Kaimowitz v Delahunt and Others (8728/2016) [2016] ZAWCHC 212; 2017 (3) SA 201 (WCC) (23 November 2016)

IN

THE HIGH COURT OF SOUTH AFRICA

(WESTERN CAPE DIVISION, CAPE TOWN)

Reportable

CASE NO: 8728/2016

In the matter between

JEHUDAH

LEON KAIMOWITZ Applicant

And

MICHAEL

JOHN DELAHUNT First

Respondent

ARTHUR

GRAHAM HAMMOND Second

Respondent

FADIEL VILJOEN Third

Respondent

WERNER WEBER Fourth

Respondent

UVP VELTOPAK (PTY) LTD Fifth

Respondent

UVP HOLDINGS (PTY) LTD Sixth

Respondent

VELTOPAK COATING AND FINISHING (PTY) LTD Seventh

Respondent

GERBER GOLDSCHMIDT GROUP (PTY) LTD Eighth

Respondent

JUDGMENT: 23 November 2016

DAVIS J

Introduction

[1] This dispute concerns one essential question: what are the duties of a director of a company; in particular, to what extent do the duties of a director include involvement in the day to day management of a company's business?

[2] The facts of the case which give rise to this question and the need for the court to provide an answer thereto can be summarised thus: Applicant is a director of the fifth respondent ("the company"). He is one of five directors of the company, the other four directors being first to fourth respondents. Applicant was previously employed by the company. On 4 May 2016 he was informed by fourth respondent ("Weber") that he was no longer employed by the company and that henceforth he would be a non executive director of the company. Accordingly, Weber said that while, he would remain a director of the company, he "will no longer be involved in the day to day management of the business". In a letter generated by Weber to applicant the latter was informed as follows:

'Management of business

1. As you know, Thursday will be your last day of employment. As such, and while you remain a director of the company, you will no longer be employed with the result that you will be a non-executive director.

2. You are entitled to exercise all your rights as a director as provided in the Companies Act and the Veltopak MOI. Accordingly, all your rights as provided for in the Act and the MOI will remain and be unaffected. After termination of you employment however, you will no longer be involved in the day-to-day management of the business.

3. You are entitled to attend all directors' meetings but you will no longer be entitled to participate in any management meetings by virtue of the end of your employment. As you know, our MOI requires directors' meetings to be held quarterly and you will most certainly be invited to all director's meetings'

[3] It is common cause, as the applicant contends, that his dismissal from the company, which he contends was unlawful, is now the subject of a dispute before the CCMA. It is also common cause that the applicant has been excluded from participation in the management of the company's business. Applicant was dispossessed of his right of access to the premises of the company and to his parking bay which necessitated prayers which were included in the notice of motion to restore these rights to the applicant. As the respondents have so restored applicant's rights in this regard, these particular issues are no longer in dispute before this court.

[4] The proceedings launched by the applicant are aimed at procuring an order in terms of s 163 of the Companies Act 71 of 2008 ("the Companies Act"), alternatively the common law, namely:

1. that the first to fourth respondents be restrained from barring, interfering with and/or in any other way preventing the applicant from taking part in the management of the company's business ("the business") - for so long as the applicant is a director of the company (hereinafter referred to as "the duration");

2. directing that, for the duration, the first and fourth respondents are to give the applicant reasonable prior written notice of all management meetings pertaining to the business and/or the company's affairs;

3. directing that, for the duration, the applicant and the first to fourth respondent conduct bi-monthly management meetings:

4. generally interdicting and restraining the first to fifth respondents from doing anything and/or taking any step which interferes and/or has the effect of interfering with the applicant's ability to take part in the management of the business, for the duration.

Events highlighted by applicant in support of the application

[5] In the month prior to the generation of the letter by Weber to applicant, to which I have made reference, certain events took place which have been emphasised by the applicant in his papers.

[6] Applicant notes that a so called "Bosberaad" took place on 7 April 2016; that is a meeting of the company's senior management staff to which applicant was not invited. Respondents claim that this was "a planning session" which took place in Stellenbosch and which was attended by the company's senior management. It accepts that applicant was not invited to the meeting because the meeting concerned "planning for aspects that would be implemented after (the applicant's retirement) on 5 May 2016".

