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[2020] ZASCA 112
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Modise and Another v Tladi Holdings (Pty) Ltd (307/19) [2020] ZASCA 112; [2020] 4 All SA 670 (SCA) (29 September 2020)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 307/19
In
the matter between:
JACOB
RESETLHAKE DANIEL MODISE FIRST
APPELLANT
BATSOMI POWER (PTY)
LTD SECOND
APPELLANT
and
TLADI
HOLDINGS (PTY)
LTD RESPONDENT
Neutral
citation:
Modise
and Another v Tladi Holdings (Pty) Ltd
(Case
no 307/19)
[2020] ZASCA 112
(29 September 2020)
Coram:
CACHALIA, WALLIS and NICHOLLS JJA and
LEDWABA and MATOJANE AJJA
Heard
:
31 August 2020
Delivered
:
This judgment was handed down
electronically by circulation to the parties' representatives by
email, publication on the Supreme
Court of Appeal website and release
to SAFLII. The date and time for hand-down is deemed to be 10h00 on
29 September 2020.
Summary:
Misappropriation of
corporate opportunity by director of company – principles of
fiduciary duty restated and considered –
Prescription –
whether amended claim for disgorgement of profits effected after
prescription has run substantially the same
claim as one for damages.
ORDER
On
appeal from:
Gauteng
Division of the High Court, Johannesburg (Weiner J sitting as court
of first instance):
1 The appeal by the first appellant (Mr Jacob Resetlhake
Daniel Modise) is dismissed with costs, including the costs of two
counsel.
2 The appeal by Batsomi Power (Pty) Ltd is upheld with
costs, including the costs of two counsel.
3 The order of the court a quo is amended by deleting
the reference to Batsomi Power (Pty) Ltd and the phrase ‘jointly
and
severally’ in paras 1-3 of the order, and also by
adding the following para 4:
‘
The claim against Batsomi
Power (Pty) Ltd is dismissed with costs including the costs of two
counsel.’
JUDGMENT
Cachalia JA (Wallis and Nicholls JJA and Ledwaba and
Matojane AJJA) concurring)
Introduction
[1]
To promote economic transformation and increased participation of
black people in the economy, the Broad-Based Black Economic
Empowerment Act was enacted in 2003 (the BEE Act).
[1]
Businesses complying with the BEE Act benefit by being afforded
preference in the adjudication of their bids to offer goods and
services to government and large corporates. It is a controversial
law because it has had some unintended but predictable consequences.
One of these is that relationships between individuals and entities
brought together to pursue the objectives of the BEE Act are
often
skin-deep and not sustainable. They frequently disintegrate and lead
to acrimonious disputes. This appeal epitomises this
hard truth.
[2] The Gauteng Division of the High Court, Johannesburg
(Weiner J), found that the appellants, Jacob Modise and Batsomi Power
(Pty)
Ltd, of which Modise was a director, had misappropriated a
corporate opportunity to buy shares in a company – ARB
Electrical
Wholesalers (Pty) Ltd (ARB) – that properly belonged
to the respondent, Tladi Holdings (Pty) Ltd (Tladi). Modise was the
chairman and a director of Tladi at the time. The appellants take
issue with this finding. They also challenge the dismissal of
their
special plea of prescription concerning the claim against Batsomi
Power.
The facts
[3]
The
dramatis
personae
in this
tale are Jonathan Sandler and Modise, who were the main witnesses for
Tladi and Batsomi Power respectively. They first
met as board members
of a listed company, Johnnic Holdings Ltd (Johnnic), some two decades
ago. Sandler left Johnnic around 2000
in order to pursue other
business opportunities. In December 2003 he acquired a 68 percent
shareholding in Muvoni Contracting
Services (Pty) Ltd (Muvoni), a
small electrical company, through his family trust. Sandler was keen
to explore the economic benefits
that would accrue from doing
business with state-owned entities and municipalities in the energy
sector. Muvoni was the ideal vehicle
for this purpose. But first, it
had to comply with BEE requirements to become eligible to exploit
whatever opportunities might
become available.
[4]
This is where ARB became important. ARB was a major supplier of
electrical equipment to Muvoni. In early 2004, ARB began negotiating
with another entity to conclude a BEE transaction. Craig Robertson
and Billy Neasham were ARB’s chief executive and chief
financial officers respectively. They knew that Sandler had
significant experience with structuring BEE deals and sought his
advice
in this regard. They met with him, according to Sandler, in
May 2004. In their testimony they were unable to recall much from the
meeting – understandably, as they were testifying 14 years
after the event.
[5]
Sandler’s recollection of the meeting was that ARB had a 30
percent stake allocated to a potential BEE partner, valued
at R30
million, which Nedbank would fund. The perception he had after the
meeting was that ARB had previously been unsuccessful
with its BEE
ventures, and that the deal it was negotiating with an entity called
Umbani Mentis Electrical (Pty) Ltd (Umbani) would
also unravel. If
this happened, as he predicted, there would be a potential
opportunity for him to exploit with ARB.
[6]
A few months later, in August 2004, ARB concluded its BEE transaction
with Umbani. Sandler was unaware of this development.
In the
meantime, keen to develop Muvoni’s potential, he began
researching opportunities in the electrical field. One was
ARB,
another Cullinan Industrial Porcelain (Pty) Ltd (Cullinan), which
manufactured ceramic insulators, and a third, Weltex, which
did
boring underneath roads. Weltex was not a tangible opportunity and
was not explored further.
