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[2004] ZALC 62
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Lewis v RMB Properties (Pty) Ltd and Another (D 1544/02) [2004] ZALC 62 (1 September 2004)
IN THE LABOUR COURT OF
SOUTH AFRICA
SITTING IN DURBAN
REPORTABLE
CASE NO
D1544/02
Date of hearing
2004/09/1
Date of hearing
2004/09/14
In
the matter between
MELANIE
LEACH LEWIS
Applicant
and
RMB
PROPERTIES (PTY) LTD
First
Respondent
L.
SHEAR N.O
Second
Respondent
________________________________________________________
JUDGMENT
DELIVERED BY THE HONOURABLE MADAM JUSTICE PILLAY
ON 14 SEPTEMBER 2004
________________________________________________________
ON BEHALF OF APPLICANT
: MR
G O VAN NIEKERK SC
ON BEHALF OF FIRST
RESPONDENT
MR M J D WALLIS SC with
MR
BUIRSKI
TRANSCRIBER
SNELLER RECORDINGS (PROPRIETARY) LTD
–
DURBAN
JUDGMENT
14
SEPTEMBER 2004
PILLAY J
[1] This review is prefaced by
an application for condonation for its late filing. The parties
agreed that if the applicant succeeds
on the merits condonation
should be granted.
[2] The applicant was the
Regional Manager of the first respondent at its Durban Office since
1998. Prior to that she was employed
in a similar position with
Southern Life Association Limited for ten years until it merged with
the first respondent. The first
respondent is in the business of
providing property development services.
[3] In June 2002 the applicant
was notified of a disciplinary action to be taken against her. By
agreement, the parties referred
the dispute to the second respondent,
to be heard as a private arbitration in terms of the
Arbitration Act
No 42 of 1965
and the
Labour Relations Act No 66 of 1995
,
as amended. The applicant was found guilty and dismissed on the
following charges:
(1) gross negligence relating
to the procurement of tenant installation services and the management
of staff responsibilities;
and
(2)
a breach of the duty of good faith to the first respondent by
placing herself in a situation where an outside commercial interest
conflicted with her duty to act in the best interests of the first
respondent at all times.
[4] The first charge arose in
relation to alterations that were to be made to a property in Durban
for purposes of renting it to
First National Bank ("FNB").
Responsibility for such tenant installation work rested with one
Jooste, who reported to
the applicant. His job was, amongst other
things, to get three quotations from contractors to undertake the
alterations and supply
the materials. One of the contractors to whom
the first respondent awarded the bulk of such contracts was Woodford
Interiors,
which was owned by one Dan James, the applicant's fiancé.
Dieter Helmrich, a director of the first respondent in the Property
Management Division represented the first respondent at the
arbitration. The applicant reported to him. He and his superiors were
aware of the applicant's relationship with James.
[5] When the applicant was on
leave Jooste was dismissed on charges of gross insubordination and
dishonesty for not implementing
the first respondent's tenant
installation procedures, not properly evaluating the tenders obtained
for the FNB contract and not
utilising the first respondent's Minor
Works Contract for the FNB tenant installation.
[6] The applicant denied the
first charge against her. Her defence was that prior to March 2002
there were no written installation
procedures. On 6 March 2002 a set
of procedures was sent to the Durban office. That was after the FNB
installation. As a result,
they were irrelevant to the proceedings
against her. All Helmrich had instructed about the tenant
installations being given to
Woodford Interiors was that it should be
an "above board" manner. So she testified at the
arbitration.
[7] The first respondent denied
that there were no written instructions prior to March 2002.
Helmrich testified that he had implemented
a verbal policy during his
visit to Durban during April 2001. Jooste and the applicant were
aware of the instructions. Moreover,
the applicant had admitted
receiving a written instruction on 20 November 2001 that a minor
works contract must be used for work
in excess of R100 000. The
applicant had not used the contract. Her explanation at the
arbitration was that she was under extreme
pressure. So it was
submitted for first respondent at the arbitration.
[8] On this charge the second
respondent reasoned as follows:
"Frankly, it is not my
intention to make a credibility finding and to determine whether, in
fact, Mr Helmrich did present
a seven point procedure in the
form of an instruction or not. I believe that it is common cause
that at least some of the so-called
points have been communicated and
accepted by the Employee. This relates to:
1. the fact that in event of a
large tenant installation work, the tenant installation manager would
be obliged to obtain three
tenders/quotes for such work.
