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IN THE HIGH COURT OF LESOTHO
COMMERCIAL DIVISION
HELD AT MASERU CASE NO. CCT/0079/2024
In the matter between:
NETCARE HOSPITALS (PTY) LTD 1ST PLAINTIFF
NETCARE HOSPITALS LESOTHO (PTY) LTD 2ND PLAINTIFF
BOTLE FACILITIES MANAGEMENT (PTY) LTD 3RD PLAINTIFF
AND
TŠEPONG (PTY) LTD DEFENDANT
Neutral Citation: Netcare Hospitals (Pty) Ltd & Others v Tšepong (Pty) Ltd [2024] LSHC 243 Comm. (05 DECEMBER 2024)
CORAM: MOKHESI J
HEARD: 5 SEPTEMBER 2024
DELIVERED: 05 DECEMBER 2024
SUMMARY
COMPANY LAW: The Round robin resolution on the issue whether a company should institute legal proceedings voted on without all the directors being notified of it- Held, such a decision invalid for lacking a collective wisdom of all the directors.
ANNOTATIONS
LEGISLATION
High Court Civil Litigation Rules 2024
CASES
LESOTHO
Mosaase v R LAC (2005 – 2006) 206
Richard Friedland and others v Lehlohonolo Mosotho and others CCA/0063/2020 (15 October 2020)
SOUTH AFRICA
African Organic Fertilizers and Associated Industries Limited v Premier Fertilizers Ltd 1948 (3) SA 233 (N)
Bank of Africa v Wood Bros. (1886) 4 SC 334
James Brown & Hamer (Pty) v Simmons N.O 1963 (4) SA 656 (A.D) at 660D-F
Majola Investments (Pty) Ltd v Uitzigt Properties (Pty) Ltd 1961 (4) SA 705 (T)
Nick’s Fishmonger Holdings (Pty) Ltd v Fish Diner In Bryanston CC 2009 (5) SA 629 (W)
Novick and Another v Comair Holdings Ltd and Others 1979 (2) SA 116 (W)
Robinson v Imroth 1917 WLD 159
JUDGMENT
[1] Introduction
Litigation between these parties in this jurisdiction is legendary. For ease of reference the parties will be referred to as they are in the main case. In the present matter the defendant is seeking rescission of an order which was issued against it on account of its default of appearance.
[2] The defendant was incorporated in 2006 to provide health care and other services at Queen ’Mamohato Memorial Hospital on behalf of the Government of Lesotho in terms of the Public Private Partnership Agreement (“PPP Agreement”) concluded between it and the Government of Lesotho on the 27 October 2008. The defendant has five shareholders, namely, Netcare Hospital Group Proprietary Limited (“Netcare”) which has shareholding of 40% and a majority shareholder therefor; Women Investment Company Proprietary Limited, a minority shareholder with 10% shareholding (“Women”); Afrinnai Health Proprietary Limited (“Afrinnai”) with 20% shareholding; Excel Health Proprietary Limited (“Excel”) with 10% shareholding; D10 Investments Proprietary Limited (“D10”) with 10% shareholding. The Chief Executive of Netcare and directors of other shareholders comprise the board of directors of the defendant. For quite some time the shareholders have been at loggerheads resulting in a never-ending cycle of litigation.
[3] The PPP Agreement had in its contemplation the provision of clinical, operational and associated support services, hard and soft facilities management services, the provision and maintenance of equipment information management and technology the provision of pharmaceuticals, materials and consumables, and the co-location of a private hospital facility at the Hospital to be operated by the defendant. There are also schedules to the PPP Agreement which further regulate other aspects of the business. In terms of the PPP Agreement the defendant would provide clinical and operational services to the Government of Lesotho, and the latter would in turn pay for the services rendered monthly in accordance with a formula, which divided the Annual Service Payment set, the latest set payment being M533,813,002.00.
[4] So that I do not burden this judgment with unnecessary facts, suffice for present purposes to state that on 20 March 2009, the defendant and Netcare Management (Pty) Ltd concluded a Management Agreement (“the Management Agreement|). The Netcare Management (Pty) Ltd was later substituted by the 1st plaintiff. In terms of the resolution dated 20 March 2009, accepted Netcare Management cession and delegation of the Management Agreement to the 2nd plaintiff. In terms of clause 5 of the Management Agreement the 2nd plaintiff was appointed to manage and administer the defendant’s business and would in turn be remunerated.
