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[2013] ZAWCHC 89
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Pretorius and Another v PB Meat (Pty) Ltd (1057/2013) [2013] ZAWCHC 89 (14 June 2013)
Republic of South Africa
IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE HIGH COURT, CAPE
TOWN)
Case no: 1057/2013
In the matter between:
JOHANNES
JACOBUS PRETORIUS
First
Applicant
WILLEM
HENDRIK PRETORIUS
Second
Applicant
and
PB
MEAT (PTY) LTD
First
Respondent
STEVEN
EDWARD TIMCKE
Second Respondent
Court
: Judge J I Cloete
Heard
:8
and 9 May 2013, supplementary heads of argument filed on 22 and 27
May 2013
Delivered
:14June 2013
JUDGMENT
CLOETE J:
This application centres
on the extent of the particularity required to be furnished by a
board of a company to a director who
faces possible removal on the
ground,
inter alia
, that he or she has been derelict in the
performance of his or her functions as director. In particular, the
application relates
to what is envisaged by the words ‘
a
statement setting out reasons for the resolution, with sufficient
specificity to reasonably permit
[a]
director to prepare and
present a response’
as they appear in s 71(4)(a) of the
Companies Act 71 of 2008 (‘
the Act’
).
The parties have
approached the matter on the basis that the applicants are still
directors of the first respondent (‘
the company’
).
The second respondent
(‘Timcke’
) is one of two
remaining directors of the company (there is a dispute about whether
a further director has in fact been appointed).
On 21 November 2012
Timcke caused letters to be served upon the applicants on behalf of
the company to attend a board meeting
convened to consider a
proposed resolution to remove them as directors on the basis that
they had been derelict in the performance
of their functions as
such. Both applicants had previously resigned as employees of the
company with effect from 30 September
2012 and by choice have
not been involved in the management of the company since at least
that date. Despite repeated requests
since July 2012 the applicants
have refused to resign as directors notwithstanding a clause
contained in their respective service
agreements to the contrary.
They initially failed to provide any reason for their refusal. On
the day after this application
was launched they alleged, for the
first time, that the relevant clause (requiring them to resign on
request of the company upon
termination of their employment) had
been included in their respective service agreements as a result of
a common mistake. This
is denied by the company.
Attached to the proposed
resolution was a ‘
statement of reasons’
. The same
reasons were supplied in respect of each applicant and I will quote
in full from the ‘
statement of reasons’
pertaining to the first applicant:
‘
STATEMENT
OF REASONS FOR PROPOSED RESOLUTION TO REMOVE JOHANNES JACOBUS
PRETORIUS AS A DIRECTOR OF PB MEAT (PROPRIETARY) LIMITED
(“THE
COMPANY”)
The following allegations made by
Steven Edward Timcke form the grounds for the proposed resolution to
remove Johannes Jacobus Pretorius
as a director of the Company:
That Johannes Jacobus Pretorius in
conjunction with Willem Hendrik Pretorius unlawfully removed
equipment owned by the Company
(namely two Handtman meat grinders
depicted on Annexure A hereto) from the Company’s premises and
installed such equipment
at premises controlled by he and Willem
Hendrik Pretorius for the purposes of unlawfully utilising such
equipment for his and
Willem Hendrik Pretorius’ own purposes.
That Johannes Jacobus Pretorius in
conjunction with Willem Hendrik Pretorius unlawfully disposed of
equipment owned by the Company
(namely a Weiler meat grinder) in or
about August 2010 to Mountain Meat Traders and unlawfully retained
the proceeds of such
disposal which ought to have been paid to the
Company.
That Johannes Jacobus Pretorius in
conjunction with Willem Hendrik Pretorius disposed of equipment
owned by the Company (namely
a Vemag sausage filler) to a third
party and unlawfully retained the proceeds of such disposal which
ought to have been paid
to the Company.
That Johannes Jacobus Pretorius,
in conjunction with Willem Hendrik Pretorius, acquiesced in Jacques
Pretorius’ unlawful
appropriation of product belonging to the
Company in circumstances where his duties as a director of the
Company required of
him to act against Jacques Pretorius’
aforementioned conduct.
That Johannes Jacobus Pretorius,
in conjunction with Willem Hendrik Pretorius, acquiesced in Jacques
Pretorius’ unlawful
appropriation of cash belonging to the
Company in circumstances where his duties as a director of the
Company required of him
to act against Jacques Pretorius’
aforementioned conduct.
That on 24 November 2011
Johannes Jacobus Pretorius in conjunction with Willem Hendrik
Pretorius and Jacques Pretorius arranged
for Henry Badenhorst of
Witvlei Meats (a supplier to the Company) to sell directly to
Coleridge Meats a container of frozen meat
products which would
otherwise have been sold to the Company and then sold by the Company
to customers including Coleridge Meats
resulting in the parties
thereto unlawfully making a secret profit from such transaction
amounting to R166, 000.00; which
profit ought to have accrued
to the Company.’
Jacques Pretorius, who
is referred to in the statement of reasons, is the son of the second
applicant. He was employed in the
company’s fresh and frozen
meat products trading section as head of logistics (including bulk
buying and selling of product).
He resigned with effect from
31 December 2011.
The procedure upon which
the company relies to have the applicants removed as directors is
set out in s 71 of the Act. Subsections
(3) and (4) provide as
follows:
‘
(3) If a
company has more than two directors, and a shareholder or director
has alleged that a director of the company ---
has become ---
ineligible or disqualified in
terms of section 69, other than on the grounds contemplated in
section 69 (8) (
a
); or
incapacitated to the extent that
the director is unable to perform the functions of a director, and
is unlikely to regain that
capacity within a reasonable time; or
has neglected, or been derelict in
the performance of, the functions of a director,
the board, other than the director
concerned, must determine the matter by resolution, and may remove a
director whom it has determined
to be ineligible or disqualified,
incapacitated, or negligent or derelict, as the case may be.
