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[2018] ZALAC 20
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Minister of the Department of Correctional Services v Mpiko NO and Others (JA65/2017) [2018] ZALAC 20; (2018) 39 ILJ 2489 (LAC) (19 July 2018)
IN THE LABOUR
APPEAL COURT OF SOUTH AFRICA, JOHANNESBURG
Reportable
Case no: JA65/2017
In
the matter between:
TRACEY
LUCILLE
ROSCHER
Appellant
and
INDUSTRIAL
DEVELOPMENT CORPORATION
First Respondent
COMMISSIONER
ERIC MYHILL
Second Respondent
COMMISSION
FOR CONCILIATION, MEDIATION
AND
ARBITRATION
Third Respondent
Heard:
03 May 2018
Delivered:
19 July 2018
Summary:
Review
application – employee dismissed for misrepresentation and
failure to act in the best interest of the employer thereby
breaching
her fiduciary duty – employer contending that employee failed
to disclose a negative report that warned against
the funding of the
film project and that employee misrepresented
to
the Credit Committee
that
Wal-Mart had undertaken to purchase the DVD – held that:
While
the recommendation to the Credit Committee was edited by Ford prior
to being submitted to the Credit Committee, the tracked
version of
the document clearly indicates that Ford’s editing did not
change the substance of employee’s recommendation,
but merely
made the document easier to read. Further that
There
was no justifiable basis for employee’s non-disclosure of the
negative remarks made by the NFVF and she failed to advance
a
plausible justification for her conduct. By the same token, the
representation of the information about the security or guarantee
requirement in the recommendation is equally indicative of a serious
lack of judgment on the part of the employee. The document
is replete
with misleading and ambiguous statements about the nature of the
security on offer. What was in fact conveyed to the
Credit Committee,
if not deceitful, reflects a disturbing lack of understanding of
Wal-Mart’s commitment, the basics of the
due diligence process
and the quality of the security required. The e-mail disclosed the
true situation that employee should or
must have known. Its obvious
variance with the version she put forward in the recommendation was
at the very least a grossly negligent
and misleading breach of
fiduciary duty, confirming her unreliability in undertaking the task
at hand. Her attitude reflected a
lack of concern or insight about
the possibility that her misrepresentations and non-disclosure had
significant potential to cause
IDC reputational and financial
prejudice.
Commissioner’s
finding disconnected with the evidence and thus unreasonable as
employer is entitled to expect a high fiduciary
standard of
disclosure by employees responsible for recommending substantial
loans to potential clients. Employee’s conduct
fell way below
par and severely damaged trust to the point that a continued
employment relationship became intolerable. –
Labour Court’s
judgment upheld and appeal dismissed.
Coram
Phatshoane ADJP, Murphy and Savage AJJA
JUDGMENT
MURPHY
AJA
[1]
This appeal concerns the dismissal of the appellant, Ms Tracy
Roscher, (“Roscher”), in January 2010, on the grounds
that she allegedly misrepresented material information to a decision
making body of the first respondent, the Industrial Development
Corporation (“the IDC”), in relation to the funding of a
film titled “Vanilla Gorilla”.
[2]
The IDC finances various developmental projects including the funding
of film production. It is a requirement of the IDC that
the funding
of films must be preceded by a due diligence process aimed at
minimising the IDC’s risk exposure. The due diligence
process
in this case involved
inter alia
an evaluation of the security
to be granted to the IDC in return for funding and the obtaining of a
script review (an expert opinion)
from the National Film and Video
Foundation (“the NFVF”) on the prospects and viability of
the film.
[3]
After the due diligence process was completed, Roscher compiled a
report (‘the recommendation”) for presentation
to the
IDC’s Credit Committee, being the body within the IDC
responsible for deciding whether to fund the film. The Credit
Committee was not involved in the due diligence process.
[4]
The IDC dismissed Roscher on the grounds that the recommendation to
the Credit Committee failed to include important information
contained in the script review and misrepresented the nature of the
security offered.
[5]
The first count of alleged non-disclosure, misrepresentation or
failure to act in the best interests of the employer, stems
from the
fact that the NFVF review of the Vanilla Gorilla script indicated,
inter alia
that the film was “patronising and racist
towards Africans” and that previous films of a similar taste
and nature had
low returns in the United States and worldwide. The
IDC maintains that Roscher failed to disclose this information to the
Credit
Committee. The IDC was perturbed by the non-disclosure for two
reasons: firstly, IDC is a development and financial institution
in
Africa, and hence the criticism of the patronising and racist
undertones of the film were of obvious relevance from a reputational
perspective; and secondly the financial magnitude of the credit
facility required by the producers (being US$14 369 193),
made
it imperative to disclose the NFVF’s scepticism about investing
in such a film in view of the previous poor performance
of similar
films in other markets.
[6]
The IDC further alleged that Roscher’s recommendation to the
Credit Committee was misleading about the nature of the security
for
the funding and misrepresented the outcome of discussions with
Wal-Mart (a multi-national retail company) as a potential purchaser
and distributor of the film. The recommendation stated that the
funding would be secured by an order of 1.2 million DVDs from
Wal-Mart on a non-returnable basis and Roscher had met with Wal-Mart
to confirm the validity of the order. The IDC claimed that
none of
these representations was accurate. The impression created by the
recommendation was that there was an order from Wal-Mart
when in fact
there was none. No purchase order had been received from Wal-Mart.
The recommendation thus created the incorrect impression
that the IDC
had received a guarantee or meaningful security when it had not.
The
background
[7]
Roscher entered into employment with the IDC on 31 May 2007,
effective from 1 June 2007. She had worked for the IDC in the past.
On this occasion, she was employed as a Senior Account Manager in the
Media and Motion Pictures Strategic Business Unit of the
IDC (‘the
SBU”).
[8]
In early 2008, the IDC received an application for funding from the
film producers, White Ape Producers (Pty) Ltd (“White
Ape”),
in respect of the film. It sought more than US$14 million which would
constitute about 49% of the total film production
budget.
[9]
On 14 March 2008, Mr. Moses Silanda (“Silanda”), the then
head of the SBU, addressed correspondence to White Ape
including a
“term sheet” which detailed the terms and conditions
under which the IDC would consider funding the transaction.