[7]
In September 2004, Sandler approached Sir Sam Jonah to discuss these
opportunities. Jonah was a Ghanaian businessman with whom
Sandler had
a previous business relationship. Sandler made a written presentation
to him regarding an idea to create an electrical
conglomerate. Its
core assets would include Muvoni, ARB (after the Umbani deal
unravelled) and three other entities: Aberdare,
Altech and Cullinan,
all also operating in the electrical field. Jonah liked the idea. The
two men agreed to form Empalane Investments
(Pty) Ltd and to invest
R5 million each to exploit these opportunities. Empalane ultimately
became a shareholder in the soon to
be formed Tladi.
[8]
Having done this groundwork Sandler identified Modise as a key player
in the envisaged structure: Modise was a well thought
of businessman.
And black, which Sandler needed for BEE compliance. Sandler invited
him home on 7 November 2004, and made the same
presentation to him
that he had made to Jonah earlier. In addition to the synopsis of the
various electrical opportunities, including
the potential ARB one,
the presentation showed that the 68 percent Muvoni shareholding would
be held by an ‘Electrical Holding
Company’, which would
be Tladi.
[9] This meeting became a bone of contention in the
court a quo. Modise disputed that there had been a discussion on the
ARB opportunity.
The presentation, under the heading 'Electrical
Opportunities, said the following in relation to ARB:
'30% Available currently negotiations with consortium @ R30 Million
Nedbank'
Sandler
linked this to the discussion he had in May with Robertson and
Neasham and the probabilities were overwhelming that he could
only
have obtained this detail from that source. This was unaffected by
his suggestion in evidence that the deal with Umbani had
already
unravelled, which was factually incorrect. Instead Modise sought to
suggest that the words ‘30 percent available
[current]
negotiations with [Umbani]’ with reference to the ARB
opportunity as it had appeared in the written presentation
was not an
opportunity at all because the negotiations between ARB and Umbani,
as far as Sandler was aware, were ongoing and had
not been concluded.
There could therefore not, he insisted, have been any available
opportunity to consider. But in his notes discovered
for trial upon
which he was cross-examined he had to accept that he had drawn a
circle around the words ‘
ARB
opportunity
’
and had written the word ‘
potential
’
twice next to them on his copy of the presentation. When asked to
explain why he had done this, he floundered by first suggesting
that
Sandler had stated categorically that this opportunity was not
available and secondly – quite implausibly – that
‘
potential
’
referred to past, not future, potential. He was also unable to
explain his counsel’s failure to put this far-fetched
version,
which lay at the heart of his defence, to Sandler. The evidence
therefore established, as the court a quo correctly found,
that
Sandler had drawn the potential ARB opportunity to Modise’s
attention at their meeting, and that Modise had noted it.
[10]
In the days following the presentation, Sandler and Modise met on
numerous occasions to consider each opportunity, the strategy
to
pursue it, the appropriate structure and the agreements that were
required to give effect to it. At Sandler’s request
Modise also
met with the other potential BEE partners, Jonah and his son. The
Jonahs’ attorney prepared the agreements thereafter.
[11]
The initial draft agreements had a general and widely crafted
‘non-compete clause’ prohibiting the parties from
competing with one another. The clause was removed from the final
agreement because, as Sandler explained, both he and Modise already
had similar ventures of their own. But, he elaborated, they also
understood unmistakeably how the venture would proceed in regard
to
the available opportunities. He explained it graphically with
reference to three boxes, one for each of them, in which they
would
continue pursuing their own interests, and a third common box in
which they, through Tladi, the holding company, would pursue
mutual
opportunities. The opportunities described in the presentation,
including the ARB opportunity, fell into the third box.
[12] The appellants sought to suggest that this
three-box theory was a ‘legal construct’ put up by
Sandler to avoid
the consequences of the removal of the
no-competition clause. But there was nothing implausible about
Sandler’s evidence
in this regard. Modise did not controvert
the three-box construct, nor did he plead that it was understood that
the parties could
compete with each other – even in relation to
the four opportunities. Modise would have us accept that despite
Sandler’s
vision of Tladi being an electrical conglomerate of
which he, Modise, would become both the chairman and a director, he
could still
pursue his own interests and compete freely against it in
respect of any or all electrical opportunities of which he became
aware.
This proposition only needs to be stated to expose its
fallacy.
[13]
Also in November 2004, Sandler’s family trust made a
presentation to Nedbank to obtain funding for BEE transactions.
Among
these were the electrical opportunities of Muvoni, Arbedare, Cullinan
and, importantly, ARB. Tladi would be the holding company.
Regarding
the ARB opportunity, what stands out as a golden thread was that
since his meeting with ARB’s representatives (Robertson
and
Neasham) early in 2004, where the idea of a potential ARB opportunity
began to germinate, and continuing through his presentations
to
Jonah, Modise and Nedbank, the ARB opportunity had consistently been
one of the electrical opportunities that Sandler had envisaged
would
become part of the new electrical conglomerate. And that Modise’s
inclusion and role was integral to its success.
[14]
Modise joined Muvoni’s Board on 1 December 2004 and was
appointed Director and Chairman of Tladi on 14 December 2004.
