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[2015] ZAWCHC 113
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Mthimunye-Bakoro v Petroleum Oil and Gas Corporation of South Africa (SOC) Limited and Another (12476/2015) [2015] ZAWCHC 113; 2015 (6) SA 338 (WCC) (4 August 2015)
IN THE HIGH COURT OF
SOUTH AFRICA
(WESTERN CAPE DIVISION,
CAPE TOWN)
CASE NUMBER: 12476/2015
DATE: 4 AUGUST 2015
In the matter between:
LINDIWE
MTHIMUNYE-BAKORO
....................................................................................
Applicant
And
THE PETROLEUM OIL AND
GAS
..............................................................................
1st
Respondent
CORPORATION OF SOUTH AFRICA
(SOC) LIMITED
GILLIAN NONHLANHLA
JIYANE
...........................................................................
2nd
Respondent
J U D G M E N T
DAVIS, J:
INTRODUCTION:
This case concerns corporate
governance, the animating idea of which is to ensure net gains in
wealth for shareholders, protect
the legitimate concerns of other
stakeholders and improve efficiency, organisational performance and
resource allocation. To this
end, through a process of development,
the common law has imposed a series of duties and responsibilities
upon directors, in essence
these being:
(1) A set of fiduciary duties, that is
the duty to avoid conflicts of interests, to act honestly, to promote
the best interests
of the company, not to usurp corporate
opportunity, not to take secret profits, not to fetter votes and to
exercise powers for
the purpose for which they were granted and not
for any collateral purpose.
(2) The duty of care, skill and
diligence, which essentially amounts to the duty to manage the
affairs of the company in the same
manner as would be done by a
reasonably prudent person of business.
This application raises a number of
questions concerning the application of these principles, their
purpose and the relationship
of the common law to the Companies Act
71 of 2008 (‘the Act’). It was launched as a matter of
urgency in which the
applicants seeks to challenge the lawfulness of
certain meetings of the first respondent’s board of directors
and a decision
and resolutions made and passed at such meetings.
The applicant is an executive director
of first respondent and its chief financial officer. The first
respondent is the Petroleum
Oil and Gas Corporation of South Africa
(SOC) Limited. First respondent is a subsidiary of the Central Energy
Fund (SOC) Limited,
which is a state owned entity reporting to the
Department of Energy. It is therefore a public entity as
contemplated by the Public
Finance Management Act 1 of 1999 (see
Schedule 2) and has been described as the national oil company of
South Africa. The second
respondent is the interim chairperson of
first respondent, who chaired the meetings which are the subject
matter of this dispute.
The application was initially launched
on 2 July 2015. In terms thereof the following relief was sought:
(1) Declaring the meeting of first
respondent’s board of directors held on 18 June 2015 to be
unlawful.
(2) Declaring any decision taken at
such meeting to suspend the applicant as employee and / or chief
financial officer of first
respondent to be invalid and of no force
and effect.
(3) Declaring the purported resolution
of the board of directors taken at such meeting to be invalid and of
no force and effect.
(4) Further ancillary relief, in
particular in respect of the provision of minutes of meetings and
first respondent’s governing
documents.
First respondent’s board of
directors comprises of 8 non-executive directors and 2 executive
directors namely, applicant and
Ms Nosizwe Nokwe-Macamo who is the
group chief executive officer (‘GCEO’) of first
respondent. It is further common
cause that the executive directors
of first respondent, the applicant and the GCEO were not notified nor
invited to the meeting
on 18 June 2015.
The background to this meeting is set
out comprehensively in the answering affidavit, upon which averments
I am entitled to rely.
The relevant facts can be summarised thus:
During December 2014 it came to the attention of the board that first
respondent was
expected to declare a substantial loss of several
billion rand for the financial year ending March 2015. Consequently
the first
respondent performed far below by the target performances
which had been expected. According to the answering affidavit, which
was deposed to by Mr Sebothoma, an attorney acting as the company
secretary of first respondent, the loss at the time of the deposition
of the affidavit was projected to be in the order of R4.58 billion,
which incorporated an impairment charge of approximately R5.4
billion.
This loss was later revised in May 2015
in the amount of R14.89 billion of which approximately R14 billion
relates to an impairment
charge. These losses have received much
publicity in the press during and subsequent to the launching of this
application.
The board then commenced a process of
seeking to establish the cause of these losses and the poor
performance of first respondent.
It formed the prima facie view that the
poor financial performance could be attributed, at least in part, to
the applicant’s
conduct in the light of the fact that
management controlled the financial affairs of first respondent and
the financial health
of first respondent fell within applicant’s
duties and responsibilities as the group chief financial officer.