2. that
in relation to larger works, the tenant installation manager and the
Regional Manager would be obliged to complete a Minor
Works Contract,
which would have to be signed by the manager and the Regional
Manager, as well as the contractor.
3. that
a proper evaluation process would have to be followed in relation to
adjudicating the tenders submitted; and
4. that
the procedure followed would have to be above board and, more
particularly, in relation to the Employee where Mr Don
James
and/or his companies had submitted quotations/tenders. Particular
care would have to be taken that the procedure was 'wholly
above
board'."
[9] The second respondent
agreed with the first respondent's witness that the applicant's
failure to ensure that the contract with
James, on behalf of his
firm, Woodford Interiors, was duly signed by the parties, was grossly
negligent as the purpose of the contract
was to pass risk to the
contractor, James. This was especially important in the FNB contract
as the first respondent was in a
position of possible risk and
potential prejudice because the tender was subject to remeasurement.
The second respondent found
that:
"the instruction issued by
Fred de Witt relating to the Minor Works Contract was clear and
unambiguous. I believe that the
Employee's oversight relating to
such a large piece of work - the largest that year - is unacceptable.
I believe for her to say
it was merely an oversight, in my view, is
not acceptable. I believe the position is compounded by the fact
that she was aware
that in relation to Don James/Woodford Interiors,
every effort should be made to ensure that the process was above
board. She
said that she assumed that Mr Jooste would follow
the accepted process. However, as a signatory to the Minor Works
Contract,
the Employee must have known, or ought to have known, that
no written contract was presented to the successful contractor. I
agree
with Mr van der Merwe when he said that given the fact
that the tender was subject to re - measurement, it was more
necessary
to reduce the terms to writing to ensure that a final price
had been agreed upon. Not to do so, in my view, is negligent. It is
my view that the tender process in relation to FNB fell short at
least in three senses, and as the responsible Regional Manager,
it is
my view that the Employee was grossly negligent in not ensuring that
a proper process was followed. I say this also in the
light of the
fact that Mr Helmrich had already expressed his concerns as
early as April 2001 and the audit report had been
received during the
middle of that year. This, coupled with Mr de Witt's e-mail of
20 November, should have made the Employee
more alert and aware of
what was required. I therefore find the employee guilty of charge
1."
[10] The second charge arose
as a result of the applicant's interest in Sacramento Investments CC
(“Sacramento”).
The case against the applicant was that
she did not disclose her outside commercial interest to the first
respondent, had a conflict
of interests with the first respondent,
had competed with the first respondent and enriched herself at the
expense of the first
respondent.
[11] Her defence was that
Sacramento was a development of a small commercial building in
Durban. Her interest in it was only
a 25% membership. She submitted
that the case against her was based on her alleged contravention of
paragraph 4 of the first
respondent's Code of Conduct in that
she had a personal interest in a transaction to which the first
respondent or its holding
company was a party. She conceded that she
had not obtained first respondent's permission to invest in
Sacramento but denied that
she contravened the Code of Conduct. She
also contended that the sanction of dismissal was grossly
unreasonable.
[12] The first respondent
pointed out that the 25% membership interest in Sacramento was the
largest individual membership holding
of all the six members of the
close corporation. It rejected the submission that Sacramento had
invested in a small commercial
building. The building was sold for
R11,2 million. It denied that its case against the applicant was
limited to a breach of the
Code of Conduct. The charges expressly
included breaches of her obligations to the first respondent at
common law. The charge
was not only about her having a personal
interest in which the first respondent was a party but about her duty
of good faith to
the first respondent, which precluded her from being
directly or indirectly involved in or having an interest in another
business
or doing anything which created a conflict of interest
between her personal interests and those of the first respondent.
[13] Underlying the breach
of the duty of good faith were the following common cause facts
pleaded by the first respondent,
to which there is no reply:
"
37.8.1
Sacramento and the First Respondent competed for tenants in the
same tenant pool.
Sacramento managed the
Millennium Three building in a similar fashion to the manner in
which the First Respondent manages
property in the Durban area.
Sacramento developed the
building known as Millennium Three when property development is
part of the First Respondent's business.
