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C of A (CIV) No. 16/99
IN THE COURT OF APPEAL OF LESOTHO
In the matter between:
NKOPANE MONYANE 1st APPELLANT
MAPHAKA FIEE 2nd APPELLANT
MARGARET KHUBELU KAPHWIYO 3rd APPELLANT
PALO KOTELO 4th APPELLANT
and
LESOTHO BANK RESPONDENT
Held at Maseru
CORAM: J. H. Steyn P
L. van den Heever JA
R. N. Leon JA
L van den Heever JA
JUDGMENT
Four senior employees of the respondent ("the Bank") came to court for declaratory orders that, in terms of the contract of employment of each, the conduct of the Bank had constituted a breach of its obligations towards them which entitled them to terminate the relationship, and to consequential financial benefits. All four had been suspended on full pay, had been notified of proposed disciplinary
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proceedings against them scheduled for the 12th of July of last year, and had given notice in terms of their contracts that they elected to, and did, terminate their relationship with the employer Bank. In two urgent applications they came to court to put a stop to the proposed disciplinary proceedings, and obtain judgment for the amounts to which they claim their contracts entitled them. In civil application 278/99 three of them started off by obtaining a rule nisi. In application 281/99 Mr Kotelo's procedure omitted that step. Since both covered essentially the same issues they were by agreement set down and argued together. Mr. Kotelo was dealt with as being a fourth applicant. Judgment went against them all. In the present appeal directed against the refusal of the relief they sought, he participates as the fourth appellant.
Facts which are common cause may be summarised as follows:
Lesotho bank was established as a parastatal body corporate, the Government being the sole shareholder. It has incurred large losses over the years and is effectively insolvent in that its total liabilities exceed its assets by far.
The four applicants were as far as we know the only members of the executive of the Bank during the latter part of its decline.
We are not told what the first applicant did before he entered into a five-year contract with the Bank, apparently as General Manager and Managing Director, on 1 January 1993. This was followed by a further identical contract as from 1 January 1998 for a minimum of five years. The other three are his underlings.
The second applicant started as an ordinary clerk in 1978 and climbed the ladder of success until he became Assistant General Manager,
Corporate Banking -
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we are not told exactly when. A formal contract was concluded on 24 October 1996, by which his (continuing) employment was described as "Assistant General Manager".
The third applicant joined the permanent staff in February of 1978, was promoted to Assistant General Manager, Administration, in October 1991, and signed a contract on 24 March 1993 in terms of which she too was to serve as an Assistant General Manager on a continuing basis.
The fourth applicant joined the staff of the Bank in about June 1978 and worked his way up through the ranks, serving as Assistant General Manager, Retail Banking, from October 1991, the terms of his (continuing) employment as from 24 March 1993 being set out in a document signed by the parties on that date.
It was on 11 December 1997 that the Board of Directors of the Bank suspended all four of the applicants from their duties, on full pay, "to enable a new management to take over the management of the bank following repeated reports indicating a precarious financial situation, and reported violation of relevant statutes relating to management of the bank", (my emphasis)
Government had come to realise that
"the corporation needs a strategic investor to provide management expertise, to strengthen internal controls and achieve operational efficiency, to infuse adequate capital and to turn the bank into profitability".
This would be attempted by privatisation, by way of the sale of a majority stake to
Standard Bank (Pty) Ltd by private placement.
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On the 17th June, 1999, the Director of the Privatisation Unit created in terms of the Privatisation Act of 1995, published as Legal Notice 61 of 1999, the "Approved Privatisation Scheme of Lesotho Bank", setting out the information in the immediately preceding paragraph, and a good deal more: the number of shares in the Bank, its subsidiaries, management, number of employees, the nature of its assets, what information on its workings and situation had been or was in the process of being gleaned and/or confirmed and, in its paragraph "G", how it was proposed to go about implementing the proposed privatisation. The steps that would have to be taken were listed as follows:
"(j) incorporation of a new company .... to take over specified assets and liabilities of the bank
(ii) transfer of tide to identified landed properties.....to the new company
(iii) liquidation of the remaining assets of the corporation;
(iv) issue of Government bonds and infusion of cash by Government to meet the cost of privatisation of the Bank. These costs consist
mainly of the.....shortfall between the liability to be assumed and The assets to be taken over by the strategic investor and the
capitalization of the Government's 30% shareholding in the new company
(v) signature of the Sale Agreement for the divestiture"
Paragraph D of the Notice sets out steps taken so far to implement "the strategy":
"In March 1999 due diligence reviews on the bank were carried out by Standard Bank as the prospective investor and Pricewaterhouse
Coopers as the designated disinvestment advisor of Government. A special audit commissioned by government is presently being carried
out for purposes of reconfirming the balances of The assets and liabilities to be transferred to the new company."
