Phillips v Fieldstone Africa (Pty) Ltd and Another (516/02) [2003] ZASCA 137; [2004] 1 All SA 150 (SCA) (28 November 2003)

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[2003] ZASCA 137
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Phillips v Fieldstone Africa (Pty) Ltd and Another (516/02) [2003] ZASCA 137; [2004] 1 All SA 150 (SCA); 2004 (3) SA 465 (SCA); (2004) 25 ILJ 1005 (SCA) (28 November 2003)

THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
REPORTABLE
Case
no: 516/02
In
the matter between
ERIC M
PHILLIPS APPELLANT
and
FIELDSTONE
AFRICA (PTY) LTD 1
ST
RESPONDENT
FIELDSTONE
PRIVATE CAPITAL GROUP 2
ND
RESPONDENT
Coram:
MPATI DP, STREICHER, FARLAM, HEHER JJA and MOTATA
AJA
Heard:
21
NOVEMBER 2003
Delivered: 28 NOVEMBER
2003
Summary: Employment
– fiduciary relationship – pleading – when such relationship
arises – breach – what constitutes
__________________________________________________________________
JUDGMENT
__________________________________________________________________
HEHER
JA
HEHER JA:
[1]
This appeal concerns the liability of an employee to account to his
employer for secret profits made by the employee out of an

opportunity arising in the course of his employment.
[2]
The
first respondent is a South African company which was set up by the
second respondent to provide a corporate face for its activities
in
this country and to render services on its behalf.
[3]
The second respondent, Fieldstone Private Capital Group, was, at the
times with which the litigation was concerned, a partnership

operating from New York. Its business, which is international,
consists in the main in raising investment capital and advising
on
activities in the infrastructure sector (that area which includes
public utilities, port and road construction and telecommunications).

It frequently works with small enterprises which have gained or hope
to obtain large opportunities for which they have neither
expertise
nor the financial clout to raise capital beyond the means of their
individual members. In the South African context
the redressing of
historical imbalances in society by the promotion of black economic
empowerment provides the typical field for
the second respondent’s
endeavours
. It charges fees for its
services. Often, however, its clients are unable to pay in cash or
need to be carried financially.
To cater for this difficulty, the
second respondent frequently agrees to partial satisfaction of its
fees in the form of an equity
participation in the client or in the
investment which is acquired by the client. The importance of this
kind of opportunity (and
its concomitant risk) was described in
evidence by Mr Andrew Capitman, the second respondent’s managing
director and chairman
of the first respondent:
‘
The
cream in our business is the equity participations because just as we
make money for our clients out of their opportunities,
the biggest
gains sometimes come from the equity but it often takes years to
collect, to harvest that investment.’
[4]
The appellant is a young black American recruited in the United
States by Capitman especially for his expertise in the sphere of

telecommunications. He was employed by the second respondent in
April 1997 at a salary of US$ 8333,33 per month and an annual

performance-based bonus guaranteed at a minimum of US$ 50000.
[5]
The
dramatis personae
are completed by Safika Investment
Holdings (Pty) Ltd and Safika Wireless (Pty) Ltd. The latter is a
South African company established
principally by black businessmen to
pursue opportunities in telecommunications. It is a subsidiary of
the first-mentioned company.
The leading lights in both are Messrs
Cuba and Ngoasheng. In this judgment, unless there is a reason to
distinguish between their
roles, I shall refer simply to ‘Safika’.
[6]
In June 1997 a letter agreement was signed between Safika Wireless,
represented by Safika Investment Holdings, the second respondent,

represented by the first respondent, and Citibank. It recorded that
Safika Wireless sought to raise capital to finance the acquisition
of
all or part of the ordinary shares of MTN Holdings (Pty) Ltd
currently owned by SBC Communications Corporation. Safika Wireless

employed the other two parties and their affiliates as its ‘exclusive
and joint Financial Advisors and Placement Agents’.
(Since
Citibank soon fell out of the agreement and the obligations then
devolved solely on the respondents there is no need for
further
reference to the role of Citibank beyond this point.)
[7]
In summary, the respondents undertook to perform the following
services to Safika Wireless:
(a) to familiarize
themselves, to the extent required to perform their duties under the
agreement, with the business, operations,
properties, condition
(financial and otherwise) and prospects of Safika Wireless and MTN;
(b) to assist Safika
Wireless in the valuation of MTN, the formulation of a negotiation
strategy for the acquisition of the MTN
shares and the actual
negotiations with SBC;
(c) in co-ordination
with Safika Wireless, to develop a computer-based financial model
capable of incorporating alternative financial
structures and
operating and investment scenarios;
(d) to assist Safika
Wireless in developing an optimum financial structure and, ‘in
close co-ordination with the company’, formulate
a strategy for
achieving the financing within the required time;
(e) to prepare, with
the assistance of Safika Wireless, an appropriate financing
information memorandum;
(f) to advise and
assist Safika Wireless in structuring and executing the financing,
contacting potential investors or underwriters
and making appropriate
presentations;
(g) to make their
best efforts to obtain commitments for the financing and to obtain
the best terms and conditions on behalf of
Safika Wireless.
[8]
The agreement further provided that if Safika Wireless were to
acquire the MTN shares from SBC during the term of the engagement,

the respondents would be deemed to have completed their assignment
successfully and to be entitled to full payment of the agreed