The term
sheet was signed by both parties. Clause 8 of the term sheet sets out
the conditions precedent to the IDC funding. Paragraph
4 of Clause 8
provided:
‘
The
Producer shall provide IDC with a letter of creditor guarantee from
Wal-Mart or like institution in its group acceptable to
the IDC. This
guarantee is in respect of the Wal-Mart order for 1.2 million DVD
units of the film Vanilla Gorilla, at a price of
$13.25 per unit, for
the time frame required by the IDC. The terms and conditions of this
guarantee must be agreed upon in full
and IDC is to be completely
comfortable with this before the IDC can request approval for the
funding of this transaction.’
[10]
Ms Kashifa Burke, a senior legal adviser at the IDC, in an e-mail
addressed to Roscher on 17 March 2008 set out the guidelines
for a
guarantee to be acceptable to the IDC. These required the guarantee
to be: i) issued by a reputable financial institution;
ii) payable by
the issuer; iii) unconditional and unequivocal; iv) not able to be
withdrawn; v) in full force and effect until
full payment is made to
the IDC; and v) transferable and negotiable.
[11]
Correspondence between various role players during March-June 2008
gives a clear indication that there was no likelihood of
the IDC
obtaining a guarantee in accordance with the requirements set out in
Burke’s e-mail of 17 March 2008. However, an
e-mail dated 18
February 2008 addressed by Mr. Jeff Maas of Wal-Mart to Genius
Products LLC, a distribution company, indicates
an initial intention
for Wal-Mart to purchase 1.2 million DVDs. It stated:
‘
Per
our discussion, in exchange for the full branded integration and
partnership package Genius Products Inc offered in regard to
Vanilla
Gorilla, Wal-Mart will commitment (sic) to purchase 1.2 million units
of the DVD when released at a wholesale cost of $13.25
on a
non-returnable basis paid to Genius Products on our normal terms of
net 60.’
[12]
The exact nature and extent of this form of security was open to some
doubt. In correspondence between Roscher and a legal
adviser, Mr.
Gregg Homer, on 19-20 March 2008, it became evident that Wal-Mart was
not prepared to offer a guarantee. Roscher mentioned
to Homer that
she had strict instructions to get a guarantee. Homer replied
unequivocally that there would be no guarantee but
proposed an
alternative involving another company referred to as Anderson, a
retail distributor, as follows:
‘
Again,
there will be no guarantee. Anderson will sign a purchase order
confirming that it will pay $15.9 million to Genius on delivery
of
the DVD’s…This is the proposal Genius has made. Wal-Mart
is no longer going to be a party to the transaction at
all. So there
is nothing for either Wal-Mart or Anderson to guarantee.’
[13]
This proposal obviously did not meet the IDC’s requirements in
that it would establish no direct legal relationship between
the IDC
and Wal-Mart but only between Anderson and Genius, two American
companies. Although nothing came of this proposal, it evinces
a clear
indication that Wal-Mart was not prepared to offer any guarantee or
security for IDC making a loan to White Ape.
[14]
In the absence of clarity, it was decided that Roscher and Burke
should visit Wal-Mart in the USA. Roscher sought and obtained
approval from the Credit Committee for payment of R252 000 to
finance the 7-day trip from 10-18 June 2008. Burke ultimately
withdrew from the arrangement and Roscher was accompanied by Mr.
Prosper Chavarika, Manager Legal Department at the IDC. The proposal
motivating the need for the trip and the budget for it stated:
‘
The
IDC risk in this transaction is largely based upon the DVD order from
Wal-Mart and IDC needs to confirm the validity of this
order first
hand from Wal-Mart. It is thus prudent for the IDC team to meet with
Wal-Mart to properly understand the rationale
for providing the
purchase order at such an early stage, as it is quite unusual in the
motion picture industry for the DVD sales
to take place prior to
production of the motion picture. The verification of the order and
the rationale behind it is critical
to the assessment of the risk to
IDC.’
[15]
After Roscher and Chavarika returned from the USA, various documents
were produced for the purposes of the Credit Committee
meeting
scheduled for 30 June 2008. Roscher was the primary author of the
recommendation distributed to the members of the Credit
Committee,
though it was subjected to editorial revision, particularly by Mr.
Basil Ford, the new head of the SBU.
[16]
Paragraph 1 of the recommendation, setting out the background to the
project, stated:
‘
The
IDC funding will be secured by an order of 1.2 million dvds at a unit
price of $13.25 from Wal-Mart, the world’s largest
retailer,
serving 176 million customers worldwide per week. The order is on a
non-returnable basis.’
[17]
Paragraph 2.1 gave further details as follows:
‘
Vanilla
Gorilla has a total production budget of US $ 29 324 884…..The
Producers have approached the IDC to support
this project and finance
49% of the budget, being $14 369 193. This is to be
financed in the form of mezzanine funding,
secured by an order place
by Wal-Mart Stores Inc with Genius Products LLC. The extent of the
order is 1.2 m DVD units of Vanilla
Gorilla at a price of $13.25 on a
non-returnable and transferable basis….’
[18]
In paragraph 3.1 of the recommendation the following is stated:
‘
Although
the transaction represents a significant increase in the motion
picture portfolio, the Film is one of the first motion
picture
investments where IDC enjoys a strong security position…..The
Film is also unique in that it has achieved a significant
DVD
pre-sale to the largest retailer worldwide like Wal-Mart.’
[19]
Paragraph 3.6 deals with the financial aspects of the recommendation.
The relevant part reads:
‘
3.6.1
The IDC funding is secured against a pre-sale to Wal-Mart of 1.2
million DVD’s. These dvds are to be made available
for sale at
Wal-Mart stores on 23 April 2009…Consequently IDG should
receive payment by no later than August 2009…
3.6.3
Wal-Mart has requested that Genius Products LLC (“Genius”)
act as distribution agents in respect of the order.