(4) Before the board of a company
may consider a resolution contemplated in subsection (3), the
director concerned must be given
---
(a) notice of the meeting,
including a copy of the proposed resolution and a statement setting
out reasons for the resolution, with
sufficient specificity
to reasonably permit the director to prepare and present a response
;
and
(b) a reasonable opportunity to
make a presentation, in person or through a representative, to the
meeting before the resolution
is put to a vote.’
[emphasis supplied]
After receipt by them of
the proposed resolution and statement of reasons the applicants’
attorney delivered a ‘
request for further particulars and
specificity in terms of section 71(4)’
of the Act. It is
in the form of a request for further particulars for trial and runs
to eight typed pages. The company duly
furnished a written response.
Some of the particulars requested were furnished by way of factual
averments contained in the response
itself and supported by invoices
and delivery notes. In response to other particulars requested the
applicants were referred
to various affidavits and annexures thereto
which had been filed in support of an earlier application launched
by the company
against the applicants on 14 November 2012 (‘
the
earlier
application’) to prevent them from dealing with
the two Handtman meat grinders pending the finalisation of a
vindicatory
action to be instituted by the company. That application
was settled on the basis that the applicants undertook that they
would
neither dispose of nor deal with the two grinders pending the
outcome of the vindicatory action. The applicants did not deliver
opposing affidavits, so it is not possible, in respect of that
application, to establish what their responses were to the
allegations
made by the company against them. It is common cause
that the applicants did not avail themselves of the provisions of
rule 35(12)
and (13) of the uniform rules of court with reference to
the documents and tape recordings referred to in the founding papers
in that application; but I do not believe that any inference should
be drawn from their failure to do so given that no opposing
affidavits were filed and the application was settled. It was in any
event not suggested by the company’s counsel that
any such
inference should be drawn; and it is common cause that the
applicants deny all of the allegations of wrongdoing against
them.
The applicants formed
the view that the further particulars supplied by the company ‘
fell
short of reasonably enabling the applicants to prepare a response
for presentation at the board meeting’.
Their attorney
thus delivered a “Request for Access to Record of Private
Body” in accordance with s 53(1) of
the Promotion of
Access to Information Act 2 of 2000 (‘
PAIA’
). The
record of the company that was requested was the following (the
undated letter,annexure ‘
A1’,
referred to therein
was the letter containing further particularity provided by the
company):
‘
1. All
the original telephone recordings between “Willem and Jacques”,
referred to in paragraph 2.3 of the undated letter
by PB Meat (Pty)
Ltd attached hereto as annexure “A1”.
2. All the original “telephone
recordings between Jacques Pretorius, J J Pretorius and Hendry
Badenhorst” referred to
in paragraph 6.7 of annexure “A1”.
3. All the original telephone
recordings and tape recordings referred to in paragraphs 21,22 and
40.2 of the affidavit dated 14 November
2012 by Mr Timcke, which
forms part of the notice of motion in case number 21817/2012 (“the
Timcke affidavit”).
4. The “transactional
documentation” referred to in paragraph 13 of the Timcke
affidavit.
5. All source
documents of PB Meat (Pty) Ltd reflecting the “sales generated
by the Applicant’s major lines”,
referred to in paragraph
19 of the Timcke affidavit.
6. All the
source documents of PB Meat (Pty) Ltd reflecting the “marked
increase in the amount of stock which was missing
and unaccounted
for” as referred to in paragraph 21 of the Timcke affidavit.
7. All the
source documents and accounting documents of first entry including
VAT invoices of PB Meat (Pty) Ltd reflecting the alleged
“marked
decline and the income derived from the trade of fresh and frozen
meat products, which was an area of the business
controlled by PB
Meats and Jacques Pretorius” as referred to in paragraph 21 of
the Timcke affidavit.
8. All the
source documents (including VAT invoices) of PB Meat (Pty) Ltd in
substantiation of the contention in paragraph 21 of
the Timcke
affidavit that there was an unlawful “diverting business away
from the Applicant”.
9. All the
source documents and stock sheets of PB Meat (Pty) Ltd referred to in
paragraph 21 of the Timcke affidavit to the effect
that there were
“stock losses”.
10. All the
monthly management account statements of PB Meat (Pty) Ltd for the
period commencing 1 September 2010 to date hereof.
11. The source
documents of PB Meat (Pty) Ltd containing the financial records of PB
Meat (Pty) Ltd supporting the allegation in
paragraph 27 of the
Timcke affidavit regarding the Applicant’s “current
financial performance”.
12. The
financial statements of PB Meat (Pty) Ltd for the periods ending
28 February 2010, 28 February 2011 and 28 February
2012.
13. The
“proceedings against Mountain Meat Traders” referred to
in paragraph 40.1 of the Timcke affidavit.
14. The
documents relating to the “forensic investigation”
referred to in paragraph 40.2 of the Timcke affidavit.
15. The
“undertaking given by Mountain Meat Traders”, referred to
in paragraph 40.1 of the Timcke affidavit”.’
The issue to be decided
is whether the tape recordings and documents referred to above must
be produced by the company in order
to meet the ‘
sufficient
specificity’
requirement in s 71(4)(a) of the Act.
