Phillips v Fieldstone Africa (Pty) Ltd and Another

• Jurisdiction: South Africa
• Citation: 2004 (3) SA 465 (SCA)

Phillips v Fieldstone Africa (Pty) Ltd and Another
2004 (3) SA 465 (SCA)

2004 (3) SA p465

Citation	2004 (3) SA 465 (SCA)
Case No	516/02
Court	Supreme Court of Appeal
Judge	Mpati DP, Streicher JA, Farlam JA, Heher JA and Motata AJA
Heard	November 21, 2003
Judgment	November 28, 2003
Counsel	N A Cassim SC (with him M A Chohan) for the appellant.; T W Beckerling SC for the respondents.

Flynote : Sleutelwoorde C

Employment law — Employee — Fiduciary duty — When arising — Law relating to breach of fiduciary duty and its D consequences set out — Employee to be approached in same way as any other supposed fiduciary — Basic principle stating that person in E position of confidence involving duty to protect interests of other, not entitled to make secret profit at other's expense nor place himself in position where his interests conflicting with such duty — Present level of development of principle summarised — The lowlier and more restricted in discretion position of employee, the less likely that facts will support existence F of duty — Relationship in which fiduciary duty arising identifiable, inter alia, by following characteristics: (1) scope for exercise of some discretion or power; (2) power or discretion may be exercised unilaterally so as to effect beneficiary's legal or practical interests; and (3) peculiar vulnerability to exercise of discretion or power.

Employment law — Employee — Fiduciary duty — Proof of — Whether fiduciary G relationship established and extent thereof questions of fact to be deduced from nature of relationship between parties — Claimant not required to label claim as one based on breach of fiduciary duty, provided that pleadings, properly construed, embodying such claim.

Headnote : Kopnota

The appellant had, during the course of his employment with the second respondent, a US firm represented in South Africa by the H first respondent, been seconded by the second respondent to a third company, S (Pty) Ltd, to provide it with certain services related to the acquisition by S (Pty) Ltd of shares in a South African cellular phone network. The agreement between the second respondent and S (Pty) Ltd was signed in June 1997. While engaged in this work the I appellant was, in February 1998, appointed a director of S (Pty) Ltd. The respondents did not object. In August 1997 the appellant accepted, without knowledge of the respondents, an offer of a 10% shareholding in S (Pty) Ltd in return for a consideration of R750 000. In March 1999 the appellant resigned from the employ of the second respondent, and in October of the same year he also resigned his directorship J

2004 (3) SA p466

of S (Pty) Ltd. He then sold his shares back to S (Pty) Ltd's shareholders for R12,25 million. The respondents A sued the appellant in a Local Division for R11,25 million, said to represent the appellant's profit on the sale of the shares. The respondents alleged that the appellant had acted as their agent in dealing with S (Pty) Ltd, that he had owed them duties of loyalty and good faith, and that he had breached those duties in acquiring the shares and failing to account for them. The appellant admitted that, in B entering the employment of the second respondent, he had undertaken a duty of loyalty to that company and, in relation to his dealings with its clients, a duty not to appropriate for himself opportunities which were presented to him in his capacity as its representative. He denied, however, that he had acted as agent of the second respondent in relation to the S (Pty) Ltd contract and that he was therefore obliged to account to it for profits made by him while allegedly acting C in that capacity. He further averred that the shares had been offered to him in his capacity as director of S (Pty) Ltd, and that he was in the circumstances under no obligation to account to the respondents. The Court a quo held that by accepting the offer to acquire the shares without the respondents' consent, the appellant had placed himself in a position where his personal interest had been in conflict with his duties to the respondents, in D relation to whom he had stood in a fiduciary relationship. The Court accordingly ordered the appellant to account to the respondents for the profits made by him.

In an appeal to the Supreme Court of Appeal counsel for the appellant confined his submissions to (1) whether the respondents' case had been limited to a claim based on breach of contract and not on a breach of a fiduciary duty, (2) whether a fiduciary duty attached to an E employee in the position, and (3) whether the offer of shares to the appellant was an opportunity which properly belonged to the respondents and which the respondents had been able to and would have taken up. Counsel for the appellant emphasised that the respondents' particulars of claim contained no reference to a fiduciary duty, but mentioned only breaches of the contract of employment and its implied duties of loyalty, non-appropriation of F corporate opportunities and accounting for profits acquired while acting as the agent of an employer. The Court delivered two judgments: a majority judgment by Heher JA, and a concurring minority judgment by Streicher JA.

