Industrial Development Corporation of South Africa Limited (IDC) v Roscher and Others (JR2946/2010, J494/13) [2016] ZALCJHB 292 (2 August 2016)

THE LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG

Not Reportable

Case no: JR2946/2010

J494/13

INDUSTRIAL DEVELOPMENT CORPORATION OF SOUTH AFRICA LIMITED (IDC) Applicant and TRACEY LUCILLE ROSCHER First Respondent ERIC MYHILL N.O COMMISSION FOR CONCILIATION MEDIATION AND ARBITRATION Second Respondent Third Respondent

Heard: 12 January 2016

Delivered: 2 August 2016

Summary: Review application in terms of s145 of the LRA – substantive unfairness only – application of established review principles. Arbitrator misconstrued the nature of the enquiry. The evidence indicates that the employee deliberately failed to disclose vital facts to a committee tasked with approving substantial funding of a feature film project. Arbitrator’s findings that the non-disclosures were merely negligent, not reasonable on the evidence. Arbitrator’s finding of unfair dismissal due to the inconsistent application of discipline not supported by the evidence, and amounting to a material misdirection of fact and error of law. Award reviewed and replaced with an award that the dismissal was fair.

JUDGMENT

HOWES, AJ

Introduction:

[1] This is an application to review and set aside the arbitration award (“the award”) issued by the Second Respondent, under the auspices of the Third Respondent under case number GAJB 2362-10 dated 19 October 2010, in terms of which the Second Respondent found that the dismissal of the First Respondent was procedurally fair but substantively unfair. The Second Respondent ordered the Applicant to reinstate the First Respondent with retrospective effect, from the date of her dismissal, 4 January 2010. The First Respondent was instructed to report back to work on 1 November 2010 and in addition, the First Respondent was awarded back pay in the sum of R124 826.85[1]

[2] The Applicant launched a review application in terms of s 145 of the Labour Relations Act 66 of 1995 (“the Act”) on or about 24 November 2010. Thereafter, it filed the record of the proceedings and its supplementary affidavit on or about 18 July 2011. The First Respondent filed her answering affidavit some two months later, on or about 19 September 2011, and then the Applicant filed its replying affidavit approximately a month later, on or about 17 October 2011.

[3] Both the Applicant and the First Respondent failed to comply with the mandatory time periods provided for by Rule 7A of the Labour Court Rules in respect of the serving and filing of various affidavits and both parties applied for condonation. Although the Applicant

initially and rather vigorously opposed the First Respondent’s answering affidavit, the parties agreed not to persist with the opposition of condonation inter alia, given the voluminous nature of this matter and the delays occasioned as a result[2]. As such, the parties agreed to argue the matter on the basis of the merits of the review application.

[4] Although it is not for the parties to decide as to whether condonation should be granted or not, I am satisfied that condonation should be granted to both parties in respect of the late service and filing of their respective affidavits and as such, this matter will be determined on the merits.

[5] In addition, the First Respondent launched an application in terms of s 158(1)(c) of the Act under case number J494/13 on or about 13 March 2013. The s 158(1)(c) application is opposed by the Applicant. The s 158(1)(c) application will be dealt with after the assessment of the review application, as its outcome is dependent on the outcome of the review application.

Background Facts:

[6] The Applicant (“IDC”) received a request for funding in the sum of US$ 14 455 741 by White Ape Producers (Pty) Ltd (“the client”) in respect of a feature film known as “Vanilla Gorilla”. This funding was to constitute 49% of the total production budget of Vanilla Gorilla. Based on the exchange rate in 2008, the funding sought from the IDC amounted to a sum in excess of one hundred and fifteen million rand.

[7] The First Respondent (“Roscher”) was appointed as Senior Accounts Manager in the Media and Motion Picture Strategic Business Unit (“SBU”) on 1 June 2007. At the time of her appointment, Roscher reported to Moses Silinda (“Silinda”) as Head of the SBU until May 2008, when Basil Ford (“Ford”) was appointed as Head of the SBU.

[8] Roscher held a senior position and she was earning in excess of R700 000 per annum. It is common cause that Roscher, was the team leader[3] on the Vanilla Gorilla project. This meant that she was required to manage the Vanilla Gorilla transaction from approval to pay-out[4] and to render services to the IDC with due care.[5]

[9] The dispute before this court relates to the alleged failures on the part of Roscher to make two material disclosures to the IDC and its Special Credit Committee (“SCC”) within the submission/recommendation which was presented to the SCC on 30 June 2008, in an effort to obtain approval for the funding of the Vanilla Gorilla project.

[10] The two material non-disclosures in question relate to, firstly, the failure by Roscher to clearly set out the exact nature of the security that the IDC would receive as a result of the Walmart DVD order thus creating the impression that the IDC’s funding was secured when in fact, it was not. Secondly, the failure by Roscher to disclose pertinent negative remarks made by the National Film and Video Foundation (“NFVF”) in relation to the Vanilla Gorilla script, which Roscher received but did not disclose in the submission to the SCC.

The charges levelled against Roscher:

[11] Roscher was initially charged with several acts of misconduct however, due to the fact that certain charges were the subject of a dispute that Roscher filed with the Commission for Conciliation and Arbitration (“CCMA”), the parties agreed to only proceed with charge 1.7, which reads as follows:

‘1. 7 FRAUDULENT NON- DISCLOSURE, ALTERNATIVELY, MISREPRESENTATION, FURTHER ALTERNATIVELY FAILURE TO ACT IN THE BEST INTERESTS OF THE EMPLOYER in that:

1.7.1 you obtained an independent review of the vanilla Gorilla script from the National Film and Video Foundation, which review indicated, inter alia, that the film was “patronizing and racist towards Africans” and that previous films of a similar taste and nature had low returns in the United States and worldwide.

1.7.2 you failed to disclose these views of the NFVF to the Credit Committee and to the Head of the Media and Motion Pictures SBU.

1.7.3 given the business of the IDC as an African Development and Financial Institution, it was imperative and incumbent upon you to disclose the views of the NFVF regarding the patronizing and racist effect of the film, Vanilla Gorilla.

1.7.4 given the financial magnitude, being US$14 369 193 of the facility required by the producers of the Vanilla Gorilla film, it was imperative and incumbent on you to disclose the views of the NFVF regarding the previous performance of the film in other markets and as well as such to disclose the NFVF’s sceptical views about investing US$ 35 million to make a similar film.

1.7.5 further, in your submission to the Credit Committee regarding Vailla[sic] Gorilla, you failed to bring to the attention of the Credit Committee the discrepancies between the terms contained in the submission and those terms contained in the terms sheet signed by the parties on 15 March 2008 and why those discrepancies occurred, leaving the Credit Committee with an impression that the Finance facility to Vanilla Gorilla was secured by a guaranteed purchase order from Valmart [sic], when to you [sic] knowledge that was not the case.’

[12] The disciplinary enquiry took place between May and August 2009 before Professor M Mthombeni. Roscher was found guilty of charge 1.7. After obtaining submissions on mitigation and aggravation, Professor M Mthombeni recommended that the appropriate sanction was that of dismissal.

[13] Roscher was dismissed from the IDC on 4 January 2010 and she referred an unfair dismissal dispute to the Third Respondent. The Third Respondent set the matter down for determination before the Second Respondent (“the Arbitrator”) and the arbitration took place between May and September 2010. Written closing arguments were sent to the Arbitrator on 8 October 2010 and the Arbitrator issued an arbitration award dated 19 October 2010.