On the
same day a shareholders’ agreement was concluded. The parties
to the agreement were Empalane, Batsomi Investment Holdings
(BIH),
Hapang Business Solutions, Lukhele, Bounomano and Boomerang Trading 4
(Pty) Limited, which was renamed Tladi. Hapang later
withdrew from
the agreement and on 22 February 2005 a new agreement, effective
from 14 December 2004, was signed. The shareholding
in Tladi was as
follows: Empalane 26 percent, Buonomano 14.5 percent, Kukhele 12
percent and Batsomi Power 47.5 percent of
which 21.5 percent was
held as nominee to be allocated to a ‘previously disadvantaged
shareholder’. On 20 December
2004, a consultancy service
agreement was concluded between Empalane, Batsomi Management Services
(Pty) Limited and Tladi, then
Boomerang. The parties had earlier also
signed an administration services agreement.
[15]
Sandler testified that after the agreements had been concluded, he
communicated with Robertson to inform him that Modise was
‘on
board’ – something he was very proud of because it
underlined the importance of their BEE credentials. Sandler
invited
both Roberson and Neasham to Muvoni’s Christmas party in
December 2014, shortly after these agreements were concluded.
Robertson did not attend, but Neasham did and Sandler used the
occasion to introduce him to Modise. The fact that Modise was now
chairman of Tladi and on the board of Muvoni, which had a business
relationship with ARB, would not have been lost on either of
them.
[16]
It bears mentioning that in Modise’s written representations of
27 October 2006 in terms of s 220(3) of the Companies
Act 61 of
1973, which was a response to Tladi’s resolution that he be
removed from the board for breaching his fiduciary
duties, he denied
that Sandler had introduced him to any member of ARB’s
management team. But in his testimony many years
later he conceded
that he may have met Neasham at Muvoni’s Christmas Party. In
his representations he was responding to an
allegation that he had
diverted the ARB opportunity to Batsomi Power. It seems likely that
he was attempting to distance himself
from the fact that he had been
introduced to Neasham, an encounter he would probably have remembered
less than two years after
he had denied it.
[17]
In February 2005 Tladi and Muvoni held a strategic planning meeting
at which their directors and shareholders were present.
The Muvoni
transaction took up most of the meeting. Once the shareholders had
left, those remaining, including Sandler and Modise,
briefly
discussed Tladi’s business strategy and related matters.
Sandler testified that they flagged the ARB opportunity
because they
were unsure whether the ARB-Umbani deal had yet unwound. He also
recalled discussing Cullinan and some other matters.
The Cullinan
opportunity was more advanced and the ARB opportunity would be
pursued by Modise as and when it became available.
Sandler was
however not able to find any notes for this part of the session.
Modise denied that there had been any discussion
regarding the ARB
opportunity. However the court a quo found that the probabilities
supported Sandler’s version. I find no
reason to interfere with
this finding.
[18]
Thereafter, Sandler and Modise continued to execute Tladi’s
strategy. In March 2005 they made a presentation to Cullinan,
one of
the entities earmarked as an opportunity, on behalf of Tladi. The
presentation set out the proposed structure with future
acquisitions,
including Cullinan becoming a subsidiary. In April 2005 Modise made a
presentation to Nedbank, at which Sandler was
present, on the
proposed Cullinan transaction. The presentation reflected the
proposed structure showing Batsomi Power, Empalane,
Buonomano and
Lukhele as shareholders in Tladi, which in turn would hold shares in
Cullinan. The Cullinan transaction was not finalised
for reasons not
germane to this appeal.
[19]
As Sandler had presciently predicted, in May 2005, nine months after
ARB had concluded its BEE transaction with Umbani, it
became apparent
that their relationship was not working. ARB realised that it would
need to terminate its relationship with Umbani
and find a new BEE
partner. Modise was again identified as the ideal candidate.
Robertson called to invite him to a meeting with
Alan Burke, ARB’s
chairman.
[20]
The meeting took place on 9 May 2005 in Umhlanga, near Durban.
Robertson also attended. It is common ground that with the ARB-Umbani
transaction having unravelled, Burke offered Modise and his company,
Batsomi Power, a deal – the same one that Sandler had
identified as the ARB opportunity for Tladi – which Modise
ultimately accepted. A few days later ARB and Batsomi Power concluded
a confidentiality agreement pertaining to the scrutiny of their
records for the purpose of assessing the efficacy of the deal.
[21]
One of the issues in this appeal is whether this deal was a corporate
opportunity available to Tladi at all. So, it is of some
significance
whether the meeting traversed this issue. Robertson could not
remember whether Sandler’s name came up during
the meeting, but
it an interview with a business program on radio ‘Moneyweb’
two years later, after the deal was concluded,
he said that both
Burke and he had made it clear that they were only interested in
doing a deal with Batsomi Power, and no one
else. This suggests that
it did.
[22]
However, in his testimony Modise maintained that there had been no
discussion about Sandler and Tladi at the meeting. The court
a quo,
once again, rejected his evidence, for good reason. It had been put
to Sandler that Modise’s evidence would be that
Burke had made
it clear at the meeting that ARB did not wish to sell shares to
Sandler or the companies with which he was associated
because he is
‘white’ and Burke wanted to deal only with black persons.
But in his testimony, Modise was unable to
give a plausible
explanation for how the topic of the sale of ARB shares to Sandler
arose at the meeting. And the probabilities
point to the fact that it
would have arisen precisely because they were aware that Sandler was
also interested in pursuing the
opportunity.
