IN THE HIGH COURT OF LESOTHO
HELD IN MASERU
CIV/APN/0216/2024
In the matter between:
THE BOARD OF DIRECTORS,
LESOTHO ELECTRICITY COMPANY (PTY) LTD 1ST APPLICANT
LESOTHO ELECTRICITY COMPANY (PTY) LTD 2ND APPLICANT
MOLIBELI TAELE 3RD APPLICANT
MATHAPELO RAMAKATANE 4TH APPLICANT
MOSIEA MAPOTA 5TH APPLICANT
MOKHOENENE LEHOHLA 6TH APPLICANT
MOKHETHI SEITLHEKO 7TH APPLICANT
PESHA SHALE 8TH APPLICANT
SERETSE MOHLOUOA 9TH APPLICANT
KHOTSO NTHONTHO 10TH APPLICANT
AND
MINISTER OF ENERGY 1ST RESPONDENT
GOVERNMENT OF LESOTHO 2ND RESPONDENT
ATTORNEY GENERAL 3RD RESPONDENT
BATALATSANG KANETSI 4TH RESPONDENT
LERATO MPHAKA 5TH RESPONDENT
SEAJA NTSEKHE 6TH RESPONDENT
THABO KHASIPE 7TH RESPONDENT
RETHABILE SAKOANE 8TH RESPONDENT
LEBOHANG RAMAISA 9TH RESPONDENT
NTSIE MAPHATHE 10TH RESPONDENT
MOHOLISA FAKO 11TH RESPONDENT
Neutral Citation: Board of Directors, Lesotho Electricity Company (Pty) Ltd v Minister of Energy and Others [2024] LSHC 3 Civ (No. 1) (4 February 2025)
CORAM: SAKOANE CJ
HEARD: 2 & 18 SEPTEMBER & 21 OCTOBER 2024
DELIVERED: 4 February 2025
Summary
Company law • Removal of Board of Directors by Government as the sole shareholder in a state-owned company • Minister writing to Board members to show cause why they should not be removed • Board members not responding and instead going to court to set aside the letters and interdict the intended removal • As an agent of Government, the Minister acted within his powers to write the letters • Board members obliged to respond • If removal is made, remedy for Board members is for damages provided for by Regulations 53 of the Companies Regulations, 2012 • Minister removing Board members after judgment had been reserved • The action constituting reprehensible conduct • Court marking its displeasure by depriving the Minister of costs.
ANNOTATIONS:
CASES CITED:
LESOTHO
Mmaseribane And Others v. Kotsokoane And Another LAC (1970 – 79) 303
Manyokole v. The Prime Minister [2021] LSCA 9 )14 May 2021)
Moafrika Newspaper re: rule nisi (R v. Mokhantṡo and Others) 2003 (5) BCLR 534 (LesH)
Sopeng And Others v. Minister of Interior And Another LAC (1990-94) 507
Swissbourg Diamond Mines Pty Ltd And 5 Others v. The Military Council of Lesotho And 8 Others 1991-96 (2) LLR 1981 (HC)
BRITAIN
Attorney-General v. BBC [1981] AC 303
Attorney-General v. Times Newspapers Ltd [1974] A 273
BOOKS:
F.H.I Cassim et al. (2011) Contemporary Company Law (Juta)
Companies Act No. 18, 2011
Companies Regulations, 2012
JUDGMENT
SAKOANE CJ:
I. INTRODUCTION
[1] The 3rd to 10th applicants are members of the Board of Directors of the Lesotho Electricity Company Pty Ltd (hereinafter referred to as the LEC). They seek the following reliefs:
“1. Dispensing with ordinary rules of court pertaining to the form and periods of times prescribed by the rules on account of urgency of this matter.
2. Giving directions on times and manner of dealing with matter.
3. A rule nisi calling upon the respondents to show cause, if any why:
3.1 1st and 2nd respondents shall not be interdicted and restrained forthwith from interfering with the management and business affairs of Lesotho Electricity Company (Pty) Ltd (“LEC”) pending the final determination of this application.