37.8.4 Sacramento leased
building space in the corporate market. At first the applicant did
not refer this business opportunity
to the First Respondent, nor did
she disclose her interest herein. Later on when Sacramento could not
fully lease all its space
the mandate was given to the First
Respondent, specifically Ms Guthrie to find tenants for the
building. The applicant herself
admitted that she and Sacramento
gained a benefit from the work that was done by Sacramento when it
found tenants for the building.
The Applicant conceded that this may
be a conflict of interest.
37.8.5 Applicant enriched herself by partaking in this development
without referring it to the First Respondent.
37.8.6 The usage of the applicant's time and equipment at the First
Respondent. It is common cause that the Applicant used the
First
Respondent's personal computers in her dealings on behalf of
Sacramento. In fact, the original lease documents, draft agreements
of sale with Paramount Property Fund Limited and correspondence were
all found on the Applicant's computer in her office. The
applicant
furthermore admitted that she had meetings in relation to Sacramento
during office hours and as early as 08h00 in the
morning on some
days. This clearly constituted a conflict of interest, especially
when one bears in mind that the Applicant was
regional manager of the
Durban office."
[14] The second respondent
agreed with the submissions made on behalf of the applicant at the
arbitration that clause 4.4.2.1
(quoted below) should be interpreted
restrictively and in the context of an interest in relation to clause
4.4.1 (quoted below).
Unless there was an interest as defined, there
would be no obligation to disclose to the first respondent. He
reasoned further
as follows:
"
An
employee who has a direct or indirect personal interest or derives
any benefit from a transaction to which RMBH Group is also
a party
shall constitute a conflict of interest. A conflict of interest (as
defined), or a situation that may lead to a conflict
of interest (as
defined) should be avoided and prevented at all times. (My words
inserted.) In order to fall within the ambit
of this definition, the
Employer would have to establish that RMBH was actually a party to
any transaction. As I have indicated,
the mere fact that the company
was instructed to procure tenants did not, in my view, make it a
party. This clause (4.4.2.2) does
not
per
se
, refer to an
interest in a transaction to which the RMBH Group is also a party.
It is, in my view, arguable that it can be separated
from 4.4.1, in
which case an obligation to seek such permission would arise. It is
also my view that an interest, as specified
in 4.4.2.2 would include
an investment in a company, or a closed corporation, more
particularly a company or closed corporation
which is in the business
of earning an income from leasing space. It is my view that by
virtue of 4.4.2.2 the Employee had an
obligation to seek permission
from the Managing Director of the Employer re: her interest in
Sacramento Investments CC. However,
I believe the inquiry does not
end here. I must go further. While I have agreed with Mr van
Niekerk in relation to his interpretation
of clause 4.4.1 and 4.4.2
concerning the definition of a conflict of interest, I do not believe
that the Code itself does not exclude
or override the common law.
What the Code does is set out certain grounds which would constitute
a conflict of interest, wherein
disclose would be required. It does
not, with respect, purport to define the entire terrain of conflict
or potential conflict.
What it does do, however, is attempt to
protect the Employer from any conflict of interest. It acts, in a
way, as a pre - emptive
document in order to avoid a conflict by
means of disclosure. The Code does not have the same status as
legislation and thus cannot
exclude the common law. It is my view,
that the Code was drafted as a pre - emptive document in order to
avoid any possible or
potential conflict of interest and thus to give
an Employee an opportunity to disclose any potential conflict of
interest, and
thus to obtain permission from the Employer, to carry
on any activity, but with the knowledge of his or her employer."
[15] The second respondent
then analysed the common law duty of good faith, and concluded thus:
"It is thus my view that
the Code attempts to prevent a situation where an employee shall not
put herself in a situation where
she is in any form of conflict with
her employer. I believe that, in her position as Regional Manager,
the Employee had a higher
duty to maintain this principle. I believe
that the Employee, as the Regional Manager, had a fiduciary duty to
uphold this principle,
and also to be custodian of the principles
contained in the Code. The purpose of the Code is clearly to avoid a
situation where
a potential or actual conflict of interest might come
into play. The remedy, of course, is simple. If an employee
believes that
he or she is in a position which might give rise to a
conflict, she is obliged to disclose the possibility to the employer.
Not
to do so, in my view, is to conceal the position. It is my view
that the Employee, by virtue of the 25% membership in the closed
corporation, a closed corporation established for the very purpose
of developing a commercial property, leasing the property and
then
selling the said property for gain, was in a position which created a
conflict of interest between herself and her employer."