[23]
Against the background of how the ARB opportunity had arisen, as well
as Modise’s position, the Tladi issue must have
arisen at the
meeting, as the court a quo correctly found. It’s conclusion in
this regard was fortified having regard to
Burke’s position.
Given Robertson’s inability to recall whether the issue had
been discussed, and the unreliability
of Modise’s evidence, it
was incumbent upon the appellants to have called Burke to clarify the
issue. They elected not to
do so and the court a quo was justified in
drawing an adverse inference from their decision not to call him.
[24]
In the final analysis, as I will show with reference to the
discussion on the fiduciary duties of a director, it matters not
whether the issue was pertinently raised in the meeting, or even
whether the ARB opportunity was available to Tladi. Once it is
accepted, as it must be, that Sandler had identified the ARB
opportunity as one that Tladi could potentially exploit, and of which
on the evidence Modise was aware, he had a duty to disclose this to
Tladi and obtain its consent to do the transaction through
Batsomi
Power. Instead, as the evidence demonstrated, he withheld the
information from Tladi and secured his own deal with ARB.
[25]
The process of unwinding the ARB-Umbani transaction began in about
July 2005. Sandler testified that one of the members of
Muvoni’s
management team, who had close contact with ARB had informed him of
this development. He then telephoned Modise
and told him to pursue
the ARB opportunity for Tladi. Modise denied this, but the call must
have taken place because Modise reported
back to Sandler on what
Burke had said to him.
[26]
Sandler was taken aback by what Modise had told him was Burke’s
view of doing a deal with Tladi. It was that he was not
prepared to
‘empower another Jew’, referring to Sandler, who is
Jewish. As offensive as this obviously was, Sandler
thought that this
was not an anti-semitic remark; he subsequently ascertained that
Burke was also Jewish and probably uninformed
as to Tladi’s BEE
credentials. So, he asked Modise to arrange a meeting with Burke,
Jonah and himself to clarify matters,
which Modise agreed to do, but
never did. Significantly Modise made no mention of his 9 May
meeting with Burke nor of the
confidentiality agreement he had
concluded with ARB.
[27]
Sandler’s enquiries to Modise thereafter were met with the
refrain that the ARB-Umbani deal had not yet unwound. Sandler
accepted this in good faith, accepting at the time that it was
perhaps not quite right for the approach to be made. However, on
1
December 2005, and unbeknownst to Sandler, Batsomi Power concluded an
agreement in terms of which it acquired a 26 percent
shareholding in ARB.
[28]
In the meantime Sandler became increasingly concerned that Tladi had
not yet appointed a chief executive officer and believed
that Modise
was avoiding him. He therefore sought to arrange a meeting with him
at Muvoni’s Christmas party in December 2005.
Mr Dumisani
Muhlwa, a co-director of Batsomi Power, was present and informed
Sandler, after the latter had enquired about Modise’s
whereabouts, that he would arrive soon. According to Sandler, he
asked Muhlwa what was happening with the ARB transaction. Muhlwa
responded by saying that they were still talking to them, which was
untrue. Sandler understood this to mean that this interaction
was on
behalf of Tladi. Modise never arrived at the party.
[29]
On 23 December 2005 Sandler received a newspaper report of ARB’s
transaction with Batsomi Power. This was the first time
that he
became aware that Modise had pursued the ARB opportunity for Batsomi
Power. He tried, unsuccessfully, to contact Modise.
He also sent a
letter to him inviting him to a Tladi board meeting, but to no avail.
Modise had apparently gone to ground. On 3
January 2006, Tladi held
its board meeting and concluded that Modise had misappropriated the
ARB opportunity in favour of his own
company. It resolved to take
legal action to ensure that it suffered no commercial prejudice
because of this.
[30] In his testimony Modise denied all of this,
insisting that he had informed Sandler about his acquisition of the
ARB shares
long before the transaction was concluded. Modise would
have had the court believe that Sandler was kept abreast of the
process
throughout. And what is more, he incredulously testified,
that when Sandler heard of this he accepted it magnanimously and told
him to go and speak to ARB on behalf of Batsomi Power. When it was
pointed out to him that such disclosures as he would have made
to
Sandler would have breached his confidentiality agreement with ARB,
he adjusted his version. He then said that he had told him
of this
before 9 May 2005. This was false, as the meeting of 9 May with ARB
was an exploratory meeting; there had been no talk
of any acquisition
of shares before this. None of this was put to Sandler when he
testified.
[31]
The appellants’ other factual defence was that Tladi’s
object was to hold shares in Muvoni, not to pursue its own
opportunities. This defence was also correctly rejected by the trial
court. In contrast to his original plea filed in April 2013,
where it
was common cause that Sandler’s presentation on 7 November
2004 was to entice him to become a BEE partner in
Tladi, it was only
in an amendment on the eve of the trial that Modise introduced the
assertion that Sandler’s presentation
was aimed at enticing him
to invest in Muvoni, to support his newly pleaded case. Modise’s
own evidence was however inconsistent
with this suggestion. He
accepted that the presentation covered all four opportunities and
said he had formed the opinion that
three out of the four were ‘pie
in the sky’. There would have been no need for Sandler to
discuss all the opportunities,
much less for Modise to have marked
‘potential opportunities’ if he was to have had no
interest in them. In any event
it is also common cause that Modise
did pursue the Cullinan opportunity on behalf of Tladi, which also
shows that the envisaged
Tladi structure would have included more
than Muvoni. His notes on the various business opportunities
mentioned in the presentation
showed that he took them seriously.