The Arbitrator’s findings

[14] The Arbitrator found that the dismissal of Roscher was procedurally fair but substantively unfair. His reasoning in respect of his findings on the charges can be summarized as follows:

14.1. The charge against Roscher is that of fraudulent non-disclosure in respect of both the script review and in respect of the Walmart order;

14.2. The IDC failed to prove the elements of fraud in relation to both the script review and the Walmart order;

14.3. The recommendation was misleading as to the extent of the security alleged to have been provided by Walmart but that it was not the result of Roscher’s fraudulent intent;

14.4. Roscher did not act in the best interests of the IDC when she failed to include the negative remarks in the script review however this did not amount to fraudulent intent or misrepresentation;

14.5. Roscher should have made both disclosures, and failed to do so, but her failure was not fraudulent or that of misrepresentation, rather that she was negligent;

14.6. There was no potential for prejudice to the IDC because the Legal Department had alerted Ford to the issue surrounding the status of the undertaking by Walmart and Ford had brought this to the attention of the SCC;

14.7. Ford bore an equal responsibility to make the required disclosures and he was equally negligent. Ford was not disciplined for his failure to do so, and therefore Roscher’s dismissal was unfair as the IDC acted inconsistently in the application of discipline; and

14.8. Roscher should be reinstated retrospectively, with no sanction for her misconduct.

The Applicant’s grounds of review

[15] The Applicant seeks to review the Arbitrator’s award inter alia on the grounds set out below:

15.1. The award is not justifiable in light of the reasons given for it and the evidence adduced before the Arbitrator;

15.2. The Arbitrator committed a gross irregularity in the conduct of the arbitration proceedings;

15.3. On the basis of the broader grounds set out in Sidumo;

15.4. The Arbitrator ignored the evidence of the IDC at the enquiry and failed to give due weight and consideration to the same. In addition, he failed to give due weight to the concession made by Roscher which demonstrated that she had committed misconduct and he applied incorrect legal principles;

15.5. The Arbitrator misconstrued the nature of the enquiry or the issue called upon to determine in that he, inter alia, commenced his enquiry by seeking to establish whether Roscher had committed fraud and whether the IDC had proven the elements of fraud, when in fact the IDC had provided alternative charges, which the Arbitrator ignored;

15.6. The Arbitrator preferred Roscher’s version over Ford’s version without making the necessary credibility findings based on the evidence. The Arbitrator engaged in speculation and committed a gross irregularity as he ignored uncontested evidence that it was not Ford’s responsibility to include the NFVF’s comments in the report but rather Roscher’s;

15.7. The Arbitrator failed to apply the parity principle correctly. The Arbitrator found that the IDC was inconsistent in its application of discipline when it only disciplined Roscher and not Ford. The Arbitrator found that Ford was equally negligent despite the distinction in duties and positions. The Arbitrator ignored material information and concessions made by Roscher in this regard; and

15.8. The misconduct committed by Roscher is a dismissable offence and the trust relationship had broken down.

[16] Roscher opposed the review application and denies that the IDC has shown any grounds on which the award should be reviewed.

Key issues for determination

[17] The arbitration record is voluminous, many witnesses were called and a diverse range of topics were covered. I intend dealing only with those issues that in my view are central to the dispute. This is the approach that an arbitrator is also required to take, as explained by the Constitutional Court in CUSA v Tao Ying Metal Industries and Others:[6]

“Consistent with the objectives of the LRA, commissioners are required to ‘deal with the substantial merits of the dispute with the minimum of legal formalities’. This requires commissioners to deal with the substance of a dispute between the parties. They must cut through all the claims and

counter-claims and reach for the real dispute between the parties. In order to perform this task effectively, commissioners must be allowed a significant measure of latitude in the performance of their functions. Thus the LRA permits commissioners to ‘conduct the arbitration in a manner that the commissioner considers appropriate’. But in doing so, commissioners must be guided by at least three considerations. The first is that they must resolve the real dispute between the parties. Second, they must do so expeditiously. And, in resolving the labour dispute, they must act fairly to all the parties as the LRA enjoins them to do.” (Emphasis supplied)

[18] The primary issues for determination at the arbitration were as follows:

18.1. Whether Roscher bore a duty to disclose to her employer (and specifically in the report submitted to the SCC):

18.1.1. The exact nature and ambit of the commitment by Walmart to purchase DVD’s of Vanilla Gorilla; (“the Walmart disclosure”);

18.1.2. An accurate and honest account of the script review obtained from the NFVF (“the script review”).

18.2. If so, whether Roscher made proper disclosure to her employer in respect of the Walmart disclosure and the script review;

18.3. If not, whether the failure to make proper disclosure was deliberate or negligent;

18.4. An appropriate sanction, considering the nature of the misconduct (if conclusions of misconduct are reached), issues of consistency and relevant aggravating and mitigating circumstances.

[19] I deal with these issues in turn.

The duty to disclose relevant information to the Special Credit Committee

[20] As set out above, Roscher was a senior employee rendering services as a Senior Account Manager in the Media and Motion Pictures Special Business Unit, earning in excess of R700,000 per year. She is a qualified Chartered Accountant with specialist skills and experience in deal financing. Roscher was the person leading the Vanilla Gorilla project from inception, for a period of some ten months prior to the SCC meeting held on 30 June 2008.

[21] From the evidence, it is clear that Roscher was the person most involved with the deal. She had in-depth knowledge of the project and was in charge of it. Although she reported to Silinda initially and then Ford, as Unit Head, Silinda and Ford only held an oversight role. Roscher remained accountable for the project.

21.1. For example, Ford described their respective roles as follows:

‘MR FORD: As the head of the business unit, my role is to give the business unit direction in terms of where the IDC wants to go and how the IDC operates within the South African economy, and then to take the business unit in the same direction.’[7]

And

‘MR FORD: In the transactions … what usually happens is that the senior account managers play a leading role in doing the transactions…’[8]

And further:

‘MR FORD: The senior account managers, being the most senior of the team that reported to me, would play a leading role. So in other words when there is a transaction, they would look at the transaction, they would lead the transaction, meaning that they would be the team leader….

….

They would play a leading role and like being a team leader look at the transaction, see whether the transaction fits the IDC criteria or not…’[9]

21.2. Silinda (Ford’s predecessor) confirmed this view of the respective roles during his cross-examination:

‘MR HINDS: Is the ultimate responsibility not with the SBU head when he signs off this report and presents this report at the credit committee, to ensure that the report is factually correct?

MR SILINDA: It is a yes to some extent … because there will be hundreds of these running at any given stage by your different team members, and what they tell you, yes, you will verify what you can, but I mean we always work on the basis of trust. So it is not really to say are you correct with this line, are you correct with this line… I think you take what you are told [at face value] quite often, except yes, where you truly believe that you need to question.’[10]

21.3. Roscher could not seriously dispute that she held a senior role in the organisation and that she played a leading role in the Vanilla Gorilla project.

[22] Roscher also had direct knowledge of the first term sheet that was signed by Silinda in March 2008, the requirement for a guarantee and the failures of the client in that regard. Furthermore, she had direct knowledge of both the Walmart security issue relating to the purchase order (she had visited the United States a few weeks prior to the SCC meeting to speak directly to Walmart executives regarding the deal and the security) and the script review (she received the review from the NFVF on 26 June 2008, and read the entire report).

[23] In my view, there is no doubt that Roscher bore a duty towards her employer, specifically, when preparing the recommendation to the SCC. She was required to disclose fully and honestly all relevant facts that were pertinent to the SCC’s decision. This duty applied to both the Walmart disclosure and to the script review as both were of significant importance to the SCC’s decision on whether to commit substantial funding (over R115 million) to the project. The duty to disclose existed irrespective of what Roscher personally believed about the film, the directors, the views of the NFVF or the Walmart security.

[24] The precise nature and extent of Walmart’s commitment to the project was critical to the SCC’s decision, as it largely determined the IDC’s level of risk in recuperating funds and making a profit from the deal.

[25] The views expressed by the NFVF regarding racist undertones and stereotypes in the script, if accurate, would probably have scuppered the deal as the IDC, a publicly funded development institution, is unlikely to fund films of this nature. Roscher agreed in her evidence that the IDC would not fund films which paint the IDC in a negative light. At the very least, the disclosure of this potentially critical information would most likely have generated a response from the SCC to the effect that before funding could finally be approved, an investigation of sorts would need to be undertaken to ascertain whether the views expressed by the NFVF were reasonable, and if so, changes to the script would have to be made and assessed.

[26] Roscher herself stated during evidence that she was unsure whether the producers would have agreed to change the script, and in the event that they were not prepared to do so, this was a consideration that the IDC had to take into account.

[27] I now turn to consider whether Roscher made adequate disclosures to her employer. I will deal with the issues separately.

The Walmart disclosure

[28] Roscher was the primary author of the submission on Vanilla Gorilla that was circulated to the SCC on Friday 27 June 2008, and which formed the basis of the discussions and decisions of the SCC meeting held on Monday 30 June 2008.

[29] Roscher prepared a draft submission, which she sent to Ford and Kashifa Burke (“Burke”) at 6:28pm on Wednesday 25 June 2008, with the comment: ‘Hi Kashifa and Basil – herewith the latest report – it is not 100% complete, but what is done at this point.’

[30] Ford commented on a portion of the draft and made amendments (with the ‘track changes’ feature activated) and returned it to Roscher a few hours later on 26 June 2008 at 01:21 am. The extent to which Ford edited Roscher’s report is relevant to her defence and is considered in due course. It also appears that Roscher made further amendments and additions to the report on Thursday 26 June 2008. Other people may have had an input into the report before it was finalised and circulated to SCC members shortly after lunch on Friday 27 June 2008.