Genius will print
the DVD’s. As a result of the order, the IDC’s risk
initially lies with Wal-Mart. However, given
that the funds are to
flow from Wal-Mart to genius, the risk moves to Genius…
3.6.5
In order to mitigate the risk of Genius, IDC has requested the
condition that the producer shall enter into a binding and
fully
executed distribution agreement for the picture with Genius…that
provides that IDC obtains a direct, first priority
first position
security interest in the Wal-Mart receivable (relating to Wal-Mart’s
non-refundable purchase order for no
less than 1 200 000
DVD’s of the picture at $13.25 per unit) an irrevocable
direction to pay to IDC…..Should
Genius be in financial
difficulty or any other difficulty that causes it to be unable to
fulfil its obligation to the Wal-Mart
order, the Producers shall have
the right to terminate the distribution agreement with Genius and in
such event all rights in and
to the picture licensed to Genius
thereunder shall revert to Producer free (subject to IDC’s
security interest) and clear
of any liens, claims or encumbrances of
Genius. The rights shall be transferred to another distributor (to
IDC’s satisfaction)
that can fulfil the Wal-Mart order and
thereby enable IDC’s loan to be repaid.’
[20]
The recommendation to the Credit Committee thus stated that i) the
IDC’s funding would be secured by an order of 1.2
million DVDs
from Wal-Mart and that this order was made on a “non-returnable
basis”; ii) there had been a significant
DVD pre-sale to the
largest retailer worldwide – Wal-Mart; iii) the IDC’s
funding was secured through the pre-sale
order from Wal-Mart; iv) the
IDC would recoup its US$14 million investment from the DVD sales
guaranteed by Wal-Mart; and v) Roscher
had met with Wal-Mart to
confirm the validity of the order and they had already placed an
order for 1.2 million DVDs. These assertions
were made
notwithstanding the now undisputed fact that no purchase order had in
fact been received from Wal-Mart. The impression
undeniably created
by the recommendation was that there was an order from Wal-Mart, when
in fact there was none.
[21]
On 27 June 2008, a few days before the Credit Committee meeting
scheduled for 30 June 2008. Ford signed a new term sheet with
VG
Producers (Pty) Ltd (“VG”), the company established to
produce the film. The document was expressly stated to be
for
discussion purposes only and was concluded in respect of certain
special conditions necessary for ultimate approval. Clause
3 of the
term sheet deals with the issue of security as follows:
‘
Borrower
(VG) shall grant Lender (IDC) a first priority, first position
security interest in all of Borrower’s assets, including,
without limitation, all right and interest in the Picture, and
subject only to the Permitted Liens.
Purchase
order placed by Wal-Mart Inc to the extent of 1.2 million DVD’s
at a unit price of $13.25
Payment
before delivery of DVD’s
First
position security over the Wal-Mart Inc accounts receivable in the
financial statements of Genius Products Inc.’
[22]
This description of the security arrangement varies somewhat from
that in the proposal that served before the Credit Committee.
Be that
as it may, both descriptions clearly indicate that Wal-Mart would
need to place a purchase order.
[23]
The true position about the security arrangement is captured in an
e-mail addressed by Chavarika to Roscher at 23h57 on 27
June 2008
after he had read Roscher’s recommendation which had been
circulated. He said:
‘
I
have not had the benefit of seeing your most recent draft of the
Credit Committee Report, so it may be that what I express below
is
already covered in the Credit Committee Report.
This
evening I have been communicating with our lawyers in the USA, who
have advised me that Genius is (i) not going to enter into
the
Inter-Party Agreement (ii) not going to provide IDC with the security
that IDC requires (iii) not going to provide written
evidence of the
agreement between Genius and Wal-Mart in respect of purchasing the
DVD’s.
Whilst
I acknowledge that you and I met with Wal-Mart and I acknowledge that
at the meeting Wal-Mart expressed an interest in buying
the DVD form
Genius. The fact that (i) both Genius and Wal-Mart are unwilling to
make a written commitment to each other and (ii)
Genius has indicated
that they are not going to be a party to the Inter-Party Agreement
(iii) Genius is not going to provide the
IDC with the security that
IDC requires, is in my view indicative of the fact that Wal-Mart’s
expression of interest is worth
very little. As a result of the
aforegoing, my view is – an accurate disclosure to the Credit
Committee requires you to disclose
the fact that
Wal-Mart
expressed an interest to buy the DVD’s, but that expression of
interest should not be construed as a commitment to
purchase the
DVD’s.’
[24]
On the following morning, Ford addressed the following e-mail to the
team:
‘
It
looks like Katinka’s efforts at saving this project have been
in vain!!!!! Without security arrangements that we need and
in the
absence of a concrete order from Wal-Mart, the risk to IDC is too
high.’
It
would seem from the outcome of the meeting, which I will discuss
presently, that this position was communicated to the Credit
Committee at its meeting on 30 June 2008.
[25]
Chavarika did not testify at the arbitration proceedings, but the
fact that he authored the e-mail and the truth of its contents
are
not disputed.
[26]
On 26 June 2008, the NFVF issued its script report. It comprises a
comprehensive review of the project. In its discussion of
the target
audience, the NFVF made the following remarks about the proposed
film:
‘
It
probably will not do well on SA screens because of its obviously
patronizing characterization of Africa and the stereotypical
characters it uses to convey the events of the story…The
question should be asked, why should we be making films for this
market with its clearly racist precepts about Africa and Africans.
After all, it says Africans need a rich little white girl to
come and
teach them about the true values of nature conservation and love of
animals!’
[27]
The NFVF had compared the film with other like films such as “Mighty
Joe Young” which had not succeeded financially.
In its
conclusion, the NFVF stated:
‘
It
is very hard to think of ways to make this story less patronizing and
racist given the point of departure for these writers.
Even were this
possible, I don’t think these writers would readily agree to
drastically change their precepts.
With
regards to the financial viability of investing in a film with
comparisons to Mighty Joe Young which was made for $110 million…but
only grossed $50 million….it makes it very hard to invest $35
million to make a similar film.’
[28]
Thus, the NFVF took a negative view of the project, and essentially
cautioned against proceeding with it.
[29]
The only reference to the NFVF report in Roscher’s
recommendation
to
the Credit Committee is in Paragraph 3.8 addressing the technical
aspects of the project. In paragraph 3.8.6 it is stated:
‘
The
NFVF have reviewed the script and given comment. They view the script
as average.’