compensation. If the financing was completed, the second respondent
would be paid a structuring fee of 1½% of the total nominal
face
value of the financing and a placement fee of the same percentage but
not less than US$ 2 250 000. The agreement was to terminate
at the
earlier of the closing of the financing or 12 calendar months from
the date of the agreement but might be extended if agreed
in writing
by the parties. Finally, the agreement recorded that the
respondents’ team on the MTN engagement would be led by
the
appellant and would include Mr Clive Ferreira of the Johannesburg
office and Mr Capitman of the New York office and such other
middle
and junior-level personnel as might be required.
[9]
The second respondent duly seconded the appellant to South Africa for
the purposes of carrying out the contract. He became the
‘lead
principal’ in the undertaking, a role described in evidence by
Capitman in the following terms:
‘
the
Fieldstone person who will be responsible for communicating strategy
to the client, be responsible for the ordering of resources
within
Fieldstone to get the work product in the client’s hands, generally
will lead all the client presentations and will get
the lion’s
share of the revenue associated with a transaction’.
Generally,
he said, the MTN project would be referred to within the second
respondent as ‘Eric’s deal’ (‘Eric’ being the
appellant).
Although the appellant was employed on a fixed salary he would be
entitled to additional reward if the project was
successfully
executed, the amount depending on the extent of the second
respondent’s profit.
[10]
Work on the contract commenced. On 16 September 1997 the appellant
attended a meeting of management and employees of the second

respondent, including its ‘Africa team’ at Skytop, a venue some
100 miles from New York. During the course of the return journey
to
that city, the appellant, who was travelling in a vehicle with
Capitman and others, announced that there might be an opportunity
to
acquire 10% of the shares in Safika (it is not clear that he had in
mind a particular company). According to Capitman this
provoked
great excitement. He told the appellant to pursue the matter and let
the second respondent know on what terms the shares
were offered.
[11]
During November 1997 the appellant, during a visit to New York, was
asked by Capitman what was happening about the Safika shares,
a
question which gave rise to an incident so described by Capitman:
‘
He
[appellant] came into my office and said, “They do not want to sell
the shares to Fieldstone but they will sell them to me”.
I said
“Eric, if they want to sell them to you and you are simply holding
them in trust for us, that is fine, but otherwise
you cannot buy
them, they are ours’, and he got very angry and said “What do you
mean ‘they are ours’, I am being offered
them because of the work
I am doing.” I said “The work you are doing we are paying for,
we are paying your salary, we are
paying your expenses, you cannot
take up those shares. Furthermore it is a huge conflict of interest
and he said “I don’t
see what the conflict is”. I said “Say
that there is some issue with the MTN deal about collecting our fee
and you are a 10%
holder of the company for your own account and the
company is going to be a couple of million dollars poorer if it pays
our fee,
then you have a different interest about our getting paid
our fee than we do. That is what the conflict of interest is.
Furthermore,
under our rules you cannot buy the shares, you are
appropriating an opportunity.” And this argument went on for 15 or
20 minutes
and finally it got too hot for me to, you know, I was just
repeating myself. So I said “If you don’t believe me, go and see

Charlie Hill [second respondent’s founder and managing partner]”.’
Capitman
also testified that the appellant said on this occasion that Safika
was a black empowerment company which only wanted black
shareholders.
[12]
At
about this time the appellant told Capitman that he had been asked by
Safika to become a director. Capitman was prepared to
agree provided
that Safika furnished a letter informing the second respondent of the
invitation. He stipulated that any remuneration
so accruing had to
be handed over to the second respondent although it was the policy to
refund fees so received to the payee on
a dollar for dollar basis.
On 1 December 1997 Cuba faxed a letter to Hill in the following
terms:
‘
This
is to inform you that the board of directors of Safika Investment
Holdings (Safika) has requested Mr Eric Phillips to join
the board as
a non-executive director.
As
Safika has a business relationship with Fieldstone in South Africa
which we would like to continue, the Safika board thought
it would be
proper to inform you of the request to Mr Phillips.’
[13]
The appellant continued to work on the project. Nothing more
was said about the Safika shares. In March 1998 he expressed
unhappiness
with his bonus allocation of $ 50000 and referred, in
that context, to the ‘lost’ opportunity to acquire the shares.
[14]
The
appellant travelled extensively, worldwide, in fulfilling his duties
to the second respondent (not solely in relation to the
Safika
contract). Late in 1998 he took to doing so without keeping the
second respondent informed of his whereabouts. In January
1999 he
made no contact for an entire month. He re-appeared briefly,
disappeared throughout February and, at the end of that month,

resigned from the employ of the second respondent.
[15]
The
bid by Safika Wireless for an interest in MTN was successful. It
obtained 10% of that company’s shares. However the second

respondent’s labours on its behalf went unrewarded (save for
payment of out-of-pocket expenses) because the appellant had failed

to ensure that the engagement was extended beyond June 1998, although
he ostensibly continued to work on the project for the respondents

