both he and Hall were non-executive directors and, as
such, independent. He asked
Hooper whether he, as an
executive director, felt compromised in any way and Hooper
claimed to be able bring
an independent mind to bear on the
issues despite his close association with the events in
question.
[156] The
Appellant did not thereafter pursue his objection to the
composition of the board by the way for a application
for recusal
or further objection.
[157] I
find it unnecessary to set forth in detail what transpired at the
inquiry. In essence, Bateman as initiator presented
a case in
support of the complaints set forth earlier in this judgment
and the Appellant met them with the
defences which I will
discuss hereafter. There are, however, certain aspects of
the procedure at the inquiry
which have a bearing on the
criticisms raised by Appellant, to which I will have to refer
specifically.
[158] Perhaps
the main aspect which merits mention is the attitude and
utterances of the members of the committee on which
the Appellant
sought to rely as an indicative of bias on their part. In
order to see these utterances in their
proper prospective,
it is necessary to take into account the situation which
faced the members of the committee
when the hearing took
place. As directors of ELB, they were all, to a greater or
lesser extent, acquainted with the events
which were the
subject of the inquiry. They also had experience of the
personalities and behaviour of the
persons involved. In
particular, they were aware that as a result of Bateman’s
alleged loss of confidence
in the Appellant, and the
Appellant’s reaction thereto, there had been an
almost complete breakdown of the
personal relationship
between them, irrespective of where the fault lay. Although
the powers of the committee theoretically
included the
recommendation that the Appellant be reinstated, it must have been
apparent to any reasonable person
at that stage that it was
practically impossible that a proper working relationship could
ever be restored between
Bateman and the Appellant. The
crucial issue which the committee had to determine was
whether there existed
proper grounds for the termination of
the Appellant’s employment in that Bateman’s
alleged loss of confidence
in the Appellant was, firstly,
genuine and secondly, based on reasonable grounds. If the
committee made
a finding to that effect, it would be justified in
recommending to the board that the Appellant’s
employment be
terminated. If, on the other hand, it found
that no justification existed for the termination of his
employment,
it would have to recommend to the board that it
resolve the impasse by other means, which would in all
probability
involve what the Appellant termed “buying
the job from him”, i.e. offering him whatever it would

take to persuade him to leave the employ of the group voluntarily.
[159] The
point to be borne in mind in assessing the remarks by
committee members that follow, therefore, is that an appreciation
by
them that a separation between the Appellant and the ELB
group was virtually inevitable, did not preclude
them from
bringing an objective judgment to bear on whether good and
genuine grounds existed for the unilateral
termination of
his employment by his employers.
[160] The
two passages primarily relied upon the Appellant in this regard
occurred towards the end of the first day’s
hearing when
Hall saw fit to resort to the use of a striking but
revolting image borrowed from America, namely,
“the
turd on the breakfast table”. It happened thus. The
committee had been debating the period for which
it should
adjourn in order to enable the Appellant to obtain the
additional information which he claimed was
necessary for the
presentation of his case, and Hall was asking, basically, where this
was going to get them.
He is recorded as saying the
following.
“The
pillars of your case are going to be the ones that we
discussed here. And then we have got to say, and we
are then
placed in a very difficult situation if we are asked to say well
was there precedent in somebody
else’s mistakes not
being treated as harshly. We get into an area where I
would imagine we would
be rapidly out of our depth,
chairman. And this whole question of relevance comes
into the whole thing. I have
– you know we are
going through all this whole exercise and if you came up with the
most beautifully
articulated case, which says x,y and z, I
don’t think it helps us out of the problem and I
think that is what
Bill is saying. We are going to go
through this agony and at the end of it, whatever we as a
committee
recommend to the board, we still are faced with
the turd on the table that has to be removed. Is this a