The
recommendation
thus
did not disclose to the Credit Committee the view of the NFVF that
the storyline was racist and patronizing and that the venture
was
financially risky.
[30]
At its meeting of 30 June 2008, the Credit Committee conditionally
approved the application for funding. It did so without
the benefit
of the opinion of the NFVF. The minutes of the meeting record that
its approval was subject to various specified conditions
precedent,
which included a requirement that a certified copy of the Wal-Mart
purchase order be provided to the satisfaction of
the IDC. This
condition could not be met, as Wal-Mart had made it clear since March
2008 that it would not make such an order or
provide any other form
of guarantee. This, at least according to Chavarika, had been
confirmed in effect during the visit to the
USA. The lack of adequate
security resulted ultimately in the IDC not financing the project.
[31]
The record shows that in the period between July 2008 and January
2009 problems arose in the relationship between Ford and
Roscher
which led to mutual recriminations about performance and
compatibility. On 19 February 2009, Roscher lodged a formal grievance
against Ford in which she raised a number of job related issues
including a strong sense of grievance that Ford had been responsible
for the Vanilla Gorilla film project not being financed.
[32]
On 20 February 2009, Roscher was served with a notice of disciplinary
action which notified her of a disciplinary hearing on
5 March 2009
where she would be required to answer charges of breach of
confidentiality, improper conduct, insubordination, incompatibility
and poor work performance. During this period, Roscher took sick
leave and the disciplinary enquiry was postponed three times.
The
charge sheet was amended on 1 April 2009 to include
inter alia
allegations of non-disclosure and misrepresentation arising out of
the Vanilla Gorilla project. Roscher was placed on special leave
on
22 May 2009.
[33]
During the course of the disciplinary process, the IDC decided to
proceed only with the charges related to the non-disclosures
in the
Vanilla Gorilla project. The relevant charges alleged fraudulent
non-disclosure, or misrepresentation or failure to act
in the best
interest of the employer in that:
‘
1.7.1
you obtained an independent review of the Vanilla Gorilla script from
the National Film and Video Foundation,
which review indicated, inter
alia, that the film was “patronizing and racist towards
Africans” and that previous films
of a similar taste and nature
had low returns in the United States and worldwide.
1.7.2
you failed to disclose these views of the NFVF to the Credit
Committee and to the Head of the Media and Motion Pictures SBU.
1.7.3
given the business of the IDC as an African Development and Financial
Institution, it was imperative and incumbent upon you
to disclose the
views of the NFVF regarding the patronizing and racist effect of the
film, Vanilla Gorilla.
1.7.4
given the financial magnitude, being US$14 369 193 of the
facility required by the producers of the Vanilla Gorilla
Film, it
was imperative and incumbent upon you to disclose the views of the
NFVF regarding the previous performance of the film
in other markets
and as well as such to disclose the NFVF’s sceptical views
about investing US$ 35 million to make a similar
film.
1.7.5
further, in your submission to the Credit Committee regarding Vanilla
Gorilla, you failed to bring to the attention of the
Credit Committee
the discrepancies between the terms contained in the submission and
those terms contained in the terms sheet signed
by the parties on 15
March 2008 and why those discrepancies occurred, leaving the Credit
Committee with an impression that the
Finance facility to Vanilla
Gorilla was secured by a guaranteed purchase order from
Wal-Mart, when to your knowledge that
was not the case.”
[34]
Roscher was found guilty on these charges and dismissed by the IDC on
4 January 2010.
The
arbitration proceedings
[35]
Roscher challenged her dismissal before the Commission for
Conciliation, Mediation and Arbitration (CCMA). An arbitration
hearing was held on various dates between May and October 2010. The
second respondent (the Commissioner”) handed down a
comprehensive
award on 19 October 2010.
[36]
During the arbitration proceedings, IDC presented the evidence of
Silinda, the head of Support Services; Curatius Ramodipa
an internal
auditor; Ford, the Head of the Media and Motion Picture Strategic
Business Unit; and Mthombeni, the chairperson of
the disciplinary
enquiry. Roscher gave evidence on her own behalf and adduced evidence
from the following witnesses: Frederick
Kyle; Paul Raleigh; Michael
MacCarthy; and Craig Gardner – much of which is no longer
relevant.
[37]
Silanda confirmed that from the point of view of IDC, the
recommendation submitted to the Credit Committee was misleading in
relation to the security arrangements and the script review. The
impression was created that there was a pre-sales agreement in
place
with Wal-Mart. More importantly, Silanda insisted that Roscher had
been under a duty to disclose the negative comments of
the NFVF and
had not done so. He accepted that Ford had presented the
recommendation
to
the Credit Committee and that the document was a team effort, but
with reference to Roscher’s job description, he was adamant
that Roscher was the primary author of the recommendation
and ultimately
responsible for what it contained.
[38]
Ramodipa conducted the internal audit into the Vanilla Gorilla
project which resulted in the disciplinary charges against Roscher.
Ford testified that management at IDC had been unhappy with the
Vanilla Gorilla funding application process and had instructed
Ramodipa to undertake an audit to determine whether the appropriate
procedures had been followed during the funding application
process.
With regard to the script review, Ramodipa concluded that it was
essential that the result of any script review be objectively
reported to avoid biased reporting inappropriately influencing the
decision-making process. The non-disclosure posed financial
and
reputational risks, which he identified in his audit report as
follows:
‘
The
distortion of such report of the script review may constitute
misrepresentation to the Special Credit Committee. The said
misrepresentation
may result in the merits of the application being
misconstrued and the Committee making a decision which they otherwise
would not
have made. This presents a risk of financial loss to the
IDC…For IDC to fund a film which is racist towards Africans in
context, may prove to be a contradiction of its values and
objectives. This may be an unfavourable effect on IDC’s
reputation
as an established African Developmental Financial
Institution.’
[39]
Ford, the Head of Media, Motion Pictures, SBU, took over from Silanda
in May 2008, about two months prior to the meeting of
the Credit
Committee, by which time the negotiations on the Vanilla Gorilla
project were at an advanced stage. He maintained that
it was practice
to obtain and disclose a script review as an objective assessment. He
testified that he had not received a copy
of the NFVF report from
Roscher prior to circulating the submission to the Credit Committee.