until at least January 1999.
[16]
Sometime
after the appellant’s resignation the respondents gradually became
aware of the truth of what had been happening behind
the facade of
the appellant’s employment and thereafter. For present purposes
the relevant facts are these:
(1) During August
1997 the directors of Safika Investment Holdings proposed to the
appellant that he take up a 10% share of their
company against a
payment by him of an amount sufficient to cover working capital for
six months and on condition that he take
up full-time employment with
the company as soon as he was able. He accepted the offer and paid
R732 000,00 as a
quid pro quo
.
(2) On 26 September
1997 the appellant wrote to Safika proposing to bring a ‘team’ to
work for it. Four of the five members
of the team (including the
appellant) were employees of the second respondent, three of them
being black Americans and one a Botswana
national.
(3) The shares were
allocated to the appellant and registered in his name in October
1997.
(4) The appellant
attended board meetings of Safika Investment Holdings by invitation
from about August 1997 but his appointment
as a director only became
official in February 1998.
(5) About October
1999 the appellant fell out with Safika and ceased his association
with the group.
(6) During April
2000 the appellant sold his shares in Safika Investment Holdings back
to its other shareholders for R12 250 000,00.
[17]
In
August 2000 the present respondents issued summons in which they
claimed from the appellant payment of the sum of R11 250 000,00,
said
to be the difference between what he had paid for the shares and the
price received when selling them. In brief, they alleged
that the
appellant had acted as their agent in dealing with Safika, that he
owed them duties of loyalty and good faith, and that
he had breached
those duties in acquiring the shares and failing to account to them.
[18]
The
appellant defended the action. While admitting that, in entering the
employment of the second respondent, he impliedly or
tacitly
undertook a duty of loyalty to that company and that he undertook, in
relation to his dealings with its clients, not to
appropriate for
himself opportunities which were presented to him in his capacity as
its representative, he denied that he acted
as an agent of the second
respondent in relation to the Safika contract and was therefore
obliged to account to it for profits
acquired by him while allegedly
acting in that capacity.
[19]
In
relation to the offer of the Safika shares the appellant pleaded as
follows:
‘
18.1.1
during or about September 1997 and after his appointment as a
director of Safika the defendant, in his capacity as a director
of
Safika, became aware that Safika urgently required capital;
18.1.2
Safika was prepared to issue shares for the purposes of raising such
capital to selected black empowerment individuals;
18.1.3
Safika offered the defendant as a board member thereof a 10%
shareholding in Safika;
.
. .
19.1
The defendant avers that the offer of shares by Safika was an offer:
19.1.1
made to the defendant in his capacity as a director of Safika;
19.1.2
that did not represent a corporate opportunity for the first
plaintiff alternatively the second plaintiff;
19.1.3
not made to the first plaintiff alternatively the second plaintiff
and was accordingly not capable of being accepted by them;
19.1.4
that was nevertheless conveyed to the first plaintiff alternatively
the second plaintiff;
19.1.5
that was accepted by the defendant with full knowledge of the first
plaintiff alternatively second plaintiff.’
The
appellant averred that by reason of the allegations set out in
paragraph 19 of the plea, he was under no obligation to account
to
the respondents in respect of the Safika share offer.
[20]
An
order was made in terms of rule 33(4) that the questions of the value
of such benefit as the respondents would have derived but
for the
appellant’s alleged breaches of duty and the indebtedness, if any,
of the appellant to the respondents should stand over.
[21]
At
the trial, Messrs Capitman, Hill, Ferreira (managing director of the
first respondent) and Cuba testified for the plaintiff.
The
appellant’s case was closed without leading evidence. The summary
of the facts which I have provided earlier derives from
the evidence
of the first three of the said witnesses who were accepted by the
trial Judge (Fevrier AJ) as truthful and reliable.
Those findings
were not attacked on appeal and are borne out by a perusal of the
record. It follows that a number of the allegations
pleaded by the
defendant were either disproved or remained unsubstantiated. The
testimony of Cuba was likewise accepted by the
Court
a
quo
as beyond serious criticism. I shall
refer to his evidence where necessary in the context of dealing with
specific submissions
addressed by counsel.
[22]
Fevrier
AJ made the following findings which are relevant to this appeal:
(1) The
proposals contained in the appellant’s letter to Safika of 26
September 1997 constituted
‘
a
breach of trust, faith, confidence and loyalty and are tantamount to
an outright betrayal by defendant of Fieldstone. Defendant
placed
himself in a position where he personally was striving for goals
essentially similar to those which he was obliged to pursue
in the
interests of both the American and South African companies.’
(2) No
practical distinction could be drawn between the American and South
African companies. Although the appellant was employed
by the second
respondent, the duties of a principal involved working for the
benefit of the Fieldstone family of companies as directed.
The
appellant knew that deals were done through the medium of the South
African company in accordance with the policy of the American
company
and accepted the position of lead principal of two Fieldstone teams
within the South African company. The duties and obligations
the
appellant owed to the American entity were (at least) impliedly owed
to the South African company.
(3) It
was the appellant’s duty to secure the benefit of the investment in
the Safika shares for the respondents, albeit that
the shares were
offered to the appellant only and would not have been offered to the
respondents.
(4) By
accepting the offer to acquire the shares in Safika without the
respondents’ knowledge and consent the appellant placed
himself in
a position where his personal interest conflicted with his duties to
the respondents.
(5) The
respondents’ case was not, as contended on the appellant’s
behalf, simply a claim based on a breach of a contractual
obligation
but reliance was placed both in the pleadings and the evidence upon
the existence of a fiduciary duty, a breach of that
duty and a
consequent right to a disgorgement of profits secretly earned.
(6) Whether
the appellant was under a fiduciary duty to the respondents in
relation to the offer and acquisition of shares depended
upon the
facts.
(7) An
analysis of the relationship between the parties, the nature of the
business of the respondents and the role demanded of
the appellant in
promoting and furthering that business established that he indeed
stood in a fiduciary relationship to them and
the duty to acquire the
shares for the respondents and not for himself fell within that
relationship.
(8) The
appellant was liable to account to the respondents for the profits
made by him.
[23]
The
learned Judge accordingly decided the issues before him in favour of
the respondents and ordered the appellant to pay the costs
including
those of senior counsel.
[24]
The
appellant applied unsuccessfully to the trial Judge for leave to
appeal, but such leave was granted on application to this
Court.
[25]
Before
us the appellant’s counsel confined their submissions to -
1. Whether the
respondents’ case as pleaded had been limited to a claim based on
breach of contract and not on a breach of a fiduciary
duty as found
by the trial Court.
2. Whether a
fiduciary duty attached to an
employee
in the position
occupied by the appellant.
3. Whether or not
the offer of shares to the appellant was an opportunity which
(a) properly
belonged to the respondents;
(b) the respondents
were able to and would have taken up.
The first issue:
the plaintiffs’ cause of action
[26]
The
particulars of claim was carefully structured. The elements are
readily identifiable. They are, briefly-
(1) The conclusion
of the agreement between the first appellant and Safika Investment
Holdings (Pty) Ltd which identified the scope
of the project for
which the first respondent was appointed. (para 5)
(2) The employment
of the appellant by the second respondent, its terms and scope, the
implied duties of loyalty, non-appropriation
of corporate
opportunities and accounting for profits acquired while acting as
agent of his employer. (para 6)
(3) The assignment
of the appellant by the second respondent to represent the first
respondent in relation to the Safika contract,
giving rise, tacitly,
so it was pleaded, to equivalent duties towards the first respondent.
(paras 7 and 8)
(4) From August 1997
until March 1999 the appellant acted in regard to the Safika contract
as the representative and agent of the
respondents. (para 9)
(5) Safika’s offer
to place shares in order to raise capital; the shareholding which
accordingly became available to the appellant
while acting in the
aforesaid capacity; the opportunity belonged to the respondents and
was one which they were able to take up;
the obligation of the
appellant to secure the opportunity for the benefit of the
respondents. (paras 10 and 11)
(6) The breach of
the obligation by the appellant in acquiring the offer for himself
and in his refusal to account to the respondents.
(para 12)
(7) The obligation
to account. (para 14.1)
[27]
Counsel
for the appellant emphasized 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. Cf
Hodgkinson
v Simms
[1994] 3 SCR 377
(SCC):
‘
.
. . the existence of a contract does not necessarily preclude the
existence of fiduciary duties between the parties. On the contrary,