The submissions for the
applicant
[16] The second respondent's
reasoning on the first charge is challenged on the ground that it is
a latent gross irregularity
or gross misconduct. The second
respondent's reasoning was so flawed that he failed to apply his mind
to the material issues and
thereby deprived the applicant of a fair
trial. In particular, the second respondent failed to resolve the
dispute of fact relating
to the tenant installation procedures.
Despite this, submitted Mr
van Niekerk
for the applicant,
the second respondent accepted that the applicant was in breach of
the tender process. Moreover, the second
respondent's reasoning that
the applicant had not concluded the agreement with the contractor in
writing was key to his finding
that the applicant had been grossly
negligent.
[17] The disciplinary
code drew a distinction between negligence gross negligence by
imposing the sanctions of final written
warning and dismissal,
respectively. By reasoning as he did, the second respondent Mr
van
Niekerk
submitted, did not properly apply his mind to the
distinction between negligence and gross negligence. By concluding
that the
applicant was grossly negligent he ignored the fact that she
was working under pressure and that the Minor Works Contract was
introduced
shortly before the awarding of the FNB tenant installation
contract to Woodford Interiors.
[18] Mr
van Niekerk
relied on
Stocks Civil Engineering (Pty) Ltd v Rip N.O. and
Another
(2002) 23 ILJ 358 (LAC) and
Goldfields
Investments Ltd v City Council of Johannesburg and Another
1938
TPD 551
at 560.
[19] The applicant
challenges the reasoning on the second charge on the ground that the
second respondent committed a gross
irregularity in concluding that
the applicant breached the Code of Conduct and that his decision was
irrational.
[20] Mr
van Niekerk
submitted that, firstly, the applicant's 25% interest in Sacramento
was not in breach of the Code of Conduct.
[21] Secondly, the second
respondent's interpretation of clause 4.4 (quoted below) was so
wrong that it is clear that he
did not apply his mind properly to the
clause. This was evident from the second respondent's conclusion
that the Code of Conduct
attempted to prevent a situation where an
employee put herself in a situation where she was in conflict with
her employer. This
conclusion was wrong in the light of the wording
of clause 4.4.
[22] Thirdly, the case
against the applicant was based entirely on her breach of the Code of
Conduct and, but for her failure
to obtain permission to invest in
Sacramento, she had not breached the code. However, the second
respondent went further and held
that, as a regional manager, she
owed a common-law duty of fidelity to the first respondent.
[23] Finally, the second
respondent's findings also ignored the evidence of Witness Guthrie,
then employed by the first respondent
as a property broker, that the
Sacramento development did not fit the profile of investment in which
the first respondent was interested.
The first respondent did not
invest in speculative developments. The Sacramento investment did
not meet the first respondent's
superior AAA criteria for investment.
Besides, the first respondent had not purchased property in Durban
when the applicant had
invested in Sacramento.
Submissions for the first
respondent
[24] The starting point for
Mr
Wallis
, who appeared with Mr
Buirski
for
the first respondent, was to categorise this review as a statutory
review as it is brought in terms of
section 33
of the
Arbitration
Act. The
limits of such a review are narrow. Moreover, a
bona
fide
or a gross mistake is not misconduct, nor does "misconduct"
include legal misconduct. (
Total Support Management (Pty) Ltd v
Diversified Health Systems (SA) (Pty) Ltd
2002 (4) SA 661
(SCA).) The powers of such a statutory review are less extensive than
a "common-law" review, as
articulated in
Hira v Booysen
1992 (4) SA 69 (A) at 84F-I and 93A-J, which is now subsumed by
the Promotion of Administrative Justice Act ("PAJA"),
Act
No 3 of 2002 and the cases relating to the constitutional right
to just administrative action, namely
Pharmaceutical Manufacturers
Association of South African and Another: In re Ex Parte President of
the Republic of South Africa
and Others
2000 (2) SA 674 (CC)
at para 90;
Bato Star Fishing (Pty) Ltd v Minister of
Environmental Affairs and Tourism and Another
(2004) BCLR 687
(CC) at paras 22-25.