reasonable summing up?”
[161] To
this the Appellant respondent “absolutely”.
[162] Hall
then continued:
“
So
do we tackle the turd, or go through. The turd is not going to go
away in my view, even if you present your case quite well.”
[163] Thereafter,
in clarifying to Bateman what he had said, he explained
that the turd on the table was the fact that
Bateman had lost
confidence in the Appellant and that he did not think whatever the
Appellant put forward
was going to change Bateman’s
view.
[164]
The second passage which occurred shortly thereafter, comprised
the following remarks by Smith.
“
I
think, as we said up front, this committee could come to a number of
conclusions. It could come to the conclusion that he in
reality
was wrongfully dismissed and should be reinstated. It could
come to the conclusion that he has done
no wrong, or that
he has done wrong. It could come to a conclusion of a
number of things. But, as said, if it came
to the conclusion that
in fact that he should be effectively reinstated, from the company’s
point of view, we could not do
that because he hasn’t your
confidence and he hasn’t the confidence of a number of other
senior executives. So,
practically speaking, it is
impossible to reinstate him. So we would have to say, even
if we found everything
was absolutely squeaky clean, we
would have to say that we recommend in the interest of the
company Batecor
and Bateman Edward L that the directors
terminate his services for the reason principally that the executive
chairman
and the senior executives in Batecor have lost confidence in
him. And for this reason it would not be in the best interest of the

company.”
[165] Shortly
thereafter the hearing was adjourned to 13
th
August 1996.
[166] It
is significant that not only did the Appellant (and his
representative in the proceedings, Mr Speedie) agree with
what Hall
had said but, when it was suggested that there be an attempt
to reach a mediated settlement during
the adjournment, the
Appellant suggested that Hall act as mediator – which
cannot be reconciled with
his subsequent allegation that
Hall was biassed against him.
[167]
During the adjournment the committee sent a memorandum to Bateman
and the Appellant proposing certain steps to narrow the
issues and
stressed the need for the matter to be completed expeditiously. The
Appellant, however, raised a number of objections
to the suggested
procedure and insisted that all the issues he wished to have
raised be fully investigated and that he
be afforded
sufficient time to prepare himself on all those issues. He
also referred to the remarks which I have
quoted, which he alleged
showed that the committee had prejudged the issues and
requested that they withdraw the
remarks and proceed with the
inquiry without any preconceived views.
[168] In
response, the committee informed the Appellant that his
objections would be considered at the outset of the hearing
on the
13
th
August and that he should prepare himself to
proceed with the inquiry on that date.
[169] There
was also correspondence between the Appellant and Mr Young
in the interim with the Appellant claiming that
he was not
receiving all the documentation he required and Young insisting
that he was doing all within his
power to assist the Appellant.
[170] On
13
th
August, after some debate about the correctness of
the transcript of the previous proceedings, Smith referred
to the
objections raised by Appellant in his letter and in
particular to his accusation that the committee had
prejudged
the position. He tried to explain to the
Appellant that the real issue before the committee was the
role
of the Appellant in the position in which CA and
Batecor found themselves and that the committee had no
preconceived
ideas on that issue. He pleaded with the Appellant to
curtail the proceedings by dealing with that issue and
undertook
that the committee would give what he said frank
and dispassionate consideration. Appellant, however,
disregarded
this plea and proceeded to present his case on
every issue that he had raised.
[171] These
issues included the allegation that Bateman had built up a
false case against him. In this regard the Appellant
said the
following:
“
I
state quite clearly his (Bateman’s) is a fabricated case put
together with rigged figures after the event to try to justify
a
decision already made and implemented on 19 June without reference to
the Batecor or ELB boards and will not stand up under