the legal incidents of many contractual agreements are such as to
give rise to a fiduciary duty. The paradigm example of this
class of
contract is the agency agreement, in which the allocation of rights
and responsibilities in the contract itself gives
rise to fiduciary
expectations’.
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 (cf
Bellairs v Hodnett and
Another
1978 (1) SA 1109
(A) at 1130F).
While agency is not a necessary element of the existence of a
fiduciary relationship (
Robinson v Randfontein
Estates Gold Mining Co Ltd
1921 AD 168
at
180), 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.
[28]
During
the course of the trial the nature and extent of the relationship
between the parties was canvassed at length. Counsel for
the
appellant were unable to identify any aspect which was not covered by
cross-examination or which they might have dealt with
differently if
they had treated the case as one based on a breach of a fiduciary
duty, bearing in mind that the separated issues
did not extend to the
measure of profits (or damages). In the circumstances I agree with
counsel for the respondents that the
pleadings, properly construed,
embodied such a claim, no label being demanded of the pleader, and
that the evidence thoroughly
exposed the real issues between the
parties. It is a matter for note in this regard that the appeal on
the merits is not directed
to a failure to prove the existence of a
fiduciary duty but only to what constitutes such a duty in relation
to an employee such
as the appellant.
The
law relating to breach of fiduciary duty and its consequences
[29]
Before
I address the two parts of the second of the issues which I
identified in para [25] it would be helpful to give some attention
to
the nature and scope of the remedy. The reason for doing so is that
certain of the submissions of appellant’s counsel seek
to draw a
distinction between the fiduciary consequences of the breach of duty
as it attaches to directors of companies, trustees
and agents on the
one hand and employees on the other.
[30]
The
principles which govern the actions of a person who occupies a
position of trust towards another were adopted in South Africa
from
the equitable remedy of English law. The Roman and Roman-Dutch law
provided equivalent relief. In
Transvaal Cold
Storage Co Ltd v Palmer
1904 TS 4
at 19-20
and 34-5 the sources were considered and the conclusion was expressed
that the extension and refinement of the Civil Law
by English courts
was a development of sound doctrine suited to ‘modern conditions’.
The fullest exposition in our law remains
that of Innes CJ in
Robinson v Randfontein Estates Gold Mining Co
Ltd
,
supra
,
at 177-180. It is, no doubt, a tribute to its adequacy and a
reflection of the importance of the principles which it sets out
that
it has stood unchallenged for 80 years and undergone so little
refinement.
‘
Where
one man stands to another in a position of confidence involving a
duty to protect the interests of that other, he is not allowed
to
make a secret profit at the other’s expense or place himself in a
position where his interests conflict with his duty. The
principle
underlies an extensive field of legal relationship. A guardian to
his ward, a solicitor to his client, an agent to his
principal afford
examples of persons occupying such a position. As was pointed out in
The Aberdeen Railway Company v Blaikie Bros.
(1 Macqueen 474), the doctrine is to be found
in the civil law (Digest 18.1.34.7), and must of necessity form part
of every civilized
system of jurisprudence. It prevents an agent from
properly entering into any transaction which would cause his
interests and his
duty to clash. If employed to buy, he cannot sell
his own property; if employed to sell, he cannot buy his own
property; nor can
he make any profit from his agency save the agreed
remuneration; all such profit belongs not to him, but to his
principal. There
is only one way by which such transactions can be
validated, and that is by the free consent of the principal following
upon a
full disclosure by the agent . . . Whether a fiduciary
relationship is established will depend upon the circumstances of
each case
. . . But, so far as I am aware, it is nowhere laid down
that in these transactions there can be no fiduciary relationship to
let in the remedy without agency. And it seems hardly possible on
principle to confine the relationship to agency cases.’
The
principles so stated remain true, not only for this country, but also
in many Commonwealth (and United States) jurisdictions.
[31]
The
following short summary attempts to encapsulate the present level of
development. The rule is a strict one which allows little
room for
exceptions (
Regal (Hastings) Ltd v Gulliver et
al
[1967] 2 AC 134
at 154F-155E,
[1942] 1 All ER 378
(HL) at 392G-393C;
Canadian Aero Service v O’Malley et al
[1974]
40
DLR (3d) 371 (SCC) at 382;
Peffers NO and
Another v Attorneys Notaries and Conveyancers Fidelity Guarantee Fund
Board of Control
1965 (2) SA 53
(C) at
56D-57G). It extends not only to actual conflicts of interest but
also to those which are a real sensible possibility (
Aberdeen
Railway Co v Blaikie Bros, supra
;
G
E Smith, Ltd v Smith; Smith v Solnik
[1952]
NZLR 470
;
Boardman v Phipps
[1966] UKHL 2
;
[1966]
3 All ER 721
(HL) at 737I, 743F-I, 748E-F, 756I;
Canadian
Aero Service v O’Malley
,
supra
at 384, 385). The defences open to a
fiduciary who breaches his trust are very limited: only the free
consent of the principal
after full disclosure will suffice (
Robinson
v Randfontein Estates GM Co Ltd, supra
,
loc cit
;
Regal
(Hastings) v Gulliver
,
supra
at 392C,
Boardman
v Phipps
,
supra
at
737D, 744H, 747D;
Warman International Ltd and
Another v Dwyer and Others
[1995] HCA 18
;
[1994-5] 182 CLR
544
(HC of A) at 559). Because the fiduciary who acquires for
himself is deemed to have acquired for the trust, (
Palmer
’s
case
supra
at 20)
once proof of a breach of a fiduciary duty is
adduced it is of no relevance that (1) the trust has suffered no loss
or damage (
Regal (Hastings) v Gulliver
,
supra
at 386B, 392F;
Re
Reading’s Petition of Right
[1949] 2 All ER
68
(CA) at 70E-F, 71A;
Soulos v Korkontzilas
[1997] 2 SCR 217
(SCC); (2) the trust could
not itself have made use of the information, opportunity etc (
Regal
(Hastings) v Gulliver
,
supra
at 378,
Reading
v Attorney-General
[1951] UKHL 1
;
[1951] 1 All ER 617
(HL)
at 619H;
Boardman v
Phipps
,
supra
at
746I;
Industrial Development Consultants v
Cooley
[1972] 2 All ER 162
(Assizes) at
175f-j;
Warman International v Dwyer
,
supra
at 557-8;
Bhullar
and Others v Bhullar and Another
[2003] EWCA
Civ 424
at para 41) or probably would not have done so (
Furs
Ltd. v Tomkies et al
[1936] HCA 3
;
[1936] 54 CLR 583
(HC of
A) cited in
Canadian Aero Service v O’Malley
supra
at 385;
Boardman
v Phipps
,
supra
at
747A-D); (3) the trust, although it could have used the information,
opportunity etc has refused it or would do so (
Warman
International v Dwyer
,
supra
at 558;
Industrial
Development Consultants v Cooley at supra
);
(4) there is not privity between the principal and the party with
whom the agent or servant is employed to contract business
and the
money would not have gone into the principal’s hands in the first
instance (
Boston Deep Sea Fishing and Ice Co v
Ansell
(1888) 39 Ch D 339
at 367); (5) it was
no part of the fiduciary’s duty to obtain the benefit for the
trust:
Regal (Hastings) v Gulliver supra
at
378, 386B;
Jones v East Rand Extension Co Ltd
1903 TH 325
; or (6) the fiduciary acted
honestly and reasonably:
Regal (Hastings) v
Gulliver supra
at 386A, 392D;
Boardman
v Phipps supra
at 744D, 745C-D; (although
English and Australian courts make some allowance for equity in
calculating the scope of the disgorgement
in such cases).
The
duty may extend beyond the term of the employment. (See
Cyberscene
Ltd and Others v i-Kiosk Internet and Information (Pty) Ltd
2000
(3) SA 806
(C) at 820I and the cases there cited).
[31]
The
approach enunciated by Lord Upjohn in
Boardman
v Phipps
,
supra
at
758 commends itself as a practical way of dealing with cases of this
nature:
‘
1. The
facts and circumstances must be carefully examined to see whether in
fact a purported agent and even a confidential agent
is in a
fiduciary relationship to his principal.
2. Once
it is established that there is such a relationship, that
relationship must be examined to see what duties are thereby imposed