[31] In order to assess Roscher’s role in the Walmart disclosure, a useful starting point is the draft submission that she circulated to Ford and Burke on Wednesday 25 June 2008. In her draft submission, Roscher made the following statements:

‘Para 1: Background and Status:

A South African (“SA”) production company, White Ape Producers (Pty) Ltd (“White Ape”), represented by Michael

MacCarthy (SA), has requested the IDC to fund 49% of the production budget of Vanilla Gorilla. The basis of this finance, being an order of 1.2 million dvds at a price of $ 13.25, by Walmart, the world’s largest retailer, serving 176 million customers worldwide, per week. The order is on a non-returnable basis.

…

Para 2: Purpose of Finance / Deal Outline

The Producers had approached the IDC to support this project and finance 49% of the budget, being $ 14 369 193. This is to be financed in the form of mezzanine finance, secured by an order placed by Walmart Stores Inc with Genius Products LLC. The extent of the order is 1.2 m DVD units of Vanilla Gorilla, at a price of $ 13.25 on a non-returnable and transferable basis.”

Para 3.4.2 IDC Financial Returns”

Total IDC funding has been priced at a US Libor Rate of 3.5% (current 12mnth Libor rate) plus 2.5% over a period of approximately 18 months. Further, the Team has negotiated a significant upfront fee of 4% which has not previously been enjoyed by the IDC. This is a significant return for the IDC given the nature of the risk being secured by an order placed by the likes of Walmart Inc.

Para 3.6 Financial

3.6.3 The IDC has been requested to advance funds based on an order of 1.2 million DVD’s from Walmart Inc (“Walmart”). These dvds are to be ready for 23 April 2009, being Earth Day for Walmart… Consequently IDC should be paid by August 2009. Walmart has requested that Genius Products LLC (“Genius”) act as distribution agents in respect of the order. Given that Walmart serve 176 million customers per week, this is merely an initial order. Walmart is also the largest retailer of DVDs in America …

3.6.4 Walmart have shown significant commitment given that they have placed an order proactively before the feature has been filmed. …

3.6.5 As a result of the order our risk is initially on Walmart. However, given that the funds are to flow from Walmart to Genius, the risk moves to Genius… As a result of our concern [regarding Genius’ ability to pay] the IDC has requested… [security from Genius, including]… a direct, first priority first position security interest in the Walmart receivable (relating to Walmart ’s non-refundable purchase order for no less than 1,200,000 DVDs of the Picture at $13.25 per unit) in favour of the [IDC]…

3.6.6 The recoupment of all funds is detailed below.

CORRIDOR A: SA TERRITORY

Tier 1: The Lender [IDC] to recoup 100% from South Africa up to a maximum of US$14 455 741, plus interest (aggregated with respect to the Lender’s recoupment from Corridor C and the waterfall).

CORRIDOR C: UNITED STATES AND CANADA AND DVD

Tier 4: The Lender [IDC] to recoup up to a maximum of US$14 455 741, plus interest (aggregated with respect to IDC recoupment from Corridor A and the waterfall) of their investment from DVD sales guaranteed by Walmart or an institution acceptable to the IDC. The Genius distribution commission will not reduce the Genius paper based on the Walmart DVD order below US$14 455 741 plus interest.

Para 3.7 Marketing

3.7.3 …

We were fortunate to meet with Walmart to confirm the validity of this order. They have already placed an order of 1.2 million DVD’s

at a price of $13.25. This is negligible taken the size of their market and only a first stab at the feature. Walmart have chosen Genius Products Inc. as distributors of their dvds. Walmart have also taken a very pro-active view on the relationship with Bottle Lightning, in that they view Danny, Lawrence and Mark as trusted advisers in terms of them pioneering support of a feature film, Vanilla Gorilla. They are enjoying the opportunity of using the feature to advertise brands, of their choice, to promote these brands in their stores.

3.7.6 …

Genius Products Inc. is the home video distribution arm of the Weinstein Company, the multi-media venture started by Bob and Harvey Weinstein of [sic] Mirtamax fame after they divorced from Walt Disney Co, two years ago. Genius has an exclusive contract to distribute family entertainment DVD’s to Walmart group. Revenues have grown from $ 32 million in 2006 to approx. $ 500 million last year and are forecast to top $1 billion in 2008….’ (My emphasis)

[32] Ford made various amendments to the draft submission received from Roscher, which were largely of a formatting nature. Ford testified that he did not alter the substance of the report, but did seek to reduce its overall length and to improve the structure by deleting, rephrasing and editing portions of it. It is apparent that Ford had limited time in which to edit the report- his tracked changes were sent to Roscher shortly after midnight on Thursday 26 June 2008, some seven hours after he received them. Ford recorded that he had not had time to review the entire document. He asked Roscher to let him know whether she wanted to make

any changes to his amendments.

[33] The changes made by Ford are largely cosmetic in nature and, in my view, do not change the overall meaning of the report. Roscher made much of the fact that she never described Walmart’s commitment as constituting “pre-sales” but that this was a phrase introduced by Ford. Roscher’s argument was that if the submission overstated the extent of Walmart’s commitment, this was Ford’s fault and not hers.

[34] The primary changes brought about by Ford, that are relevant to this inquiry, are as follows:

34.1. Ford changed Roscher’s description of the deal in paragraph 1, from “The basis of this finance, being an order of 1.2 million dvds at a price of $ 13.25, by Walmart …” to “The IDC funding will be secured by an order of 1.2 million dvds at a unit price of $ 13.25 from Wal-Mart.”

34.2. Ford distilled a lengthy description by Roscher, to the following: “The Film is also unique in that it has achieved a significant pre-sale to a major retailer like Walmart.”

34.3. In paragraph 3.6.1 of the amended document, Ford stated: “The IDC funding is secured against a pre-sale to Walmart of 1.2 million DVD’s. These dvds are to be made available for sale at Wal-Mart stores on 23 April 2009 during Wal-Mart’s Earth Day promotions. Consequently IDC should receive payment by August 2009.” (Compare this to Roscher’s draft motivation at para 3.6.3,

quoted above). (Emphasis added).

[35] In my view, Ford’s amendments to Roscher’s draft submission did not substantially change the message that Roscher sought to convey to the SCC. It seems that the use of the phrase ‘pre-sales’ was probably Ford’s interpretation of what Roscher meant to convey in her draft. This phrase appears elsewhere in both versions of the report and seems to refer to a different issue, namely, the forecast sales in various regions as predicted by distributors in those regions.

[36] In any event, if Ford’s amendments had the effect of materially changing the message that Roscher sought to convey regarding the Walmart commitment, she could easily have raised this with him and could (and should) have corrected his changes if she viewed them as incorrect. Ford clearly set out in his email that he had not completed reviewing the entire document and, furthermore, that if Roscher wanted to make changes, she could do so.

[37] Roscher was the key employee representing the IDC on the Vanilla Gorilla deal. She had the most in-depth involvement in and knowledge of the deal, and was fully versed in the history of the controversy surrounding the security of the IDC funding and in particular, the Walmart commitment.

[38] From the outset, the producers had sought in their funding application to reassure the IDC that their investment was low-risk and repayment was all but assured, by virtue of the fact that Walmart would purchase sufficient DVDs to enable the producers to repay the IDC loan.

[39] Initially, when the first term sheet (an abbreviated statement of key terms of the deal to be concluded in due course) was issued by the IDC in March 2012, it clearly stated the requirement for a guaranteed order from Walmart. One of the material conditions set out in the term sheet related to condition 8.4 thereof, namely:

‘The Producer shall provide the IDC with a letter of credit guarantee from Walmart or like institution in its group acceptable to the IDC. The guarantee is in respect of the Walmart order of 1.2 million DVD units of the film, Vanilla Gorilla, at a price of $13.25 per unit, for the time frame required by the IDC. The terms and conditions of this guarantee must be agreed upon in full and the IDC is to be completely comfortable with this before the IDC can required approval for the funding of this transaction.’

[40] Burke, a senior legal advisor, provided some guidelines to Roscher in an email dated 17 March 2008 setting out what would constitute a satisfactory guarantee to the IDC before funding the project. It expressly states that a guarantee should be, inter alia, unconditional and unequivocal, not capable of withdrawal, be transferable or negotiable and be issued by a reputable financial institution. In essence, the guarantee is required to constitute an unconditional acknowledgement of liability, with the same level of security as, for example, a cheque or acknowledgement of debt.

[41] An exchange of correspondence took place between Gregg Homer (“Homer”) and Roscher on 19 and 20 March 2008 relating to the guarantee requirement. On 19 March 2008, Roscher sent an email to Homer enquiring as to status of the required guarantee. Homer replied and stated that ‘as of an hour ago there is no guarantee. Subject to approval of Anderson’s financials, Anderson will replace Walmart, and we will use option 1 of my previous emails’.