There is no similar requirement in the comparable provision, i.e.
s 220(2) of
the old Companies Act 61 of 1973. There also
appears to be no authority on the meaning of the ‘
sufficient
specificity’
requirement. The closest that I have been
able to come to obtaining guidance in both local and foreign
jurisdictions with comparable
company law jurisprudence is anarticle
written by Caroline B Ncube, who is a senior lecturer in the Faculty
of Law at the University
of Cape Town, in the 2011 South African Law
Journal at p33 titled ‘
You’re fired! The removal of
directors under the
Companies Act 71 of 2008
’
where the
author writes:
‘
Section
71(4)
provides that a director whose removal is in issue must be
given notice of the meeting, plus a copy of the relevant resolution
accompanied
by
a statement of reasons for resolution which is detailed enough to
enable him to formulate a response
.
Whilst the English and Australian companies legislation make
provision for notice to be given to directors they do not go as far
as stating that
sufficiently
detailed reasons
must accompany the notice. In requiring this, the 2008 Act protects
directors by ensuring that
they
are in a position to mount a response to the case for their removal
.
Where the director concerned is also an employee, these provisions
ensure the fairness of a hearing that may lead to a dismissal.
In
that sense, the legislation also protects companies by requiring them
to ensure fair hearings.’
[emphasis supplied]
The learned author’s
formulation of ‘
sufficient specificity’
as
‘
sufficiently detailed reasons to mount a response’
is
a useful guide to employ. Inherent in this formulation is that each
case will ultimately depend upon its own particular facts.
I intend
to adopt this approach for purposes of determining this matter; and
to also take guidance, for comparative purposes,
from the decision
in
Avril Elizabeth Home for the Mentally Handicapped v Commission
for Conciliation, Mediation & Arbitration & Others
(2006)
27 ILJ 1644 (LC) where the court, in dealing with the content of the
concept of procedural fairness in the
Labour Relations Act 66 of
1995
, held as follows at p1652:
‘
The
signal of a move to an informal approach to procedural fairness is
clearly presaged by the explanatory memorandum that accompanied
the
draft Labour Relations Bill. The memorandum stated the following:
“
The
draft Bill requires a fair, but brief, pre-dismissal procedure…
[It] opts for this more flexible, less onerous, approach
to
procedural fairness for various reasons: small employers, of whom
there are a very large number, are often not able to follow
elaborate
pre-dismissal procedures; and not all procedural defects result in
substantial prejudice to the employee.”
On this approach, there is clearly
no place for formal disciplinary procedures that incorporate all of
the accoutrements of a criminal
trial, including the leading of
witnesses, technical and complex “charge-sheets”,
requests for particulars, the application
of the rules of evidence,
legal arguments, and the like.’
The company was informed
that the right that each applicant wished to exercise or protect (as
set out in
s 50(1)(a)
as read with
s 53(1)(d)
of PAIA)was
as follows:
‘
1. The
requester is a director of PB Meat (Pty) Ltd.
2. Mr S E Timcke has convened a
board meeting of PB Meat (Pty) Ltd at which meeting he will propose a
resolution that the requester
be removed as director of PB Meat (Pty)
Ltd, due to a dereliction in the performance of his functions as a
director.
3. The requester has the right to
defend the allegations.
4. The requester also has the right
to make representations at the forthcoming board meeting of PB Meat
(Pty) Ltd in terms of
section 71(4)
of the
Companies Act No 71 of
2008
;
4.1 that the allegations are
incorrect;
4.2 that the requester was not
derelict in his duties;
4.3 that the requester should not
be removed as director.
5. The requester has the right to
protect himself from being removed as a director of PB Meat (Pty)
Ltd.’
The applicants advised
the company that the reasons why the record was required (in
accordance with
s 53(1)(d)
of PAIA) were that: (a) they needed
to listen to the tape recordings; and (b) they needed to peruse all
of the documents in order
to prepare a response and to make a
presentation at the board meeting. It was contended that if they
were denied this opportunity
they would be ‘
seriously
prejudiced’
in their preparation.
Certain telephone
recordings (seven in all) have subsequently been provided by the
company. Four were provided before the application
was launched and
three were provided thereafter. Timcke had alleged in the earlier
application that he had installed call loggers
on the company’s
telephone system in November 2011; and that when listening to the
recordings it had rapidly become apparent
that the applicants,
together with Jacques Pretorius, had been ‘
working with
suppliers/competitors… to divert business’
away
from the company. The applicants suggest that the first four
recordings provided do not support the company’s allegations.
Timcke states that the compact disk initially supplied to the
applicants contained, to the best of his knowledge, six recordings,
but tendered the missing recordings which, as I understand it, have
now been provided.
What issignificant is
that Timcke stated that ‘
these are the recordings which
formed the basis for reasons 2 and 6 in the statement of reasons
together with the transcription
of the recording attached as an
annexure to the
[earlier]
application’
and
similarly tendered the recording relating to that transcription. If,
as the applicants suggest, the first four recordings
provided do not
support Timcke’s allegations, one has to wonder why it is
necessary for the applicants to demand any further
recordings. That
leaves the other three recordings which the applicants, in their
replying affidavit, stated that they still
needed to listen to as
these had only been provided by the company on 17 April 2013.
The applicants did not seek leave to
file a supplementary affidavit
dealing with the content of these three recordings.In addition the
applicants have not claimed
that, to the extent that the remaining
three recordings might support allegations of wrongdoing, there
would be other recordings
pertaining to them of an exculpatory
nature. It is not as if the recordings were relied upon by the
company
in vacuo
– they have been referred to within
the context of specific allegations made against the applicants. The
applicants nonetheless
contend that:
‘
The
respondents did not furnish all the relevant telephone recordings.
The respondents contend that they only have to furnish the
telephone
recordings upon which
they
rely.