cross-examination.”
[172] Finally,
after he had addressed the board fully for a number of hours
on all aspects of his case, he was requested
to sum up his
contentions, which he did under protest and accused the committee of
“ramrodding a decision through”.
Smith’s response
was to deny that the committee had come to any decision as yet but to
point out that it was in the interests
of all concerned that it come
to decision and make whatever recommendation it deemed fit as soon
as possible.
[173] Before
the conclusion of proceedings Bateman handed in a letter
signed by Gregor, Graham Jones, Spirou and Vey which
read as
follows.
“
I
confirm having informed you that the Batecor Excom has lost all
confidence in Peter Brereton’s ability as executive chairman
of
Batecor, based both on the company’s and his past performance
and on what has become evident from a closer look into
affairs of
the Batecor group. Should Peter Brereton return to Batecor, then
under no circumstances whatsoever would any member
of the Batecor
Excom remain a part of the management team.”
[174] On
15 August 1996 the Smith committee submitted its report to the
board of ELB. It is a lengthy document in which
the committee
found that the allegations made in the notice commencing the
inquiry had been substantially established
and that the
Appellant had not vindicated himself or distanced himself
from responsibility for the poor performance
of Batecor and
its precarious financial position. It concluded that the
Appellant recognized that CA was causing
Batecor to
haemorrhage but was ineffectual in initiating or taking any
action to stop the bleeding. It found that as
a result
Bateman and the Appellant’s other executive colleagues were
fully justified in their loss of
confidence in the
Appellant, particularly in view of the magnitude of the
investment and losses incurred in CA. Their
main findings and
recommendations to the board were formulated as follows.
“
1. Mr
Bill Bateman as the chairman of ELB, the holding company of Batecor,
is justified in his loss of confidence in Brereton’s
managerial
ability and competency and in his capacity to continue in the role of
executive chairman of Batecor, and more particularly
in Brereton’s
ability and competency to turn the situation at CA around;
2. The
sub-committee accepts the statements of the Excom as contained in
their letter of 13 August 1996 to the effect that they
have lost
confidence in Brereton’s ability to continue in the role as
executive chairman of Batecor;
3
3. The employment relationship between Brereton and Bill Bateman
and
between Brereton and his colleagues and subordinates has been
irreparably damaged;
4. To
reinstate Brereton in his employment and to his position as executive
chairman of Batecor would cause immense disruption to
the businesses
within Batecor. It is the sub-committee’s view that the
interests of Batecor and ELB outweigh Brereton’s
interests in
relation to his job security of future employment with Batecor;
2.
The
grounds for the termination of the employment of Brereton are not
based on misconduct but rather based on the fact that Brereton
has
displayed inadequate managerial ability and incompetency in his role
as executive chairman of Batecor in particular in relation
to taking
effective corrective action at CA;
3.
Notwithstanding
Brereton’s submission that he had received no prior warnings
in relation to his performance, Brereton
in his senior position of
executive chairman was fully aware of his duties that are
commensurate with his position and moreover
he was fully aware of
the problems at CA;
7. Given
the extent of the breakdown in trust and confidence the
sub-committee do not believe that Brereton should be employed
in a
alternative capacity. The sub-committee are moreover not aware that
any such alternative position exists.
Therefore,
in conclusion, the sub-committee recommends that:
1.
Brereton’s employment with the Bateman group be terminated
with
immediate effect;
2.
Such termination be accompanied by; -
2.l
an appropriate payment in lieu of notice in terms of
Brereton’s
contract of employment;
2.2 An
appropriate severance package that the ELB board
considers fair and reasonable taking into account all the

circumstances surrounding his employment with the
Bateman group;
2.3
That
such severance package be determined by the ELB
board
in consultation with Brereton”.
[175] After
debating the matter, the board passed the following
resolutions with Bateman abstaining and Appellant voting
against
them.
“
1. That
Mr H P N Brereton’s employment with the Bateman group be
terminated with a notice period of three months, during
which he will
be required not to report for work and all executive powers are
removed;
2. That
Mr H P N Brereton’s directorships be terminated in all
Bateman group companies as soon as possible.”
[176] It
was further resolved that Hall should be authorized and mandated
to consult with the Appellant in a endeavour
to determine an
appropriate severance package over and above the three months’
notice, in accordance with
the sub-committee’s
recommendations. This resolution was passed unanimously.
[177] On
26
th
August the Appellant was formally notified in writing
of the termination of his employment with three months’
notice
in accordance with the resolution quoted. The
board further tendered in this notification an additional
payment
to him of R617 630 being the equivalent of a further
nine months’ remuneration in full and final settlement

of all his claims. This tender, which was rejected by the
Appellant, is the one which was repeated in the Respondents’

