IN
THE COURT OF APPEAL OF LESOTHO

HELD
AT MASERU

C
OF A (CIV) No.10/2010

CIV/APN/111/2009

In
the matter between:-

CONCRETE
ROOTS (PTY) LTD ….................APPELLANT

AND

LEBAKENG
TIGELI …...............................RESPONDENT

CORAM:
SCOTT, JA

HOWIE,
JA

FARLAM,
JA

HEARD:
12 OCTOBER 2010

DELIVERED:
22 OCTOBER 2010

SUMMARY

Unfair
competition – two of the three directors of company A setting
up company B in direct competition with A and in breach
of their
fiduciary duties to A – inference of misappropriation of A’s
funds by B – interdict and procedural relief
sought pending
action by remaining director of A against B – such a derivative
action not barred by the rule in Foss v Harbottle.

JUDGMENT

HOWIE,
JA

[1]
Messrs L. Tigeli, R. Lehobo and M. Pitso are the directors and
registered shareholders of Pile Enterprise (Pty) Limited. For

convenience I shall refer to the three individual litigants by their
respective surnames and to the company as Pile. Pile was incorporated

in August 2006. Lehobo and Pitso were shareholders from its
inception. Tigeli became a shareholder in 2007.

[2]
By September 2008 Tigeli on the one hand and his fellow shareholders
on the other were in material dispute. At that stage Pile
conducted
business from Room 12, Mpilo Lodge, Maluti Road, Maseru as a supplier
of office stationery and equipment and operated
a current account and
a call account at the Maseru branch of Nedbank (Lesotho) Limited.

[3]
By early November 2008 a company with the name Concrete Roots (Pty)
Limited had been registered and was conducting business.
Its
directors and shareholders were Lehobo and Pitso. Concrete Roots, as
I shall refer to it, was also a supplier of office stationery
and
equipment. It also conducted business from Room 12, Mpilo Lodge. And
it also had current and call accounts at the Maseru branch
of
Nedbank.

[4]
On 20 March 2009 Tigeli, citing Pile, Lehobo, Pitso, Concrete Roots
and Nedbank as respondents, applied for a Rule nisi
interdicting the operation of the bank accounts of both companies
pending finalisation of an application on the return day for
various
forms of declaratory and procedural relief. The interdict was to have
immediate interim effect. The object of the relief
to be sought on
the return day was for the purposes of prosecuting an action,
(presumably against Concrete Roots). Nomngcongo J
granted the order.

[5]
An opposing affidavit, deposed to by Lehobo, was filed on behalf of
Concrete Roots, seeking to anticipate the return day and
outlining
its defence to the application. This was done by way of a few very
terse statements. They were these: Tigeli had no locus standi;
Concrete Roots had a contract with the Lesotho Government and Tigeli
was suing Concrete Roots for damages for unfair competition,
for both
of which reasons the company needed access to its bank accounts; and
Tigeli’s application was based on speculation
that Lehobo and
Pitso had transferred funds from Pile to Concrete Roots, which was
untrue.

[6]
The matter came before Chaka-Makhooane J on the anticipated return
day, 26 March 2009. On 23 November 2009 she made an order
referring
the case for oral evidence as to the transfer of funds out of Pile’s
bank accounts and as to the operation of Concrete
Roots’s bank
accounts. As regards the latter issue Nedbank was ordered to release
to the parties the bank statements of Concrete
Roots from the date of
the opening of “the account” to the date of the interim
order. Costs were to stand over. In
due course, the bank statements
of Concrete Roots were produced, and form part of the record.

[7]
On 19 March 2010 Chaka-Makhooane J granted the order against which
the present appeal has been brought. It said no more than
that the
application was granted with costs but it was common cause before us
that all concerned accept that it was intended to
be an order in
terms of paragraph 2 of the notice of motion. The only appellant is
Concrete Roots to which I shall hereafter refer
as “the
appellant”.

[8]
It is appropriate at this point to set out the terms of paragraph 2:

“2.1
An
order declaring second and third respondents’ dual directorship
in fourth respondent (CONCRETE
ROOTS (PTY) LTD)
unlawful
and in conflict with their respective fiduciary duties in first
respondent (PILE
ENTERPRISE (PTY) LTD)
and to
cease such; or alternatively to resign therefrom.