That contention is incorrect. The applicants are also entitled to
rely on other telephone conversations in support of their
defence…..
All the telephone recordings are highly relevant in order to prepare
the applicant’s defence and the telephone
recordings have to be
considered and used conjunctively to gainsay the allegations of
wrongful conduct. The telephone recordings
are also highly relevant
and necessary in order to consult with witnesses, such as,
inter
alia
,
Mr Jacques Pretorius, Mr H Badenhorst, the relevant witnesses at
Coleridge Meat, and representatives of the relevant transport
contractor, and Mr Erich Kuhn (ACT Logistics).’
Nowhere in the
aforementioned passage (which was proffered in reply) have the
applicants stated that, for example, telephone conversations
with
other individuals will show that the company has taken the
recordings upon which it relies out of context. The company does
not
rely on any recordings other than the seven recordings that have now
been provided to the applicants; and accordingly the
company will
have to stand or fall by the contents thereof, taken together with
any other evidenceto substantiate its allegations
against the
applicants when the proposed resolution is considered at the board
meeting. The applicants have the recordings relied
upon and there
appears to be no good reason why they should be permitted to trawl
through every recording of every telephone
conversation logged by
the company during the entire period from November 2011 until
September 2012. It would have been a simple
matter for them to
direct the company’s attention to any telephone calls that
might have been made in support of their
denial of wrongdoing. They
were both previously actively engaged in the business of the company
and they would have known if
any such telephone conversations had
taken place since they were the individuals who would have been
party to them. This, coupled
with their suggestion that the four
recordings that they have listened to do not support the company’s
allegations, leads
me to conclude that in respect of the telephone
recordings the applicants have been provided with sufficient
specificity to reasonably
permit them to prepare and present a
response.
The company refused to
provide the applicants with any of the documents requested by them
on the following grounds. First, it
was contended that the documents
were not necessary in order to protect the applicants’ rights
and the refusal to provide
them would not result in any prejudice to
the applicants. Second, it was contended that the documents either
constitute sensitive
commercial information as envisaged in
s 68
of PAIA; or that, given that they had been requested for the purpose
of civil proceedings,they were not required to be produced
in
accordance with
s 7(1)(b)
of PAIA. The company’s reliance
on
s 7(1)(b)
of PAIA was not pursued during argument, correctly
in my view, and this ground for refusal requires no further comment.
S 68
of PAIAis
contained in chapter 4 thereof and reads as follows:
‘
68
Commercial information of private body
Subject to subsection (2), the
head of a private body may refuse a request for access to a record
of the body if the record ---
contains trade secrets of the
private body;
contains financial, commercial
,
scientific or technical
information
, other than trade
secrets,
of the private body, the disclosure of which would be
likely to cause harm to the commercial or financial interests of the
body
;
contains information, the
disclosure of which could reasonably be expected ---
to put the private body at a
disadvantage in contractual or other negotiations; or
to prejudice the body in
commercial competition; or
is a computer program, as defined
in section 1(1) of the Copyright Act, 1978 (Act 98 of 1978), owned
by the private body, except
insofar as it is required to give access
to a record to which access is granted in terms of this Act.
A record may not be refused in
terms of subsection (1) insofar as it consists of information about
the results of any product
or environmental testing or other
investigation supplied by the private body or the results of any
such testing or investigation
carried out by or on behalf of the
private body and its disclosure would reveal a serious public safety
or environmental risk.
For the purposes of subsection
(2), the results of any product or environmental testing or other
investigation do not include
the results of preliminary testing or
other investigation conducted for the purpose of developing methods
of testing or other
investigation.’
[emphasis supplied]
After receipt of the
company’s refusal the applicants demanded that in any event
the documents should be made available
to themin their capacities as
directors of the company. This demand was similarly refused.
The present application
is brought on two grounds, namely that the applicants are entitled
to the documents in their capacities
as directors of the company;
and that they are entitled to the documents in terms of s 50(1)
of PAIA, which provides as
follows:
‘
50.
Right of access to records of private bodies
A requester must be given access
to any record of a private body if---
that record is required for the
exercise or protection of any rights;
that person complies with the
procedural requirements in this Act relating to a request for access
to that record; and
access to that record is not
refused in terms of any ground for refusal contemplated in Chapter 4
of this Part.’
The documents initially
sought by the applicants in their notice of motion were identical to
those contained in their request
delivered to the company in terms
of s 53(1) of PAIA. During argument the request was revised and
clarified and became restricted
to the following:
18.1 The ‘
transactional
documentation’
concluded between the applicants and the
company relating to the previous sale of the applicants’
partnership business to
the company;
18.2 all the stock
sheets, purchase invoices, VAT invoices and monthly management
accounts of the company for the period 1 September
2010 to
14 November 2012;
18.3 the financial
statements of the company for the periods ending 28 February
2010, 28 February 2011 and 28 February
2012;
18.4 the documents
relating to the ‘
forensic investigation’
referred
to at paragraph 40.2 of the affidavit of Timcke filed in support of
the earlier application; and
18.5 the undertaking
given by Mountain Meat Traders to the company.
The revised relief
sought by the applicants in relation to the documents requested was
accompanied by an open tender that the
documents be placed in the
possession of counsel for the company or a third party of its
choice, and that the applicants and
their legal representatives be
entitled to view the documents for the purpose of preparing for the
forthcoming board meeting.
The applicants also consented to an order
directing that they would only be permitted to use the documents for
purposes of the
board meeting and for no other purpose whatsoever.