[5] On 20 March 2009, the defendant concluded a Clinical Services, Equipment IM&T and Soft Facilities Management Agreement (“the Clinical Services Agreement) with the 2nd plaintiff. At the heart of this Agreement was the provision by the 2nd defendant of clinical services, equipment, information management and technology, and management and operation of certain facilities at Queen `Mamohato Memorial Hospital and its Filter Clinics. The defendant was obliged to pay for these services.
[6] On 21 November 2009 defendant and the 3rd plaintiff concluded a Hard facilities Management Agreement (“the Hard Facilities Agreement”) whose purpose was so that the latter could provide management, operation and maintenance of the buildings at the Queen `Mamohato Memorial Hospital and its filter clinics, and for services thus rendered, the 3rd plaintiff was entitled to be paid by the defendant.
[7] The board of the defendant became dysfunctional to the point where litigation became commonplace. On 25 August 2021 a Firm of Attorneys acting on behalf of the defendant issued a notice of termination of the PPP Agreement to the Government due its default and claimed that it was entitled to be compensated for the breach. The amount it claimed was due by the Government on 22 September 2021 was M1,601,820,173.91. Due to the inaction or disfunction of the board of the defendant to recover the debts owing to it by the Government the 1st plaintiff instituted proceedings before this court wherein it sought leave to institute arbitration proceedings and to sue derivatively on behalf of the defendant against the Government to recover debts owing to it by the Government. It is common cause that the PPP Agreement was terminated and that the defendant is no longer operational.
[8] On 05 February 2024 the plaintiffs instituted action proceedings against the defendant due to its alleged failure to pay for the services which were provided in terms of the various agreements it concluded as mentioned in the preceding paragraphs. After the summons was delivered no response was forthcoming from the defendant, thereby prompting the plaintiffs to approach this court to seek default judgment.
[9] It should be stated that on 16 April 2024 when counsel for the plaintiffs appeared before court to move for the granting of default judgment, I expressed my disquiet that the service might not have been effected properly given what was stated by the Deputy Sheriff in his return of service that he served the summons upon “one Mr Makara who is working at Maseru Private Hospital. But he refused to receive the summons.” No explanation was given why the stated individual had to be served with the summons or his relevance in the context of this matter. I then directed that the summons be delivered to the registered address which at the time of service was Queen ‘Mamohato Memorial Hospital, Botšabelo. It is against this factual backdrop that default judgment was granted and why the present application for rescission of the said default judgment was lodged by the defendant.
[10] The deponent to the founding affidavit is one of the directors of the defendant one Professor Mosotho who avers that judgment against the defendant was granted in circumstances where it was where it was never served with summons commencing action because it was served upon one Mr Khotso Phakoana who is an advocate, and an employee of the Ministry of Health based at Queen ‘Mamohato Hospital. He avers that the plaintiffs are aware that the defendant’s principal place of business is now at Maseru Private Hospital, as they have previously served it there with previous court process, especially CCA/0056/2023. Deponent contends that service was effected contrary to the provisions of Rule 4(1)(d) of the High Court Rules 1980 as it was delivered not to the responsible employee of the defendant at its registered office. The contention is therefore that the default judgment was sought and granted erroneously in the absence of the defendant.
[11] The defendant goes further to contend that it was not in wilful and mala fide default to appear before court on 23 April 2024 when default judgment was sought and granted in view of the above factual background. It states that it has prospects of success on the merits because it has a bona fide defence against the plaintiffs’ claims as they only filed simple summons without delivering declaration or particulars of claim, and therefore the summons does not disclose the cause of action in contravention of Rule 18(5) of the High Court Rules. The contention goes further to say that the 1st plaintiff simply alleges that it is liable to the plaintiffs for the sums claimed and does not plead whether it has authority to claim on behalf of the other two plaintiffs.