He first saw it during the audit process.
He had asked Roscher about
it, and she had informed him that the review was “OK”. He
claimed thus to have been unaware
of the NFVF criticisms when he
presented the recommendation
to
the Credit Committee.
[40]
Ford maintained that he would not have recommended the approval of
the funding if he had been aware of the criticisms, which
he saw as a
more significant misrepresentation than the security issue. In this
regard, he referred to an internal IDC document
– “An IDC
Credit Methodology for Motion Pictures” – adopted at an
Exco Policy Meeting on 21 January 2008.
The document was adopted
because a “need was identified to establish a credit
methodology for the motion picture industry
given the high level of
losses incurred by IDC.” Paragraph 8.3 of the policy
states:
‘
A
well-written script …has been identified as a key success
factor. IDC must endeavour to ensure that all scripts must be
vetted
by an external party (e.g. NFVF) before the film project is
considered for initiation of the due diligence process. IDC
does not
have internal creative assessment skills and experience, hence an
independent panel or external party comprising of experienced
individuals with industry insights can assist in evaluating the
creative content and the people behind the film.’
[41]
Ford further testified that he was first alerted to the problem with
the security arrangements when he received the e-mail
from Chavarika
two days prior to the Credit Committee meeting. He had accepted the
assurance of Roscher that there was a confirmed
purchase order from
Wal-Mart. After receiving the e-mail from Chavarika, he decided to
raise and highlight the lack of security
at the Credit Committee
meeting. His intervention resulted in the resolution adopting the
conditions precedent.
[42]
Ford conceded that he had edited the recommendation
before submitting
it to the Credit Committee but claimed not to have changed the
substance of the information regarding the security.
He had proceeded
with the edit on the assumption that the purchase order had been
secured.
[43]
Roscher denied that she had misrepresented the extent of security in
place. She claimed Ford had written that the funding was
secured by a
pre-sale to Wal-Mart and that it was unfair to hold her entirely
responsible for the misrepresentation. She emphasised
that the Credit
Committee, in any event, could not have been misled.
[44]
In relation to the script review, Roscher denied that the document
dealing with a credit methodology for motion pictures was
policy
(even though she later admitted under cross-examination that she had
reviewed and signed the document). She testified that
on the basis of
previous practice she was under no obligation to disclose the
negative script review. She claimed to have handed
the script review
to Ford and conceded that she had told him it was “OK”.
She had not told him about the negative comments
because in the
interest of objectivity she wanted him to form his own opinion. When
asked whether she should have disclosed more
information to the
Credit Committee, Roscher essentially passed the buck and claimed
that in the past she had followed the instructions
of Silanda not to
disclose such information. She justified her limited disclosure and
non-disclosure as follows:
‘
Well
based on past experience, I operated on past experience of what Moses
Silanda had told me or instructed me how to operate.
I actually put
in more than what Moses Silanda – we did not have to disclose
the NFVF report. There was no policy on it so
I put in more than what
he – Moses required me to do.’
[45]
At various points in her testimony, Roscher intimated that she
disagreed with the script review claiming that the NFVF was
“not
well disposed towards looking at international transactions”.
[46]
She persisted during her testimony in chief with the notion that
absent any clear policy she was under no obligation to disclose
the
negative criticism of the NFVF with which she disagreed. She went so
far as to say:
‘
it
was not a decisive factor with the IDC what the NFVF thought of a
feature film…Regardless of what their views are it was
not a
deciding factor for the IDC as to whether the IDC participated in the
feature film or not.’
[47]
When her attorney asked her if she believed it was incumbent on her
to raise it at the Credit Committee meeting, which she
attended, she
emphatically answered: “Not at all”. When asked if she
had an obligation to disclose the criticism she
replied: “No, I
did not believe that had (sic) any obligation whatsoever to disclose
it. As I said, it was not policy….”
Later in her
testimony, Roscher stated that she had not acted fraudulently because
she did not know she was obliged to disclose
the criticisms. She also
indicated that she was not overly concerned with the allegations of
racism because similar allegations
had been made without consequence
about other movie scripts. And finally, she added that the NFVF
report was not a “priority”
because after the e-mail from
Chavarika there was “no deal on the table”.
[48]
When asked to comment on the internal audit report’s conclusion
that the non-disclosure posed financial and reputational
risks,
Roscher responded:
‘
My
comment is that the NFVF does not dictate what the IDC invest in so I
do not believe this would have had a significant impact
at all on
what the IDC decision would be.’
[49]
Roscher’s interpretation and explanation of her duty to
disclose the negative comments thus amount to the following:
i) she
had no duty to disclose because of past practice; ii) she had
disclosed the report by giving it to Ford and telling him
that the
report was “OK”; iii) she had not gone into the detail of
the negative remarks with Ford because she wanted
him to “look
at it himself and get an objective view”; iv) she did not know
she had to disclose the remarks and thus
lacked the intent to act
fraudulently; v) she was not concerned about the racism since such
had been tolerated in other films in
the past; vi) her disclosure in
the recommendation of the review of the script as “average”
was sufficient; vii) she
did not attach much value to the criticisms
as she disagreed with them and the NFVF was adversely pre-disposed to
international
transactions; and viii) the script review was not a
priority because after Chavarika’s e-mail there was no prospect
of a
deal.
[50]
The Commissioner found that the dismissal of Roscher was procedurally
fair but substantively unfair. While he accepted that
Roscher was the
primary author of the recommendation, he held that IDC had failed to
establish fraud (or intent to deceive) on
the part of Roscher in
relation both the non-disclosure of the content of the script review
and the misleading representation of
the Wal-Mart order. He accepted
that Roscher acted negligently and not in the best interests of IDC
when she failed to disclose
the negative remarks of the NFVF but this
did not amount to misrepresentation or fraud. Likewise, he accepted
that the submission
was “misleading” about the Wal-Mart
order but again there was no fraudulent intent or any potential
prejudice to IDC
because Chavarika had alerted Ford to the misleading
nature of the representations prior to the Credit Committee meeting.