Insofar as their
entitlement to the documents in their capacities as directors is
concerned, the applicants’ argument is
essentially that, given
that they each have a statutory obligation as directors to manage
the business and affairs of the company
in terms of s 66(1) of
the Act, they will effectively be precluded from fulfilling those
obligations if they are refused
access to the documents. In a
supplementary note filed by counsel for the applicants it was stated
that ‘in casu
, the applicants seek certain documents only
in order to preserve their management functions as directors of
[the
company]
. Insofar as the applicants’ conduct
[sic]
is
aimed at preserving their managerial functions as directors, a court
should not prevent them in the exercise of those rights’.
The difficulty with this
argument is that the applicants, on their own version, do not
require the documents in order to manage
the business and affairs of
the company. They wish to have sight of the documents, and to
consider them, in order to prepare
and present a response to the
allegations made against them. They have not attempted to manage the
business and affairs of the
companyand thus execute their functions
as directors since they resigned from their employment with effect
from 30 September
2012. This does not mean that as
‘
non-executive’
directors their duties became any
less onerous: see
Howard v Herrigel and Another NNO
[1991] ZASCA 7
;
1991 (2)
SA 660
(AD) at 678A-D. It is simply that the applicants do not wish
to be provided with the documents for any purpose other than
safeguarding
themselves from possible removal.
The question which then
arises is whether a director’s right of access to company
records is absolute. Blackman in
Commentary on the
Companies Act
Vol
2 at p8-26 writes that ‘
Because a director’s
right to inspect the books of account of his company is not a
statutory right, the court has a discretion
whether or not to order
inspection’.
S 76(2) and (3) of the Act deal with the
standard of conduct required of a director and provide as follows:
‘
(2) A
director of a company must---
not use the position of director,
or any information obtained while acting in the capacity of a
director---
to gain an advantage for the
director, or for another person other than the company or a
wholly-owned subsidiary of the company;
or
to knowingly cause harm to the
company or a subsidiary of the company; and
communicate to the board at the
earliest practicable opportunity any information that comes to the
director’s attention,
unless the director---
reasonably believes that the
information is---
(aa) immaterial to the company; or
(bb) generally available to the
public, or known to the other directors; or
is bound not to disclose that
information by a legal or ethical obligation of confidentiality.
(3) Subject to subsections (4) and
(5), a director of a company, when acting in that capacity,
must
exercise the powers and perform the functions of director
---
(a) in good faith and for a proper
purpose;
(b) in the best interests of the
company; and
(c) with the degree of care, skill
and diligence that may reasonably be expected of a person---
(i) carrying out the same functions
in relation to the company as those carried out by that director; and
(ii) having the general knowledge,
skill and experience of that director.’
[emphasis supplied]
In
Henochsberg on The
Companies Act 71 of 2008
it is stated at p248 that:
‘
The
significance of the power to manage
[the]
business
and affairs in terms of
section 66
are two-fold. In the first
instance this power (and obligation) is now original and not
delegated (from the shareholders through
the Memorandum of
Incorporation) as it was under the 1973 Act (through the articles).
Secondly the ultimate power in the company
is now with the board of
directors, and not with the shareholders…’
Directors’powers
and duties are now partially codified in the Act (see Henochsberg at
p287). The directors of a company
are obliged,in terms of s 76(3)(a)
and (b) of the Act, to exercise their powers as directors
bona
fide
and in the best interests of the company. ‘
A
director of a company must not use the position of director, or any
information obtained while acting in the capacity of a director,
to gain an advantage for the director, or for another person
other than the company,
or knowingly cause harm to the
company.
“Knowingly”
means that the person either
had actual knowledge of that matter or was in a position in which
the person reasonably ought to
have had actual knowledge or
reasonably ought to have investigated the matter to an extent that
would have provided the person
with actual knowledge, or reasonably
ought to have taken other measures which, if taken, would reasonably
be expected to have
provided the person with actual knowledge of the
matter’
: Henochsberg at p288.
The allegations levelled
at the applicants are essentially that they have not acted
bona
fide
and in the best interests of the company. The request for
documentation is not for the purpose of exercising their powers, and
to perform their functions, in the best interests of the company;
nor for seeking to ensure that the other directors have done
so. On
the applicants’ own version it is for the purpose of defending
allegations which go to the root of their s 76
obligations.Put
differently, the applicants do not seek to protect the company, but
to protect themselves as individual directors.
The applicants thus
wish to exercise their powers, not for the benefit of the company,
but for the benefit of themselves. It
is my view that in these
circumstances the applicants’ access to the company records
must be fettered by the purpose for
which such access is sought.
The applicants also rely
on
Erasmus v Pentamed Investments (Pty) Ltd
1982 (1) SA 178
(W), cited with approval in
Apco Africa (Pty) Ltd v Apco
Worldwide Inc
[2008] ZASCA 64
;
2008 (5) SA 615
(SCA). In my view the
Erasmus
case is distinguishable. First, it involved an application for
the winding-up of a company on the ground that it would be just and
equitable to do so, and different considerations thus applied.
Second, the court found that it was apparent that the relationship
between the warring directors was more than a purely commercial one,
which is not the case in the present matter. Third, the
court found
that the applicant director’s complaint was not only directed
at dissatisfaction with the way in which the
affairs of the
respondent company were being conducted, but also that the notice to
remove him as a director, constituting as
it did an attempt to
exclude him from participating in the management of the company, was
a repudiation of the special relationship
already referred to. None
of those considerations apply in the present matter. The
Apco
case is also distinguishable. It is therefore my view that the
applicants, in their capacities as directors, are not entitled
to
the documents as of right.