[25] Sections
33(1) and 34 of the Constitution Act No 108 of 1996 neither
apply to arbitrators under the
Arbitration Act nor justify
a
departure from the common law principles governing arbitration, which
provide inter alia that parties who resort to arbitration
thereby
agree to forego a right of appeal. (
Total
Support Management, supra
at paras 24, 25, 27 and 28.)
[26] The reason for these
limitations is because the parties implicitly abandon the right to
litigate and agree to be bound
by an arbitrator's decision.
(
Amalgamated Clothing and Textile Worker Union v Veldspun
1994
(1) SA 162 (A) at 169.)
[27] The applicant bears the
onus
to establish that there are good grounds of review.
(
Total Support
above at 672F-G;
Davies v Chairman,
Committee of the Johannesburg Stock Exchange
1991 (4) SA 43
(W) at 47H.)
[28] On the first charge of
gross negligence, Mr
Wallis
relied on the facts that were
common cause and submitted that there was no basis on which the
second respondent's decision could
be challenged.
[29] On the second charge
Mr
Wallis
submitted that the principal basis upon which
the second respondent recommended the applicant's dismissal was the
finding that
she was guilty of breaching her duty of good faith to
the first respondent by putting herself in a situation where her
outside
commercial interests in Sacramento created a conflict with
her duty to act in the best interests of the first respondent.
[30] Mr
Wallis
relied extensively on
Philips v Fieldstone Africa (Pty) Ltd and
Another
2004 (3) SA 465 (SCA) at paras 29-35, 478E-482F and
Robinson v Randfontein Estates Goldmining Company Limited
1921
AD 168
at 177 in support of the submission that the applicant had a
duty of good faith to the first respondent and that her dismissal
was
the appropriate sanction. (
SAPPI Novoboard (Pty) Ltd v Bolleurs
(1998) 19 ILJ 784 (LAC) at 786F, 787H.)
[31] It was not disputed
that the applicant did have in a fiduciary relationship with the
first respondent. As regional manager
she was the most senior
employee of the first respondent in KwaZulu-Natal. She exercised
considerable discretion and power and
was the principal officer in
the region able to render the first respondent especially vulnerable
to the improper exercise of that
discretion. Given her fiduciary
position at the time the Sacramento opportunity arose, she had a duty
to disclose this to the
first respondent. She did not do so. If it
did not occur to her to do so, then that not only demonstrated her
unfitness for the
post but it was also not a mitigating excuse.
[32] Despite her denial of a
conflict of interest with the first respondent, the applicant was
constrained to make significant
concessions which resulted in the
second respondent correctly finding that she had a conflict of
interests with the first respondent
and that she had breached a duty
of good faith. There was no merit in the applicant's contention that
she was charged only with
a contravention of paragraph 4 of the code
of conduct as the further particulars supplied to her explicitly
informed her that the
section of the code relied on was headed
"Guidelines on ethics-related issues".
[33] The submission that the
development undertaken by Sacramento would not have been undertaken
by the first respondent ignores
the reputational risk attaching to
her involvement in Sacramento and consequently the first respondent
also being associated with
it. It was submitted that on the second
charge too the second respondent's decision could not be challenged.
Analysis
[34] This was a private
arbitration. In the arbitration agreement the parties agreed that on
review any of the grounds recognised
in common law, the
Arbitration
Act or
section 145
of the
Labour Relations Act, as
amended, may be
relied on. They further agreed that unless the arbitration agreement
provided otherwise, the
Arbitration Act would
apply. As a private
arbitration, the norms laid down in
section 33
of the
Arbitration Act must
apply. (
Stocks
at 360G-H and 378B-C.)
[35] My first task is to
establish the principles of a review on the grounds of misconduct and
gross irregularity. In
Total Support
above the Supreme Court
of Appeal held:
"It was clear from the
authorities that the basis on which an award could be set aside due
to misconduct was very narrow.
A gross or manifest mistake was not
sufficient, but at best provided evidence of misconduct which, taken
alone or in conjunction
with other considerations, would ultimately
have to be sufficiently compelling to justify an inference (as the
most likely inference)
of what had in the past variously been
described as 'wrongful and improper conduct', 'dishonesty', '
mala
fides
or partiality'
or moral turpitude."
(Para
21 at 672E-I.)
Not even legal misconduct fell
within the ambit of misconduct as envisaged by
section 33(1)(a)
of
the
Arbitration Act
. (
Total
Support
at para 18.)