[7] Applicant also avers that on 6 April 2016 the company's remaining directors attended a meeting at which they purported to take a decision to acquire a pizza box retail and distribution business from a company, Claymore Packaging and Tooling (Pty) Ltd (a subsidiary of sixth respondent). To the version of respondents, namely that fourth respondent "personally invited" the applicant to this meeting, applicant insists that this claim is not correct. In a supplementary replying affidavit he responds as follows:

'My version - which I submit is, ex facie paragraph 2.4 of the fourth respondent's email to me dated 3 May 2016 the true version of events - is that I had no idea of what

Bosberaad was about. I most certainly did not have any knowledge of a shareholders or a directors or a management meeting share scheduled for 6 April 2016. Had I have known I would have been there. In fact had I been invited to the next day's events I would have been there "like a shot" too. I wanted to be there and, as previously mentioned, felt hurt and upset that I had not been invited. Furthermore, the fourth respondent's version is not in keeping with the whole tenor of the respondents' stance since the first to fourth respondents took it upon themselves, from circa March 2016 to "put the old bull to pasture".'

The legal framework

[8] Two sections of the Companies Act are brought into play as a result of the present dispute. Section 66 provides as follows:

66. Board, directors and prescribed officers. - (1) The business and affairs of a company must be managed by or under the direction of its board, which has the authority to exercise all of the powers and perform any of the functions of the company, except to the extent that this Act or the company's Memorandum of Incorporation provides otherwise.

(2) the board of a company must comprise-

(a) in the case of a private company, or a personal liability company, at least one director; or

(b) in the case of a public company, or a non-profit company, at least three directors.

in addition to the minimum number of directors that the company must have to satisfy any requirement, whether in terms of this Act or its Memorandum if Incorporation, to appoint an audit committee, or a social ethics committee as contemplated in s 72 (4).

[9] Section 163 which forms the foundation of the relief sought by applicant reads thus:

(1) A shareholder or a director of a company may apply to court for relief if-

(a) any act or omission of the company, or a related person, has had a result that is oppressive or unfairly prejudicial to, or that unfairly disregards the interest of, the applicant;

(b) the business of the company, or a related person, is being or has been carried on or conducted in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards the interest of, the applicant; or

(c) the powers of a director or prescribed officer of the company, or a person related to the company, are being or have been exercised in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards the interest of, the applicant.

(2) Upon considering an application in terms of subsection (1), the court may make any interim or final order it considers fit, including-

(a) an order restraining the conduct complained of;

(b) - (I) ...

[10] The basis of applicant's case is that respondents have unlawfully prevented the applicant from carrying out his lawful obligations as a director. This conduct is unlawful, prejudicial to him and hence is contrary to the scope of s 163 of the Companies Act. It is oppressive conduct that justifies the granting of a remedy, as sought by applicant. In turn, this submission is based on the averment that respondents have acted contrary to s 66 of the Companies Act by creating a post of non executive director for applicant, thus preventing applicant from fulfilling his obligations as a director,

which includes the management of the company.

[11] Mr Manca, who appeared with Mr Cutler on behalf of the applicant, submitted that, in terms of s 66 of the Companies Act, the default position is that directors are under a positive obligation to manage both the business and the affairs of the company. This submission is based upon a reading of s 66 of the Companies Act. Henochsberg On the Companies Act> 2008 at 250 (1) - (2) emphasises the wording of s 66, namely that the business and affairs of the company must be managed by or under the direction of its board which has the authority to exercise all of the powers and perform any of the functions of the company, save to the extent provided for in the Companies Act or the Memorandum of Incorporation ("MOI") of the company which might contain different arrangements. Henochsberg raises the question as to whether the MOI can exclude all management functions. The author submits that s 66 places a positive obligation upon directors to manage the company which position stands in contrast to the situation provided for in the earlier Companies Act (the 1973 Companies Act), where directors were functionaries of the company.

[12] The present Companies Act has changed the source of a director's power; namely s 66 is the source of the power of a director to manage the business and the affairs of the company as opposed to a delegated power sourced in the shareholders agreement by way of an MOI as was the case under the 1973 Act (through the then articles of association). As a result, the ultimate power to manage the affairs of the company resides in the directors and not in the shareholders.

[13] It is for this reason that Mr Manca contended that s 66 (1) confers management powers on the board of directors, save to the extent that the Companies Act or the MOIprovides otherwise. The Act vests the board of directors with both the power and the responsibility to manage the business of the company subject to the Act and the company's constitution, the MOI. In other words, the Act has adopted the approach of the Model Business Corporation Act of the United States of America, namely that the allocation of powers are sourced in legislation, save where it is changed by the constitution of the company.