The applicants contend
that they are entitled to the documents sought in terms of PAIA on
the basis that they are relevant ‘
to disprove’
the allegations against them. They point out that the company has
not alleged that the documents do not exist. The defences are
that,
although the documents exist: (a) the production thereof is
‘
unnecessary’
; (b) that the company’s
refusal to grant access to the documents will in no manner prejudice
the applicants in their preparation
for the board meeting; and (c)
that all the relevant information is already at the applicants’
disposal. The applicants
also argue that the production of the
documents would provide them with a substantial advantage. In
Claase
v Information Officer, South African Airways (Pty) Ltd
2007 (5)
SA 469
(SCA) at paragraph [9] the Supreme Court of Appeal explained
the ‘
substantial advantage’
principle as follows:
‘
[9] The
next question is whether access to the record sought is “required”
for the
protection
of the right. In
Clutchco
in
para
[13] (followed in
Unitas
in
para [17]),
this
Court said:
“
I
think that ‘reasonably required’ in the circumstances is
about as precise a formulation as can be achieved, provided
that it
is understood to connote a substantial advantage or an element of
need.”
The substantial
advantage in this matter consists in the fact that the contents of
the record would be decisive. (
Unitas
in para [54]),
ie
they
would bring a short sharp end to the dispute (
Van
Niekerk v Pretoria City Council
1997 (3)
SA 839
(T) ([1997]
1 All SA 305)
in para [103]).) They would either
confirm the appellant’s contentions,
in
which event SAA would apparently have no defence, or they would
support the latter’s case,
in
which event the appellant would obviously, as his counsel said in
argument, not proceed with the proposed litigation. SAA’s
reluctance to produce the document in these circumstances is
inexplicable.’
In an application of
this nature an applicant is not required to establish a clear right
worthy of protection. All that is required
of an applicant is to
‘
put up facts which
prima facie
, though open to some
doubt, establish that he has a right which access to the record is
required to exercise or protect:’
see
Claase
at
paragraph [8]. The applicants contend that they have established
facts which
prima facie
show that the documents are
reasonably required to protect their rights. It is not in dispute
that the applicants have shown that
they have a
prima facie
right worthy of protection; but I do not understand
Claase
to
mean that therefore all that the applicants are required to show is
that,
prima facie
, the documents are reasonably required to
protect their rights. I say this because of the authorities referred
to below.
Rule 3(4)(c) of the
procedural rules of PAIA makes it incumbent upon an applicant in an
application of this nature to explain
the relevance of each document
upon which he or she intends to rely. It is thus necessary to have
regard to the content given
by our courts to the concept of
‘
required for the protection of any rights’
in
s 50 of PAIA. In
Unitas Hospital v Van Wyk and Another
[2006] ZASCA 34
;
2006 (4) SA 436
(SCA) at paragraphs [6] and [16] to [18] the Supreme
Court of Appeal held as follows:
31.1. Generally speaking,
the question whether a particular record is ‘
required’
for the exercise or protection of a particular right is inextricably
bound up with the facts of that matter;
31.2. Our courts have
been reluctant to make any positive statements at to what the
expression ‘
require’
means. The inclination is
rather to define the expression in terms of what it does not
mean.‘
So, for example, it is said that it does not mean the
subjective attitude of
“want”
or
“desire”
on the part of the requester; that, at the one end of the scale,
“useful”
or
“relevant”
for the
exercise or protection of a right is not enough, but that, at the
other end of the scale, the requester does not have to
establish that
the information is
“essential”
or
“necessary”
for the stated purpose’
;
31.3. Although the
threshold requirement is that of ‘
assistance’
, if
the requester cannot show that the information will be of assistance
for the stated purpose, access to that information will
be denied;
31.4. ‘
Reasonably
required’
connotes ‘
a substantial advantage or an
element of need’.
In
Cape Metropolitan
Council v Metro Inspection Services (Western Cape) CC and Others
2001 (3) SA 1013
(SCA) at paragraph [28] the Supreme Court of Appeal
formulated the test as follows:
‘
Information
can only be required for the exercise or protection of a right if it
will be of assistance in the exercise or protection
of a right. It
follows that, in order to make out a case for access to information…
an applicant has to state what the right
is that he wishes to
exercise or protect, what the information is which is required and
how
that information would assist him in exercising or protecting that
right
.’
[emphasis supplied]
The applicants have set
out the rights that they wish to exercise or protect, namely to
safeguard their removal as directors of
the company. They have also
set out the information that is required. It is the third leg,
namely, how that information will
assist them in exercising or
protecting that right, which requires scrutiny, i.e. the element of
need. Also to be considered
is whether the provision of the
documentation now sought will provide the applicants with a
substantial advantage in the sense
that it will bring a ‘
short,
sharp end’
to the dispute as set out in the
Claase
case.
The applicants claim
that the documents that they require are crucial to enable them to
prepare and present a response. They contend
that the company’s
incorporation by reference in the further particulars provided of
the papers in the earlier application
have ‘
significantly
enlarged the scope of the allegations contained in the statement of
reasons’
. The difficulty however is that instead of
dealing fully with these averments the applicants focused on the
reasons advanced
by the company in support of the refusal to furnish
the record. I intend to quote the relevant part of the founding
affidavit
in full:
‘
The
documents are unnecessary
44. The documents are necessary in
order to prepare our response, and to prepare for the board meeting.
By way of example, I refer
to the charge that Jacques Pretorius
appropriated product by PB Meat, and that the Applicants acquiesced
therein. All the documents
called for are relevant. Amongst others,
the VAT invoices of PB Meat, the stock sheets, the monthly management
account statements,
the financial records relating to the current
financial performance and the financial statements of PB Meat, are
inter alia
vital to disprove the aforegoing charges.