[36] In coming to this
conclusion, the SCA applied the decisions,
inter alia
, in
Dickinson and Downe v Fishers Executive
1915 AD 166;
Donner v Ehrlich
1928 WLD 159;
Ellis v Morgan, Ellis
v Desai
1905 TS 576
;
Hyper Chemicals International (Pty) Ltd
and Another v Maybaker Agrichem (Pty) Ltd and Another
1992 (1) SA
89
(W).
[37] In
Stocks
above, Van Dijkhorst AJA, writing for himself, rejected the argument
that a Court is not at liberty to interfere with an arbitrator's
factual findings on dismissal, however wrong they may be. That, he
said, was a mechanical refusal to act, and was incorrect.
[38] The Learned Judge then
proceeded to review the case law. He cited
Dickinson
with
approval. However, he disagreed with Solomon J's interpretation of
it in
Donner
. Solomon J read
Dickinson
to mean that
misconduct which entitles a Court to set aside the award must amount
to dishonesty. This, in Van Dijkhorst AJA's
view was an "unwarranted
contraction of the meaning set out in
Dickinson's
case which
was some wrongful or improper conduct". He then referred to the
judgment of Selikowitz J in
Benjamin v Sobac South African
Building and Construction (Pty) Limited
1989 (4) SA 940 (C),
where it was held that misconduct in relation to the proceedings did
not require an element of personal
turpitude and could be a
bona
fide
error in the procedure, denying a party a fair trial.
Several provincial decisions followed
Benjamin
:
Naidoo v
Estate Mohamed and Others
1951 (1) SA 915 (N);
Steeledale
Cladding (Pty) Limited v Parsons N.O. and Another
2001 (2) SA 663
(D).
[39] However,
Benjamin
was not approved by the Supreme Court of Appeal in
Total Support
even though the Court was referred to it. Van
Dijkhorst AJA then considered
Hyper Chemicals
(above). He did
not follow it because the total phrase "misconduct in relation
to his duties” was not dealt with.
However, as indicated
above, the Supreme Court of Appeal approved
Hyper Chemicals
.
van Dijkhorst AJA concluded thus:
"
Material
malfunctioning is reviewable, a wrong result
per
se
not (unless it
evidences malfunctioning). If the malfunctioning is in relation to
his duties, that would be misconduct by the
arbitrator as it would be
a breach of the implied terms of his appointment."
[40] However, it is not
evident from the judgment that the other members of the LAC Bench
aligned themselves with this view.
Zondo JP, writing for the
majority, preferred to give his own reasons for the judgment. Hence
I am not bound by the LAC decision
in
Stocks
. However, I am
bound by the SCA decision in
Total
, support, which I intend to
apply.
[41] I turn to consider the
grounds of review. The applicant challenges the award on the ground
of misconduct. She also refers
to it being a gross irregularity in
the context in which that expression was used in
Goldfields
Investments Ltd v City Council of Johannesburg and Another
1938
TPD 551
at 560, and referred to by Van Dijkhorst AJA, that is, a
latent gross irregularity occurring in the mind of the arbitrator.
[42] In this case the
applicant contended that the second respondent failed to apply his
mind to the material issues resulting
in her being deprived of a fair
trial. Gross irregularities in reasoning or gross errors do not
per
se
justify the setting aside of an award. The applicant will
have to go further and establish impropriety and
mala fides
amounting to dishonesty. (
Total Support
at para 35.) To
get her job back, the applicant has to succeed in setting aside the
second respondent's decision on both
charges.
[43] I turn to consider the
reasoning on the first charge. The attack on the award is firstly
that the second respondent did not
resolve the dispute of facts
relating to the tenant installation procedures but nevertheless
concluded that she was in breach of
the tender process.
[44] The second respondent
demonstrated in his award that he was aware of the dispute of fact.
He consciously elected not to
make a credibility finding because he
found that he could decide the issue on the common cause facts. His
identification of the
four common cause facts quoted above is not
attacked by the applicant. On the contrary, she conceded them at the
arbitration.
In the circumstances, it was not necessary for the
second respondent to resolve this dispute of fact. Even if he had
done so
and found that the applicant had not received the instruction
until after the FNB contract was signed, the second respondent would
still have had to reconcile that finding with the common cause facts.