[32] The court a quo was therefore entirely justified in
rejecting his evidence as not only improbable, but evasive,
contradictory
and untruthful.
Summary of factual findings
[33] In summary the following facts, as found by the
court a quo, were established:
(a) Sandler met Robertson and Neasham from ARB in May
2004 where he learnt that ARB was negotiating a BEE transaction with
Umbani.
He concluded from the meeting that this transaction would
ultimately unravel and present a potential opportunity for him when
this
happened;
(b) In September 2004 he made a presentation of his
vision to create an electrical conglomerate to Jonah. He identified
four opportunities
to be pursued by the conglomerate, one of which
was the ARB opportunity. They formed Empalane and contributed R5
million each to
it. The conglomerate born out of this vision was
Tladi;
(c) Sandler believed that Modise would be interested in
this vision. He invited him home and made the same presentation to
him.
It was clear to Modise then, and from further discussions
between them, that the ARB opportunity was one that Sandler wished to
pursue through Tladi;
(d) In December 2004 a shareholders’ agreement was
signed and Modise became a director and chairman of Tladi, the
holding
company. The shareholders agreement permitted the
shareholders to pursue their own interests on the understanding that
the four
opportunities would be pursued through Tladi;
(e) In February 2005, where Tladi’s business
strategy was deliberated upon, the ARB opportunity was discussed
again. More
strategy meetings took place after this, where Modise was
mandated to pursue it, when it became available;
(f) In May 2005, at ARB’s invitation, Modise met
with Burke and Robertson, where he was personally offered the ARB
opportunity
because the ARB-Umbani deal was about to unravel. Modise
did not disclose this meeting to Tladi;
(g) About a month later Sandler enquired from Modise
what had happened with the ARB opportunity. Modise reported to him
that Burke
was not interested in having any business relationship
with Sandler. It appeared to Sandler that Burke was misinformed about
Tladi’s
BEE credentials. He asked Modise to arrange a meeting
with Burke to clarify this, which he agreed to do, but never did;
(h) In December 2005 Modise, through Batsomi Power
concluded his own deal with ARB. He never disclosed this to Tladi
either.
Modise’s Case
[34] Modise contended that he owed no fiduciary duty to
procure the ARB opportunity for Tladi and, either personally or
through
Batsomi Power, to profit therefrom. This is because, so the
argument proceeded, the opportunity did not accrue to him by virtue
of his association with Tladi, but despite it. Furthermore, he
contended that the opportunity was not available to Tladi because
ARB
had made clear that it did not want to do a BEE deal with Sandler,
because he was white. Moreover, he continued, he did not
use any
confidential information in which either Sandler or Tladi had a
proprietary interest. Before I consider these submissions,
it is
necessary to set out the law as it pertains to the fiduciary duty of
directors to their companies.
The ambit of the fiduciary duty
[35]
At common law directors have an overarching and paramount fiduciary
duty to exercise their powers in good faith and in the
best interests
of the company.
[2]
Section 76(3)
(c)
of the
Companies Act 71 of 2008
codifies this duty, but its content
is still informed by the common law. The basic duty is one of
loyalty, which is ‘unbending
and inflexible’ so as to
ensure that it is not abused.
[3]
The duty encompasses at least three rules: Directors may not place
themselves in positions of conflicts of interest or duty (the
no-conflict rule); make secret profits (the no-profit rule); or
acquire economic opportunities for themselves (the corporate
opportunity
rule) that properly belong to the company. The rules are
distinct but are mutually reinforcing and usually overlap.
[4]
[36]
The no conflict rule does not require an actual conflict to be
established; only that a reasonable person would think that
there was
a real sensible possibility of conflict.
[5]
In the same vein the no-profit rule applies even if the company would
not itself have made a profit, in other words, even if the
director
has not profited at the company’s expense. Profit in this
context is not confined to money but includes every advantage
or gain
obtained by the offending director.
[6]
Similarly, the corporate opportunity rule is not confined to assets
or property only, but extends to confidential information that
directors use for their personal gain.
[7]
[37]
With reference to the prohibition on the acquisition of economic
opportunities with which we are primarily though not exclusively
concerned in this appeal this court said the following in
Da
Silva and Others v CH Chemicals (Pty) Ltd
:
[8]
‘
A
consequence of the rule is that a director is … obliged to
acquire an economic opportunity for the company, if it is acquired
at
all. Such an opportunity is said to be a “corporate
opportunity” or one which is the “property” of the
company. If it is acquired by the director, not for the company but
for himself, the law will refuse to give effect to the director’s
intention and will treat the acquisition as having been made for the
company. The opportunity may then be claimed by the company
from the
delinquent director … [or the company] … may in the
alternative claim any profits which the director may
have made as a
result of the breach or damages in respect of any loss it may have
suffered thereby.
It
is of no consequence that in the particular circumstances of the case
the opportunity would not or even could not have been taken
up by the
company. But the opportunity in question must be one which can
properly be categorised as a “corporate opportunity”.
While any attempt at an all-embracing definition is likely to prove a
fruitless task, a corporate opportunity has been variously
described
as one which the company was “actively pursuing”; or one
which can be said can be said to fall within “the
company’s
existing or prospective business activities; or which related to the
operations of the company within the scope
of its business” or
which falls within its “line of business”.’
[38]
Of particular importance in this case is that it is also irrelevant
that the corporate opportunity would not have materialised.