[14] In this case, the MOI contains certain significant provisions. Second respondent is the managing director of fifth respondent and has been appointed to this position in terms of the MOI which provides for the appointment of a managing director as well as for the delegation of board powers to committees of the board. Board meetings are required to be held at least four times a year and all decisions of the board are taken by simply majority.

[15] To return to the present dispute: It is clear that applicant requires more than the right to attend board meetings and participate fully in deliberations and the decision making process of the board. It appears that, notwithstanding that his tenure as an employee of fifth respondent terminated on 5 May 2016 (the disputed dismissal is not before this court), applicant considers that he should be entitled to participate in the day to day management of fifth respondent. What is confusing is that various parts of his papers seem to qualify his claim. Thus, in his replying affidavit, he concedes that 'it is indeed my case that I am entitled to be involved in the business in a manner allowed for directors in term of MOI and the Companies Act'. But in the same affidavit he says:

'It is quite correct that I am no longer an active employee of the fifth respondent - and have no desire to be an employee as long as the remaining directors are members of the board.

But as a member of the board I ought to be part of and actively involved in its managements team.

Prior to December 2015 I was actively involved in the management of the sixth respondent and as such was part of management team.

After December 2015 I was simply shut out and excluded from participating in the management of the fifth respondent and am now no longer part of the management team all. This is only because the remaining directors have prevented me from doing so.'

[16] In my view, the precise nature of the relief and the implication of what role, as a director, applicant wishes to play is never spelt out with any clarity. However, reading the applicant's papers holistically, it appears that he demands that he play a greater role in the affair of the company than mere attendance at board meetings. Hence there are two separate considerations which require the attention of this Court, namely, is the applicant, as a director, as of right entitled to be involved in the day to day running of the business of fifth respondent? Secondly, if not, has he been prevented from being involved in the business in a manner which impedes his role as a director in terms of the applicable law.

The role of directors

[17] The concept of a director has vexed company law authorities beyond South Africa (see, for example Boyle and Birds Company Law (8th ed) at 622 ff for the articulation of the English position where a similar lack of clarity is evident). Director is defined in the Companies Act as 'a member of the board of a company as contemplated in s 66 or an alternative director of a company and includes any person occupying the position of a director or alternative director by whatever name designated'. As Henochsberg at 22 notes:

'This definition does not purport to define the word director" as such. It assumes the ordinary meaning of the word and provides that a person who occupies the position of director is a director for the purposes of the Act whether he is described as such or not.'

[18] Thus the statutory definition hardly provides much enlightenment as to the status and nature of the role of a director. In R v Mall and others 1959 (4) SA 607 at 623 Caney J said the following in this regard:

'There is, however, a material difference between the situation of a director and that of a manager. Directors are required by statue; they are essential to a company, and their functions and duties are defined by law. They are appointed by the shareholders and are vested with the management and control of the company. They represent the company, and there is a degree of permanence attaching to their position. They act as a body, save so far as powers are lawfully delegated. Their identity, the law intends, should be undoubted and easily discoverable from the company's records. To regard as a director a person with no appointment, a person meddling in the company's affairs, runs counter to the whole idea of company law.

A manager, on the other hand, is an employee of the company and his service are engaged by the directors; he is not legally essential to the company, his contract may be of a formal nature or otherwise; his position may be inferred from conduct, and he may continue in employment for a long time or a short time. His position is not defined by law, indeed he may be a general manager, manager of a department, office manager or whatsoever. It is always a question of fact what he is and what his functions are,which may be easy or not easy of proof.'

[19] As Boyle and Birds supra at 626 note, a director's office is sui generis although, for certain purposes, the analogy with an agent, a trustee and an employee may be useful. But it is clear that the office of a director does not intrinsically involve participation in the day to day running of the company. Indeed, as is the position in this case, a managing director is often vested by the board of directors with all or of a substantial part of its general powers and control of the affairs of the company on a day to day basis. See Cassim and others Contemporary Company Law (2nd ed) at 416:

'Generally a managing director is a direct and immediate representative of the board of directors and acts within his or her ostensible (or usual authority) to bind the company in its dealings with other parties. As the chief executive who is in charge, under the board of the directors of the daily running of the company the managing director's task is to supervise the work of other managers and the daily running of the company .' (at 416-417)