The board
also held the prima facie view that the applicant had
committed acts of serious misconduct and had possibly been involved
in contraventions
of the provisions of the
Public Finance Management
Act.
Accordingly
, first respondent
determined that an investigation was required into the causes of the
substantial losses and the poor performance
generally, together with
applicant’s possible role in this poor performance and the
losses which had been incurred pursuant
thereto. According to the
answering affidavit “the board’s concerns regarding the
first respondent’s financial
predicament cannot be overstated.”
The first respondent is a state-owned
entity and subject to the PFMA. Not only is the first respondent
likely to report a significant
loss of approximately R15 billion but
it will have also have failed to meet key performance targets for the
year. It was therefore
determined by the board that the applicant
could not remain in her position, pending the outcome of the
investigation and any disciplinary
enquiry that may follow
thereafter. There were further concerns regarding the potential
negative impact of the applicant’s
continued presence and
leadership position during this investigation. It was also pointed
out that the applicant, given her senior
position, exerts influence
over employees who are answerable to her.
Applicant’s presence in the
workplace would simply not be viable during this comprehensive
investigation to the board required
to be undertaken. Accordingly,
the board decided that the applicant and the GCEO would be approached
to establish whether they
would be prepared to go on what is
generally known as “garden leave”, pending the outcome of
the investigation. A
meeting was held between the applicant and the
second respondent and was also attended by Ms Kgadi Kekana, in her
then capacity
as company secretary. At the meeting applicant was
advised of the board’s decision that she consider taking
“garden
leave” on full pay, pending the outcome of the
investigation.
Applicant requested time to consider
the proposal and later advised second respondent she was not prepared
to take voluntary leave.
The first respondent then imposed a
cautionary suspension on full pay of both applicant and the GCEO.
The meetings held with
the applicant in person and the meetings of
the board were attended by both the second respondent and Kekana as
company secretary.
On 2 June 2015 first respondent
addressed a letter to the applicant in which she was advised of the
board’s proposal to place
her on a precautionary suspension.
She was advised that the board held the prima facie view that her
precautionary suspension
was justified and necessary because:
(1) Her continued presence at the
premises could potentially compromise the integrity and obstruct the
investigation.
(2) There was a possibility that she
may interfere with or influence, intimidate or attempt to influence
or intimidate possible
witnesses and;
(3) This may jeopardise first
respondent’s business.
Accordingly, she was called upon to
make representations as why this decision should not be taken. She
was also advised that, if
her precautionary suspension was confirmed,
it was the board’s intention to suspend her as a director.
Following this letter
of 2 June 2015, applicant and first
respondent’s attorneys exchanged a series of letters.
Essentially it appears that the
applicant’s attorneys requested
further information and documents to which letter first respondent’s
attorneys responded.
On 15 June 2015 applicant’s
attorney addressed a letter to the first respondent’s attorneys
which, despite including
further complaints regarding the paucity of
information which had been provided to the applicant, contained a set
of representations.
In the letter, which runs to 11 pages,
applicant’s attorney noted that first respondent’s
disciplinary code and procedure
records that the purposes thereof is
to “ensure that the principles of natural justice are applied”
and that one of
its primary objectives “is to ensure a thorough
investigation of all the facts by management prior to implementing
disciplinary
action.”
The letter then suggests that the
applicant was entitled to far greater detail than had been provided
to her. It continues:
“[I]t is difficult for our client
to understand whether the concern is a performance issue of
disciplinary issue. Be that
as it may, clause 9.3 of the code, more
particularly clause 9.3.4 thereof, provides that the suspension of an
employee until a
hearing can take place would only be permitted if
“the case warrants it” and should an investigation “into
the
matter be a reason for delay” ... Once again, our client is
entitled to know what the reasons for the proposed suspension
are,
what investigation is required and what is to be investigated, in
order to assess whether “the case warrants it (more
particularly her suspension).”
The letter then continues:
“[I]t is of the utmost importance
to the company that our client is able to continue with the work that
she is currently busy
with, including inter alia her work on;
26.1 securing support for the company’s
unfounded liability which, if not resolved, will, in all probability,
result in a
qualified audit being reported to the Auditor General;
26.2 concluding the trade finance
facility of approximately USD$100m which is in the process of having
term sheets negotiated and
will have a significant impact on easing
the pressure on working capital;
26.3 leading the cost optimisation
project which has already shown substantial benefits for the company
in cost savings ... and
progressing with the already initiated asset
optimisation and revenue enhancement projects;
26.4 the turn-around strategy for the
company.”