on the agent, to see what is the scope and ambit of the duties
charged on him.
3. Having
defined the scope of those duties one must see whether he has
committed some breach thereof by placing himself within
the scope and
ambit of those duties in a position where his duty and interest may
possibly conflict. It is only at this stage
that any question of
accountability arises.
4. Finally,
having established accountability it only goes so far as to render
the agent accountable for profits made within the
scope and ambit of
his duty.’
(See
also
Industrial Development Consultants v
Cooley
,
supra
at
173c-f.)
[32]
The
principles which I have summarised are consistent with the doctrine
enunciated in
Robinson
’s case,
supra
and necessary
for its effective operation and should be approved by this Court.
The
second issue: whether the appellant, as an employee, was subject to
a fiduciary duty
[33]
Counsel
for the appellant submitted that a distinction exists (or should
exist) between the doctrine as applied to company directors
and
agents on the one hand and employees on the other. The appellant,
they said, was a mere employee and should not be burdened
with the
strict and extensive application of the doctrine which I have
described. Counsel referred to
SA Historical
Mint (Pty) Ltd v Sutcliffe and Another
1983
(2) SA 84
(C) at 90B-91B in this regard. English law apparently
recognizes a lesser duty of disclosure in the case of employees, even
of
senior status:
Bell v Lever Bros Ltd
[1931] UKHL 2
;
1932
AC 161
(HL) in which a bare majority of the House held that an
employee is under no duty to his employer to disclose his own acts of
dishonesty
toward that employer. (But cf
Sybron
Corporation v Rochem Ltd
[1984] Ch 112
(CA)
where, the Court having found, with obvious reluctance, that it was
bound by
Bell v Lever Bros
held
nevertheless that the duty
did
extend to a disclosure of the dishonesty of other employees even if
the source had to implicate himself in doing so). It may be
that it
was
Bell v Lever Bros
that
Laskin CJ had in mind when he said, in
Canadian
Aero Service v O’Malley supra
at 381:
‘
They
[O’Malley and Zarzycki] were “top management” and not mere
employees whose duty to their employer, unless enlarged by
contract,
consisted only of respect for trade secrets and for confidentiality
of customer lists. Theirs was a larger, more exacting
duty which,
unless modified by statute or by contract (and there is nothing of
this sort here), was similar to that owed to a corporate
employer by
its directors. I adopt what is said on this point by Gower,
Principles of Modern Company Law
,
3
rd
ed. (1969), at
p. 518 as follows:
“
.
. . these duties, except in so far as they depend on statutory
provisions expressly limited to directors, are not so restricted
but
apply equally to any officials of the company who are authorized to
act on its behalf, and in particular to those acting in
a managerial
capacity.”’
(The
quoted passage is repeated in the 6
th
edition of the cited work (1997) at 600.)
The
South African cases which recognize the duty of an employee to
account for profits received in breach of a fiduciary duty (
Jones
v East Rand Extension Co supra
,
Robinson
v Randfontein Estates GM Co supra
,
Peacock
v Marley
1934 AD 1
and
Uni-Erections
v Continental Engineering Co Ltd
1981 (1) SA
240
(W) at 252H) do not lay down that such a duty can only arise in
the relationship of managerial employees to their employers. What