The refusal will not prejudice
the requesters
45. The Respondents are clearly in
possession of the documents. They will suffer no prejudice if the
Applicants are afforded access
to the documents. If the Respondents
are allowed to keep the documents secret, the Applicants will be
prejudiced in preparing a
proper response to refute Timcke’s
charges. The documents are clearly relevant to the charges made
against the Applicants.
All relevant information is
already at the disposal of the Applicants
46. I dispute the contention that
all the relevant information is already at the disposal of the
Applicants. The Applicants do not
have all the required documents.
The documents called for, are in the possession of the Respondents. I
fail to understand why the
Applicants are not allowed to have sight
of those documents.
47. Upon a proper interpretation of
the third and fourth paragraphs of the letter dated 14 January
2013 by Keller Snyman Schelhase,
it is clear that the Respondents
refuse to give the documents to the Applicants that were required in
paragraphs 3 to 15 of annexure
“A” to the Request for
Access to Record of Private Body. That means, properly construed,
that the Applicants are not
in possession of the documents.
48. The objective effect of the
Respondents’ refusal, is to prejudice the Applicants.
49. I invite the Respondents to
show how and when the Applicants came into possession of the required
documents.
The record constitutes
commercial information
50. The record is not commercial
information as meant in PAIA. In the alternative and in any event, I
submit that the Applicants
in their capacity as directors of PB Meat
have the right of access to all documents and information of PB Meat.
Timcke has no right
to determine unilaterally that the Applicants, as
co-directors, are denied access to certain records of PB Meat.’
Insofar as the relevance
of the documents sought is concerned, the only averments made by the
applicants are that:
‘
THE
RELEVANCE OF THE DOCUMENTS THAT THE APPLICANTS REQUIRE
57. All the documents are relevant
with regard to the charges which Timcke has made in support of his
attempt to have the Applicants
removed as directors. The Applicants
require those documents, as explained above, to prepare a response
and to present the response
at the proposed board meeting.’
In the concluding
paragraphs of the affidavit the applicants allege that:
‘
69. This
application had to be prepared on an urgent basis under severe time
constraints. Given the uncompromising attitude of the
Respondents the
Applicants have not enjoyed 30 days within which to prepare this
application. In the premises the Applicants reserve
the right to seek
leave to supplement these papers, should the need arise.’
It is common cause that
the applicants did not seek leave to supplement their founding
papers and were thus presumably of the
view that there was no need
to do so. It was only in reply that specific reasons were advanced
by the applicants for why they
consider the documents to be
‘
crucial’
to enable them to prepare and present a
response.
In summary, the reasons
advanced by the applicants were as follows (I will deal only with
the restricted version of the documents
now sought):
The ‘
transactional
documentation’ concluded between the applicants and the company
relating to the sale of the applicants’
partnership business to
the company
38.1. The documentation
sought will show that the company did not acquire ownership of either
the two Handtman meat grinders or
the Weiler meat grinder. It will
also show that there is no asset register in existence to prove that
the company is the owner
of the grinders concerned. (These documents
relate to charges 1 and 2 in the statement of reasons.)
All the stock
sheets, purchase invoices, VAT invoices and monthly management
accounts of the company for the period 1 September
2010 to
14 November 2012
38.2. These documents
will show that there was no stock shortage and/or appropriation of
product and/or cash belonging to the company
as alleged. They will
also show that there was no decline in the business of the company
(within the context of the allegations),
and that therefore no
business was diverted by the applicants to third parties. ‘
When
the applicants are placed in possession of the source documents of
[the company]
the necessary graphs and statistics will be
prepared by our expert and we will then be in a position to show that
no business was
diverted by us.’
(These documents relate to
charges 4, 5 and 6 in the statement of reasons.)
The financial
statements of the company for the periods ending 28 February
2010, 28 February 2011 and 28 February
2012
38.3. The financial
statements ‘
will probably show’
that there was no
decline in income (within the context of the allegations), and
consequently no lost business as alleged. They
will also deal with
the alleged stock losses and alleged theft. ‘
It is important
to see what has been reported by the directors, in keeping with their
obligation of corporate governance relating
to risk management…
the financial statements should contain details of the assets of
[the
company]
, and depreciation that has been claimed in respect of
those assets. It would be important to see whether the financial
statements
list the… grinders… as assets of
[the
company]
.
’
The documents
relating to the ‘
forensic investigation’
referred
to in the affidavit of Timcke in the earlier application
38.4. These documents are
required in relation
inter alia
to the telephone recordings and
the alleged fraudulent scheme pertaining to the sale of a machine to
Mountain Meat Traders. (These
documents relate to charge 3 in the
statement of reasons.)
The undertaking
given by Mountain Meat Traders to the company
38.5. This document is
similarly required for the purpose set out in the immediately
preceding paragraph.
Although this was
valiantly pursued by the applicants’ counsel during argument,
I am not satisfied that the company’s
incorporation by
reference of the papers in the earlier application when providing
the further particulars sought has widened
the ambit of the
allegations made. But even if this were the case the point is that
the company is nonetheless bound by the allegations
contained in the
statement of reasons initially provided by it in terms of s 71(4)(a)
of the Act. It is in relation to those
allegations that the
applicants’ request for documentation must be assessed.
Although there is merit
in the company’s complaint that the applicants have bolstered
their case in reply, I must also consider
that the company did not
deem it necessary to apply to strike out the offending paragraphs;
nor did it seek leave to file a further
affidavit dealing with the
explanations provided by the applicants. It is indeed so that the
company pertinently raised the issue
during argument and sought an
order that the application be dismissed on that ground alone; but in
my view it cannot be said
that the applicants had failed to make out
any case at all in their founding papers, particularly if regard is
had to the history
of the matter as set out therein. Taking these
factors into account it seems to me that it would not serve the
interests of justice
to adopt what might well be considered to be an
overly technical approach. In any event, during argument on the
merits, the debate
centred on the requirement of sufficient
specificity and not whether the explanations provided by the
applicants constituted
new matter in themselves.