The attorney for the applicant then
contended that the applicant’s presence at work was not an
aggravation or a disruption
and that this was supported by the fact
that during the week prior to the letter being generated, applicant
was, amongst other
responsibilities, entrusted to travel to London to
report to various of first respondent’s insurers as part of its
offshore
insurance renewal program and to ease concerns with regard
to first respondent’s current financial position and leadership
instability.
Following this letter, a meeting of the
non-executive directors of the first respondent was called for on 18
June 2015. It appears
that the primary purpose of this meeting was
to consider the precautionary suspension of the applicant and the
GCEO. All of the
first respondent’s directors, save for
applicant and the GCEO, were given notice of the meeting.
The meeting was then attended by all of
the 9 non-executive directors who were invited, apart from Mr
Hlatshwayo, who tendered an
apology. It appears that he has
subsequently resigned as a director. The first respondent’s
attorneys of record were also
invited to speak at the meeting and
advise the members of the board. At that meeting the board decided
to place the GCEO and applicant
on precautionary suspension. All but
one of the non-executive directors who attended voted in favour of
this decision.
THE ESSENCE OF APPLICANT’S
CASE
Mr Bembridge, who appeared on behalf of
the applicant, submitted that respondent’s conduct, as I have
outlined it, contravened
not only the law but also fundamental
principles of proper corporate governance. The meeting of 18 June
2015 was in violation
of these principles. Thus, it stood to be
declared unlawful and the decisions and resolutions taken and passed
at the meeting
had to be declared invalid and of no force and effect.
In this connection he cited the judgment in South African Broadcast
Incorporation
Limited v Mpofu and Another
[2009] 4 ALL SA 169
(GSJ)
in which a full bench approved certain basic principles of corporate
governance relying, inter alia, on the King Report on
Corporate
Governance for South Africa (which is referred to as the King Code).
In essence, Mr Bembridge submitted that
the board, in its entirety, is the principle focal point of good
corporate governance.
It follows that the fiduciary duty the
directors owe to each other is thus paramount. The central purpose of
corporate governance
is the accountability of senior management and
the board of a company because of the extensive powers vested
therein. Given the
synergy which takes place with individuals
possessed of different skills, experience and background, the board
structure with executive
and non-executive directors interacting one
with the other remains appropriate for a South African company.
Meetings should include mechanisms that
render the former efficient and timely. Board members should be
briefed prior to meetings
and should take responsibility for being
objectively satisfied that they have been furnished with all the
relevant information
and facts before making a decision. Although
non-executive directors may meet separately, the attendance of
executive directors
at board meetings has a considerable value for a
diversity of approach which is important to the formulation of the
best decisions
in favour of the company. A board has a collective
responsibility to provide effective corporate governance. It should
exercise
leadership, enterprise, integrity and judgment in directing
the affairs of the company.
Accordingly, the core principles of
good governance dictate that resolutions should be properly taken at
meetings after due and
careful deliberation. A company is entitled
to the benefit of the collective wisdom of all the directors present
at meetings and
not merely those of the majority. Essential to the
principle of corporate governance, Mr Bremridge submitted, is that
majority
directors should not be permitted to exclude minority
directors from board meetings or from voting thereat on the
ostensible basis
that minority directors are precluded as a result of
a conflict of interest.
This is particularly appropriate, he
contended, in a case where a public enterprise is involved and where
principles of good corporate
governance and best practice must be
strictly adhered to in the interest of the public. The minority
directors are entitled to
all relevant information and to an
opportunity of stating their views, even though they may ultimately
have to submit to a majority
decision, on the basis of the doctrine
that the directors of the company are under duty to use their voting
powers for the benefit
and the interests of the company and not of
any particular person. In general, it was justified to describe
these principles as
established in our law. See for example the
magisterial judgment of Colman, J in Novick and Another v Comair
Holdings Ltd and
Others
1979 (2) SA 116
(W) at 128, in which these
principles are set out with clarity.
Applying these principles Mr Bembridge
submitted that the suspension of a high profile chief executive
officer in a public sector
enterprise, which is directed to observe
principles of good corporate governance and practice, was a matter
which required the
strictest adherence to these principles. He noted
that in Mpofu’s case, the Court had found, on the basis of
these principles
that, notwithstanding the perceived conflict of
interest regarding a possible suspension, the chief executive officer
and director
in question was entitled to participate fully throughout
the meeting. A decision to exclude him and two executive members
from
a meeting at which a decision to suspend the director as the CEO
was taken upon the reliance of a conflict of interest, prevented
the
director from discharging his duties and precipitated a fatal flaw in
the process conducted by the board.