Nestadt J in the
Uni-Erections
case, at 254B, intended in saying
‘
It
seems to me some circumspection is required in applying it [the
“Palmer principle”] to the case of master and servant’
,
is made clear by his comments which followed:
‘
Innes
CJ in
Palmer
’s case
referred to the difficulty in deciding whether the profits were made
“in the course or by means of the agency” or
whether the
agreement complained of was “a subsidiary contract”. It will not
assist to canvass the facts of that case. Each
matter has to be
decided on its own particular facts. In my opinion the profits made
have not been shown to be directly or indirectly
connected with
Rousseau junior’s employment or earned by virtue of his position as
an employee. Had his position been that of
a salesman canvassing for
work the position might have been different. His duties were merely
those of an estimator whose task
it was to calculate what defendant
would charge its customers.’
The
learned Judge was clearly intent to reiterate the need to determine
from the facts of each case whether a duty exists which
carries with
it a duty of disclosure, emphasizing that the lowlier or more
restricted in discretion the position held the less
likely that the
facts will support such a conclusion. (See also
Sibex
Construction (SA) (Pty) Ltd and Another v Injectaseal CC and Others
1988 (2) SA 54
(T) at 65F-G.) That dictum,
it seems to me, provides no support for the submission that an
employee is
per se
to
be approached on a different basis from any other supposed fiduciary
whose relationship with another is being examined. See
New
Zealand Netherlands Society ‘Oranje’ Inc v Kuys
[1973]
1 WLR 1126
(PC) at 1129. As La Forest J said in
Hodgkinson
v Simms
,
supra
,
‘It is the nature of the relationship, not the
specific category of actor involved that gives rise to the fiduciary
duty. The
categories of fiduciary, like those of negligence, should
not be considered closed.’
The learned Judge
also referred with approval to the judgment of Wilson J in
Frame
v Smith
[1987] 2 SCR 99
(SCC) at 136 which
suggests that relationships in which a fiduciary obligation has been
imposed are marked by three characteristics:
(1) scope for the
exercise of some discretion or power; (2) that power or discretion
can be used unilaterally so as to effect
the beneficiary’s legal or
practical interests; and (3) a peculiar vulnerability to the exercise
of that discretion or power.
I agree that that analysis is helpful
in the identification of such a relationship although not decisive.
It can be applied in
the employment context as easily as to
relationships giving rise to more obvious duties of trust.
The
third issue: a corporate opportunity which belonged to the
respondents?
[34]
The summary of the legal principles
which I have set out goes some way, I think, to answering the second
ground of appeal. The
fundamental question is not whether the
appellant appropriated an opportunity belonging to the respondents,
but whether he stood
in a fiduciary relationship to them when the
opportunity became available to him; if he did, it ‘belonged to the
respondents’.
[35]
The
relevant facts are these. As lead principal in the Safika assignment
the appellant directed its execution and the application
of the
respondents’ resources of manpower and money required for that
purpose. He acted with a considerable degree of independence,