reply to the Appellant’s statement of case.
[178] Also
in pursuance of the resolution, Hall attempted to reach
agreement with the Appellant on a appropriate severance
package.
The board had given him a mandate to offer the Appellant a
payment of up to R4,2 million, but in fact Hall exceeded
his mandate
by offering the Appellant R5 million: a figure which he based on
the value at that time of the Appellant’s
unreleased shares.
The Appellant, however, rejected this offer as well and made
no counter- proposal other than
to refer to the demands in
his letter of 2 July 1996.
[179] The
dispute between the parties was referred to the Industrial
Council for the Iron, Steel, Engineering and Metallurgical
Industry
in terms of the then Labour Relations Act, No 28 of 1956.
As certain of the Respondents did not
fall in the
jurisdiction of that Council, a Conciliation Board was
established in terms of the Act on 17 October 1996
in respect of
those Respondents. Neither the Conciliation Board nor the Industrial
Council was able to settle the dispute and
the Appellant accordingly
requested the Court
a quo
to determine it in terms of section
46 (9) of the Act, which led to the present proceedings.
[180] Before
embarking on a investigation of the Appellant’s grounds of
complaint against his dismissal, I should
state categorically
that I am satisfied on the evidence (as was the Court
a
quo
) that he was not dismissed at all on 19 June 1996.
In so far as there was any agreement on that date, it was
no
more than a agreement in principle that the Appellant would
leave the employ of the Respondents amicably,
on suitable
terms yet to be negotiated. I am further satisfied (as was
the Court
a quo
) that it was the Appellant, and not
Bateman, who repudiated that agreement, to maintain the
position that he
was still in the employ of the Respondents as a
bargaining counter in future negotiations. It follows that the

investigation relates solely to the termination of the
Appellant’s employment on 26 August 1996.
[181] Against
this factual background, I turn to an examination of the
respects in which the Appellant alleges that the
termination of his
employment was substantively and procedurally unfair. I will
deal firstly with the allegations
of substantive unfairness
and thereafter with those of procedural unfairness.
[182] The
first ground for the claim that the termination was substantively
unfair is that the loss of confidence upon which it
was allegedly
based was not
bona fide
, because it was motivated by nepotism
and based on rigged figures.
[183] The
allegation of nepotism derived
prima facie
support from the
fact that it was only after Bateman’s son-in-law,
Fletcher, became available for the Appellant’s
position
that Bateman expressly informed the Appellant of his loss of
confidence and his decision to replace him
with Fletcher.
Hall, as already mentioned, warned against the use the
Appellant might make of this sequence of events,
and, indeed, the
immediate impression it could create was illustrated by
Gregor’s comment to Appellant that Fletcher’s