3.2 1st and 2nd respondents shall not be interdicted and restrained forthwith from removing the 3rd to 10th applicants from the Board of Directors of LEC, pending the final determination of this application.
3.3 Reviewing the 1st and / or 2nd respondents’ resort to political or ministerial powers and to write the 3rd to 10th respondents show-cause letters instead of following the prescripts of the provisions of the Companies Act 2011 as unlawful and invalid.
3.4 Declaring that the removal of members of Board of Directors of LEC through exercise of political or ministerial powers by 1st and / or 2nd respondent is unlawful and invalid.
3.5 Declaring that the removal of members of Board of Directors of LEC without following the prescripts of the provisions of the Companies Act 2011 and the Articles of Association of LEC is unlawful and invalid.
3.6 Correcting and setting aside the 1st respondent\s show-cause letters to the 3rd to 10th applicants dated 27th August 2024 as unlawful and invalid.
4. Further and / or alternative relief this honourable court deems fit.
5. Costs of the application against the respondents.
6. Prayers 1, 2, 3.1 and 3.2 to operate with immediate effect as interim relief.”
[2] The prayers for dispensation and interdictory relief pendent lite were abandoned as soon as Mr Maqakachane realized that pressing them would be tantamount to chasing the wind as no case for urgency was made.
II MERITS
Applicants’ case
[3] On 10 October 2024 the Minister wrote letters to the applicants. Their contents are similar and read as follows:
“Mr. Seretse Mohlouoa
Board of Directors LEC
Maseru 100
Dear Mr Mohlouoa
RE: SHOW CAUSE WHY YOU MAY NOT BE REMOVED FROM THE LESOTHO ELECTRICITY COMPANY BOARD OF DIRECTORS
I write in my capacity as Minister charged with oversight responsibilities over the Lesotho Electricity Company and with the authority of the Government of Lesotho to inform you severally and collectively about the very grave concern of the Government about your discharge of duties as members of the LEC Board of Directors.
The Board is charged under Clause 1.2 of the LEC charter with the obligation to ensure that the business and affairs of the Company are run in a financially sustainable manner, including the provision of efficient and effective delivery of services to Clause 6.2 of the Company Charter which further amplify the Board’s responsibilities.
I wish to inform you that the Government is not satisfied that you have exercised your fiduciary obligations and duties with due diligence within the aforesaid Clauses. Two weeks ago LEC Management presented to Cabinet a harrowing picture of the Company’s financial debts to Muela, Eskom, Lesotho Electricity Generation Company and EDM – all of whom are bulk suppliers of electricity to LEC. In the same meeting, LEC requested the Government to bail it out with M328M to enable it to purchase additional bulk electricity supply from Eskom when Muela shuts down for maintenance between October, 2024 and March, 2025. It has subsequently come to Government attention that while the Company was requesting to be bailed out the Board had just approved the dishing out of bonuses running into millions of Maloti to staff in breach of Clauses 4.4.3, 4.4.4 and 4.4.5. Neither myself as the representative of the shareholder nor Cabinet itself were taken into confidence about the payment of the bonuses in the context of the prevailing Company financial crisis.
In a further apparent dereliction of duty, the Board has allowed the Principal Secretary in the Ministry of Energy to unlawfully impound functions of the Project Implementation Unit duly vested in LEC under the Subsidiary Agreement signed between the Ministries of finance and Planning and Natural Resources on behalf of Government on the one hand, and LEC on the other which he has irregularly located under his direct supervision.
In light of these concerns, I direct that you show cause why I may not remove you from the LEC Board of Directors forthwith for failure to live to the expectations of your fiduciary duties. Your written response must reach my office before the end of business on Thursday, 29th August, 2024.
Yours sincerely.
Prof. Nqosa L. Mahao
Ministry of Energy.”
