Mthimunye-Bakoro v Petroleum and Oil Corporation of South Africa (Soc) Ltd and Another

• Jurisdiction: South Africa
• Judge: Davis J
• Judgment Date: 04 August 2015
• Citation: 2015 (6) SA 338 (WCC)
• Docket Number: 12476/2015
• Hearing Date: 23 July 2015
• Counsel: I Bremridge for the applicant. J Muller SC (with M Ioannnou) for the respondents.
• Court: Western Cape Division, Cape Town

Davis J:

Introduction

G [1] 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, these in essence being:

(1)

H A set of fiduciary duties, that is, the duty to avoid conflicts of interest, 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)

I 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.

[2] This application raises a number of questions concerning the application of these principles, their purpose and the relationship of the J common law to the Companies Act 71 of 2008 (the Act). It was

Davis J

launched as a matter of urgency in which the applicants seek to challenge A the lawfulness of certain meetings of the first respondent's board of directors and a decision and resolutions made and passed at such meetings.

[3] The applicant is an executive director of first respondent and its chief B financial officer. The first respondent is the Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd. First respondent is a subsidiary of the Central Energy Fund (SOC) Ltd, 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 sch 2) and has been described as the national oil company of South Africa. C The second respondent is the interim chairperson of first respondent, who chaired the meetings which are the subject-matter of this dispute.

[4] 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. D

(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. E

(4)

Further ancillary relief, in particular in respect of the provision of minutes of meetings and first respondent's governing documents.

[5] First respondent's board of directors comprises eight non-executive directors and two executive directors, namely applicant and Ms Nosizwe Nokwe-Macamo, who is the group chief executive officer (GCEO) of first F respondent. It is further common cause that the executive directors of first respondent, the applicant and the GCEO, were not notified or invited to the meeting of 18 June 2015.

[6] The background to this meeting is set out comprehensively in the answering affidavit, upon which averments I am entitled to rely. G 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 the target performances which had been expected. According to H 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.

[7] This loss was later revised in May 2015 in the amount of R14,89 billion, I 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.

[8] The board then commenced a process of seeking to establish the cause of these losses and the poor performance of first respondent. J

Davis J

A [9] 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. B 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.

[10] Accordingly, first respondent determined that an investigation was required into the causes of the substantial losses and the poor performance C 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'.

[11] The first respondent is a state-owned entity and subject to the PFMA. D 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 E 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.

[12] Applicant's presence in the workplace would simply not be viable to F the board during this comprehensive investigation 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 G 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.

[13] Applicant requested time to consider the proposal and later advised H second respondent she was not prepared to take voluntary leave. The first respondent then imposed a precautionary 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.

I [14] 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 J the integrity and obstruct the investigation.

Davis J

(2)

There was a possibility that she may interfere with or influence, A intimidate or attempt to influence or intimidate possible witnesses.

(3)

This may jeopardise first respondent's business.

Accordingly she was called upon to make representations as to why this decision should not be taken. She was also advised that, if her B precautionary suspension were 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 request first respondent's attorneys responded. C

[15] 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 record that the purposes thereof are to 'ensure that D 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'.

[16] The letter then suggests that the applicant was entitled to far greater detail than had been provided to her. It continues: E

'(I)t is difficult for our client to understand whether the concern is a performance issue or 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 F 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: G

'(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...