The common cause facts are a summary of the procedures that
had to
be followed which were known to the applicant when she awarded the
FNB contract to her fiancé.
[45] The second attack on the
first charge is that the second respondent did not distinguish
between negligence and gross negligence.
His finding that the
applicant had failed to conclude the FNB contract in writing and his
failure to take into account the pressure
under which she worked
evidences the second's respondent flawed reasoning and resulted in
the conclusion that she was not negligent
but grossly negligent. So
it was submitted.
[46] The second respondent was
alive to the distinction, since it was argued before him. However,
he does not explain his election
in his award. He is not expected to
record every submission in his award.
[47] The question is whether
his conclusion of gross negligence follows logically from the proven
or common cause facts. It was
common cause that the applicant, as
regional manager, had a duty to supervise Jooste. She had been
alerted about problems that
might arise from contracts awarded to her
fiancé. The way she managed the contracts with her fiancé
impacted on
her reputation and consequently on the first respondent.
She knew that three quotations had to be obtained from contractors,
yet
in the FNB contract, the largest contract of the year, she did
not do this. The applicant admitted that she had not signed the
contract but contended that it was an oversight.
[48] The second respondent also
did not show in his award that he took into account the fact that the
applicant was under pressure.
However, having regard to her level of
seniority and her rate of remuneration she was expected to carry out
a superior level of
responsibility. Moreover, she had to be alive to
the fact that she was transacting the largest contract for the year.
If she
was not, and failed to implement procedural safeguards to
ensure there was compliance with the first respondents instructions
and
rules then she was not only grossly negligent but her suitability
for the position is called into question.
[49] Evidence led on the second
charge showed that the applicant was conducting the affairs of her
personal investment in Sacramento
at the expense of the first
respondent's time and resources. If this put her under pressure, the
first respondent should hardly
have to pay for that too.
[50] From the aforegoing, the
only logical conclusion was for the second respondent to find her
guilty of gross negligence.
[51] I turn to the second
charge of breach of the duty of good faith. The recent decision in
Philips
is on all fours with this case. To begin with, that
case spells out the approach to be followed in cases of this nature.
(
Philips
at 480D-G per Heher).
[52] The first step is to
examine the facts and circumstances to determine whether there is a
fiduciary relationship with the principal.
The second step is to
examine the relationship to see what duties are imposed on the agent
or employee. The third step is to
determine whether the agent had
committed a breach of the duty by placing herself where her duty and
interest possibly conflicted.
The final step is to decide whether
the profits made fell within the scope and ambit of the agent's
duty. This is the approach
I intend to apply to the second charge.
[53] It was common cause that
as an employee she was in a fiduciary position in relation to the
first respondent. More than that,
however, the applicant bound
herself contractually when she commenced employment with the first
respondent.
[54] The
material terms of the Code of Conduct are as follows.
"
1.1 The purpose
of this code is to promote and enforce ethical business practices and
standards throughout the RMB Group."
And:
"Guidelines on
ethics-related issues.
4.1 Integrity and objectivity.
4.1.1 It
is the obligation of employees to be fair, honest and free of
conflicts of interest, prejudice and bias, even if this entails
sacrificing personal advantage.
4.1.3 Employees
should avoid any influence, interest or relationship, whether direct
or indirect, which may be regarded as being
incompatible with
integrity and objectivity."
"4.4 Conflicts
of interest
4.4.1 Where
any employee has any direct or indirect personal interest (in) or
derives any benefit from any transaction to which
the RMBH Group is
also a party, it shall constitute a conflict of interest. A conflict
of interest or any situation that may lead
to a conflict of interest
should be avoided and prevented at all times.
4.4.2 The
onus
for the prior disclosure of such interest rests with the
employee and included,
inter alia
, prior disclosure of the
following:
4.4.2.1 All appointments as
directors of public or private companies outside the RMBH Group and
in any close corporations or public
bodies.
4.4.2.2 Employees
shall not without the prior permission, which shall not be
unreasonably withheld, of the Managing Director of
RMBP, ("the
MD") be directly or indirectly involved in or have an interest
in another business, undertaking or profession.
Employees may not
without prior written permission of the MD be employed on any basis
outside the RMBH Group, nor hold positions
on town councils,
etcetera. Cultural activities are not included in this provision.