[4] The applicants challenge the Minister’s authority and motives for writing to them these show cause letters. The challenge rests on two grounds. The first is that the Government is the shareholder in the Lesotho Electricity Company (LEC) whose powers are subject to the Companies Act, 2011. Secondly, the Minister has overreached his powers.
[5] It is contended that the Minister is exercising political powers over the LEC as a private company whose relationship with Government is fiduciary. The remedial action for Government lies in the Companies Act and not show cause letters. By writing the show cause letters, the Minister exceeded his powers and acted without authority in law. Board members cannot be removed by Government except through ordinary resolution by shareholders in a special meeting and through processes prescribed in Articles 9 – 12 of the LEC’s Articles of Association and sections 50 and 70 of the Companies Act.
[6] The minister responds by contending firstly that he exercises oversight powers over the LEC in his capacity as the agent of Government being the sole shareholder. The show cause letters are not exercise of political or ministerial powers, but action taken in terms of section 45 of the Companies Act following representations by the LEC to Cabinet that it is under financial stress. Secondly, the show cause letters are a preliminary step in a process to determine whether a decision to remove the Board should be made or not. The letters serve the purpose of giving Board members a hearing in the process.
[7] The third contention is that the applicants misinterpret sections 50 and 73 of the Companies Act. The sections do not apply where the sole shareholder resolves to remove members of the Board. They apply where the removal is by request of a shareholder to other shareholders. Where there are no multiple shareholders, sections 54 entitles the sole shareholder to take a resolution to remove Board members without making a request for a special meeting of shareholders.
[8] The fourth contention is that the applicants are pre-empting the decision of the shareholder in circumstances where some of them have responded to the show cause letters.
[9] It is common cause that the Minister represents Government as the sole shareholder in LEC. It is also not denied that LEC presented a report to Cabinet where it explained the nature of the financial stress it was under and sought to be bailed out.
Legal Status of LEC
[10] The LEC is a statutory body incorporated under the Company Act. Government is its sole shareholder. Its Board is constituted in terms of sections 59. Members of the Board are appointed in accordance with Regulation 42 (1) of the Companies Regulations, 2012 and are removable by the shareholder in terms of section 72 (1) of the Act[1].
[11] Once it is accepted, as it must, that the Government is the sole shareholder of the LEC and the provisions of the Act and Regulations apply, the exercise of rights of the sole shareholder by the Minister cannot be questioned. Being the agent of the shareholder, he acts in the name of the Government. If the Government decides to remove members of the Board, their removal is without prejudice to any claim by them for damages for breach of any contract of service with the company[2].
[13] The applicants complain that the Minister’s show cause letters constitute political meddling in the affairs and business of the LEC. This contention misconceives the role and rights of a shareholder. Removal of the Board is quintessentially the business of the shareholder. The show cause letters are constitute parts of the exercise of the right to remove. They are a necessary preliminary step. In my respectful view, the Minister’s approach is commendable and supported by high authority. In Mmaseribane[3], the Court of Appeal emphasized the observance of the audi principle when a Minister exercises the statutory right to terminate the appointment of Board members if the relevant statute does not expressly or by necessary implication exclude audi. This is reiterated in Sopeng[4].
[14] I do not find anything in both the Act and the Regulations that exclude the application of the audi principle. Affording audi to the applicants does more good to them than harm. Rather than complain, they should have grabbed the opportunity with both hands. The letters are neither an unfriendly fire nor overreach of the shareholder’s legal powers. Therefore, the contention that the letters were issued without jurisdiction or are an abuse of process is rejected.
[15] The applicants contend further that the Minister has failed to follow sections 50 and 70 of the Act. Section 50 governs the calling of a special meeting by the Board on the written request of shareholders. Section 70 is a remuneration and benefits provision for Board members. I do not fathom the relevance of section 70 in these proceedings because the applicants are not complaining about deprivation of remuneration or benefits. Certainly, the Minister has not threatened to do anything of the sort.