[42] Roscher then queried:

‘Gregg, is this from a legal perspective stronger than having an actual guarantee? I have been given strict instruction by IDC to get a guarantee and would have to strongly justify if this is not given?’ (Own emphasis).

[43] In reply, Homer stated:

‘Again, there will be no guarantee. Anderson will sign a purchase order confirming that it will pay $15.9 million to Genius on delivery of the DVD’s… This is the proposal Genius has made. Walmart is no longer going to be a party to the transaction at all. So there is nothing for either Walmart or Anderson to guarantee. And yes, a direct undertaking from Anderson is stronger than a guarantee from Anderson.’

[44] The reference to ‘Anderson’ is to a retail distributor that it was proposed would replace Walmart as purchaser of the DVDs of the deal. Nothing came of this proposal and it self-evidently did not satisfy the conditions set out in the term sheet.

[45] By the end of March 2008, it was clear that the client was not in a position to meet the guarantee requirement. The client commenced exploring alternative security that it could present to the IDC in order for the IDC to agree to funding the Vanilla Gorilla project.

[46] As opposed to the guarantee that the IDC required, the client obtained a commitment from Walmart to purchase 1.2 million copies of the Vanilla Gorilla DVD at the price of $13.25 subject to certain conditions, which the client then offered to the IDC as security for its funding.

[47] In May 2008, Ford was appointed as Head of the SBU, taking over from Silinda.

[48] On 23 May 2008, Danny Stepper (“Stepper”) drafted an email to Roscher stating, inter alia, that

‘… In regards to Bentonville, due to the fact that I have not connected directly with Walmart this week, and next week is Memorial Day Holiday, I would not plan on making the trip until I get some more solid information. Walmart is a very disciplined and planned

organization, and to throw a meeting together last minute would not be good for our robust relationship. So I ask you to be patient on this (I know I hate being patient!!!).

Also, just to reiterate what we discussed, for this meeting to happen we need in writing expressing that this would be the absolute last and only condition to the IDC funding The Vanilla Gorilla. I also would need to see the questions that you are planning to ask, and circulate them to Walmart prior to the meeting….’

[49] Roscher sent this email to Ford and Ford in turn, responded as follows:

‘Hi Tracey

I do not think that meeting Wal Mart and having a discussion with them can be “the absolute last and only condition to the IDC funding The Vanilla Gorilla.” Danny needs to understand that this step (customer enquiries) forms part of standard IDC due diligence and is carried out prior to submission to any IDC Committee. There are other aspects of the IDC due diligence process that you probably have already covered but seeing as IDC risk is based mainly upon the Wal Mart order, we have to make sure that we do not go up to Exco nor do we further proceed on this investigation without having met with Wal Mart. Also Exco or Risk may have other changes that we may have to make to the deal.

By the way I understand where Danny comes from as he seems nervous about taking us to see Wal Mart and then we have other issues. Can you please review the project and make sure that you are comfortable with the rest of the deal and that meeting Wal Mart is the only outstanding DD issue. If Wal Mart is the only DD issue left then I think once we have a first hand view of their rationale behind their support for Vanilla Gorilla and we properly understand first hand, how their order works, we will be in a position to finalise the report and prepare for submission to Exco.

I would like for the IDC to do this deal but I don't like being “hard sold” or pressurised into making a hasty decision. I think you should try and persuade him that we are serious about participation in this transaction but we have a process to follow and the process cannot be changed to accommodate any deal.

Basil’ (Own emphasis)

[50] On 11 June 2008, Michael MacCarthy (“MacCarthy”), the producer, sent Roscher an email recording: ‘The email below is confirmation of the order placed by Walmart by Jeff Moss. Good luck with the meeting…’

[51] The email that MacCarthy refers to is an email dated 18 February 2008, from Jeffrey Maas of Wal-Mart to Trevor Drinkwater of Genius Products wherein which the following is recorded:

“Trevor

Per our discussion, in exchange for the full branded integration and partnership package Genius Products, Inc offered in regard to Vanilla Gorilla, Wal-Mart will commitment[sic] to purchase 1.2 million units of the DVD when released at a wholesale cost of $13.25 on a non returnable basis paid to Genius Products on our normal terms of net 60.

We also have a couple of agenda items to review on the program and I look forward to working through those with you.

Thanks,

J”

[52] As the IDC’s security in respect of the facility was to be based on the purchase order reflected in the email above, it was imperative that the IDC clearly understood the exact nature and extent of the security that was being tendered.

[53] On or about 6 June 2008, a motivation to support Roscher and Burke’s trip to Bentonville, Arkansas and Los Angeles between 9 – 17 June 2008 was submitted to the Credit Committee at the cost of R126 000 per person. The travel was approved.

[54] Due to the fact that Burke could not secure her visa timeously, Prosper Chavarika (“Chavarika”), a newly appointed employee in the IDC’s Legal Department accompanied Roscher on the trip.

[55] The motivation for the travel was explained as follows:

‘2 IDC Finance/ Deal Outline

The producers have approached the IDC to support this project and finance 49% of the budget, being $14 455 363, back on a secured order [own underlining] of $15.9 million (1.2 million units of DVD’s from Wal Mart Inc (Wal Mart) at a price of $13.25 on a non returnable basis with payment 60 days after delivery of the DVD units. This order has been placed with Genius Products LLC, a distributor, as requested by Walmart .’

3 Motivation for the Trip

The IDC risk in this transaction is largely based upon the DVD order from Wal Mart and the IDC needs to confirm the validity of this order first hand from Wal Mart. It is thus prudent for the IDC team to meet with Wal Mart to properly understand the rationale for providing the purchase order at such an early stage, as it is quite unusual in the motion picture industry for the DVD sales to take place prior to production of the motion picture. The verification of the order and the rationale behind it is critical to the assessment of the risk to IDC.’ (Own emphasis).

[56] On 10 June 2008, Ford addressed an email to Roscher, providing her with clear instructions:

‘Your objectives for trip to the USA must be focused and clear. The primary objective of this trip is to meet with key staff from Wal Mart, the secondary objectives are to meet with partners of the Vanilla Gorilla film… Your trip should not take longer than 5 days and you need to ensure that you return at the latest on the Monday evening flight from LA. There is a lot of work that needs to be done back at the office and your presence here is required in order not to prejudice other clients.’ [Own emphasis]

[57] Upon her return from the USA, chaos ensued as the main actor, Pierce Brosnan gave notice to the producers that he would take on a different project in the event that he was not provided with a suitable commitment by late June 2008. The IDC undertook to convene an urgent SCC meeting and to reach a decision by the end of June 2008.

[58] As such, Roscher and all role-players involved in this deal were under serious time pressure to conclude the term sheet and the submission to the SCC. Accordingly, both the new term sheet and the submission were drafted within a short space of time.

Evaluation of Roscher’s conduct in the Walmart disclosure

[59] Thus, having been involved with the deal from the outset and having travelled to the USA for the main purpose of meeting with Walmart to resolve any confusion as to the exact terms of Walmart’s commitment to the project, Roscher was best placed and bore the primary duty to ensure that the SCC were fully and accurately informed of all relevant facts pertaining to Walmart’s commitment.

[60] This is especially true, given that Roscher, confirms in her evidence that Chavarika had only ‘recently joined the IDC and had no film finance experience whatsoever going to Bentonville.’[11]

[61] That Roscher failed to fully and accurately disclose all relevant facts to the SCC is evident from the response of Chavarika who accompanied her on the visit to Walmart. On Friday 27 June 2008 at 11:57pm, Chavarika wrote an email to Roscher (copied to various people, including Ford), in which he stated:

‘Dear Tracey

I have not had the benefit of seeing your most recent draft of the Credit Committee Report, so it may be that what I express below is already covered in the Credit Committee Report.

This evening I have been communicating with our lawyers in the USA, who have advised me that Genius is (i) not going to enter into the Inter-Party Agreement (ii) not going to provide IDC with the security that IDC requires (iii) not going to provide written evidence of the agreement between Genius and Wal-Mart in respect of purchasing the DVD’s.

Whilst I acknowledge that you and I met with Wal-Mart and I acknowledge that at the meeting Wal-Mart expressed an interest in buying the DVD from Genius. The fact that (i) both Genius and Wal-Mart are unwilling to make a written commitment to each other and (ii) Genius has indicated that they are not going to be a party to the Inter-Party Agreement (iii) Genius is not going to provide the IDC with the security that IDC requires, is in my view indicative of the fact that Walmart’s expression of interest is worth very little. As a result of the aforegoing, my view is – an accurate disclosure to the Credit Committee requires you to disclose the fact that Wal-Mart expressed an interest to buy the DVD’s, but that expression of interest should not be construed as a commitment to purchase the DVD’s. (Own emphasis).