In the circumstances the Court in Mpofu
had held that due to the absence of meaningful notice of the meeting,
exclusion of respondent
and the other executive directors from
substantial portions of the board meeting and a failure to ensure
proper deliberation amongst
members of the board, there had not been
a properly convened meeting, no business was validly transacted and
the resolution of
the meeting had to be set aside. Mr Bembridge
submitted that the fundamental principle that could be gleaned
therefrom was that
a meeting of a board would be invalid and unlawful
where a director has been excluded from full participation therein,
save where
the exclusion could be shown to be justified.
It is this latter concept which holds
the key to this entire dispute.
Before dealing with the merits of the
competing attempts to answer this question, it is necessary to deal
with a preliminary point
that was raised by the respondents regarding
the jurisdiction of this Court.
JURISDICTION
Mr Muller, who appeared together with
Ms Ioannou, on behalf of the respondents, submitted that this Court
does not have the necessary
jurisdiction to consider the relief which
applicant sought, notwithstanding that it was framed as a challenge
to the validity of
meetings and decisions which had been taken. In
this regard he relied on a decision in Wicks v S A Independent
Services (Pty)
Ltd and Another
[2010] JOL 25715
(WCC). Mr Muller
contended that this decision was “on all fours” with the
present case.
In that case Zondi, J (as he then was)
framed the question for determination as follows:
“The only question with regard to
jurisdiction is whether this Court had jurisdiction to determine the
issue whether the applicant’s
purported suspension was null and
void by reason of the respondent’s failure to call a properly
constituted board meeting
to effect such suspension.” para 34.
In Wicks, applicant had launched an
urgent application declaring that his suspension from employment with
first respondent was void
and of no effect. The Court held that the
applicant should have approached the CCMA with a case based upon an
alleged unfair labour
practice in terms of the
Labour Relations Act
66 of 1995
. Zondi, J reasoned thus:
“In my view suspension of an
employee by an employer based upon an unlawful conduct which is
violative of either the company
law or common law constitutes an
unfair suspension of which the
Labour Relations Act fully
provides
for remedies under
section 193.
It is therefore incorrect to contend
that an employee whose suspension is unlawful has no remedies under
the
Labour Relations Act.
By
characterising the manner in which
his suspension was obtained as unlawful, the applicant could have his
case heard in the High
Court, but yet if he characterises the same
conduct as unfair he could have it heard in the Labour Court. This
approach clearly
defeats the object which the Legislature intended to
achieve through the enactment of the
Labour Relations Act. In
my
view it also places emphasis on the form of conduct and not on its
substance. The real intention of the applicant is to obtain
reinstatement as management director by having his purported
suspension declared null and void.”
In the present case the relief sought
is for a declaration that meetings of the board of first respondent
are unlawful and that,
consequently, decisions taken thereat
affecting the applicant and the general chief executive officers were
invalid. All of these
disputes fall firmly within the domain of the
Companies Act 71 of 2008
, and if not, the common law regulating the
duties and responsibilities of directors. The interpretation of
certain provisions,
in particular
section 75
thereof, and in the
alternative, the relevant common law, holds the key to the resolution
of the dispute.
To the extent therefore that this case
has been framed and litigated in this manner, it is in my view
distinguishable from Wicks
(supra); hence the in limine point raised
by respondents stands to be rejected.
THE SUBSTANCE OF THE DISPUTE
With this finding in mind I can return
to the substance of the dispute. Central to respondents’
answer to applicant’s
case was that a further meeting of the
board was held on 13 July 2015. The primary purpose of this meeting
appeared to be for
the board to consider, indeed to reconsider, the
decisions which were taken at the meeting of 18 June 2015 to suspend
the applicant
and the GCEO. The applicant and the GCEO were both
given notice and attended this meeting.
As appears from the agenda circulated
with the notice of 9 July 2015, the main purpose of this meeting was
to consider this application
and to reconsider the resolution to
suspend the two officers. It was attended by all the directors. The
applicant and the GCEO
participated in the meeting via a video
conference link from respondents’ offices in Sandton. At the
meeting the second
respondent noted that the applicant was conflicted
regarding the issues and the agenda that related to her. The
applicant differed
and indicated that she did not agree as the issues
did not involve her financial inferences.
The chair pointed to the provisions of
section 75(4)
and (5) of the
Companies Act and
invited the applicant
to address the board in this regard, which she so did. After
receiving the applicant’s representations
and further
complaints concerning the provision of insufficient information, the
board requested the applicant to excuse herself
from the meeting in
order that it could commence deliberations on the issues affected.
The applicant then left the meeting. After
both the applicant and
the GCEO had been excused, the board debated the proposed
resolutions and resolved inter alia to confirm
(and to reconfirm) the
decision which it had initially taken on 18 June and to the extent
necessary resolved afresh to suspend
the applicant.