[51]
In the opinion of the Commissioner, Ford bore an equal responsibility
to make the required disclosures and thus he was equally
negligent.
Ford was not disciplined for his failures and therefore Roscher’s
dismissal was unfair as IDC had acted inconsistently
in the
application of discipline. In assessing whether the misconduct was
serious and of such gravity to render the continuation
of the
employment relationship intolerable, the Commissioner held it did not
because Roscher’s negligent conduct was not
so serious and she
had “an excellent record” with IDC. He accordingly
ordered IDC to reinstate Roscher with retrospective
effect.
Labour
Court proceedings
[52]
In its review application before the Labour Court, IDC submitted that
the Commissioner had made a material error of law in
relation to the
principles of misconduct in the form of misrepresentation; had
misconstrued the true nature of the inquiry into
Roscher’s
alleged misconduct; had preferred Roscher’s version to that of
Ford without making credibility findings based
on the evidence;
ignored the uncontested evidence that Ford had no responsibility to
include the NFVF’s negative remarks;
applied the parity
principle incorrectly; and failed to appreciate that the misconduct
had fundamentally damaged the trust relationship.
Hence, IDC
submitted, the cumulative effect of the errors resulted in an award
that was not reasonable.
[53]
The Labour Court identified the primary issues for determination by
the Commissioner as being whether Roscher bore a duty to
disclose to
IDC the exact nature and ambit of the commitment by Wal-Mart to
purchase DVD’s of Vanilla Gorilla and an accurate
account of
the script review obtained from the NFVF. If so, whether Roscher had
made a proper disclosure, and, if not, whether
the failure to make
proper disclosure was deliberate or negligent. The question thus was
whether the findings of the Commissioner
that the conduct of Roscher
in not making proper disclosure was negligent (rather than deliberate
with the intention to deceive)
and did not warrant dismissal, were
reasonable.
[54]
The Labour Court concluded in regard to Wal-Mart’s disclosure
that there was no doubt that Roscher’s depiction
of the facts
was a deliberate misrepresentation of the true position. She had been
involved with the deal from the outset and had
travelled to the USA
specifically to meet with Wal-Mart to resolve any confusion. Having
so ascertained the true position, she
bore the primary duty to ensure
that the Credit Committee was fully and accurately informed of the
relevant facts pertaining to
Wal-Mart’s commitment. That she
failed to disclose the truth is evident from Chavarika’s e-mail
of 27 June 2008 which
clearly reflected the true position that
Wal-Mart had not given any commitment along the lines set out by
Roscher in the submission,
but had merely expressed interest. It was
the belated disclosure by Chavarika that prompted Ford to intervene
to ensure that the
Credit Committee was not misled. Roscher’s
gross overstatement of the position constituted a failure to
discharge her duty
of full and honest disclosure to the Credit
Committee.
[55] The Labour Court concluded further
that Roscher’s depiction of the position was a deliberate
misrepresentation. She had stated explicitly and repeatedly, in
various ways, that IDC’s risk exposure was low as it was
secured by Wal-Mart’s irrevocable order when this was obviously
untrue. She purposely and deliberately created an impression
in the
recommendation opposite to that outlined by Chavarika, who had also
attended the meeting with Wal-Mart in the USA. It was
“simply
inexplicable that Roscher, a senior employee tasked with driving the
project and fully immersed in it could have
innocently misconstrued
the nature of Wal-Mart’s commitment, especially after she was
dispatched to meet in person with Wal-Mart,
at great expense, in
order to iron out any misunderstandings and to obtain a clear
understanding of the extent to which Wal-Mart’s
commitment
reduced IDC’s risk of recouping its investment”. Thus,
Labour Court held that Roscher set out deliberately
to deceive Ford
and the Credit Committee by misrepresenting the nature and extent of
Wal-Mart’s commitment, with a view to
having the deal approved.
Her failure to present a full and honest account of Wal-Mart’s
commitment amounted to serious misconduct,
a breach of fiduciary duty
and an act of gross dishonesty
[56] With regard to
the script review, the Labour Court held that the disclosure in the
recommendation
was hopelessly inadequate and was in fact “downright
misleading”. Given the severity of the criticism in the script
review, the Labour Court found it difficult to believe that Roscher
honestly thought that the content was irrelevant to the Credit
Committee. The NFVF had concluded that the story was racist in nature
and that the script could probably not be rescued. The Labour
Court
rejected as incredible Roscher’s explanations that she had no
duty to disclose the script review, that past practice
justified
non-disclosure and that the script review was not a priority after
Chavarika’s intervention. It was more probable
that Roscher,
having read the script review, realised that it would sink the entire
project and thus deliberately engaged in an
act of deception by
merely recording the NFVF’s review of the script as “average”.
Her insistence in evidence
that this was “technically correct”
was not convincing.
[57] Moreover, there was no
contemporaneous e-mail trace of the script review being forwarded
from
Roscher to Ford, or distributed by her to any other IDC team
member. It was thus unlikely that Roscher gave Ford the script review
prior to the Credit Committee meeting. In any event, on Roscher’s
own version, she never brought to Ford’s attention
the key
aspects of the script review. She admitted to telling him it was
“OK.” She did not bring to Ford’s attention,
the
negative remarks in the script review. Her failure to do so was a
clear breach of her duty of disclosure. Moreover, Roscher
who was
present at the Credit Committee meeting, would have observed that the
issue of a negative script review was not raised
for discussion (as
it was not known to anyone else in the meeting) and failed to bring
the issue to the attention of the Credit
Committee. The failure to do
so, in the opinion of the Labour Court, was deliberate. As appears
clearly from her testimony, Roscher
disagreed with the NFVF script
review and therefore sought to conceal its contents from Ford and the
Credit Committee.
[58] Were it not for the Wal-Mart order
having fortuitously come to light, it was likely that the
Credit
Committee, in ignorance of the problems with the script, would have
approved funding for the Vanilla Gorilla project without
any
restrictions or conditions as to the script and would thereafter have
been bound to finance a film that was potentially racist
and
patronising towards Africa and Africans, with no legal right to
insist on revisions to the script. The reputational damage
to IDC
could have been significant. Roscher, therefore, failed in her duty
of disclosure toward her employer. This failure was
not negligent but
was deliberate and amounted to an act of dishonesty by a senior
employee.