As the Labour Appeal Court noted in SA Post Office Ltd v Mampeule [2010] 10 BLLR 1052 (LAC) at para 14, a person simultaneously employed as an executive director and a board member holds two distinct positions. In Australia, the court in Daniels v Anderson (1995) 37 NSWLR 438 at 505 ff summarised the general position when it concluded that the board fulfils a monitoring role over the business of the company as opposed to dealing with the day to day affairs thereof. See also ASIC v Henley and others [2011] FCA 717 where the court sets out the role of a director comprehensively. In reading its analysis it is clear that the Australian Court did not work on the basis that, as of right of obligation, a director must be involved in the day to day running of the business of the company. For a summary of the position as set out in the Model Business Corporation Act in the United States of America see John Olson and Aaron Briggs ' The Model Business Corporation Act and Corporate Governances' 2011 Law and Contemporary Problems 31 for a similar analysis.

[20] In Daniels, the court held that the directors of the company are obliged to take reasonable steps to place themselves in a position to monitor the management of a company by way of a general understanding of the business of the company and the effect which a change in the economy may have on the business of the company, all designed to ensure that the overall management of the company can be properly supervised.

[21] This description of the role of a director serves to illustrate that the day to day management of a company may be delegated to a managing director and/or to committees of the board as chosen by the board, as opposed to each director, as of right, having the power to involve himself I herself in the 'day to day' operations of the company.

[22] Mr Manca correctly submitted that the respondents' reliance on King Ill: Report on Corporate Governance for South Africa (2009) at para 80 ff, namely that non-executive directors play an important role in the overall management of the company did not take the matter any further. King Ill noted:

'The appointment of a non executive director should be formalised in an agreement between the company and the director. The agreement should include a directors code of conduct to be complied with and the contribution that is expected from a specific individual. The agreement should also set out the remuneration for holding office as a director, the terms of directors and officers liability and insurance to be provided.'

[23] In this case, it was common cause that no agreement had been reached between applicant and fifth respondent. Hence, subject to one important observation, little reliance can be placed on the King Ill report for the submission that applicant had become a non executive director. Thus respondents line of reliance on King 111 may not be entirely congruent with the facts.

[24] This conclusion however, does not on its own justify the relief sought. The question remains as to whether a director on a board, save where it is provided for in the MOI and who pursuant thereto may be given the task by way of membership of a subcommittee created by the board for being responsible for the management (or an aspect thereof) of the company, is entitled to be involved in the overall day to day running of the affairs of the company.

[25] I should add that the argument that King Ill's use of the concept of a non executive director has been recognised, by our Courts. Thus in Howard v Herrigel and another NNO [1991] ZASCA 7; 1991 (2) SA 660 (A) at 678 Goldstone JA said as follows:

'In my opinion it is unhelpful and even misleading to classify company directors as 'executive' or 'non-executive' for purposes of ascertaining their duties to the company or when any specific of affirmative action is required of them. No such distinction is to be found in any statute. At common law, once a person accepts an appointment as a director, he becomes a fiduciary in relation to the company and is obliged to display the utmost food faith towards the company and in his dealings on its behalf. That is the general rule and its application to any particular incumbent of the office of director must necessarily depend on the facts and circumstances of each case. Once of the circumstances may be whether he is engaged full-time in the affairs of the company: see the Fisheries Development case supra at 165G- 1668. However, it is not helpful to say of a particular director that, because he was not an 'executive director', his duties were less onerous than they would have been if he were an executive director. Whether the inquiry be on in relation to negligence,

reckless conduct or fraud, the legal rule are the same for all directors.'

[26] What emerges from this dictum represents support for the concept of a non executive as opposed to an executive director. It also reveals that the involvement of a director in the affairs of the company must be assessed in terms of enabling of a director to perform those duties which are imposed upon him/her as a result of his/her appointment as a director. This surely means that each director does not have to be involved in the day to day running of a company nor that every director must sit on every subcommittee which is constituted by a board. See in particular s 70 (4) (b) (i) (bb), s 72 (1) (a) and (b) read together with s 72 (2) (a) of the Companies Act.

Conclusion

[28] As I indicated earlier in this judgement, it appears that applicant is running two cases, namely being precluded from attending certain meetings of the board and further being "cut out" from the daily management operations of the company in which he was heavily involved prior to his dismissal.