appointment “had nothing to do with performance but everything
to do with family matters”.
[184] On
the other hand, the long history of dissatisfaction on the part
of Bateman at Appellant’s performance
militates against
the conclusion that this claim of loss of confidence was
feigned to enable him to replace
Appellant with Fletcher.
I have already dealt with Appellant’s claim that no
such dissatisfaction existed and
found that it is without
justification. What is conclusive of the matter, however,
is the fact (correctly
accepted by the Court
a quo
)
that Bateman confided his loss of confidence in Appellant to Hall
before he was aware that Fletcher would
became available as a
replacement. His desire to replace Appellant with Fletcher
could therefore not possibly
have motivated his expressed
loss of confidence in that stage. The fact that he
delayed confronting the Appellant
with that loss of
confidence until he learned of Fletcher’s
availability, was satisfactorily explained by Bateman
as being due
to reluctance to terminate Appellant’s employment until
he had identified a suitable replacement.
[185] I
am accordingly of the view that the attack on Bateman’s
bona
fides
based on nepotism was correctly rejected by the
Court
a quo
and that his loss of confidence was
indeed based on Appellant’s defective performance.
[186] The
next ground of attack was that the alleged loss of confidence
was based on artificially rigged figures relating
to the performance
of CA. As already mentioned, the Appellant ultimately did
not persist in this submission, but only
after the investigation of
the accusation had taken up a large part of the trial before the
Court
a quo
. Appellant did persist, however, in his
allegation that the figures gave a wrong impression of his
performance, and did not, therefore,
provide a basis for a genuine
loss of confidence in his ability.
[187] This
allegation was fully investigated and, in my view, correctly
rejected by the Court
a quo
. I do not propose to deal with
the grounds for that rejection in any detail, as they are
adequately set out
in the judgment of that Court. In
essence, the allegation was based the contention that the
shortfall in the value of
the stock held by CA was due to a change in
policy – the so-called “paradigm shift” –
which had the effect
of artificially depreciating its value. Jones
explained in evidence that it was as a result of the excessive
built-up in stock
in CA that the board decided to implement a
back-to-back policy: i.e. that only sufficient stock would be
maintained to meet the
orders which the company had received. The
consequent redundancy of unrequired stock in hand did lead to a loss
in value which
was exacerbated by obsolescence: but this was not a
unrealistic result; on the contrary, it was the consequence of a
realistic
appraisement of the true financial position of the company,
and flowed directly from the excessive build-up stock for which
Appellant
and his appointees – particularly Passmore –
were responsible.
[188] I
am accordingly also of the view that the Court
a quo
correctly
rejected the contention that Bateman’s alleged loss of
confidence was not
bona fide
because it was based on
fabricated grounds. It was correctly found to be genuine
and based upon grounds which
Bateman believed to be valid.
[189] This
conclusion brings me to the second leg of the inquiry as to
substantive fairness, which is whether the grounds
upon which the
loss of confidence was based were reasonable, viewed
objectively. It was established beyond question
that grounds
which
prima facie
constituted an objective basis for
the loss of confidence, existed in the form of the
unsatisfactory performance of CA
whilst under the control of
Appellant.
[190] Appellant
attempted to shift the blame for this state of affairs onto
his subordinates, but found himself on the
horns of the dilemma
which faces any senior management executive who seeks to rely on
upon this justification.
Either he did not keep himself
informed of the activities of his subordinates and therefore
failed properly to
supervise their activities; or he was
aware of their actions but did nothing about them, and so
failed properly
to control them. In any event, the ultimate
responsibility for their actions rested upon the Appellant
who had,
in the exercise of his power to hire and fire
employees, appointed them to their posts.
[191] Appellant
likewise attempted to shift the responsibility for the faulty
administration of CA onto his superiors on
the board of ELB. It is
perfectly correct that members of a board who allow their CEO
to continue in office when
he is not properly performing his
duties, are not themselves free from blame, and that the
longer this situation is
permitted to go on, the greater is
their blameworthiness in not immediately taking appropriate
corrective measures.
This was not disputed by the board. At
the meeting on 16 August 1996, at the report of the Smith
committee was
considered, Leroy is recorded as having said:
“
.....
I think the Batecor board and the executive committee have to share
in the responsibility for this disaster. I personally
think it’s
unfair to lay it, all the blame on Peter. I think we all share
that responsibility. I mean we are talking
of what, R70 million?
How can we sit here and say we didn’t know?”
Whilst
there is some justice in this remark, it mitigates the
blameworthiness of the board in the present case that they were not