[59] The Labour Court concluded that
the award was reviewable in that the Commissioner failed to
determine
the true issue. In particular, the Commissioner applied the criminal
standard for determining fraud and ignored the relevant
fact that
Roscher not Ford bore the primary responsibility and provided a
deficient and misleading disclosure. The conclusion that
Roscher was
merely negligent could not be reasonably supported on the evidence.
Likewise, the finding that there was no potential
prejudice caused by
the misrepresentations was patently unreasonable and irrational,
especially in view of the fact that the prejudice
was only averted as
a result of the intervention of Chavarika and Ford.
[60] Moreover, the Labour Court held
that the Commissioner’s application of the parity principle
was
irrational in that Roscher was the lead executive on the project and
had travelled to the USA, while Ford was a recent appointee
and had
been in the job less than two months before the Credit Committee
meeting. The Commissioner did not appreciate that Ford
was acting in
an oversight role. In addition, it is common cause that Roscher did
not bring the negative remarks in the NFVF report
to Ford’s
attention and in fact left him under the impression that the NFVF
report was “OK”. There is no evidence
that Ford acted
dishonestly and his conduct was not comparable to that of Roscher.
There was accordingly a lack of rational connection
between the
evidence and the conclusion reached by the Commissioner on sanction
which added to the unreasonableness of the result.
[61]
Given her seniority, expertise and lack of remorse, the Labour Court
held that sanction of dismissal was appropriate.
The
appeal
[62]
Most of the submissions before us related to whether Roscher had
intended to deceive IDC. Counsel for Roscher submitted that
the
arbitration award contains a detailed and accurate summary of the
material evidence, and it is apparent
ex facie
the award that
the Commissioner applied his mind to the evidence before him,
properly assessed the evidence and reached a conclusion
that a
reasonable commissioner could reach, namely that there was no
intention on the part of Roscher to deceive IDC and that her
conduct
did not warrant dismissal. It was contended that the Labour Court
incorrectly concluded that the evidence before the Commissioner
was
such that Roscher intended to deceive IDC, particularly in view of
the fact that it was never put to Roscher during her testimony
that
she had acted to deceive.
[63]
Counsel, therefore, argued that the Commissioner ought not to be
criticised for making a finding of negligence when no case
of fraud
was made out at the hearing before him and where Ford was apprised of
the material facts before the Credit Committee meeting.
It was
submitted therefore that the Labour Court ignored the case presented
by IDC at the arbitration, made findings in respect
of a case never
presented, and condemned Roscher in strong terms despite the fact
that she was never confronted with those same
allegations whilst
testifying. It was further submitted that the Commissioner properly
assessed the evidence before him and that
his conclusion that the
conduct of Roscher did not warrant dismissal is a conclusion that a
reasonable Commissioner could reach
and is reasonably supported by
the evidence.
[64]
Counsel for IDC emphasised that the allegations against Roscher were
more broadly that she misrepresented the material facts
necessary for
the purposes of decision-making by the employer. While a finding of
fraud unquestionably would make Roscher’s
misconduct more
serious, the evidence overwhelmingly supports the finding of the
Commissioner that Roscher was guilty of negligently
misleading the
Credit Committee and thus not acting in the best interests of the
employer. She was in breach of her fiduciary duty
to her employer.
That much is essentially common cause.
[65]
Importantly, the misrepresentations occurred during a due diligence
process aimed at minimising IDC’s risk exposure.
The Credit
Committee was not involved in the due diligence process and naturally
would have relied on the recommendation placed
before it by Roscher
who conceded that it was her responsibility to implement due
diligence measures to minimise risk and to gather
and share
information relevant to the project. The risk comprises the
reputational risk for IDC, given the nature of its business,
in
funding a film which has racist connotations. The further risk to
which IDC would have been exposed arises from the absence
of adequate
security impacting negatively on the IDC’s prospects of
recoupment of its investment thus creating a possibility
of financial
loss.
[67]
As stated, there is no denying that the recommendation was misleading
as to the extent of security alleged to have been provided
by
Wal-Mart and that Roscher was at least negligent and did not act in
the best interests of IDC by not ensuring that the recommendation
was
completely accurate in that regard. Likewise, Roscher’s defence
for her failure to include NFVF’s remarks, namely
that she gave
the NFVF report to Ford and had no duty to disclose, do not exculpate
her and in fact, reveal her poor judgement.
It was not sufficient to
merely say she gave the script review to her superior without
including the contents in the recommendation
to the Credit
Committee.
[68]
While the recommendation to the Credit Committee was edited by Ford
prior to being submitted to the Credit Committee, the tracked
version
of the document clearly indicates that Ford’s editing did not
change the substance of Roscher’s recommendation,
but merely
made the document easier to read. The ultimate responsibility for
sourcing information, compiling the information and
drafting the
recommendation lay with Roscher, the team leader. The role profile
document of a senior account manager makes it clear
that Roscher was
responsible for conducting the due diligence of the transaction.
[69]
Most importantly of all, as just stated, there was no justifiable
basis for Roscher’s non-disclosure of the negative
remarks made
by the NFVF and she failed to advance a plausible justification for
her conduct. If anything, Roscher’s testimony
indicates that
she may have withheld the views of the NFVF from the Credit Committee
because she disagreed with them. Her recordal
of the review of the
script as a finding of “average” was a conscious act that
was incomplete and did not do justice
to the full criticism. In the
circumstances, an inference of conscious deceit would be legitimate,
having regard also to Roscher’s
obvious wish for the film to be
funded.
[70]
However, it is unnecessary to make a definitive finding on whether
Roscher acted deceitfully. The appeal can and perhaps may
better be
determined on the narrower question of whether dismissal is an
appropriate sanction for the misrepresentations in question,
which
were undisputedly negligent and not in the best interests of the
employer.
[71]
A reasonable senior accounts manager in the position of Roscher would
have understood the implications of the NFVF report and
would have
alerted the Credit Committee by making a full and frank disclosure.