Regards

Prosper’

[62] Roscher never disputed the accuracy of Chavarika’s statement. It is clear that the position as disclosed by Chavarika directly contradicts the tenor and message of Roscher’s report, and this is in itself quite remarkable.

[63] Ford’s immediate response to Chavarika’s email was that without the necessary security arrangements and in the absence of a concrete order from Walmart, the risk to the IDC was too high. Compared to the rosy picture painted by Roscher in the submission, it is clear that the full circumstances surrounding Walmart’s commitment was not disclosed by Roscher–

in fact she grossly overstated it.

[64] In my view, Roscher failed to discharge her duty of full and honest disclosure to the SCC as to the nature and extent of Walmart ’s commitment to the project.

[65] The next issue to consider is whether this failure was deliberate or negligent. In my view, there is no doubt that Roscher’s depiction of the facts was a deliberate misrepresentation of the true position, at least for the following reasons:

65.1. Roscher was the primary author of the submission to the SCC.[12] In the submission (including her draft of 25 June 2008), it is stated explicitly and repeatedly, in various ways and using various words that the IDC’s risk exposure to the deal is very low, as it is effectively secured by an advance irrevocable order from Walmart for a specific number of DVD’s at a specific agreed price, the income from which will cover almost the entire IDC loan. The deal is effectively ‘sold’ to the SCC on the basis of the Walmart purchase order.

65.2. Roscher went out of her way to paint an extremely positive picture as to the high profiles of the producers, actors and distributors of the movie. She also sought to repeatedly highlight what a giant Walmart is, no doubt to further reassure the intended readers that their investment is safe.

65.3. Roscher’s version of what was discussed at Walmart is diametrically opposite from that of Chavarika. In the report, Roscher stated that ‘[w]e were fortunate to meet with Walmart to confirm the validity of the order’. Nowhere in her report does Roscher state that Walmart’s ‘order’ (in reality an expression of interest and not a legally binding order) is verbal, and will not be given in writing until the film has been produced. She purposely and deliberately created the opposite impression in the submission.

65.4. Were it not for the unlikely but fortunate intervention of Chavarika, the probabilities are that the SCC would have taken the submission at face value and would probably have approved the deal, on the basis of the multiple strong assurances in the submission that the deal was safe and low risk, given Walmart ’s large order.

65.5. If Roscher disagreed with Chavarika’s statement, she would have responded strongly, probably both on email and in the SCC meeting on Monday 30 June 2008. The evidence shows that she did nothing to indicate her disagreement. In fact, in her evidence, Roscher conceded that Walmart’s commitment was in fact only an expression of interest.

‘MR HINDS: Where he [Chavarika] says that that is only-WALMART is only got an expression of interest. Is that correct?

MS ROSCHER: Yes’[13]

65.6. It is simply inexplicable that Roscher, a senior employee, tasked with driving the project and fully immersed in it for several months, could have innocently misconstrued the nature of Walmart’s commitment, especially, after she was dispatched to meet in person with Walmart, at a great expense, in order to iron out any misunderstandings and to obtain a clear understanding of the extent to which Walmart’s commitment reduced the IDC’s risk of recouping its investment.

65.7. In my view, Roscher set out to deliberately deceive Ford and the SCC by misrepresenting the nature and extent of Walmart ’s commitment, with a view to having the deal approved.

65.8. It is clear that Roscher was a strong supporter of the project and strongly believed in its success. She personally believed ‘categorically that this film would make money’ and ‘that this was the best feature film that the IDC had seen.’[14] Furthermore, Roscher was of the view that ‘ …The film industry as by its very nature is risky. The IDC by the nature of being a developmental institution takes risks, takes calculated risks. That is what we are required to do, calculated risks with commensurate return. So I disagree with this, that it is not- that a deal requesting a guarantee is in the best interests of the IDC because it was not a do-able deal whatsoever.’[15]

65.9. Her personal beliefs are all good and well but in her position, she was obliged to provide a true and accurate account to her employer. Had she done so, she could thereafter have legitimately sought to persuade the SCC that they should approve the deal, despite the tenuous and provisional nature of Walmart’s commitment.

65.10. An obvious analogy is the common-law duty of Counsel to bring all relevant authorities to the attention of the court, regardless of whether a particular authority is helpful or harmful (or even fatal) to Counsel’s case. Once this duty is discharged, Counsel is free to argue that the authority is distinguishable on the facts or is wrong and should not be followed – but if Counsel fails to present an honest account of the law to the court, he commits a gross violation of his duty as an officer of the court, not to subvert the administration of justice.

65.11. The same philosophy underpins the fiduciary duties of an employee, particularly a senior employee, such as Roscher, towards her employer.

[66] In my view, Roscher’s failure to present a full and honest account of Walmart’s commitment to the SCC amounts to serious misconduct and an act of gross dishonesty.

The script review

[67] During 2007, the IDC developed a draft policy regarding the approval of funding for film projects, partly, because it had incurred significant losses in this market. The policy was never formally approved but it became a practice in the business unit. One of the requirements prior to approval by the SCC was that the script had to be submitted to the National Film and Video Foundation (“NFVF”) for analysis and comment. The NFVF is a statutory body, tasked, inter alia, with spearheading the development of the South African film industry.

[68] The NFVF is regarded as an objective body with the necessary expertise to provide guidance to the IDC as to the quality of the script before the IDC takes a decision to approve the project. The IDC is not bound by the views of the NFVF but obviously the view of an impartial expert as to the quality of a script is likely to play a significant role in the decision as to whether to fund the project, particularly, as the IDC lacks the internal expertise to perform script reviews (Roscher herself conceded that she lacked these skills).

[69] As per the practice, Roscher sought and obtained a script review of the script of Vanilla Gorilla from the NFVF. The script review was sent to her during the afternoon of Thursday 26 June 2008. Roscher’s task was to read the script review and provide a brief but accurate summary of the NFVF’s view of the script, in the submission to the SCC.

[70] The NFVF’s review is fairly scathing about various aspects of the Vanilla Gorilla script. Artistic concerns aside, the review raised serious concerns that the script was racist. The relevant portions of the script review read as follows:

‘6. Characterisation / Character development

The writers have attempted to create distinct and believable characters, but have relied too much on stereotype to dig deeper than the archetypal surfaces. The result is a staggering array of caricatures, ranging from the innocent white city girl transposed to the dangerous African bush, the white female scientist with a heart of gold and no man to love her, the wise black caretaker who becomes a loyal helper to the white girl and the vicious great white hunter who simply wants to kill the gorilla so that he can stuff him as a trophy.

9 Plot

… The most implausible aspect of the plot and sub-plot is the time it takes for these characters to move from what appears to be South Africa, through Zimbabwe and Zambia to the Rwandese forests like it is just one small country.

14 Target audience…

This is probably a major challenge for the film. It appears to be aimed at the children’s market of European and North American audiences. It probably will not do well on SA screens because of its obviously patronizing characterization of Africa and the stereotypes it uses to convey the events of the story. … The question should be asked, why should we be making films for this market with its clearly racist precepts about Africa and Africans.

After all, it says Africans need a rich little white girl to come and teach them about the true values of nature conservation and love of animals!

15 Conclusion…

It’s very hard to think of ways to make this story less patronizing and racist given the point of departure for these writers. Even were this possible, I don’t think these writers would readily agree to drastically change their precepts.

With regard to the financial viability of investing in a film with comparisons to Mighty Joe Young which was made for $110 million…

but only grossed $50 million and Buddy which only made $10 million worldwide, it makes it very hard to invest $35 million to make a similar film.’ (Emphasis supplied)

[71] In conclusion, the author of the NFVF report is required to mark the appropriate box, ranging from “Excellent” to “Poor”. The “Average” box is ticked.

[72] There can be no doubt that the script review is relevant to the decision of the SCC as to whether to approve funding for a film project. There is also little doubt that the SCC would be highly unlikely to approve funding of a project that was based on a script described by an independent, expert review board as racist and patronising towards Africa and Africans. Silinda and Ford were adamant that the IDC, as a publicly funded organisation, would not fund such a project. At the very least, in my view, the SCC would have taken serious consideration of the NFVF’s concerns and would have called for comment from the producers and for further investigation, and possible amendments to the script, before (or at least as a pre-condition of) agreeing to fund the project – the reputational risk to the IDC is self-evident.