As a result, the applicant launched an
application for leave to amend her notice of motion to include inter
alia a challenge to
the validity of the meeting of 13 July and the
decisions taken there at in relation to her and the GCEO. I should
add that leave
to amend included a challenge to the decisions that
related to the GCEO; notwithstanding that decisions taken regarding
the GCEO
were not challenged in the original notice of motion,
neither by applicant nor by the GCEO who is not before this Court.
Respondents’ opposed this
particular amendment, particularly in relation to the relief sought
insofar as the GCEO is concerned.
Given the change of focus of the
meeting of 13 July, it appears possible to summarise the dispute
between the parties and the issues
which now fall to be determined as
follows:
(1) Whether, in the light of the
meeting of 13 July and the decision taken at that meeting, the relief
sought by the applicant in
respect of the 18 June meeting has become
moot?
(2) If this relief is not moot, or if
it is otherwise necessary for the Court to consider the issue,
whether the meeting of 18 June
and the decision taken thereat to
suspend the applicant was valid?
(3) The validity of the 13 July meeting
and the decision taken at that meeting to suspend the applicant.
I should add that applicant also sought
certain ancillary relief in the form of the delivery of certain
minutes of meetings and
first respondent’s memorandum of
incorporation. In this regard the first respondent contends that it
has not finalised its
memorandum of incorporation but its articles of
association were annexed to the opposing affidavit. First respondent
avers further
that the applicant has never previously sought these
documents from first respondent. Had she done so they would have
been provided
to her. Applicant also seeks delivery of minutes of
certain meetings which had been held. Respondent contends, that
nowhere in
her papers has she explained the basis upon which she
claims such orders.
In any event, respondent contends no
minutes of the meetings of the full board or of any committee
meetings of the non-executive
directors of the board since 22 May
2015 exist.
MOOTNESS
Mr Muller submitted that the 13 July
meeting addressed the sole concern raised by the applicant regarding
the meeting of 18 June
and as a decision to suspend the applicant was
confirmed at the 13 July meeting, the principal relief sought by the
applicant in
its notice of motion as regards 18 June meeting has
become moot.
By contrast, Mr Bremridge referred to
the following issues in relation to the meeting of 13 July:
(1) Applicant requested certain
documents to enable her to prepare for the meeting and to participate
therein; in particular the
minutes of the previous meeting, the 18
June 2015.
(2) First respondents’ articles
of association and as yet signed memorandum of incorporation were not
provided until approximately
17h00 on 13 July 2015 being some 19
minutes before the meeting was due to commence.
(3) The applicant avers that she did
not have sufficient opportunity to consider or take advice thereon.
(4) The request for further information
was refused.
(5) The agenda for the meeting on 13
July 2015 reflects that there would be a consideration or
reconsideration of the decisions
taken at the meeting of 18 June
2015; yet the respondents refused to provide the applicant with
copies of the notes or draft minutes
of this meeting.
Mr Bremridge submitted that applicant,
having been excluded from the prior meeting of the 18 June, could not
be expected to contribute
to a process designed to consider or
reconsider decisions taken thereat without access to this set of
documentation. Mr Bremridge
noted further that the second respondent
chaired the meeting held on 13 July 2015. She noted that the
applicant was conflicted
in regard to the matters for consideration
of this meeting before the applicant had an opportunity to address
the board on it and
before the board had an opportunity to debate
this.
In short, she had clearly predetermined
the issue. Applicant was, in Mr Bremridge’s view, permitted to
make representations
of the meeting as to the perceived conflict of
interest as referred to by the chairperson. There was no further
consideration
or debate between the directors on the issue of any
conflict, at this stage. Applicant’s representations in this
regard
together with the objections of the short notice, the failure
to provide the requested information were dismissed out of hand and
she was then obliged to leave the meeting. Mr Bembridge noted that
the GCEO was then permitted to make representations in relation
to
the alleged conflict of interest. Again there does not appear to
have been any further consideration or debate on this issue
between
the directors and she was excluded from further deliberation or
discussion. Accordingly the GCEO was also obliged to leave
or be
recused from the meeting.
With these facts as his basis Mr
Bremridge again invoked dicta from the Mpofu decision to which I have
already made reference:
“The chairperson appears to have
unilaterally and without proper deliberation with all the members of
the Board, made a decision
to exclude the respondent based on a
perceived conflict of interest. The entire deliberation of this
aspect should have been debated
by the directors and minuted.”
Mr Bremridge submitted further that
this is exactly what happened at the meeting of 13 July. In his
view, the executive directors
were excluded from the meeting on the
basis of a perceived conflict of interest without any proper
determination or debate as to
whether they were conflicted on the
matters for consideration at the meeting.