[72]
Roscher’s testimony before the CCMA brings to light her flawed
insight at the time she drafted the recommendation and
her
persistence in that error throughout the hearing. Through her conduct
(and her testimony justifying it) Roscher established
that she lacks
judgement and cannot be trusted to act appropriately in the best
interests of her employer. Her defence of her conduct
on the dubious
bases she advanced during the CCMA hearing confirms her
unreliability. Her repeatedly stated conviction that she
had no duty
or obligation to disclose the negative assessment of the NFVF to the
Credit Committee, and her assumption that her
inaccurate and
incomplete disclosure was sufficient, defy reasonable belief. Her
version that she handed the report to Ford, told
him it was OK and
did not mention the damning comments because she wanted him to bring
an objective opinion to bear, is improbable;
and, were it to be
believed, revealing of exceptionally poor judgment for a person in
her position. Her stance reveals a notable
lack of appreciation of
her fiduciary duties in the due diligence process.
[73]
By the same token, the representation of the information about the
security or guarantee requirement in the recommendation
is equally
indicative of a serious lack of judgement on the part of Roscher. The
document is replete with misleading and ambiguous
statements about
the nature of the security on offer. The communication of the true
position was way below par, especially in light
of the fact that
Roscher would or should have known the true position (as conveyed by
Chavarika) after the meeting with Wal-Mart
in the USA. What was in
fact conveyed to the Credit Committee, if not deceitful, reflects a
disturbing lack of understanding of
Wal-Mart’s commitment, the
basics of the due diligence process and the quality of the security
required. The fact that Chavarika’s
e-mail resulted in the
Credit Committee ultimately not being misled on the security issue
does not help Roscher. The e-mail disclosed
the true situation that
Roscher should or must have known. Its obvious variance with the
version she put forward in the recommendation
was at the very least a
grossly negligent and misleading breach of fiduciary duty, confirming
her unreliability in undertaking
the task at hand. Her attitude
reflected a lack of concern or insight about the possibility that her
misrepresentations and non-disclosure
had significant potential to
cause the IDC reputational and financial prejudice.
[74]
It is plain from his arbitration award that the Commissioner did not
take full account of this relevant factor or apply his
mind to the
fact that Roscher’s belief that she was under no obligation to
disclose the negative remarks to the Credit Committee
rendered her
unsuitable to carry out the fiduciary responsibilities of the
position she occupied.
[75]
In addition, it is apparent that the Commissioner was influenced
primarily by his finding that Roscher had not committed fraud.
The
nature of the enquiry, as apparent from the charge sheet, required
fuller consideration of the implications of the breach of
fiduciary
duty to the tolerability of a continued employment relationship. The
charges went beyond an allegation of fraud and included
misrepresentation and failure to act in the best interest of the
employer. In not considering these questions fully, the Commissioner
effectively misconstrued the true nature of the enquiry.
[76]
The IDC submitted furthermore that the Commissioner acted
unreasonably in resolving the
dispute
of fact as to whether Roscher had furnished Ford with a copy of the
NFVF report. Ford testified that he never received such
a copy from
Roscher and furthermore that had he known about the NFVF’s
comments, he would not have sent the recommendation
to the Committee.
His evidence is supported by the course of conduct he followed when
he discovered the problem with the security.
The Commissioner,
however, accepted Roscher’s version and stated: “if I am
wrong and he did not receive the script
report from [Roscher], he
should have insisted on receiving it, reading it and including the
criticisms of the script in the recommendation”.
In such
speculation, the Commissioner committed an irregularity by ignoring
the uncontroverted evidence that it was never Ford’s
responsibility to include NFVF’s comments in the
recommendation. Such responsibility was solely that of Roscher.
[77]
The Commissioner’s finding that IDC acted inconsistently in
disciplining Roscher because Ford was equally negligent for
the
non-disclosure of the NFVF’s negative comments is also
unreasonable. The finding ignores the cogent evidence that it
was
Roscher’s duty to collect information and to prepare the
recommendation to the Credit Committee. Not only did the Commissioner
ignore the evidence led by the IDC, he also ignored the concessions
which were made by Roscher, wherein she agreed that it was
her role
to limit IDC’s exposure to financial loss and to implement due
diligence measures to minimise risks.
[78]
Additionally, the difference in the duties and responsibilities
between Roscher and Ford renders the parity principle inapplicable.
In relation to the security issue, Ford testified and explained that
he edited the draft recommendation from Roscher merely to
make it
read better. As mentioned, the tracked changes to the report indicate
that Ford’s amendments were merely editorial
and did not add
anything which had not been included by Roscher. Each paragraph
addressing the security issue remained largely
unchanged after Ford’s
editorial. This testimony was however ignored by the Commissioner,
who found Ford equally negligent
as he contributed to the
recommendation “as is evident from his extensive editing”.
The Commissioner thus ignored material
evidence in the form of Ford’s
testimony and the tracked version of the report which evinces the
limited changes made by
Ford.
[79]
These failures and misapprehensions by the Commissioner in the
determination of an appropriate sanction for the undisputed
misconduct resulted in an unreasonable outcome. The IDC, as employer,
given the nature of its business and operations, is entitled
to
expect a high fiduciary standard of disclosure by employees
responsible for recommending substantial loans to potential clients.
Roscher’s conduct fell way below par and severely damaged trust
to the point that a continued employment relationship became
intolerable.
[80]
In the premises, while our reasoning and ultimate conclusion differ
somewhat, the Labour Court did not err in setting aside
the
arbitration award. The appeal must accordingly be dismissed. In light
though of a measure of complexity, and the legitimate
need of Roscher
to seek vindication in relation to the nature and scope of the
misconduct established by the evidence, we decline
to make any order
of costs in the appeal.
[81]
The appeal is accordingly dismissed.
____________________
JR Murphy
Acting
Judge of Appeal
I
agree
____________________
Acting
Deputy Judge President VM Phatshoane
I
agree
______________________
K Savage
Acting Judge of Appeal
APPEARANCES:
FOR
THE APPELLANT:
Adv L Hollander
Instructed by Larry Dave
Inc
FOR
THE FIRST RESPONDENT:
Adv T Motau SC and Adv L Kutumela
Instructed by Werksmans