[73] Roscher received and read the NFVF’s script review before finalising the submission. It follows that Roscher bore a duty to disclose to the SCC – she was obliged to present an accurate summary of the report and to highlight the primary concerns raised in the review - primarily that the story was potentially racist and stereotyping of Africa and Africans, and also that concerns had been expressed about the commercial viability of the project. She failed to do so.

[74] The full extent of Roscher’s disclosure of the content of the script review to the SCC appears at paragraph 3.8.5 of the final submission to the SCC:

“The NFVF have reviewed the script and given comment. They view the script as average.”

[75] This submission is hopelessly inadequate. In fact, it is downright misleading.

[76] Roscher’s explanation as to why she did not include further details of the script review in the submission varied over time but included the following versions:

76.1. That she relied on past precedent that script reviews were not mentioned or given much attention in submissions for funding.

76.2. That obtaining a script review was a prerequisite for submission to the SCC (this proposition, put by Roscher’s attorney to Silinda, clearly contradicts the version above).

76.3. That she did not have sufficient time to summarise the script review in the submission to the SCC.

76.4. That she disagreed with the script review.

76.5. That the script review was not a priority or of particular importance to the decision of the SCC as to whether or on what terms to grant funding approval. In this regard, Roscher testified that if there really was a problem with the script, it could be dealt with after funding approval, by approaching the script writers and requesting that changes be made (Roscher did concede under cross-examination that the writers may not have been prepared to edit the script and as such the IDC was required to consider this risk before funding approval).

76.6. That she had given the review to Ford to comment on and that it was, therefore, his responsibility (or at least his joint responsibility) to provide input and guidance to her as to how to deal with it in the submission.

76.7. Roscher testified that her previous manager, Silinda, had advised her not to pay too much heed to NFVF script reviews. In certain instances, scripts that the NFVF had identified as containing racist elements, had nonetheless been approved by the SCC. She mentioned two projects in particular – Skin and Shadow of Wings. The available evidence, whilst not entirely clear, indicates that these projects were materially different to Vanilla Gorilla:

76.7.1. The submission to the SCC in respect of Skin contained a summary of the the nature of the story and confirmed that the NFVF supported the script. Skin was based on a well-known book that had been in publication for some time and the story dealt with issues relating to race. There is no indication as to incomplete or misleading disclosure of the nature of the script review. Silinda confirmed that no misleading of the SCC took place.

76.7.2. The script review of Shadow of Wings does contain some criticism that the script is patronising in certain respects. Again, the story does deal with issues of race and it must be said that the review is not flattering – it rated the script as below average.

76.7.3. Silinda testified that Shadow of Wings was approved long before Roscher joined the IDC. When Roscher joined, the IDC were busy with a re-submission, so there was no need to obtain a script review. It only became a requirement to obtain a script review from the NVFV after Roscher had joined the IDC.

76.7.4. In response to questions about Shadow of Wings and Tsotsi (another project financed by the IDC), Silinda testified that to his knowledge, no misrepresentations as to the nature of the story or script were made when they were presented for approval to the credit committee.

[77] Given the severity of the criticism in the Vanilla Gorilla script review, it is difficult to believe that Roscher honestly thought that the content was irrelevant to the SCC. In essence, the NFVF found that the story was racist in nature and that the script could probably not be rescued, and that the writers would probably resist demands to subject the script to major surgery in order to remove racist and patronising undertones and themes.

[78] It is more probable that Roscher, having read the script review, realised that it would likely sink the entire project and thus deliberately engaged in an act of deception by merely recording the NFVF’s review of the script as ‘average’. Her insistence in evidence that this is technically correct, is hardly convincing.

[79] Similarly, Roscher’s excuse that she lacked time to compile a more comprehensive summary of the script review is not credible. Roscher could have summarised the report in a few sentences or could simply have recorded that the review was that the script was racist and not commercially viable and could have attached the review to the submission for consideration and debate at the SCC meeting. It is also notable that Roscher failed to disclose the NFVF’s criticism of the commercial viability of

the project.

[80] Silinda confirmed that Roscher was correct in so far as it was not a requirement to attach the script review to the report. It was however a requirement to disclose the content of the report, especially where there were negative comments/ consequences or perceived negative consequences. The IDC needed to be fully informed as to the issues.

[81] Roscher and Ford both testified that, on Thursday 26 June 2016, Ford asked her in passing whether she had received the script review to which she replied in the affirmative, and informed Ford that the review was ‘okay’ – i.e. that the NFVF regarded the script as ‘okay’. She did not point out the controversial aspects of the script review to Ford or discuss the review with him in any detail.

[82] Ford testified that Roscher never provided him with a copy of the script review. Having been informed by her that the result of the review was ‘okay’, he paid no further attention to this issue, and therefore he was not alerted to any problems when he saw her summary of the script review in the final submission. He needed to be able to trust her, given her seniority and expertise.

[83] Roscher testified that the information within the script review should be shared with the relevant individuals of the IDC.[16] She testified however that she did provide Ford with a copy of the script review. It was her evidence that Ford denied having received

the document to cover his tracks.

[84] There is however no email trace of the script review being forwarded from Roscher to Ford, or distributed by her to any other IDC team member. In my view it is unlikely that Roscher gave Ford the script review – it is more probable that she kept it to herself, given its explosive content and her firm desire to have the project approved. Had Roscher provided Ford with the script review, it is likely that there would be an email trail to this effect, and that there would have been a response from Ford, if and when he read the script review. However, in my mind this dispute does not require a finding on credibility – on Roscher’s own version, she never brought to Ford’s attention the key aspects of the script review. She did not bring to Ford’s attention, the negative remarks in the script review. Her failure to do so was a clear breach of her duty of disclosure.

[85] Roscher, who was present at the SCC meeting, would have observed that the issue of a negative script review was not raised for discussion (as it was not known to anyone else in the meeting). She failed to bring the issue to the attention of the SCC despite her concession that the IDC would not fund projects that were racist or racist towards Africans. In my view, the failure to do so was deliberate – she was an enthusiastic supporter of the project and was eager to have it approved. She disagreed with the NFVF script review and therefore sought to conceal its contents from Ford and the SCC. She conceded that she did not have the specialist skills that the NVFV had to assess the script however she personally did not believe it to be racist. Were it not for the issues with the Walmart order having fortuitously come to light, it is likely that the SCC, in ignorance of the problems with

the script, would have approved funding for the Vanilla Gorilla project without any restrictions or conditions as to the script and would thereafter have been bound to finance a film that was potentially racist and patronising towards Africa and Africans, with no legal right to insist on revisions to the script. The reputational damage to the IDC could have been significant.

[86] In summary, none of Roscher’s explanations justify the chasm between the content of the script review and Roscher’s summary of the review as it appears in the submission. Roscher failed in her duty of disclosure toward her employer. This failure was not negligent – it was deliberate. It amounts to an act of gross dishonesty by a senior employee.

The test on review

[87] In Head of the Department of Education v Mofokeng and Others,[17] the Labour Appeal Court recently provided a comprehensive restatement of the test on review, per Murphy, AJA as follows:

‘[30] The failure by an arbitrator to apply his or her mind to issues which are material to the determination of a case will usually be an irregularity. However, the Supreme Court of Appeal (“the SCA”) in Herholdt v Nedbank Ltd and this court in Goldfields Mining South Africa (Pty) Ltd (Kloof Gold Mine) v CCMA and others have held that before such an irregularity will result in the setting aside of the award, it must in addition reveal a misconception of the true enquiry or result in an unreasonable outcome.

[31] The determination of whether a decision is unreasonable in its result is an exercise inherently dependant on variable considerations and circumstantial factors. A finding of unreasonableness usually implies that some other ground is present, either latently or comprising manifest unlawfulness. Accordingly, the process of judicial review on grounds of unreasonableness often entails examination of inter-related questions of rationality, lawfulness and proportionality, pertaining to the purpose, basis, reasoning or effect of the decision, corresponding to the scrutiny envisioned in the distinctive review grounds developed casuistically at common law, now codified and mostly specified in section 6 of the Promotion of Administrative Justice Act (“PAJA”); such as failing to apply the mind, taking into account irrelevant considerations, ignoring relevant considerations, acting for an ulterior purpose, in bad faith, arbitrarily or capriciously etc. The court must nonetheless still consider whether, apart from the flawed reasons of or any irregularity by the arbitrator, the result could be reasonably reached in light of the issues and the evidence. Moreover, judges of the Labour Court should keep in mind that it is not only the reasonableness of the outcome which is subject to scrutiny. As the SCA held in Herholdt, the arbitrator must not misconceive the inquiry or undertake the inquiry in a misconceived manner. There must be a fair trial of the issues.