[29] In the founding affidavit applicant makes out the following case:

1. he was not invited to the "Bosberaad" conducted by management on 7 April 2016;

2. he was allegedly "unaware of the Claymore acquisition and its implementation";

3. the correspondence by respondents' attorney to the effect that the applicant's position as akin to that of a non executive director indicated respondents determination to exclude applicant from the running of the business.

[30] As applicant seeks final relief in motion proceedings, the ordinary principles relating to disputes of fact must be applied; in brief this means that this application must be dealt with on the basis of the facts as set, out in respondents answering affidavit together with any facts, set out in applicants founding affidavit which were admitted by respondents or which they cannot reasonably deny. Plascon Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A) at 634 E - 635 C. On the basis of respondents' version, applicant was invited to the meeting of 6 April 2016 which was attended by all the directors and shareholders of fifth respondent in terms of which the Claymore acquisition was discussed.

[31] It is clear from the answering papers and in particular, a supplementary answering affidavit deposed to by second respondent,

that respondents' version is that the meeting on 6 April 2016 was neither a shareholders meeting nor a directors meeting. Mr Hammond

goes on to say:

'The 2016 Strategic Plan was approved at the meeting and all of the attendees agreed to implement the Claymore acquisition, although formal approval by shareholder of Claymore and UVP Veltopak was and is still required. In fact, soon after the meeting of 7 April 2016 I discussed both meeting with the applicant and, inter alia, informed him of the outcome of the 06 April 2016 meeting. The applicant frequented my office during that time to enquire with regard to the affairs of UVP Veltopak and. Although I cannot recall the precise date of our conversation regarding the meeting of 6 April 2016, the applicant and I had direct discussion about it and I personally informed him of the meeting's outcome.'

[32] Mr Hammond also attaches minutes of a meeting of 18 August 2016 in which it is clear that discussion and deliberation concerning the proposed acquisition of Claymore had taken place over a long period of time and that applicant had participated in these discussions and deliberations. Although the minutes noted applicant's objection to the acquisition, he was unable to provide a reason therefor at the time. There was no denial that applicant had been aware of the pending Claymore acquisition. Mr Hammond referred to previous

meetings, including one held on 13 October 2015 as follows:

'To discuss the purchase of the Flexopress machine, which was purchased exclusively for purposes of the Claymore acquisition.

Whilst the minute of the meeting does not, in terms, reflect the discussion regarding the commencement by UVP Veltopak of the business activities of Claymore's box manufacturing division, it was clear at the meeting that purchase of the Flexopress machine was for that very purpose. In fact, the discussions that are noted (that approximately R900k in sales of corrugated board did not materialise as machinery had not been acquired to produce it") relate specifically to sale that had not materialised for UVP Veltopak as a result of the delay in acquiring the Flexopress machine. The discussion regarding the lost income potential occurred specifically in the context of what all parties at the meeting knew - that it was agreed that upon purchase and installation of the Flexopress machine, the box-manufacturi ng business would be conducted by and through UVP Veltopak, and no longer by Claymore.'

I should add that this meeting was chaired by applicant.

[33] Hence, I agree with Mr Muller, who appeared together with Mr van Rensburg on behalf of first to seventh respondents, that, while the applicant is entitled to perform his functions as member of the board and that no action can be taken which will prevent him from fulfilling these duties as a board member, this cannot support the relief sought by applicant. On the papers, as Mr Muller noted, it has not been shown that applicant has been prevented from acting as a director and fulfilling his obligations pursuant thereto. Hence, the relief which he seeks cannot be justified on the evidential matrix which he has presented to this court. Certainly on the basis of a distinction between the day to day management of a company and the overall supervisory role of a board, the relief sought with regard to attendance at unspecified management meetings (as opposed to board meetings) cannot be justified on the law as I have set it out. Had applicant laid out a case that respondents' actions have prevented him from fulfilling his role as a director on the board of fifth respondent, this may well then have been a different case.

[34] In summary, applicant's only argument can be that as a director, (I leave aside the dispute regarding the nomenclature of an executive as opposed to a non­ executive director) the actions of respondent have impeded and/or obstructed his capacity to act as a director and to fulfil his fiduciary responsibilities to the company. On these papers, this case has not been made out.

[35] For these reasons therefore, the application is dismissed with costs, including the cost of two counsel.

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