Much of the debate therefore turned on
the justification for this exclusion. In this regard the
justification was sought to be found
in
section 75(5)
of the
Companies Act, together
with paragraph 74 of the articles. It is to
these sections that I must now turn.
THE
COMPANIES ACT
To
the extent that it is relevant,
section 75(5)(d) and (e) of the Act deal with the presence at or
participation in any deliberation
by a board of a matter in which a
director has a personal interest. Section 75(5) reads thus:
“If a director of a company,
other than a company contemplated in subsection (2)(b) or (3), has a
personal financial interest
in respect of a matter to be considered
at a meeting of the board or knows that a related person has a
personal financial interest
in the matter, the director:
(a) must disclose the interest and its
general nature before the matter is considered at the meeting.
(b) must disclose to the meeting any
material information relating to the matter and known to the
director.
(c) may disclose any observations or
pertinent insights relating to the matter if requested to do so by
the other directors.
(d) If present at the meeting must
leave the meeting immediately after making any disclosure
contemplated in paragraph (b) or (c).
(e) must not take part in the
consideration of the matter except to the extent contemplated in
paragraph (b) and (c).
(f) while absent from the meeting in
terms of the subsection
(i) is to be regarded as being present
at the meeting for the purposes of determining whether sufficient
directors are present to
constitute the meeting and
(ii) is not to be regarded as being
present at the meeting for the purpose of determining whether the
resolution has sufficient
support to be adopted and
(d) must not execute any document on
behalf of the company in relation to the matter unless specifically
requested or directed
to do so by the board.”
This section must be read together with
the definition of personal financial interest contained in
section 1
of the
Companies Act. This
provision reads thus:
“Personal financial interest,
when used with respect to any person:
(a) means a direct material interest of
that person of a financial, monetary or economic nature or to which a
monetary value may
be attributed, but
(b) does not include any interest held
by a person in a unit trust or collective investment scheme in terms
of the Collective Investments
Schemes Act 2002 ... unless that person
has direct control over the investment decisions of that fund or
investment.”
The purpose of section 75 is set out in
the description of the equivalent provision of
section 175
of the
Companies Act to
the United Kingdom of 2006 by Charlesworth Company
Law (18th Edition), at 346:
“A statute provides a mechanism
for directors avoiding liability stemming from conflicts of interest.
In essence
s 175
provides that a director bears an obligation to
avoid even potential conflicts of interest although that duty does
not exist if
the directors have authorised the conflict of interest
or if there is not likely to be any reasonable conflict of interest.”
It is instructive to refer, in the
context of the suspension of applicant, to section 71(3) of the Act,
which deals with the removal
of directors. It provides thus:
“If a company has more than two
directors and a shareholder or director has alleged that a director
of the company (a) has
become ineligible or disqualified in terms of
section 69, other than on the grounds contemplated in section
69(8)(a);or
(2) incapacitated to the extent that a
director is unable to perform the functions of a director and is
unlikely to regain that
capacity within a reasonable time; or
(b) has neglected or been derelict in
the performance of the functions of the director,
the board, other than the director
concerned, must determine the matter by resolution and may remove a
director who it is determined
to be an ineligible or disqualified,
incapacitated or negligent or derelict as the case may be.”
When this occurs section 71(4)
provides:
“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.”
If Mr Bremridge’s submission is
correct, a board of a company, such as first respondent, in dealing
with an executive director
against whom serious allegations are made,
would not be able to deliberate without the participation of the
director, when considering
her temporary suspension as an executive,
whereas, if removal was contemplated, it could so do.
Applicant’s interpretation would
also place on extremely strict construction upon the meaning of
personal interest as to permit
full participation by the director who
is the very subject matter of the deliberations of the board.
In my view, this construction is
incongruent with the purpose of section 75. Recall that prior to the
2008 Act, where the articles
permit a director to have an interest in
a contract with a company subject to the approval of a general
meeting, a director who
has such an interest and who is also a member
entitled to vote at such in general meetings, may vote at the meeting
on a resolution
to prove the contract unless the articles provide
otherwise and provided his doing so does not involve a fraud upon the
minority.
Henochsberg On the
Companies Act 71 of 2008
at 289. This
suggests that
section 75
sought to constrain the participation of a
director with such an interest as compared to the pre-2008 position
This conclusion drives the judgment
back to an examination of the decision in Mpofu supra, which was the
essential authority relied
upon by Mr Bembridge. In Mpofu the 14 day
notice period prescribed by the articles was not given to any of the
directors. The
applicant was given only one minute’s notice of
the meeting. He was then asked to explain the suspension of one Dr J
Zikalala
and then requested to leave the meeting. The remaining
board members thereafter passed a resolution suspending him due to
his
divisive and disruptive conduct. Two of the board members were
not present at the meeting.