[16] I understood the section 50 argument to be that the Minister failed to make a written request to them as the Board to call a special meeting for Government as the shareholder to deliberate and vote on their removal. The Minister’s retort is that the show cause letters are a preliminary step in the section 50 procedure to discuss their removal. Removal would only kick in after he had received the applicants’ responses and considered them.
[17] The question that then arises is whether the applicants having standing to challenge the shareholder’s non-compliance with the section 50 procedure. Me thinks not. Where a company has one shareholder, the shareholder can exercise his right to pass a resolution to remove a director without complying with the internal formalities[5]. A request for a special meeting is unnecessary because there is only one shareholder. The shareholder does not require the assistance of the Board to call his own meeting.
[18] The section 50 procedure for calling a meeting is out of place. What is necessary is that the directors should be given notice of the intended removal and make representations to the shareholder if they so wish. On receipt of representations, the shareholder can take a decision at his own pleasure because the right to remove them is a propriety right and their removal is not impeachable on the ground that it is made in made in bad faith and is not in the interests of the company[6].
[19] A shareholder’s right to have a special meeting called is inherent in the ownership of shares. It cannot be challenged or frustrated by the Board. Directors are not even entitled to prevent their removal as their removal is not subject to review by a court. Their remedy lies in claims for damages for breach of contract of service[7].
[20] Before closing this judgment, a few words on joining LEC in this application. The deponent to the founding affidavit says that the Board on its own behalf and on behalf of LEC “have resolved to file this application to protect their respective rights and interests,”
[21] The Board members cannot bring proceedings in the name and on behalf of LEC without application for leave of court as required by section 77(1) of the Act. There is no leave application before me. It follows that LEC has wrongly been made a party in these proceedings. It name has been used in vain to support the cause of the Board members. There is no warrant for them to have joined LEC in these proceedings.
[22] The mandate of the Board is to manage LEC and run its business. If it falls short in that task, the shareholder, as the appointing authority, is entitled to intervene and hold it accountable. I do not fathom how then it can be said the shareholder’s intervention constitutes political meddling in the management and affairs of LEC. The power to remove the Board is precisely there to protect LEC from a Board that is not properly managing its affairs and is incompetent.
Costs
[23] An appropriate costs order against the Board members for joining LEC and using its financial resources to launch the proceedings will be made.
IV EPILOGUE
[24] After judgment was reserved, applicants brought another application complaining that the Minister had since gone ahead and removed them. They sought the review of their removal on the ground that it violated the sub judice rule and undermined the authority of the court.
[25] The Minister contends that absent on interdicting order, there was nothing that stood against the exercise of his right to remove them. Further that the exercise of the right to remove does not undermine the independence and authority of the Court.
Sub judice rule
[26] The sub judice rule serves to protect respect for the administration of justice and not the dignity of courts[8]. In Attorney-General v. Times Newspapers Ltd[9], Lord Reid said:
“… anything in the nature of prejudgment of a case or of specific issues in it is objectionable, not only because of its possible effect on that particular case but also because of its side which may be far reaching. If people are led to think that it is easy to find the truth, disrespect for the processes of the law could follow, and, if mass media are allowed to judge, unpopular people and unpopular causes will fare very badly.”
[27] The dictum was made in relation to the publication and comment on court proceedings by the media. The strictures of the sub judice rule have since been whittled down to give way to media freedom and freedom of expression guaranteed by the Constitution[10].
[28] The version of the sub judice rule the applicants contend is violated is “usurpation of the power of the court”. Reliance for this version reposed in Manyokole[11] dictum where the Court of Appeal has said:
“on the other hand, The Prime Minister’s conduct in suspending Mr. Manyokole while the matter was sub judice equally calls for censure. It must be made clear that the Government has an obligation to respect the independence of the courts and not to render the courts’ decisions brutum fulmen. The rule of law requires no less. The court’s disapproval of the unlawful conduct on the Government’s part will be marked by denying the Minister and the Prime Minister the punitive costs order they would otherwise be entitled to on account of Mr. Manyokole’s reprehensible conduct in the course of the litigation.”