[12] Defendant avers that it has a bona fide defence against the plaintiff claims because its defence is a set off as the plaintiffs owe the defendant “Millions of Maloti pursuant to unlawful transactions by plaintiffs which resulted in unlawful and illegal looting of the defendant’s monies by the plaintiffs during the course of the first and second plaintiffs’ management of the defendant.” Deponent avers that 1st plaintiff breached clause 6 of PPP Agreement by failing to recover debts owed by Government to the defendant and by not rendering necessary tax returns and paying due taxes to the receiver of revenue with the result that the defendant has a huge tax liability “in circumstances where its moneys were looted by the very same plaintiffs.”
[13] The defendant then outlines what it calls “a systematic looting of funds of Tšepong in favour of unknown persons, Botle, Netcare Hospitals, Netcare Lesotho and Netcare Group.” It alleges that these transactions were engaged in recklessly and without authorization of the board to its prejudice, in the period between 03 January 2018 to 01 June 2019. The defendant avers that it intends to raise counter claims and set offs against the plaintiffs’ claims. It avers that during the period 01 June 2019 to 06 August 2020 the Government made payments in the amounts of M833,436,304.26, and of this amount the 1st plaintiff made unauthorized payments and without knowledge of the board in the amount of M235,158,084.39 and M38,410,641.91 to the 2nd plaintiff, to itself, Netcare Group and the 3rd plaintiff respectively. These payments accounted for 33% of the payments received from the Government. In short, the defendant avers that it has claims against the plaintiffs in excess of M200,000,000.00 which it has intention of setting-off against their claims.
[14] On the one hand the plaintiffs in answer raised a number of points in limine, namely, authority of Professor Mosotho to bring this application on behalf of the defendant, lack of authority and conflict of interest of Mei & Mei Attorneys and non-joinder of Sheriff of the High Court. The last point was later abandoned. On the merits, the plaintiffs contend that the application is not bona fide nor does it evince a valid defence or counterclaim against them as regards the alleged embezzling of the defendant; making payments to unknown entities and individuals without board approval; failure to render tax returns; failure to maintain proper books of accounts; failure by the Netcare Group in the management of the defendant to adhere to the prescripts of the PPP Agreement in ensuring the latter’s spend met the local economic empowerment targets; operating without a budget and failure to approve draft audited financial statements and failure to ensure that local shareholder earned a return on investment for participating in the project.
[15] The plaintiffs contend that all the matters they are accused of were previously raised by Professor Mosotho in the matters in which minority shareholders instituted proceedings, which matters have not been prosecuted by the minority shareholders despite being before court for quite a while now. The plaintiffs contend that the defendant’s claims against them are unliquidated and cannot be set off against their claims, that the defendant should rather lodge independent proceedings to recover the losses Professor Mosotho alleges were occasioned to it. They go further to aver that their claims arose from the valid agreements which they concluded with the defendant and were operational since 2009 until 2021 when the PPP Agreement was terminated. The argument goes, the defendant did not dispute the services which were rendered to it by them or sought to recover any money paid to them. The plaintiff contends further that judging from the litigation in which the 1st plaintiff sought to pursue the defendant’s claims against the Government and arbitration proceedings on its behalf, which Professor Mosotho opposed even though they were granted, it is clear that the 1st and 2nd plaintiffs have the interest of the defendant. On the issue of unauthorized payments, the plaintiffs deny the allegations and aver that they always acted with the approval and knowledge of the board.
[16] “Condonation” application
After the present application was moved by the defendant parties were put to terms regarding the filing of subsequent papers. The last document to be filed would have been the defendant’s heads of argument on 23 July 2024. The deponent to the plaintiffs’ answering affidavit Dr Smith raised an issue with Professor Mosotho’s authority to litigate on behalf of the defendant because other directors, namely, Ms Moteane and Dr Friedland did not receive notices of the round robin resolution attached to the founding affidavit. The deponent did not file any confirmatory affidavit until the defendant had filed its replying affidavit on 15 July 2024 and after it had also filed its heads of argument on the 23 July 2024. The two confirmatory affidavits of the two directors apparently meant to cure Dr Smith’s hearsay evidence that the two directors did not receive notices of the round robin resolution alluded to above and another one from the Deputy Sheriff Mr Koloi in which he responds to allegations against him by Professor Mosotho and Mr Makara regarding service of summons, were filed on the 29 July 2024. In view of this belated filing of these affidavits, the defendant curiously invoked the old Rule 30 of the now-repealed High Court Rules 1980 to contend that the approach taken by the plaintiffs was irregular. In the “condonation application” the plaintiffs’ attorney seeks to explain why the two confirmatory affidavits were not filed contemporaneously with the plaintiffs’ founding affidavit.