2.2
An order directing respondents to disclose or cause to be disclosed
to applicant herein all transactions in respect of all bank
accounts
of both first and fourth

respondents.

2.3
An order directing first, second, third and fourth respondents to
disclose or cause to be disclosed to applicant herein all
their
business activities including their personal assets.

2.4
An order declaring the business activities of fourth respondent
(CONCRETE ROOTS (PTY) LTD) as
constituting unlawful competition and to desist from such.

2.5
An order directing fifth respondent to freeze all accounts belonging
to first (PILE ENTERPRISE (PTY) LTD)
and fourth respondents (CONCRETE ROOTS (PTY)
LTD) pending finalisation of applicant’s
claim against first, second, third and fourth respondents herein in
action proceedings
instituted simultaneously with this application.

2.6
That the costs of this application be awarded
against those respondents who oppose this application, jointly and
severally, the
others to be absolved.”

We
were informed from the Bar that the envisaged action has indeed been
instituted.

[9]
The first submission advanced by counsel for the appellant was that
Tigeli lacked locus standi. He argued that because the wrong
allegedly done was one to Pile the rule in Foss v Harbottle
(1843) 2 Hare 461 (67 ER 189) at 492 applied, namely, that only Pile
could sue. This submission lost sight of the well-known exception
to
that rule which is that a derivative action by a minority director or
shareholder lies where the wrong involves conduct which
is fraudulent
and the alleged wrongdoers are the majority directors or shareholders
of the company: Burland and Others v Earle and Others [1902]
AC 83 (PC). Obviously the latter would not vote for action against
themselves. Faced with the authority of Burland’s case,
counsel conceded that his point could not succeed.

[10]
He also had no criticism - unsurprisingly - of the order in so far as
paragraph 2.1 was concerned. Apart from the fact that
Lehobo and
Pitso have opposed neither the application nor the appeal, their
being directors and shareholders of Pile’s competitor
when they
knew all there was to know of Pile’s business and financial
structure could not have constituted a clearer breach
of the
fiduciary duties they owed to Pile as its directors. And, of course,
the appellant was not an existing company - it was
they who had it
registered and who instigated the competition.

[11]
The problem for the appellant is that once those are the facts the
conclusion has to be that Lehobo and Pitso practised an
intentional
deception on Pile. The inevitable inference is that the appellant’s
competition with Pile was unfair and so constituted
an actionable
wrong. It is not without significance that in the short period of its
existence the appellant had achieved a government
contract which, but
for the appellant, would no doubt have been granted to Pile.

[12]
These circumstances justified interdictory relief pending the action,
as well as the orders for disclosure, even without regard
to the
question whether money was being siphoned off from Pile to the
appellant. However, such bank statements as there are on
record,
although they do not paint the full picture (for instance Pile’s
current account and call account details, as presented,
do not relate
to the same dates) nevertheless justify the conclusion that Pile’s
funds were modest and dwindled even further
whereas substantial sums
passed in and out of the appellant’s accounts. It is not
disputed on the papers that by the time
of the interim order on 20
March 2009 there was a total in Pile’s accounts, taken
together, of not much more than M6000.
The combined total in the
appellant’s accounts was in excess of M120 000.

[13]
Tigeli’s allegations were also not disputed that when he met
with Lehobo and Pitso early in March 2009 it was evident
to him,
judging by the outward manifestations of their respective lifestyles
and the vehicles they were driving, that their fortunes
had enjoyed
an infusion of prosperity.

[14]
Counsel for the appellant contended that it was not the most probable
inference from all the facts presently proved that Pile’s
money
was dishonestly being transferred to the appellant. I think it is.
This necessitates a restraint not only upon Lehobo and
Pitso who are
the people responsible for Pile’s current misfortunes but also
upon the appellant, to which their knowledge
and actions are in law
attributable.

[15]
That being so, all the relief granted by the Court below was
warranted and counsel for the appellant fairly conceded as much.

[16]
The appeal is dismissed with costs.

______________________

C
T HOWIE

JUSTICE
OF APPEAL

I
agree: ______________________

D
G SCOTT

JUSTICE
OF APPEAL

I
agree: ____________________­­­­__

I
G FARLAM

JUSTICE
OF APPEAL

Counsel
for the Appellant : Mr. T. Matooane

Counsel
for the Respondent: Adv. T.R. Mpaka