reporting to the respondents at his discretion. He was closely
integrated with the client and its business. The expertise which
he
possessed in telecommunications was not shared by other employees or
executives of the respondents and to that extent he was
beyond their
direction. The respondents were largely dependent upon the proper
exercise of his judgment and good faith. (He could
not conclude
contracts on the second respondent’s behalf but that was only
because he had not acquired the necessary certification
under
American law.) It was the responsibility of the appellant to ensure
that whatever was required to justify the fees stipulated
for in the
Safika agreement was done. He was conversant with the financial
affairs of Safika and must have known that the holding
company was
little more than a shell. Aware of the respondents’ preference for
reward by equity participation, he must also
have known that the
settlement of the respondents’ account could not reasonably have
been expected from the cash resources of
Safika.
[36]
With
the background which I have sketched I have no difficulty in agreeing
with the trial Court that the appellant was at all times,
covering
the initial approach to him by Safika, his own proposal of September
1997 and the acquisition of the shares, in a position
of trust in
relation to the business of the respondents which required him to
place their interests above his own whenever a real
possibility of
conflict arose.
[37]
The
duties of the appellant which were inherent in his relationship with
the respondents included the promotion of the respondents’

interests and the disclosure to them of such information as came to
his knowledge which might reasonably be thought to have a bearing
on
their business.
[38]
That
the appellant breached his duty is manifest. He failed to inform the
respondents of the offer to him or its terms; he took
it for himself
without their consent. In both respects he succumbed to a potential
conflict of interest between his duty and his
self-interest.
[39]
It
is irrelevant, on the authorities which I have cited, that the
opportunity ‘properly belonged to the company’ unless this
means
no more than that it was an opportunity which arose in the context of
the appellant’s fiduciary duty to the respondents
and of which he
was required to inform them.
[40]
I
have earlier referred to the authorities which say that whether the
respondents were able to take up the offer or would have done
so has
no bearing on the issue. For the sake of stressing the overwhelming
justice of the conclusion in the present case I should
however make
it clear that the evidence of Mr Cuba established that Safika would
have had no objection to the appellant acquiring
the shares as a
nominee for the respondents. Messrs Hill and Capitman testified that
such an arrangement might have been acceptable
to the respondents.
It is true that the offer required the appellant to become a
full-time employee of Safika, but, as the evidence
shows, that was
not a matter of urgency and was only given effect to some 15 months
after the acquisition of the shares. The likelihood
is that Safika,
the appellant and the respondents would have reached an
accommodation.
[41]
I
conclude that Fevrier AJ was correct in deciding the reserved issues
in favour of the respondents. The appeal is dismissed with
costs.
____________________
J A HEHER
JUDGE OF
APPEAL
MPATI
DP )Concur
FARLAM
JA )
HEHER
JA )
MOTATA
AJA )
STREICHER
JA:
[1] I
agree with Heher JA that the appeal should be dismissed with costs.
[2] Before
the commencement of the trial in the court
a
quo
it ordered in terms of rule 33(4) that:
‘
1 The
issues that arise from paragraphs 1 to 12 and paragraph 14.1 of the
plaintiffs’ particulars of claim (and the defendant’s
plea
thereto) be decided separately from those arising from paragraphs 13
and 14.2 and that such former paragraphs be determined
at the hearing
of this trial.
2 Paragraphs
13 and 14.2 and prayers (a) and (b) of plaintiff’s particulars of
claim stand over for determination.’
Paragraphs
13 and 14.2 dealt with the quantum of the appellant’s claim.
[3] The
respondents alleged in their particulars of claim,
inter
alia
:
On
or about 12 April 1997 the second plaintiff and the defendant
entered into a written employment agreement.
. . .
the
defendant impliedly, alternatively tacitly, undertook a duty of
loyalty to the second plaintiff.
. . .
During
and pursuant to the defendant’s assignment to the Safika contract
as aforesaid, and in or about September 1997, the
defendant became
aware that Safika required an urgent raising of capital, and that
it was prepared to place shares for the
purposes of raising such
capital.
In
or about September 1997 Safika offered a ten percent shareholding
in Safika in exchange for such capital.
The
offer of shares pleaded in paragraph 10.2:
represented
a material financial benefit to the offeree;
became
available to the defendant in his capacity as agent and
representative of the first plaintiff, alternatively of the second