[17] The application is opposed and in answer the defendant takes issue with the manner in which condonation application was set down. It contends that it contravened directive 11 of the Superior Courts Practice Direction in that the plaintiffs failed to file notice of set down accompanied by a practice note. For this reason, it argued that the application was not properly enrolled before this court.
[18] Defendant further took issue with the manner in which the confirmatory affidavits were sought to be filed, that is through the application for condonation instead of making an application for leave to file them, before they could even apply for condonation. The defendant again invoked the old Rule 18(12) of the now – repealed High Court Rules 1980, in support of this argument. The argument goes further to say by applying for condonation the plaintiffs presuppose that the confirmatory affidavits are properly before court, this is in view of the relief sought in the Notice that “1. That the late filing of the confirmatory affidavits of Dr Friedland, Ms Moteane and Mr Koloi, be condoned."
[19] Defendant contends that even if the court were to regard condonation as the proper approach, the plaintiff nevertheless failed to provide an explanation why the confirmatory affidavits could not be filed together with the answering affidavits, and why it took them twenty days to do so after the closure of pleadings. That plaintiffs’ attorney’s explanation that he had a number of commitments which necessitated him going out of town and having been bogged down in extensive preparation for the meeting with this court in other matter, is not reasonable. I now turn to deal with the issues to be decided in this matter.
[20] Issues to be determined:
(i) Condonation application
(ii) Points in limine raised by the plaintiffs, namely:
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Lack of authority of Professor Mosotho to bring proceedings on behalf of the defendant and
-
Conflict of interest of Mei & Mei attorneys.
(iii) The merits of the rescission application.
[21] Condonation Application
This application is characterised by invocation of the repealed rules, however, be that as it may. The question which needs to be answered whether confirmatory affidavits which are filed after the reply and the heads of arguments have been filed after the reply and the heads of arguments have been filed can be admitted through the instrumentality of application for condonation. Mr Letsika for the defendant sees it differently. He contends that the applicants are seeking condonation for the late filing of the confirmatory affidavits when the appropriate remedy which should have been sought should have been to seek leave to file them. He argued that by invoking condonation, the plaintiffs “erroneously presupposes that the[y] are entitled to file these confirmatory affidavits. It assumes that the affidavits were merely out of time.”
[22] Before I deal with the merits of these arguments it is appropriate that I refer to the rule which governs the filing of further affidavits.
Rule 68 of the High Court Civil Litigation Rules 2024 (hereinafter “High Court Rules 2024”) provides in the simplest of ways that:
“(1) No further affidavits may be filled by any party without the permission of the Court.”
[23] This subrule is informed by the rule that in motion proceedings there are three sets of affidavits which are allowed, being founding affidavit, answering affidavit and replying affidavit (Bank of Africa v Wood Bros. (1886) 4 SC 334). Leave of court is necessary before further affidavits can be filed, whether supplementary or confirmatory affidavit. The court may admit further affidavit in the exercise of its discretion. In the matter for leave to file further affidavits, the court will exercise its discretion only if special circumstances exist in favour of allowing the taking of such a course. Among other things which the court will consider is the explanation proffered why the information which is contained therein was not put before court earlier. Such explanation must negative remissness for such a delay. Of course, the issue of prejudice falls into the matrix of consideration, as well as materiality of such evidence (Nick’s Fishmonger Holdings (Pty) Ltd v Fish Diner In Bryanston CC 2009 (5) SA 629 (W) at 641G-642D: James Brown & Hamer (Pty) v Simmons N.O 1963 (4) SA 656 (A.D) at 660D-F).