The company’s
stance is as follows. The nature of the conduct complained of is
such that, even should the applicants succeed
in showing that the
grinders were not reflected on its asset register; that there are no
records of stock shortages; and that
there was no decline in income
recorded in the company’s financial statements, the applicant
will still not have answered
the allegations levelled against them,
as the substantiation of the allegations is not dependent on the
documents requested.
The applicants’ contention that the
company relies on the existence of documents other than those
provided is therefore
misplaced. In addition, the documentation can
only constitute sensitive commercial information which, in light of
the allegations
made, would enable the applicants to cause
significant commercial and financial harm to the company should they
be provided with
the information. It is nothing short of ludicrous
to demand that – as initially sought by the applicants and
still persisted
with in various respects – virtually every
source document utilised in the business must be disclosed to them
in order
to enable them to prepare and present a response to the
statement of reasons.
Annexed to the
applicants’ founding affidavit is the set of papersfiled by
the company in support of the earlier application.
These papers
contain the following:
42.1. The allegation that
the applicants caused the two Handtman meat grinders to be removed
from the company’s premises after
the company took control of
the business. Two employees of the company have deposed to affidavits
in support of this allegation;
42.2. The allegation that
the applicants disposed of the Weiler meat grinder which had been on
the company’s premises, albeit
briefly, after the company took
control of the business; and sold it to an entity known as Mountain
Meat Traders, keeping the proceeds
of the sale for themselves. The
company has produced an affidavit by an employee to this effect and
has also provided the applicants
with a telephone recording as well
as the transcription thereof;
42.3. The allegation that
the undertaking provided by Mountain Meat Traders related to a
dispute concerning unlawful passing off
and it thus has no relevance
to the complaints levelled at the applicants. It was referred to
solely in the context of Timcke’s
allegation that it was at a
meeting at the premises of Mountain Meat Traders to resolve the
unlawful passing off dispute that Timcke
saw the Weiler meat grinder;
and
42.4. The allegation that
Jacques Pretorius had on more than one occasion misappropriated both
product and cash from the company’s
cash register. An employee
has deposed to an affidavit confirming that she personally witnessed
this and that she reported it to
the second applicant who failed to
take any action. Misappropriation of cash by Jacques Pretorius was
also reported to the company
by another employee, and the details
thereof were similarly contained in an affidavit by the employee
concerned.
In the further
particulars supplied by the company it was alleged that the
applicants disposed of a Vermag sausage filler to Striker
Meat for a
purchase consideration of R35 000 but only paid over R10 000
of this amount to the company. This had been
confirmed by both the
company’s bookkeeper and the manager of Striker Meat. The
allegations relating to the diversion of
the company’s
business to Coleridge Meats are said to be supported by certain of
the telephone recordings. The quantification
of the secret profit
alleged is supported by documents already supplied to the applicants
relating to market related prices as
well as prices achieved for
similar products.
If one scrutinises the
statement of reasons dispassionately and objectively, the
allegations made are in fact simple. When regard
is had to the
further particulars provided by the company it is evident that the
information and documentation produced in substantiation
of the
allegations are equally uncomplicated, and largely comprise of
eyewitness testimony. There is no suggestion by the company
that the
applicants are guilty of complex commercial fraud. Had that been the
case the position might well have been different.
However, having
regard to the aforegoing I am not persuaded that the production of
the financial and commercial records of the
company as sought by the
applicants will assist them in any meaningful way in admitting or
denying the allegations levelled against
them. In other words, the
documents sought will not assist them in exercising or protecting
their rights.
What the applicants
seek, in effect, is to embark on a full-scale forensic audit of the
company, and to employ the services of
an expert to prepare ‘
graphs
and statistics’
and the like. It is difficult to envisage
how, in these circumstances, the production of the record sought
will bring a ‘
short sharp end’
to the dispute and
thus provide the applicants with a substantial advantage in the
sense that it will be decisive of the matter.
If anything, it is
likely to rather escalate it into a full-blown, costly, elaborate
and lengthy exercise. This is not what is
envisaged by s 71(4)(a)
of the Act in the circumstances of this matter.
I am thus persuaded that
the applicants have already been provided with sufficiently detailed
reasons to mount a response to the
allegations levelled against
them. It is accordingly not necessary to consider the company’s
defence of sensitive commercial
information (in accordance with s 68
of PAIA).
Two further aspects
require mention. First, the applicants also claimed that in their
capacities as shareholders of the company
they are entitled to
copies of its annual financial statements in accordance with s 26
and s 31 of the Act. The company
denies that they are
shareholders, and avers that the applicants are the holders of a 25%
stake in the holding company, PB Meat
Holdings (Pty) Ltd, which in
turn holds 72% of the share capital in the company. This averment
was met with a bare denial in
reply; and whether, in these
circumstances, the applicants hold a beneficial interest in the
securities issued by the company
was not pursued with any vigour by
their counsel during argument. In any event this was not advanced as
a ground for the relief
sought; and it is thus not necessary to
consider it any further.
Second, as pointed out
by counsel for the company, should the applicants for whatever
reason be dissatisfied with the determination
of the board, they can
avail themselves of the provisions of s 71(5) of the Act which
affords them a remedy in the form
of an absolute right to have a
court review the board’s determination.
In the result I make
the following order:
The application is
dismissed with costs, including all reserved costs orders.
_______________
J I CLOETE