always fully apprised of the position in CA (as occurred when
Appellant caused Jones memorandum to be suppressed) or lulled into
a
false sense of security by Appellant’s unjustifiably optimistic
forecasts.
[192] In
any event, the responsibility of the board is a limited one, and
does not detract from the prime responsibility
which rests upon
the CEO, as was explained in the passages from the evidence
of Bateman and Hall set forth
earlier in this judgment. It
is not necessary in order to justify a loss of confidence
in a CEO, that he should
be exclusively responsible for the
failure of the company under his control to perform
properly; it is sufficient if
he shares responsibility for
it (see
E C Cook v Thomas Linnell & Sons
Limited,
supra
).
[193] In
the premisses, I am satisfied that the Court
a quo
was correct
in finding that the termination of the Appellant’s
employment by the Respondents was substantively
fair.
[194] I
next turn to the question whether the requirements of procedural
fairness were satisfied.
[195] The
first ground upon which the Appellant claims that the
termination of his employment was procedurally unfair was
that he
received no warning of the shortcomings in his performance nor
was he afforded any opportunity to rectify
the position. In
the first place, I incline to the view that the facts of
this case place it in the category
of exceptions recognized
in the authorities quoted earlier in this judgment, in
which fairness does not require the
employee to be
expressly warned of his shortcomings. The facts of which the
Appellant must have been aware,
were more than adequate to
bring to his notice that he was not discharging his duties properly,
and he is far
too experienced and perceptive an executive to
have thought otherwise. As already mentioned, he would have
been well
aware of the shortcomings in his performance, and
of the necessity to rectify them, without any warning to
that
effect, for a substantial period before the decision to
dismiss him was taken.
[196] It
is, however, unnecessary to base the decision in this case on that
ground alone, for the evidence summarized earlier reveals
that the
Appellant was in fact frequently and timeously warned of the
inadequacies of his performance and actually
advised as to the
steps necessary to remedy them. It follows that he has no cause
for complaint on this score.
[197] The
major grounds for criticism advanced by the Appellant relate to
the inquiry conducted by the Smith Committee.
The first point
which he raised was that he was not given sufficient access
to the relevant documents to enable
him properly to prepare
his case. It will be recalled that he requested a vast
number of documents for that
purpose and that he was
referred to the group’s legal adviser, Young, who was
delegated to assist him in locating
them. Young testified
that he did so to the best of his ability, and that a large
number of the documents requested
were located. At the first day
of the hearing, however, the Appellant intimated that he had not
received all
the documents that he required, and he was
ultimately granted an adjournment for that purpose. The
inquiry had not yet
reached the stage were he was required
to present his case.
[198] At
the resumed hearing the Appellant mentioned that he had still not
received all the documentation he had asked
for, but
nonetheless elected to proceed with his case. He did not
appear to be handicapped in any way by the
absence of
documentation: indeed, most the material he called for
related to peripheral or irrelevant issues,
such as his
performance in other companies and consistency in other
cases, and was not used either at the inquiry or
at the
subsequent trial. I am satisfied that the Court
a quo
was
correct in holding that he was not materially prejudiced by his
lack of access to such documents as had
not been made
available to him at that stage.
[199] The
chief target of Appellant’s attack on the inquiry was, however,
the alleged partiality and bias of the
members of the
committee which, he alleged, had led them to prejudge the
issues and reduce the proceedings to
a charade. The first
salvo in this attack was the objection to the composition
of the committee based upon the fact
that all three of the
members had served on the audit committee and had therefore
been involved in many of the
issues to be investigated by
the inquiry. This type of objection, as Bateman testified,
could have been made
against any of the directors, all of
whom had knowledge, to a greater or lesser extent, of the issues
involved.
As I have already pointed out, it would be impractical
to regard such knowledge in itself as a disqualification.
Moreover,
having regard to the limited role of the audit
committee, membership of that body could not reasonably be
regarded
as precluding the nominated members of the
committee from impartially deciding the issues before the
inquiry,
nor do I think that the Appellant had any
reasonable grounds for believing that to be the case. In fact, the

Appellant elected not to take this objection any further by
asking the members of the committee to recuse themselves

(although he had the benefit of legal advice) and proceeded
to present his case before the committee as originally

constituted.
[200] The
main thrust of his attack was, however, based upon those
passages from the record to which I have already
referred, and
which, it could be argued, revealed a preconceived approach to
certain of the issues on the
part of the members of the
committee. Counsel for the Appellant sought to supplement
them by an ingeniously
constructed mosaic of concessions
wrung from the members under cross-examination, but he did
not, in my view,
succeed in establishing anything more
sinister than what had already emerged from those
passages. That was, as
already observed, a realization
that where the chairman and executive committee of a
company lost confidence
in the ability of its CEO
adequately to perform his duties, there is no reasonable possibility,
whatever
the rights and wrongs of the matter, of restoring
a normal employment relationship between them. One would
have thought
that the truth of this proposition was so
self-evident that no right- thinking executive would have
disputed
it. In fact, as already mentioned, the Appellant
and his representative had expressed their agreement with

it when it was enunciated by Hall. It could hardly be
necessary for a fair hearing that the committee should

investigate and consider afresh a matter which all were agreed was
a foregone conclusion, and the Appellant could
not reasonably
have thought otherwise. I do not think that a recognition
of this proposition could conceivably
have influenced the
ability of the committee members impartially to decide the
real issues before them, namely,
whether Bateman’s
loss of confidence was genuine and whether it was based on
reasonable grounds.
[201] In
the premisses, I am of the view that the Court
a quo
was
correct in its conclusion that the proceedings at the
inquiry were substantially fair and complied with
the
requirement that even a senior managerial employee is
entitled to a proper hearing before his employment
can be
fairly terminated.
[202] It
follows that no grounds exist to interfere with the findings of the
Court
a quo
that the termination of the Appellant’s
employment by the Respondents was both substantively and
procedurally fair,
and that no unfair labour practice was
committed in the course thereof by the Respondents.
[203] It
remains to deal with the Appellant’s claim for delivery of the
unreleased Batecor shares, alternatively
for payment of at
least R12 million for the shares. The Court
a quo
refused to grant this prayer, and in my view it was fully
justified in that refusal in the light of its findings.