[24] On the one hand in condonation applications the applicants must show sufficient cause for the granting of such application. As in the application for leave to file further affidavits even in condonation applications the court exercises its discretion whether to grant it. But factors which the court must consider in condonation applications are different; namely, the degree of lateness, explanation therefore, the prospects of success, and the importance of the case (Mosaase v R LAC (2005 – 2006) 206). From this exposition it is apparent that leave to file further affidavits relates to admissibility of evidence, while condonation on the other hand pertains to non-compliance with the rules of court, that is, whether non-compliance should be overlooked. Put simply, because in application proceedings there is general rule that evidence and pleadings should be contained in three sets of affidavits, any evidence and further pleadings which does not fall within this sequence, for it to be admitted, must be justified in the application for leave to file further affidavits. In condonation application something is overlooked or countenanced because in terms of the rules it was permitted to be done, but in applications for leave to file further affidavits that is not the case.
[25] This application, even though it is titled “Notice of Motion for condonation”, it is however, divided into two distinct parts: The one-part deals with condonation for the late filing confirmatory affidavits of Dr Richard Friedland and Ms May Moteane. Both are directors of the defendant. Their application is meant to address the question whether they were served with notice of the round robin resolution. The other part is for leave to file confirmatory affidavit of the Deputy Sheriff Koloi to refute the disparaging allegations against him made by Professor Mosotho and Mr Makara which emerged in the replying and confirmatory affidavits respectively. At paragraph 6 the defendant’s attorney, Mr Kleingeld, states that he is relying on the provisions of rule 8(12) of the now-repealed High Court Rules.
[26] I agree with Mr Letsika’s submission that admission of confirmatory affidavits of Ms Moteane and Dr Friedland cannot be done through condonation application for reasons stated in paragraph [23] above. In the circumstances these affidavits are pro non scripto and are disregarded. However, with regard to the affidavit of the Deputy Sheriff Koloi, I think it stands on a different footing. The allegations against Mr Koloi emerged in the confirmatory affidavit of Mr Makara. He was supporting the allegations of Professor Mosotho as contained in the replying affidavit that he was lying in his return of service, and in my view, he was entitled to refute them. Mr Kleingeld provides a timeline of what transpired before Mr Koloi could depose to an affidavit refuting the claims. And as I understand his averments, he is merely reiterating what he stated in the return of service and refuting other claims that he did not file the return of service. Even though the case for admission of Mr Koloi’s confirmatory affidavit is made in the condonation application and the relief sought is for condonation, I am willing to grant further relief for leave to admit Mr Koloi’s affidavit. To agree to the suggestion the defendant’s counsel that I should not admit his affidavit because the case for its admission is made in the condonation application is to elevate form over substance. I now turn to deal with the point in limine raised by the plaintiffs regarding Professor Mosotho’s lack of authority to bring proceedings on behalf of the defendant.
[27] Lack of Authority to institute proceedings on behalf of the defendant.
Defendant created much storm out of the suggestion that Dr Smith is not its director and therefore no notice of the round robin resolution needed to be served upon him or notified of it. It argues that it has five directors nominated by each of its shareholders. This argument seems to deliberately disregard what I decided in Richard Friedland and Others v Lehlohonolo Mosotho and others CCA/0063/2020 (15 October 2020) where the same argument was made, and I ruled against it. The respondents in that matter had argued that because he was not formally appointed, he was therefore not a director of the defendant. The same argument is being persisted with in these proceedings, and this is how it is framed in the replying affidavit of Professor Mosotho:
“66.2 I deny that the deponent was appointed the director of Tšepong. I deny that his directorship has been confirmed by this honourable Court. It suffices to mention that the honourable Court made a finding of fact that is the director of Tšepong basing itself on the definitional requirements and tis interpretation of section 56 and its findings must be understood and appreciated from that context. It is because it has been accepted that for practical purposes, he was responsible for the financial affairs of Tšepong as an employee of Netcare Hospitals and Netcare Group. He is managing the financial affairs of the Netcare group of companies.
66.3 The main issue that was due for determination inf CCA/0063/2020 was whether or not the applicants in that matter were entitled to rescission in terms of rule 45. If the defendant will erroneously suggest that this finding was not limited to the context and scope of the provisions of section 56, I aver at the early stage that the Court would not declare Dr Chris Smith a director of Tšepong when there was no substantive application requiring an order to that effect.