The
director remains under a duty to disclose its existence and the
information pertaining to it to the company.
[9]
Ultimately, as was pointed out in
Da
Silva
:
‘
[T]he
inquiry will involve in each case a close and careful examination of
all the relevant circumstances, including in particular
the
opportunity in question, to determine whether the exploitation of the
opportunity by the director, whether for the director’s
own
benefit or that of another, gave rise to a conflict between the
director’s personal interests and those of the company
which
the director was then duty-bound to protect and advance.’
[10]
[39]
This much is clear from an analysis of the facts as found by the high
court and confirmed above. Sandler initially, and then
Tladi, had
actively been pursuing the ARB opportunity as one of four
opportunities. It was integral to Tladi’s business strategy
and
Modise had expressly been mandated to pursue it. When Burke discussed
offering the opportunity to Modise in May 2005 the latter
must have
realised immediately that there was a conflict between his personal
interest in pursuing the offer for himself and his
duty to act in
Tladi’s best interests. Not only did he fail to disclose this
conversation with Burke to Tladi, but he concealed
the fact that he
was pursuing the opportunity in his own interest. When he finally
concluded the deal in early December 2005, he
avoided having any
contact with Sandler. Sandler discovered through a media release
later on that the deal had been done. Instead
of fulfilling his
fiduciary duty to act in good faith and in Tladi’s best
interests he purloined the opportunity for himself.
[40]
Modise’s two remaining contentions are also without merit:
First, it is argued that the opportunity did not arise by
virtue of
Modise’s association with Tladi and was, in any event not
available to Tladi; and secondly, that the information
pertaining to
it was not confidential because Tladi had no proprietary interest in
it. As has been mentioned earlier it is irrelevant
that the
opportunity would not have materialised or for that matter that it
had been initiated by ARB. Once Modise was aware that
Tladi was
pursuing the opportunity, and that he stood in a fiduciary
relationship with it at the time when the opportunity became
available to him, he was not entitled to secure it in his own
interest without disclosure to and approval by Tladi’s
board.
[11]
With regard to the second contention there is no legal requirement in
the corporate opportunity rule for a Company to have a proprietary
interest in any information. It is sufficient in the present
circumstances that the acquisition of the ARB opportunity was
integral
to Tladi’s business strategy for Modise – as
chairman and director – to be saddled with the fiduciary duty
to
act in its best interests. Tladi thus established its claim
against Modise.
Prescription
[41]
In regard to Batsomi Power, the second appellant, it is contended on
its behalf that the claim had prescribed and also that
the case
against it, being a separate legal entity, to account to Tladi, was
not made. The court a quo dismissed both contentions.
I deal first
with Batsomi Power’s appeal against the dismissal of its
special plea of prescription. If successful the second
issue falls
away.
[42]
The contention that the claim against Batsomi Power to disgorge its
profits and account to Tladi had prescribed was grounded
squarely on
this court’s judgment in
Symington
and Others v Pretoria-Oos Privaat Hospitaal Bedryfs (Pty) Ltd
.
[12]
There, the court accepted for the purposes of prescription that a
claim for damages and a claim for disgorgement of profits arising
from a breach of a fiduciary duty are different. Put differently,
they are not the same debt. This is because a claim for damages
arises as soon as a fiduciary duty is breached, whereas with a claim
for disgorgement of a profit prescription begins to run against
the
debt only after the payment giving rise to the profit is made.
[13]
The former is compensatory and arises regardless of whether or not
any profit was made. The measure of the damages suffered is
the value
of the lost opportunity. The duty to account for profits on the other
hand is aimed at stripping the fiduciary of his
ill-gotten profits
and therefore only arises if and when a profit is made. The court in
Symington
was required to decide whether the particulars of claim disclosed a
disgorgement claim or a damages claim.
[14]
Having analysed the pleadings it concluded that the claim was only
one for damages and not for disgorgement of profits. It consequently
upheld the plea of prescription.
[43]
Counsel for Tladi, Mr Bham, fairly accepted that Batsomi Power’s
special plea of prescription was therefore a difficult
one for Tladi
to overcome. He nonetheless urged us to dismiss the appeal. He
submitted that what distinguished
Symington
from the present
case was that the claim against Batsomi Power was introduced by way
of amendment to the particulars of claim. And
that the amended claim
for disgorgement, introduced after the prescriptive period had run,
was substantially the same claim as
the original claim for damages –
a submission the court a quo upheld.
[44]
Now it is accepted that an amendment to a pleading, even if effected
after the period of prescription has run against the claim,
shall
generally be permitted provided the debt claimed by way of amendment
is the same or substantially the same debt as originally
claimed.
[15]
So, the question to be decided is whether
Symington
may be
distinguished, merely on the basis that the claim for disgorgement,
was effected through an amendment to the particulars
of claim, after
the prescriptive period had run, and was at least substantially the
same as the original claim for damages. It
is therefore necessary to
compare the original claim against Batsomi Power with the amended
claim against it.
[45]
I do so bearing in mind that a debt as contemplated in the
Prescription Act is of wide import. As Harms JA put it in
Drennan
Maud & Partners v Pennington Town Board
[16]
one must ascertain what the ‘claim’ was in the broad
sense of the meaning of that word, before and after the amendment.
This is consistent with Constitutional Court’s characterisation
of a debt in
Makate
v Vodacom Limited
[17]
as:
‘
Something
owed or due: something (as money, goods or services) which one person
is under an obligation to pay or render to another
[or a] liability
or obligation to pay or render something; the condition of being so
obligated.’