The applicant had virtually no notice
of the meeting, was not advised that its purpose was to consider his
suspension and was invited
to address the board on a topic which was
not the basis upon which the decision to suspend was made in his
absence.
In addition there were several other
irregularities in relation to notice and the composition of the
meeting. In her judgment Victor,
J relied extensively upon a
judgment of Seligson, AJ in Trans Cash (SWD) (Pty) Ltd v Smith
1994
(2) SA 295
(C), in particular at 305 F-306 C:
“In effect what occurred in the
present case assuming that Ewald was in fact a director and that
there was accordingly a quorum,
was that a majority of the directors
purported to pass a resolution otherwise and at a board meeting,
without giving the other
director any opportunity to influence the
passing of the resolution. This is contrary to the basic democratic
principle of our
company law namely, that the minority is entitled to
an opportunity by means of debate and discussion to persuade the
majority
to adopt its view of the matter.”
There is however a further relevant
dictum in this judgment at 306H, to which I must refer:
“Mr Rosenthal however contended
that the common law principle underlying these principles was that
the director was precluded
from voting in any matter in which there
was a conflict between his interests and those of the company. There
is a fallacy in
Mr Rosenthal’s argument because it presupposes
that a conflict of interest existed at the time. In order to
establish this,
respondents’ alleged unlawful conduct vis-a-vis
the company which he disputes will have to be investigated and
established.
This will involve entering into the merits. In the
present case applicant itself sought a preliminary ruling without
canvassing
the merits. It cannot therefore rely on the allegations
of respondent as if they had been proved in order to found the
argument
based on conflict of interest.”
In this case, unlike Transcash, there
was a manifest conflict of interest. It surely cannot be contended
with any measure of justification
that, when the decision of the
board concerns the preliminary suspension of an employee, who happens
to be a director, that director
does not have a conflict of interest
in the deliberations which have to be undertaken by the board. To
the extent, however, that
the dicta in Transcash are sought to be
applied, in this case, unlike Trancash, there was a manifest conflict
of interest. If,
on the other hand, it is suggested that the facts
in both cases are similar, then the dicta in Transcash can no longer
hold the
same force or application given the content of section 75 of
the Act.
In addition, if the dicta in Transcash
are construed to provide authority that the no conflict rule under
common law extends to
permitting a director to participate in a
decision to suspend her, then it cannot be a correct reflection of
the law.
Under common law, a director may not
place herself in a position in which she has, or can have a personal
interest, which conflicts
or possibly conflicts with her duties to
the company. See, for example, Robinson v Randfontein Estates Gold
Mining Co Ltd
1921 AD 168
at 178-179. The test regarding conflict of
interest said Innes CJ:
“rests upon the broad doctrine
that a man, who stands in a position of trust towards another,
cannot, in matters affected
by that position, advance his own
interest (e.g., by making a profit) at that other’s expense.”
Lord Herschell in Bray v Ford
[1896] AC
44
at 51 captured the animating idea thus: ‘human nature being
what it is, there is a danger, in such circumstances, of the person
holding a fiduciary position being swayed by interest rather than
duty and thus prejudicing those who he is bound to protect’.
See also Aberdeen Railway Co v Blaiker Bros
(1854) 1 Macq 461
at 471;
Bhullar v Bhullar
[2003] 2 BCLR 241
(CA).
The common law principle of conflict of
interest should be approached by courts on a common sense basis.
Boulting v Association
of Cinematograph, Television and Allied
Technicians
[1963] 2 QB 606
at 637-638. Accordingly, if section 75
is construed narrowly as Mr Bremridge would have it, then recourse
may be had to the common
law which, save for express legislative
exclusions remains the structure of company law upon which the
superstructure of the Act
rests. On these principles alone, the
applicant was conflicted.
In her founding affidavit, the
applicant sought to deal with these legal difficulties. She
recognised the risk of damage to her
reputation by virtue of
suspension to which a monetary value may be attributed but she said
that as she had been suspended on full
pay. Hence the decision of
whether to suspend her did not impact upon any personal financial
interest that she may have. However,
given the purpose of the
decision to suspend the applicant her continued employment with
respondent might well be impacted following
an investigation which
her precautionary suspension was intended to facilitate.
Given the breadth of the definition of
personal financial interest, as I have set it out, and the existing
common law principle
regarding conflict of interest, I agree with Mr
Muller that, on applicant’s own version regarding reputational
damage and
the possible implications for her employment with
respondent, she would not, by virtue of the provisions of the Act or
alternatively
the existing common law be permitted to participate in
meetings regarding her suspension.