Usurpation of judicial powers
[29] While accepting that the sub judice rule has been breached, its version of usurpation does not apply because a litigant cannot usurp the powers of a court and decide issues raised in a case. Any attempt to usurp judicial power would be an exercise in futility bereft of any legal consequences. Thus understood, judicial power and authority cannot be usurped[12],
[30] Reference was made to Swissbourgh[13] for the proposition that the Minister has usurped the powers of the court. My reading of that judgment is that the term “usurpation of judicial powers” was discussed in reference to a statute that purported to vacate a case that was pending in court. The issue was whether the law-maker has legal competence to make a law that deprives courts of their power derived from section 118 of the Commission. The finding was that the law-maker had no such power regard being had to the doctrine of separation of powers.
[31] In casu, there is no such a law, let alone the fact that none is not referenced by any of the parties. The applicants’ contention that the Minister’s conduct is an act of usurpation of judicial powers is misplaced. Minister’s act is a misconduct towards the court and is reprehensible. It is a disrespect to the court that should be censured by denying him of costs.[14]
V. DISPOSITION
[32] The Minister is the representative of the sole shareholder. He has legal authority and the power to decide on removal of the applicants. He wrote them show cause letters detailing reasons for the intended act to remove them. They chose not to respond but to litigate. The litigation is based on a misconception of the law,
[33] A director cannot interdict or review the process of his removal. If he is unhappy with a removal, the remedy is a claim for damages for breach of contract of service. The subsequent removal of the applicants cannot be reversed. It can be remedied by a claim for damages.
[34] The Minister’s act of removing the applicants before delivery of judgments is a misconduct that undermines the authority of the court. It deserves strong censure.
Costs
[35] The Court marks it displeasure by a punitive costs order. A punitive costs order is not a mere wrap on the knuckles. It is fitting and sufficient message that the Court cannot be trifled with. The costs order will render the Minister’s success a Pyrrhic victory.
Order
[36] In the result, the following order is made:
1. The application is dismissed.
2. The Minister to pay costs on attorney and own client scale as a mark of disapproval of his conduct.
--------------------
S. P. SAKOANE
CHIEF JUSTICE
For the Applicants: S.T. Maqakachane
For the 1st Respondent: M.E. Teele KC and M. Moshoeshoe
[1] These sections are referenced in paragraphs 4.1, 4.2 and 4.5.2 of the LEC Board Charter
[2] Regulation 53
[3] Mmaseribane And Others v. Kotsokoane And Another LAC (1970-79) 303
[4] Sopeng And Others v. Minister of Interior And Another LAC (1990-94) 507
[5] J.H. Cassim et al Contemporary Company Law (Juta, 2011) p.349
[6] Note 5 @410-411
[7] .
[8] Attorney-General v. BBC [1981] AC 303 @ 344
[9] [1974] AC 273 @ 286
[10] Moafrika Newspaper re:rule nisi (R v. Mokhantṡo and Others) 2003 (5) BCLR 534 (LesH)
[11] Manyokole v. The Prime Minister [2021] LSCA 9 (14 May 2021)
[12] Schneebaum G. and Lavi S. J. “The Riddle of Sub-judice and the Modern Law of Contempt” Critical Analysis of Law 2:1 (2015) 173 @ 194
[13] Swissbourgh Diamond Mines (Pty) Ltd And 5 Others v, The Military Council of Lesotho And 8 Others 1991-96 (2) LLR 1091 (HC) @1620-1635
[14] Manyokole (supra)
Cited documents 1
Judgment 1
| 1. | Manyokole v The Prime Minister (C of A (CIV) 15 of 2021) [2021] LSCA 9 (14 May 2021) | 2 citations |