[46]
Tladi originally sought inter alia a disgorgement of benefits, gains,
profits and dividends only against Modise, but not against
Batsomi
Power. The alternative claim against Modise and Batsomi Power was for
the payment of damages in the amount of R122 million
jointly and
severally. The damages claim was not persisted with, but what was
pleaded remains relevant to the analysis as to whether
the amended
claim or debt is the same or substantially the same claim or debt as
pleaded in the original claim.
[47]
In its original particulars of claim, and in relation to the
alternative damages claim, Tladi pleaded that through Modise,
Batsomi
Power acting in concert with him and also being aware of the facts as
pleaded giving rise to the disgorgement claim, aided
or induced
Modise to breach his fiduciary duty to it and deprived it of the
corporate opportunity. But for their joint unlawful
conduct, the
particulars continued, Tladi would have taken up the corporate
opportunity, as a consequence of which it suffered
damages. Tladi
thus claimed damages, jointly and severally, against both of them.
The claim against Batsomi Power was based on
the principle that a
person who enables, assists in or facilitates a breach of trust by
another with knowledge that a breach of
trust is being perpetrated,
is himself liable for damages flowing from the breach of trust.
[18]
[48]
The amendment, granted on 9 September 2015,
[19]
introduced allegations that Modise used Batsomi Power as his conduit
and alter ego to misappropriate and receive the corporate
opportunity. It also included a paragraph that Batsomi Power was
jointly and severally liable with Modise to Tladi for the benefits,
gains, dividends and profits referred to in its disgorgement claim.
[49]
It was thus contended on behalf of Tladi that the two claims were
substantially the same. In this regard reliance was placed
on the
following passage from this court’s judgment in
Phillips
v Fieldstone Africa (Pty) Ltd
:
[20]
‘
Counsel
for the appellant emphasised that the particulars of claim contained
no reference in terms to a fiduciary duty. They submitted
that the
claim must be understood as a claim based on breaches of the
contractual terms which had been pleaded and said that that
was how
they had understood and approached the case. If they did that,
however, I think that they placed far too restrictive an
interpretation upon the claim. The contract of employment (with its
implied terms) is pleaded as a single element of a broader
picture of
why an opportunity that arose out of the appellant’s employment
properly belonged to the respondents. The implied
duties (ie duties
which derive
ex lege
)
are said to have arisen in the context of a contract which defined
the relationship between the parties …
There
is no magic in the term “fiduciary duty”. The existence
of such a duty and its nature and extent are questions
of fact to be
adduced from a thorough consideration of the substance of the
relationship and any relevant circumstances which affect
the
operation of that relationship … While agency is not a
necessary element of the existence of a fiduciary relationship
…
that agency exists will almost always provide an indication of such a
relationship. The emphasis in the particulars of
claim upon the
representative nature of the appellant’s status in dealing with
Safika and the duty to account for profits
acquired by him in that
capacity should have been to counsel an unmistakeable beacon which
marked the claim as one in which the
appellant stood towards the
respondents in a position of confidence and good faith which he was
obliged to protect.
No more was required
to set up a case on a fiduciary duty. It is true that the amount
claimed was said to be the value of the benefit
which the respondents
would have derived from the lost opportunity rather than a simple
disgorgement of profits made by him, which
would have been a more
appropriate measure.
But the method of
calculation, ie the value of shares taken up less the price paid for
them, was in essence the measure of the
appellant’s profits.’
(Counsel’s emphasis added.)
[50]
Phillips
involved
a claim by a company against its employee to account to his employer
for shares he had acquired from an opportunity arising
in the course
of his employment. The claim was based on an ‘obligation to
account’ for the benefit. One of the issues
that arose there
was whether the company’s claim as pleaded was limited to
breach of contract and not breach of a fiduciary
duty. The court held
that the employment contract had been pleaded as a single element of
why the opportunity had arisen and did
not preclude the existence of
a fiduciary duty, even though this was not specifically pleaded. In
other words once the employment
contract was pleaded
no
more was required to set up a claim based on a fiduciary duty
even though, as the court observed, the
value
of the benefit the respondents would have derived from the lost
opportunity, rather than a simple disgorgement of profits
made by
him, would have been a more appropriate measure
.
[51]
As I understand the submission Tladi thus contends that damages and
disgorgement claims were broadly pleaded as a single element
of why
the opportunity had arisen. The fact that the disgorgement was not
initially pleaded as the more appropriate measure should
not matter.
In short, they should be treated as substantially the same claim –
or, as the court a quo found, ‘substantially
the same debt’.
[52]
I do not think that
Phillips
is of any
assistance to Tladi
.
Prescription was
not in issue there. It is also apparent that the issue was whether
the company was required to specifically plead
in terms that the
employee had a fiduciary duty to the company to set up the claim to
account for the shares. That is why the court
said that once the
employment contract was pleaded no more was needed to set up the case
on a fiduciary duty. And that the value
of the loss of the benefit
from the lost opportunity to the company from the employee’s
acquisition of the shares for himself
and the value of the benefit to
be derived from a disgorgement of profits made by him was in essence
the same. There was, unlike
in this case, thus no claim for damages.