Held (per Heher JA; Mpati DP, Farlam JA and Motata AJA concurring), as to the plaintiff's cause of action, that a contract of employment (with its implied terms) had been pleaded as a G single element of a broader picture of why an opportunity that had arisen out of the appellant's employment properly belonged to the respondents. The fact that the implied duties (that is, those that arose ex lege) had arisen in the context of a contract which defined the relationship between the parties did not, however, 'necessarily preclude the existence of fiduciary duties between the parties. On the contrary, the legal incidents of many contractual H arrangements (were) such as to give rise to a fiduciary duty.' (Paragraph [27] of Heher JA's judgment at 477E/F - G.)

Hodgkinson v Simms [1994] 3 SCR 377 (SCC) applied.

Held, further, that there was no magic in the term 'fiduciary duty'. Its existence, and its nature and extent, were questions of fact that had to be deduced from a thorough consideration of the substance of the relationship and any relevant circumstances I affecting the operation of that relationship. While agency was not a necessary element of a fiduciary relationship, its existence almost always provided an indication of such a relationship. (Paragraph [27] of Heher JA's judgment at 477H - I.)

Held, further, that the emphasis in the particulars of claim on the representative nature of the appellant's status in dealing with S (Pty) Ltd and his duty to J

2004 (3) SA p467

account for profits acquired in that capacity, clearly marked the claim as one in which the appellant stood A in a position of confidence and good faith towards the respondents. No more was required to set up a case on a fiduciary duty. (Paragraph [27] of Heher JA's judgment at 477I - 478A.)

Held, further, that the pleadings, properly construed, embodied a claim based on a breach of a fiduciary duty, no label being required of the pleader, and that the evidence thoroughly exposed the real issues between the parties. (Paragraph [28] at 478D.) B

Held, further, as to the law relating to breach of fiduciary duty, that the general principle was that '(w)here one man [stood] to another in a position of confidence involving a duty to protect the interests of that other, he [was] not allowed to make a secret profit at the other's expense or place himself in a position where his interests conflict with his duty'. (Paragraph [30] of Heher JA's C judgment at 478H - I/J.)

Robinson v Randfontein Estates Gold Mining Co Ltd 1921 AD 168 at 180 applied.

Held, further, that the present level of development of this principle, as appearing from case law, was as follows: The rule was a strict one that extended not only to actual conflicts of interest but also to a case in which there was a real possibility of such conflicts. The only defence open to a fiduciary who had breached his trust was the D free consent of the principal after a case in which there was full disclosure. Because the fiduciary who acquired for himself was deemed to have acquired for the trust, once proof of a breach of a fiduciary duty was adduced, it was of no relevance (1) that the trust had suffered no loss or damage; (2) that the trust could not itself have made use of the information, opportunity etc or probably would not have done so; (3) that the trust, although it could have used the E information, opportunity etc, had refused it or would have done so; (4) that there was no privity between the principal and the party with whom the agent or servant had been employed to contract business; (5) that it had not been part of the fiduciary's duty to obtain the benefit for the trust; or (6) that the fiduciary had acted honestly and reasonably. Finally, the fiduciary duty could extend beyond the term of the F employment. (Paragraph [31] of Heher JA's judgment at 479D - 480C/D.)

Held, further, that the following approach commended itself as a practical way of dealing with cases of the present nature: (1) the facts and circumstances had to be carefully examined to see whether in fact a purported agent and even a confidential agent was in a fiduciary relationship to his principal; (2) once it was established that there G was such a relationship, that relationship had to be examined to see what duties were thereby imposed on the agent; (3) having defined the scope of those duties, it had to be determined whether he had committed some breach thereof by placing himself within the scope and ambit of those duties in a position where his duty and interest possibly conflicted; and (4) finally, having established...