4.4.3 Problems in identifying
unethical behaviour or in resolving ethical conflict should be
reviewed with an immediate supervisor
and if not resolved, with
higher managerial level."
[55] The Code continues in the
form of a Personal Ethics Checklist. The pertinent questions there
are:
"1. Is it honourable? Is
there anyone that you do not wish to know about this transaction or
proposed action and from whom
you would like to hide it?
2. Is it honest? Does it violate the Code of Conduct, any other
code, any code of ethics or any agreement, actual or implied,
or does
it otherwise betray any trust?
3. Does
it avoid the possibility of a conflict of interest? Are there any
considerations that might bias your judgment or influence
your
judgment in any way?"
[56] The employment contract
therefore not only establishes the relationship but also spells out
the applicant's obligations to
the first respondent. Her duties are
further elaborated on in her job description. These included
managing and reviewing regional
overhead budget of approximately
R1,5 million, identifying key performance markets in the region, and
motivating for specific
areas for new investments, managing staff and
authorising unlimited budgeted tenant installation costs and
unbudgeted per transaction
costs of up to R100 000 if recoverable and
up to R25 000 if not recoverable.
[57] As the most senior
employee of the first respondent in the region, I agree with
Mr
Wallis
that the applicant exercised wide discretion
and power. By investing in Sacramento, the applicant clearly put
herself in a position
where her duties and interests conflicted. She
conceded as much when she admitted the following: The investment
undertaken by
Sacramento was established as a rental enterprise. She
had a duty to refer leads relating to property development
opportunities
to the first respondent and to grow the region by
looking out for new property management opportunities. Sacramento
managed the
property itself, in order to save itself property
management fees and commission. The first respondent was in the
business of managing
property and could have managed the Sacramento
property. The first respondent derived no benefit whatsoever from the
applicant's
involvement in the Sacramento transaction. The
Sacramento property was developed and initially let by Sacramento
without giving
the first respondent an opportunity to do so. The
opportunity to provide cleaning and security services in respect to
Sacramento
was not offered to the first respondent, despite it
offering these services.
[58] Her defence is that it was
a small investment, that her membership was only 25%, that the
investment fell outside the ambit
of interest of the first respondent
who invested in AAA rated properties are invalid against the charge
of a breach of fiduciary
duty. The only defence open to her was that
she had made full disclosure to the first respondent and had secured
its consent.
(
Philips
paragraph 31, 479D, 480C-D.) It is
common cause that she had done neither.
[59]
Her complaint that the 2
nd
respondent ignored the evidence of Guthrie also does not affect the
outcome of the arbitration firstly because the evidence does
not
constitute a valid defence. Secondly, when weighed against her
admissions, the evidence of a breach of the duty of good faith
is
overwhelming.
[60] As
I understand, the applicant's challenge to the award on the second
charge is on the limited basis that the charge was confined
to a
contravention of paragraph 4 of the Code of Conduct. This is simply
not borne out by the facts. The charges were also founded
on the
common law which was the basis of the arbitrator's finding. The
second respondent dealt with the common law in the context
of the
Code of Conduct as a whole.
[61] Having
regard to her concessions and the common cause facts referred to by
Mr
Wallis
in his argument, it is quite clear that the profits fell into the
scope and ambit of her duties. Moreover, such profits were made
at
the expense of the first respondent's resources. As a member of a
close corporation, her position was distinguishable from
that of a
shareholder in a company managed by directors. This distinction is
an important one drawn to my attention by Mr
Wallis
.
From her own evidence, the applicant exercised hands-on involvement
in the management of her interest in Sacramento.
[62] The applicant's
involvement in Sacramento is the clearest example of a conflict of
interest in employment. The Code of Conduct
should have left her in
no doubt about her duty to disclose and the circumstances in which a
conflict could arise. If she did not
entertain any doubt about any
her obligations, despite the Code of Conduct, then this would be so
serious an error of judgment
that one would question her competence.
[63] Both charges do not come
close to being irregularities or gross irregularities amounting to
misconduct as defined in
Total Support
. The award is
therefore unassailable.
[64] In conclusion, I record my
gratitude to both counsel for the succinct heads and helpful
presentation of the case, given the
particular difficulty the Court
had experienced in not having had an opportunity to read the papers
in advance.
[65] The
order that I grant therefore is to dismiss the application for
condonation with costs, including the costs of the review
and two
counsel.
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