[53]
It is, however, clear from the facts here that a claim for
disgorgement of profits arose upon the breach of the fiduciary duty
and not when each of the dividends from the ARB shares were
ultimately paid to Batsomi Power. This debt quite clearly arose more
than three years before the amendment was granted on 9 September
2015. In this regard it is apposite to refer to what Corbett JA
said
in
Evins v Shield
Insurance Co Ltd
:
[21]
‘
Where
the plaintiff seeks by way of amendment to augment his claim for
damages, he will be precluded from doing so by prescription
if the
new claim is based upon a new cause of action and the relevant
prescriptive period has run, but not if it was a part and
parcel of
the original cause of action and merely represents a fresh
quantification of the original claim or the addition of a
further
item of damages …’
[54]
In my view Tladi has not demonstrated that the amended disgorgement
claim against Batsomi Power was ‘part and parcel’
of the
original cause of action or substantially the same claim as the claim
for damages. The claim, or debt, is based on an entirely
different
cause of action and the prescriptive period had run. Accordingly
Batsomi Power’s appeal against the court a quo’s
finding
on prescription must succeed.
[55] The following order is made:
1 The appeal by the first appellant (Mr Jacob Resetlhake
Daniel Modise) is dismissed with costs, including the costs of two
counsel.
2 The appeal by Batsomi Power (Pty) Ltd is upheld, with
costs including the costs of two counsel.
3 The order of the court a quo is amended by deleting
the reference to Batsomi Power (Pty) Ltd and the phrase ‘jointly
and
severally’ in paras 1-3 of the order, and also by
adding the following in para 4:
‘
The claim against Batsomi
Power (Pty) Ltd is dismissed with costs including the costs of two
counsel.’
__________________
A
CACHALIA
JUDGE OF APPEAL
Appearances
For
appellant: L Harris SC (with him A Botha)
Instructed
by: Tshisevhe Gwina Ratshimbilani Inc, Sandton
Matsepes
Attorneys, Bloemfontein
For
respondent: A E Bham SC (with him T Dalrymple)
Instructed
by: Knowles Husain Lindsay Inc, Sandton
McIntyre
Van der Post, Bloemfontein
[1]
Broad-Based Black Economic Empowerment Act 53 of
2003
.
[2]
Da Silva and Others v CH Chemicals (Pty) Ltd
[2008] ZASCA 110
;
[2008] ZASCA 110
;
2008 (6) SA 620
(SCA) para 18.
[3]
F H I Cassim ‘The duties and the liability
of directors’ in F H I Cassim (ed)
Contemporary
Company Law
2 ed (2012) at 513 and
534.
[4]
Ibid at 536 and 547.
[5]
Ibid at 535 and the cases cited there.
[6]
Ibid at 536 and the cases cited there.
[7]
Ibid at 539 and the cases cited there.
[8]
Da Silva
(above
fn 2) paras 18 and 19. (References omitted.)
[9]
F H I Cassim (above fn 3) at 538; Compare
Industrial Development Consultants Ltd
v Cooley
[1972] 2 All ER 162
, decided
on the basis of the no-conflict rule though arguably concerning a
corporate opportunity that had come to the defendant
while a
managing director of the plaintiff company.
[10]
Da Silva
(above
fn 2) para 19.
[11]
Philips v Fieldstone Africa (Pty) Ltd and
Another
2004 (3) SA 465
SCA para 35.
[12]
Symington and Others v Pretoria-Oos Privaat
Hospitaal Bedryfs (Pty) Ltd
[2005]
ZASCA 47
;
2005 (5) SA 550
SCA.
[13]
Ibid paras 24, 27, 34 and 35.
[14]
Ibid para 28.
[15]
Rustenburg Platinum Mines (Ltd) v Industrial
Maintenance Painting Services CC
[2008]
ZASCA 108
;
[2009] 1 All SA 275
(SCA) para 13.
[16]
Drennan Maud & Partners v Pennington
Town Board
[1998] ZASCA 29
;
1998 (3) SA 200
at 212F-H
[17]
See the minority judgment of Wallis AJ in
Makate
v Vodacom Ltd
[2016] ZACC 13
;
2016 (4)
SA 121
(CC) para 187, referring to the definition of the term in the
New Shorter Oxford English Dictionary
3
ed (1993) vol 1 at 604, which accords with ‘[t]he meaning that
has been given to the word “debt” since the
Prescription
Act came into force’. See, in this regard,
Electricity
Supply Commission v Stewarts and Lloyds of SA (Pty) Ltd
1981
(3) SA 340
(A) at 344E-G;
Joint
Liquidators of Glen Anil Development Corporation Ltd (in
Liquidation) v Hill Samuel (SA) Ltd
1982
(1) SA 103
(A) at 110A-B; and
Cape Town
Municipality and Another v Allianz Insurance Co Ltd
1990
(1) SA 311
(C) at 330F-H.
[18]
Yorkshire Insurance
Co
Limited v Standard Bank of SA Limited
1928
WLD 251
;
Gross and Others v Pentz
[1996] ZASCA 78
;
1996 (4) SA 617
(A) at 625E-H;
Breetzke
and Others NNO v Alexander NO and Others
[2020]
ZASCA 97.
[19]
See
Tladi Holdings (Pty) Ltd v Modise and Others
[2015]
ZAGPJHC 331.
[20]
Philips v Fieldstone Africa (Pty) Ltd and
Another
2004 (3) SA 465
(SCA) para 27.
(References omitted).
[21]
Evins v Shield Insurance Co Ltd
1980
(2) SA 814
(A) at 836D-E.