66.4 It is because the provisions of section 56 as a whole are merely geared towards recognising factual reality and for one to become a director for purposes of the Act there must be full compliance with the requirements of section 58.”
[28] Evidently, Professor Mosotho is trying to distinguish the present matter form Friedland case. But as I see it, he is engaging in a rather futile exercise because even though the reliefs which were sought in that matter are different from those sought in the present matter, the issue of the directorship of Dr Smith was raised squarely and was pronounced upon by the court that he is a de facto director. As already stated in paragraph [2] of the judgment issues surrounding shareholding in the defendant as well as the governance structure have not changed, inclusive of how Dr Smith came to part of the governance structure of the defendant. An attempt to seek to downplay a finding that he is a de facto director and to suggest that his directorship arose in that case out of some peculiar feature of that case which is not present in the present matter is misplaced. The parties are the same and the status and function of Dr Smith and all other directors are still the same in line with the nomination process as provided for in the Shareholders Agreement. I agree with the plaintiffs that the issue of directorship of Dr Smith is res judicata.
[29] However, a conclusion that Dr Smith is de facto director does not put an end to this case because it should be determined whether a de facto director has a right to notified of the meetings of the board like de jure directors. The answer to this question should be in the affirmative. De facto directors have the same rights and fiduciary duties like de jure directors. They are directors to all intends and purposes and in terms section 58 (5) of the Companies Act 2011 their decisions are valid despite an irregularity in their appointment. They can be held liable for breaches of these duties and for offences which are committed by the directors in terms of the Companies Act. As was stated in Novick and Another v Comair Holdings Ltd and Others 1979 (2) SA 116 (W) at 128D:
' I was referred to the authorities which hold that the company is entitled to the benefit of the collective wisdom of all the directors present at a meeting, and not merely to that of a majority. The minority, it is said, is entitled to all relevant information, and to an opportunity of stating its views, even though it may ultimately have to submit to a majority decision. The legal basis for this defence was the well-known doctrine that directors of a company are under a duty to use their voting powers for the benefit and in the interests of that company and not of any other person.
Since the company is “entitled to the benefit of a collective wisdom of all the directors” if follows as the matter of trite law that a director may not be prevented from parting in issue through voting in a formal board meeting or through round robin resolution (Robinson v Imroth 1917 WLD 159 at 169-73), and any decision take following the exclusion of such a director will be assailed at the instance of a director who was excluded (Novick and Another v Comair Holdings Ltd and Others above).
[30] The decision by the directors whether or not to partake in legal proceedings is a business decision which every director must participate in, barring of course in a situation where there are sound reasons for non-participation of such a director. The fact that Dr Smith was not notified of the round robin resolution renders such resolution fatally defective because he is one of the directors of the defendant. The fact that the majority have decided, does not cure the defective nature of the resolution. All the directors of the defendant were not notified of the proposed resolution. It is important that all the directors are given notice of meeting so that they can participate meaningfully, that is, they must be made aware of its existence and the nature of business to be transacted therein (African Organic Fertilizers and Associated Industries Limited v Premier Fertilizers Ltd 1948 (3) SA 233 at 240 (N); Majola Investments (Pty) Ltd v Uitzigt Properties (Pty) Ltd 1961 (4) SA 705 (T) at 710-711)). It follows therefore, that Professor Mosotho had no authority to lodge the proceedings on behalf of the defendant. This conclusion renders unnecessary to deal with other points in limine raised.
[31] Costs
No argument was advanced that a successful party may not be awarded its costs, nor did I find anything negating the application of this general rule in the present matter.
[32] In the result the following order is made:
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Application for condonation for late admission of the confirmatory affidavits of Dr Friedland and Ms May Moteane is dismissed with costs.
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Application for leave to file confirmatory affidavit of the Deputy Sheriff of the High Court Mr Koloi is granted with costs.
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Application for rescission of default judgment is dismissed with costs.
____________________
MOKHESI J
For the Plaintiffs: Adv. P. Stais instructed by Webber Newdigate Attorneys
For the Defendant: Mr. Q. Letsika from Mei & Mei Attorneys