[32] However, sight may not be lost of the intention of the legislature to restrict the scope of review when it enacted section 145 of the LRA, confining review to “defects” as defined in section 145(2) being misconduct, gross irregularity, exceeding powers and improperly obtaining the award. Review is not permissible on the same grounds that apply under PAJA. Mere errors of fact or law may not be enough to vitiate the award. Something more is required. To repeat: flaws in the reasoning of the arbitrator, evidenced in the failure to apply the mind, reliance on irrelevant considerations or the ignoring of material factors etc must be assessed with the purpose of establishing whether the arbitrator has undertaken the wrong enquiry, undertaken the enquiry in the wrong manner or arrived at an unreasonable result. Lapses in lawfulness, latent or patent irregularities and instances of dialectical unreasonableness should be of such an order (singularly or cumulatively) as to result in a misconceived inquiry or a decision which no reasonable decision-maker could reach on all the material that was before him or her.

[33] Irregularities or errors in relation to the facts or issues, therefore, may or may not produce an unreasonable outcome or provide a compelling indication that the arbitrator misconceived the inquiry. In the final analysis, it will depend on the materiality of the error or irregularity and its relation to the result. Whether the irregularity or error is material must be assessed and determined with reference to the distorting effect it may or may not have had upon the arbitrator’s conception of the inquiry, the delimitation of the issues to be determined and the ultimate outcome. If but for an error or irregularity a different outcome would have resulted, it will ex hypothesi be material to the determination of the dispute. A material error of this order would point to at least a prima facie unreasonable result. The reviewing judge must then have regard to the general nature of the decision in issue; the range of relevant factors informing the decision; the nature of the competing interests impacted upon by the decision; and then ask whether a reasonable equilibrium has been struck in accordance with the objects of the LRA. Provided the right question was asked and answered by the arbitrator, a wrong answer will not necessarily be unreasonable. By the same token, an irregularity or error material to the determination of the dispute may constitute a misconception of the nature of the enquiry so as to lead to no fair trial of the issues, with the result that the award may be set aside on that ground alone. The arbitrator however must be shown to have diverted from the correct path in the conduct of the arbitration and as a result failed to address the question raised for determination.’ (My emphasis)

The award is reviewable

[88] In my view, the arbitration award is reviewable on the following primary grounds (all of which were adequately pleaded by the IDC):

88.1. By failing to ask or answer the right question, and by failing to ‘cut through the claims and counterclaims’ (i.e. the noise) and get to the heart of the matter, the Arbitrator failed to determine the true issue before him, and deprived the parties of a fair trial.

88.2. The true issue was whether Roscher was obliged to make disclosures to her employer, the IDC. In respect of both issues, the Arbitrator (correctly, with respect) concluded that she was.

88.3. The next issue was whether Roscher made adequate disclosures. Clearly, she did not and the Arbitrator again correctly reached this conclusion.

88.4. Then the crucial issue arose – was the failure to make proper disclosure tainted by dishonesty – i.e. was it deliberate? This is where the Arbitrator committed a fundamental misdirection. The Arbitrator set two drastic alternatives – either Roscher’s conduct was fraudulent or it was negligent. The Arbitrator then referred to the definition of ‘fraud’ as it appears in the context of criminal law. In my view, this was setting the bar too high and in doing so, the Arbitrator asked and answered the wrong question, thus depriving the parties of a fair trial on the issues.

88.5. I also disagree with the Arbitrator’s finding that Roscher gave the script review to Ford or that she assumed that he would highlight any problems. In reaching this finding, the Arbitrator seems to have ignored material relevant facts: Roscher bore the primary responsibility as the lead person on the project; she provided a hopelessly deficient and misleading summary of the script review in the submission, time was of the essence in finalising the submission and Ford was not (and was not required to) micro-manage every aspect of Roscher’s work – she was too senior and specialised, this was not his role, and she had direct knowledge of the key facts relevant to both the Walmart and the script review issues. Both Silinda and Ford testified that they implicitly trusted Roscher’s expertise and integrity and generally took her at her word.

88.6. The Arbitrator’s conclusion that Roscher was merely negligent in her failure to make proper disclosures in the submission to the SCC is, in my view, not a conclusion that a reasonable arbitrator could have reached on the evidence before him.

88.7. The Arbitrator’s finding (Award para 98) that although Roscher’s recommendation was misleading, it was not ‘fraudulent’ (i.e. deliberate), because she ‘provided a plausible explanation for her view that Wal-Mart had undertaken to buy 1.2 million DVD units of Vanilla Gorilla and she went all the way to the USA to confirm this’, is astonishing. The Arbitrator seems to have relied heavily on the evidence of the producer, MacCarthy, to justify this conclusion. In doing so, the Arbitrator failed to place MacCarthy’s evidence in its proper context, and also ignored material evidence:

88.7.1. MacCarthy was obviously keen to obtain funding for his project, and his evidence should be seen from the perspective of a producer, and not the IDC, whose primary concern was to recoup its significant investment.

88.7.2. MacCarthy was furious when the SCC insisted on additional pre-conditions prior to the loan being approved. In an email dated 3 July 2008, he listed some of the consequences of what he saw as the IDC shifting the goalposts as a result of the conditions set out by the SCC. Included in this, is the statement that Walmart could simply withdraw its order. This clearly illustrates the fact that Walmart’s commitment at the time was in reality nothing more than an expression

of interest, and not a binding legal commitment, suitable for providing security for the IDC’s loan. The Arbitrator appears

to have ignored this fact.

88.7.3. I have dealt fully with the Walmart disclosure elsewhere in this judgment and for those reasons, I find that the Arbitrator’s finding that Roscher’s conduct in respect of the Walmart disclosure amounted to mere negligence, is not a finding that could reasonably have been reached on the evidence before him.

88.8. The Arbitrator’s finding (Award para 99) that ‘there was no prejudice or potential of prejudice for the respondent [IDC] because the Legal Department had alerted Ford to the issue of the status of the undertaking by Wal-Mart and he brought this to the attention of the Credit Committee’, is patently unreasonable and irrational:

88.8.1. This reasoning is akin to a finding that because an employee who stole a computer from his employer is apprehended by security before leaving the premises and the computer is recovered, the employer suffered ‘no prejudice or potential for prejudice’.

88.8.2. It was purely by chance that Chavarika detected Roscher’s deception before the SCC meeting. He detected the deception and notified Roscher and Ford. Were it not for this stroke of good fortune, Ford and the SCC would have been none the wiser and in all likelihood the deal would have been approved on the basis of Roscher’s misrepresentations contained in the submission.

88.8.3. Roscher’s conduct can hardly be excused as insignificant merely because it was detected prior to the SCC meeting.

88.9. The Arbitrator committed material errors of law and fact in applying the parity principle to the facts:

88.9.1. The Arbitrator held that Ford was equally negligent in failing to make proper disclosures, as ‘he contributed to the RECOMMENDATION as is evident from his extensive editing of it … so he should have been aware of its defects’. This statement is irrational and flies in the face of the evidence. Roscher was the lead executive on the deal, she had dealt with it for months (Ford was a recent appointee), she had travelled to the USA to meet with Walmart (Ford did not accompany her). It is not clear why the Arbitrator simply assumed that Ford should have been aware if Roscher misrepresented the extent of Walmart’s commitment – he was, after all, dependent on her report in this regard and trusted her implicitly to make proper inquiries and report honestly on the exact nature and terms of Walmart’s commitment to the project.

88.9.2. With regard to the script review, the Arbitrator found that Ford ‘… was equally negligent in this respect. If I am wrong and he did not receive the script report from the applicant then he should have insisted on receiving it, reading it and including the criticisms of the script in the RECOMMENDATION. The respondent acted inconsistently by only disciplining the applicant in this regard.’ (Award para 93).

88.9.3. It is not clear to me that the Arbitrator appreciated the seniority of Roscher’s role or the fact that Ford merely exercised an oversight role as head of the business unit. Why the Arbitrator held that Ford should have insisted on repeating Roscher’s work, is not clear to me, especially where Roscher had told Ford (on the afternoon before the submission was due) that the review was ‘okay’. Had she highlighted the negative remarks and the problems raised within the script review to Ford, one could perhaps have taken him to task for failing to follow up. But where a trusted and senior employee assures a manager that a script review is in order, it is not without more incumbent on the manager to submit the subordinate’s work to close scrutiny. This approach would be contrary to the environment of trust in which teams in a professional working environment normally operate, particularly when facing tight deadlines.