In addition another factor which
favours this conclusion is paragraph 74 of first respondents’
articles of association which
expressly preclude the applicant from
participating in any decision in respect of her contract such as her
contract of employment
in which she has an interest:
“Subject to the provisions of the
Statutes, a director should not vote in respect of any contract or
proposed contract with
a company in which she is interested or on any
matter arising therefrom and if he does so vote, his vote shall not
be counted,
provided that his article (sic) shall not apply where the
company has only one director.” (my emphasis)
To argue otherwise is to suggest that
somehow the applicant could bring an independent and impartial mind
to the deliberations of
her own suspension, transcending her own
interest and making an exclusive determination of what was in the
best interest of the
company. This would be so incongruent with the
principles of corporate governance, as I have outlined them, and, as
Mr Bremridge
himself urged upon this Court, as set them out earlier
in this judgment, as well as the common sense approach that should
infuse
the concept of conflict of interest to stand to be firmly
rejected.
CONCLUSION
With these principles in mind, I return
to the meeting of 13 July. Whatever the legality of the meeting of
18 June and, in my view,
without deciding, the resolution of
suspension may have been valid, given the law as I have outlined it,
the latter meeting holds
the key to the resolution of this dispute.
What was different about the meeting of
13 July was that the applicant was given timeous notice, she attended
the meeting, addressed
the meeting before being excused from it prior
to the resolution been taken.
Applicant’s complaint appears
then to fall within four categories:
(1) She was given insufficient notice
of the meeting.
(2) She was not provided with
sufficient information in order to participate.
(3) A view was formed that she was
conflicted when she was not and she was compelled to leave the
meeting.
(4) The meeting was called for an
improper motive.
I need to deal briefly with each of
these contentions.
NOTICE
The applicant was given reasonable
notice of the meeting. Notice was given on Thursday, 9 July, which
was 4 days prior thereto.
This is entirely different to the
situation of Mpofu’s case. Sufficient time was given to all
the directors to attend as
is evidenced by the attendance of all the
directors at the meeting, including the applicant and the suspended
GCEO.
INFORMATION
Applicant complains that she was not
given adequate information to properly formulate an opinion. First,
she had made her opinion
clearly known, in her detailed written
representations of 15 June which I have sought to summarise earlier
in this judgment. In
that letter there was a comprehensive case made
out as to applicant’s attitude to the suspension. Secondly,
there is a distinction
that must be drawn between disciplinary
proceedings which might lead to dismissal and a precautionary
suspension, which is the
subject matter of this dispute, for the
burden on respondent in the latter case is far more onerous.
THE QUESTIONS OF CONFLICT
The applicant contends that she was not
conflicted and that she should not have been required to leave the
meeting. I have already
found that this averment must be dismissed.
There can be no rational basis for suggesting that a person who faces
suspension has
no conflict and can deal with the matter utterly
impartially without taking their own interest into account, and only
taking account
of the company’s interests.
IMPROPER MOTIVE
The applicant avers that the meeting of
13 July was called for an improper motive “in an attempt to
avoid the previous unlawful
conduct of the non-executive directors.”
First, the respondents defended the meeting of 18 June and the
decision taken thereat.
This is not necessarily an issue with which
I have to deal.
The meeting of 13 July was held for the
avoidance of any doubt. The applicant and the GCEO were invited, to
avoid any further technical
challenge. One has to ask rhetorically
what more can be expected from the first respondent in this
connection, on the assumption
that legal procedure had not fully been
followed on 18 June.
Even if the purpose of the meeting was
to address an early invalid decision, it does not appear to me to be
anything untoward and
as such conduct and the motivation would not
invalidate the meeting. See in this connection Cilliers and Benade
Corporate Law
(2000) at 132.
The essence of the relief sought by the
applicant in her amended notice of motion was essentially the
following:
“The meeting of the board of
directors of the first respondent held on Monday, 13 July 2015, be
declared unlawful. Any decision
taken by first respondent at such a
meeting to suspend the applicant as an employee and / or chief
financial officer with the first
respondent, be declared invalid and
of no force and effect. Any decision taken by the first respondent
at such a meeting to suspend
Ms Nosizwe Nokwe-Macamo as employee and
/ or group chief executive officer of the first respondent be
declared invalid and of no
force and effect.”
This relief focusses correctly on the
relevant meeting of 13 July. Once this meeting is held to be valid,
this relief cannot be
granted.
For all the reasons which have been set
out, I can find no justification for the relief so sought.
ACCORDINGLY THE APPLICATION
IS DISMISSED WITH COSTS, INCLUDING THE
COSTS OF TWO COUNSEL.
DAVIS, J