The proceedings before that Court were brought in terms of
section 46 (9) of the Act, which only empowers the Court
to
award compensation to an employee which has found to have been
the victim of an unfair labour practice.
The finding of the
Court
a quo
that the Respondents were not guilty of
any unfair labour practice accordingly disposed of that
claim in so far as constituted
a claim for compensation
based on wrongful dismissal. In so far as it was based upon
the agreement relating
to the shares allegedly concluded
between the Appellant and Bateman on 19 June 1996, that
claim was disposed
of by the finding of the Court
a quo
that
no such agreement was concluded: a finding which, I am
satisfied, was correct, despite the endeavours of

Appellant’s counsel to persuade us that it was wrong.
[204] In
the course of the appeal, Appellant’s counsel delivered a set
of supplementary heads of argument in which
he contended
that the Appellant was entitled to delivery of the shares on
a totally different basis: namely,
that the ownership of the
shares vested in him. It had been alleged in his statement
of case that his rights to the
shares had been ceded to a
company called Pebet Holdings (Pty) Limited, a Brereton
family company, which then
paid for the shares. It was
argued on appeal that since Pebet Holdings had subsequently
been liquidated and
Appellant now controlled its assets, he
was entitled to the shares.
[205] The
simple answer to this argument is that the rights which
Appellant acquired and ceded to Pebet Holdings, although
they
were ceded under a provision of the trust deed which described
them as “the rights of beneficial
ownership”, were
and remained subject to the provisions of the trust deed.
The Appellant (and any cessionary
to whom he ceded such
right) was only entitled to delivery of the shares if all
the conditions stipulated in the trust
deed were fulfilled. Since
the condition requiring the Appellant to remain in the employ of the
group until the last three tranches
fell due was not fulfilled,
neither he nor his cessionary was entitled to delivery of
the shares. Their rights were limited
to those prescribed
in the trust deed, namely, to have the shares purchased from them
by the trustees at a price
calculated in terms of the deed. That
price had in fact been tendered but refused. There is
accordingly no merit
in this ground for claiming the shares.
[206] Although
result reached in these proceedings may at first blush seem
harsh in the light of the fact that the Appellant
worked for the
Bateman group for 18 years and undoubtedly contributed to its
growth and success over that period,
one should also bear in
mind that he was handsomely remunerated for his services
over that period and, moreover,
that the value of tranches
of shares which he did receive was, at the time when he
received them, in region of
R12 million. One should also
not forget that he had ultimately caused the group
substantial losses. Moreover, he
was offered extremely
generous terms of settlement – the last being in a
amount of R5 million –
but saw fit to reject them and to
attempt to extract still more money from the Respondents.
One cannot help but conclude
that it was his own greed that was
mainly responsible for the predicament in which he now finds himself
and that this is not
an unjust result.
[207] Turning
lastly to the question of costs, there can be no doubt that
the Court
a quo
was correct in ordering that the costs should
follow the result. The special order as to the costs
relating to the
Appellant’s allegations of rigged
figures and conspiracy was also, to my mind, fully justified
after it had
emerged that these allegations were entirely
without foundation.
[208] The
appeal is accordingly dismissed with costs, including the
costs consequent on the employment of two Counsel.
____________________
N
S PAGE
ACTING
JUDGE OF THE LABOUR COURT
I
agree
__________________
R
M M ZONDO
JUDGE
PRESIDENT OF THE LABOUR APPEAL COURT
I
agree
C
R NICHOLSON
JUDGE
PRESIDENT OF THE LABOUR APPEAL COURT
For
the Appellant:
T
C TIEDEMAN
Instructed
by:
WEBBER
WENTZEL BOWENS
For
the Respondents:
P
J PRETORIUS S.C.
With
Him:
C
E WATT-PRINGLE
Instructed
by:
JUSTIN
LAPIN ATTORNEYS
Dates
of Hearing: 11 and 12 September 2001
Date
of Judgment: 7 February 2002