plaintiff;
was
an opportunity which properly belonged to the first plaintiff,
alternatively to the second plaintiff;
was
an opportunity which the first plaintiff, alternatively the second
plaintiff, was able to take up;
was
one which the defendant was obliged to have secured for the benefit
of the first plaintiff, alternatively of the second
plaintiff.
In
breach of his obligations to the first plaintiff, alternatively to
the second plaintiff, unlawfully and intentionally;
and
on a date unknown to the plaintiffs the defendant acquired the
offer of Safika shares for himself, and failed to acquire
such
shares for the first plaintiff, alternatively for the second
plaintiff;
the
defendant has failed and/or refused to account to the first
plaintiff or the second plaintiff in respect of the benefit
derived
by him as a consequence of the aforegoing.
. . .
14 In
the premises the defendant:
is
obliged to account to the first plaintiff, alternatively to the
second plaintiff, in respect of the shares taken up by him;
14.2 .
. .’
[4] The
issue which the court
a quo
had to decide was, therefore, whether the appellant was obliged to
account to the first respondent alternatively the second respondent

in respect of the Safika shares taken up by him.
[5] The
court
a quo
found that
no practical distinction could be drawn between the two respondents
and that whatever duties and obligations the appellant
might have
owed to the second respondent (the American company) he at least
impliedly owed to the first respondent (the South African
company).
This finding was, correctly so, not attacked on appeal. I will
therefore refer to the respondents as one entity. The
court
a
quo
found, furthermore, in favour of the
respondents, that the appellant was, by virtue of a fiduciary duty
owed by him to the respondents,
obliged to account to the
respondents. The appeal is against this decision.
[6] The
appellant was an employee of the respondents and represented them in
their dealings with Safika. In these circumstances
he owed the
respondents a fiduciary duty in his dealings with Safika. This duty
entailed,
inter alia
,
that he was obliged not to work against the respondents’ interests;
not to place himself in a position where his interests conflicted

with those of the respondents; and not to acquire, in the course or
by means of his agency, an interest or benefit without the
consent of
the respondents. (See
Transvaal Cold Storage
Co Ltd v Palmer
1904 TS 4
at 20-21 and 33-34;
Jones v East Rand Extension Gold Mining Co Ltd
1903 TH 325
at 335;
Robinson
v Randfontein Estates Gold Mining Co Ltd
1921
AD 168
at 177;
Premier Medical &
Industrial Equipment (Pty)Ltd v Winkler and Another
1971
(3) SA 866
(W) at 867H-877A; and
Uni-Erections
v Continental Engineering Co Ltd
1981 (1) SA
240
(W) at 252D-253F.)
[7] In
the present case an opportunity arose to acquire shares in Safika.
Counsel for the appellant submitted that the opportunity
was not
available to the respondents. However, I agree with Heher JA that the
contention is not borne out by the evidence. It was
an opportunity
which arose within the course of the appellant’s dealings with
Safika in his capacity as agent of the respondents
and it was of a
kind which the respondents frequently acquired in the course of their
business dealings with clients such as Safika.
Capitman testified:
‘The
cream in our business is the equity participations because just as we
make money for our clients out of their opportunities,
the biggest
gains sometimes come from the equity but it often takes years to
collect, to harvest that investment.’
[8] In
the event the equity investment proved to be particularly profitable.
When Capitman learnt of the opportunity he told the
appellant to go
for it. That is exactly what the appellant did but not in order to
secure it for the respondents but to secure
it for himself.
[9] The
appellant, by negotiating the acquisition of the shares for himself,
worked against the respondents’ interests, placed
himself in a
position where his interests conflicted with that of the respondents
and secured a benefit for himself at the expense
of the respondents.
[10] In
Transvaal Cold Storage Co Ltd v Palmer, supra
at 20 Innes CJ said:
‘I
should here like to quote two passages – one from the
Encyclopaedia
of the Law of England
(vol. 10, p.355): “Whenever an agent in
the course or by means of the agency acquires any profit or benefit
without the consent
of the principal, such profit or benefit is
deemed to be received for the principal’s use, and the amount must
be accounted for
and paid over to the principal.” The other from
Story’s Equity Jurisprudence
(sec. 329 (a)): “Where one
sustains any such fiduciary obligation to another, that such other is
fairly entitled to his advice
and services, either for the joint
benefit of the two, or the exclusive benefit of himself; and the
party sustaining such relation,
in violation of his obligations and
duty, enters into any subsidiary contract, with a view to his own
advantage, all profits thus
resulting belong to the party for whose
benefit he ought to have acted.” These passages seem to me to
contain an accurate statement
of the law applicable to the present
dispute.’
These
statements still contain an accurate statement of the law. (See also
the judgment of Mason J at 33 and
Jones v East
Rand Extension Gold Mining Co Ltd, supra
).
[11] In
the circumstances the appellant is deemed to have acquired the shares
on behalf of the respondents and is obliged to account
to the
respondents in respect thereof.
[12] Counsel
for the appellant also submitted that the respondents claimed an
account in respect of the shares taken up by the appellant
on the
basis of a contractual undertaking to account and not on the basis
that the appellant was obliged to account by virtue of
a fiduciary
duty. They submitted in particular that the respondents did not
allege in their particulars of claim that the appellant
owed them a
fiduciary duty. In my view there is no merit in this submission. The
respondents alleged that, in terms of the appellant’s
employment
contract, he impliedly alternatively tacitly undertook a duty of
loyalty to the second respondent. I do not think that
a duty of
loyalty was intended or understood to mean anything other than a
fiduciary duty.
[13] The
particulars of claim, therefore, covered a claim based upon a breach
by the appellant of a fiduciary duty arising from
his employment
contract with the respondents.
________________
STREICHER
JA