88.9.4. Even on the Arbitrator’s assessment of Ford’s conduct, it cannot be held by any stretch of the imagination that Ford acted dishonestly. However, Roscher clearly did and the finding that their misconduct is comparable is therefore patently wrong, irrational and unreasonable.

88.9.5. In Absa Bank Ltd v Naidu and Others,[18] the Labour Appeal Court, after providing an authoritative review of the parity principle and the proper scope of its application,

concluded (per Ndlovu JA):

‘[42] Indeed, in accordance with the parity principle, the element of consistency on the part of an employer in its treatment of employees is an important factor to take into account in the determination process of the fairness of a dismissal. However, as I say, it is only a factor to take into account in that process. It is by no means decisive of the outcome on the determination of reasonableness and fairness of the decision to dismiss. In my view, the fact that another employee committed a similar transgression in the past and was not dismissed cannot, and should not, be taken to grant a licence to every other employee, willy-nilly, to commit serious misdemeanours, especially of a dishonest nature, towards their employer on the belief that they would not be dismissed. It is well accepted in civilised society that two wrongs can never make a right. The parity principle was never intended to promote or encourage anarchy in the workplace. As stated earlier, I reiterate, there are varying degrees of dishonesty and, therefore, each case will be treated on the basis of its own facts and circumstances.

[52] … Of course, it is accepted that not every misconduct offence involving dishonesty warrants a sanction of dismissal. There are varying degrees of dishonesty and, therefore, each case is to be determined on the basis of its own facts on whether a decision to dismiss an offending employee is a reasonable one. Generally, however, a sanction of dismissal is justifiable and, indeed, warranted where dishonesty involved is of a gross nature. … In Toyota SA Motors (Pty) Ltd v Radebe and others, this Court held as follows:

“Although a long period of service of an employee will usually be a mitigating factor where such employee is guilty of misconduct, the point must be made that there are certain acts of misconduct which are of such a serious nature that no length of service can save an employee who is guilty of them from dismissal. To my mind one such clear act of misconduct is gross dishonesty. It appears to me that the commissioner did not appreciate this fundamental point. I hold that the first respondent’s length of service in the circumstances of this case was of no relevance and could not provide, and should not have provided, any mitigation for misconduct of such a serious nature as gross dishonesty. I am not saying that there can be no sufficient mitigating factors in cases of dishonesty nor am I saying dismissal is always an appropriate sanction for misconduct involving dishonesty. In my judgment the moment dishonesty is accepted in a particular case as being of such a serious degree as to be described as gross, then dismissal is an appropriate and fair sanction.”

[53] In De Beers Consolidated Mines Ltd, above, the Court further pointed out that “[t]he seriousness of dishonesty – ie whether it can be stigmatised as gross or not – depends not only, or even mainly, on the act of dishonesty itself but on the way in which it impacts on the employer’s business.” In the present instance, considering the nature of the appellant’s business, there can be no doubt, in my view, that Ms Naidu’s dishonesty severely adversely impacted on the business.

[55] On the issue of breakdown in trust relationship, occasioned by an employee’s dishonest misconduct, this Court (per Davis JA) in Shoprite Checkers (Pty) Ltd v CCMA and others, stated the following:

“[T]his Court has consistently followed an approach, laid out early in the jurisprudence of the Labour Court in Standard Bank SA Limited v CCMA and others [1998] 6 BLLR 622 (LC) at paragraphs 38–41 where Tip AJ said:

‘It was one of the fundamentals of the employment relationship that the employer should be able to place trust in the employee… A breach of this trust in the form of conduct involving dishonesty is one that goes to the heart of the employment relationship and is destructive of it.’”

[56] I am satisfied that, on the basis of her dishonest and fraudulent misbehaviour in relation to Mr Khan’s matter, Ms Naidu’s trust relationship with the appellant was, indeed, irreparably broken down. In my view, any plea of remorse, genuine or otherwise, was, in the circumstances of this case, most unlikely to bring back that trust, which was the cornerstone of her employment relationship with the appellant.’

88.9.6. On an application of the principles set out in Absa v Naidu, above, I am satisfied that the Arbitrator’s finding that the dismissal was unfair due to the inconsistent application of

discipline (i.e. the failure to discipline Ford) is wholly irrational and unreasonable, and amounts to a fundamental misdirection.

Roscher’s misconduct was serious in nature and it is wholly unreasonable that she escaped all liability for her actions based on the above.

[89] In summary and for the reasons set out above, I am of the view that the arbitration award is not one that a reasonable arbitrator could have reached on the available evidence and should be reviewed and set aside.

Appropriate relief

[90] Having decided to review and set aside the award, I must now decide whether to replace the arbitration award with an award that I regard as fair based on the evidence before me or whether I should remit the matter back to the CCMA for hearing afresh. It is trite that the Court has a discretion in this regard.

[91] In Southern Sun Hotel Interests (Pty) Ltd v CCMA and Others,[19] Van Niekerk, J set out the factors relevant to the proper exercise of this discretion:

‘[33] … The LAC and this Court have held that they should correct a decision rather than refer it back to the CCMA for a hearing de novo in the following circumstances: where the end result is a foregone conclusion and it would merely be a waste of time to order the CCMA to reconsider the matter; (ii) where a further delay would cause unjustified prejudice to the parties; (iii) where the CCMA has exhibited such bias or incompetence that it would be unfair to require the applicant to submit to the same jurisdiction again; or (iv) where the court is in as good a position as the CCMA to make the decision itself.’

[92] In my view, the length of the delay renders it highly undesirable to refer the matter back to arbitration afresh. The incidents in question occurred eight years ago, in 2008. The dismissal took place in 2009 and the arbitration award was issued in 2010. It would be unfairly prejudicial to both parties to expect them to conduct an arbitration afresh so long after the event.

[93] The record before me provides an adequate record of the evidence presented at arbitration. Accordingly, the Court is in a position to replace the award and in the exercise of my discretion, I intend replacing the arbitration award. My summation of the key issues for determination and conclusions on the basis of the evidence, is set out above.

[94] In conclusion, it is my view that Roscher dishonestly failed to make the disclosures to her employer, the disclosures were material and her conduct indicates gross dishonesty. Given her seniority, expertise and lack of remorse, the sanction of dismissal was fair.

[95] I see no reason why costs should not follow the result.

Order

[96] I make the following order:

96.1. Condonation in respect of the late filing of the answering affidavit and the replying affidavit is granted, with no order as to costs.

96.2. The arbitration award issued under case number GAJB2362-10 is reviewed and set aside.

96.3. The award is replaced with an award in the following terms:

“The dismissal of the Applicant was substantively fair.”

96.4. The First Respondent is ordered to pay the costs of the review application.

96.5. The application in terms of section 158(1)(c), under case number J494/13, is dismissed, with no order as to costs.

__________________

Howes, AJ

Acting Judge of the Labour Court of South Africa

Appearances:

For the Applicant: Advocate T Motau, SC

Instructed by:

Werksmans Attorneys

For the Respondent: Advocate A E Franklin, SC with Advocate L Hollander

Instructed by:

Anthony Hinds Attorneys

[1] Arbitration Award at p 93, paras 109 to 114 of the review bundle.

[2] Transcript of court proceedings 12 January 2016 p 33 and 34.

[3] Transcript of proceedings Tracey Roscher p 449 line 8-9

[4] Transcript of proceedings Basil Ford, p214 line 12-17; Tracey Roscher p538 line 30 – p539 line 6.

[5] Transcript of proceedings Tracey Roscher p535 line 9 – 12.

[6] [2009] 4 BLLR 381 (LC) at para 22.

[7] Transcript of proceedings Basil Ford, p211 line 3-6.

[8] Transcript of proceedings Basil Ford, p 211 line 14 – 24.

[9] Transcript of proceedings Basil Ford, p 212.

[10] Transcript of proceedings Moses Silinda,p 95.

[11] Transcript of proceedings Tracey Roscher p 438 line 16-17

[12] Review Bundle, Volume 2 p155, Tracey Roscher “…I am preparing the full report myself…” and Transcript of Proceedings, Tracey Roscher p656 line 15 “In this case it was largely myself but when….”

[13] Transcript of Proceedings Tracey Roscher p680 line 13-15

[14] Transcript of Proceedings Tracey Roscher p481 line 28 – p482 line 4

[15] Transcript of Proceedings Tracey Roscher p517 line 11-16

[16] Transcript of Proceedings Tracey Roscher p546 line 11-14

[17] [2015] 1 BLLR 50 (LAC) at paras 30-33.

[18] [2015] 1 BLLR 1 (LAC) at paras 42-56.

[19] [2009] 11 BLLR 1128 (LC) at para 33.