The last paragraph of the Notice reads:
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"E. COMMENCEMENT
The proposed privatisation of the Bank is the 1st July 1999. This privatisation will not affect the Bank's indebtedness to its
depositors whose accounts will be transferred to the new company in its entirety".
All four of the applicants were informed on 2 July 1999 of the disciplinary enquiries to be held on 12 July, with details of the alleged contraventions by each of his or her duty towards the respondent. This galvanized all four into action, or rather into the present applications. Each alleged that Legal Notice 61 of 1999 constituted breach by the Bank of the contract of employment with such applicant. It was this, each averred, which entitled the employee to regard his or her relationship with the Bank at an end, and to payment of substantial parting benefits in terms of their contracts. And since they were no longer employees, disciplinary proceedings were not competent.
The foundation on which the applications rest, is the contract of each in so far as it deals with any contemplated metamorphosis of the respondent. After setting out in clause 8.1 what misconduct on the part of the employee entitles the employer "forthwith by notice in writing to terminate the employment of the Executive", clause 8.2 set out rights accorded to the employee to terminate the relationship as follows:
"8.2 Without prejudice to any of the Executive's rights in terms of this agreement, the happening of any one or more of the events hereinafter stipulated shall, unless the Executive agrees otherwise, be deemed to be a dismissal of the Executive to such relief as the law may afford, with a minimum of two years salary and including any damage
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which the Executive may have suffered in consequence 8.2.1 any compromise, arrangement or reconstruction of the Employer or its
affairs [including the amalgamation of the Employer with one or more companies] under any scheme involving
any alteration in share holding
any compromise or arrangement with other organizations
any take-over offer
any procedure in terms of any combination of the said provisions
the disposal of the whole or substantially the whole of the undertaking of the Employer's business or the whole or the greater part of its assets
a material change in the business of the Employer"
The Bank in its opposing affidavits admitted that a new company had been incorporated, Lesotho Bank (1999) Ltd, and registered on 30 June 1999. According to its memorandum of association the Government and Standard Bank agreed to take up respectively 300 and 695 of its 50 000 000 one-Loti shares, and five individual signatories one each. The first of its objects listed in the memorandum is to acquire and take over as a going concern the banking business now carried on in Lesotho by the respondent with "all or any" of its assets, liabilities, rights, obligations, used in connection with or belonging to its business in Lesotho. However
"Due to a number of factors and circumstances all the steps pertaining to the privatisation have been postponed to an uncertain
future date. No change in the shareholding has taken place to date and the Respondent is continuing its operations as before, in the same manner
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as before. I strongly deny that clauses 8.2 to 8.2.1.6 have become operative."
No particular "factors and circumstances" are set out. On the papers filed relating to the proposed disciplinary charges and the "repeated reports" emphasised earlier which preceded the appellants' suspension, it would not be an unreasonable inference to draw, that inquiry into those reports and what such inquiry might disclose could notionally influence the negotiations still to follow in the implementation of the Scheme.
It is, however, unnecessary to speculate. The respondent denied on affidavit that any of the further steps set out in par. C of the Legal Notice had yet been taken. The learned Chief Justice cannot be faulted for holding that the appellants had produced no evidence which could cast any doubt (were that sufficient, in motion proceedings) on the veracity of the affidavit of Mr. Swaray, Governor of the Central Bank and Commissioner of Financial Institutions in Lesotho, that no transfer of shares or material charge in business has been effected in the Bank to date. When the proposed changes will take place is still uncertain.
The appellants had according to their heads of argument already in the court a quo abandoned so much of the relief they claimed as sounded in money. What remained was, and is therefore, only the question whether they have established that the Bank has breached its contract with them entitling them to lawfully terminate the relationship of employer and employee as they have purported to do.
Mr. Tip, who appeared before us for the appellants, wisely abandoned untenable arguments and allegations made in the papers. He inevitably conceded also that it has not been established that the privatisation envisaged as set out in the
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Legal Notice has taken place. He argued that the court a quo had erred in holding that to be conclusive: we are so he submitted dealing with a clause in a contract which must be interpreted in its context, an employment context, not a company law context. Any change which radically affects the relationship between the parties to the employment contract, triggers the employee's right to terminate the relationship.
Section 20 of the Privatisation Act envisages that a potential purchaser will normally be identified only after a scheme in respect of a particular parastatal has been approved, whereafter the matter is to be submitted to Cabinet again for approval. That the Scheme already identified a potential purchaser in the present instance is in my view irrelevant. It is mandatory that publication occur before Cabinet finally approves. That is no futile formality, but by necessary implication invites comment, criticism, warnings, better offers - in short, input, from the public or notionally other interested parties, so to enable Cabinet to come to an informed
decision. There is no evidence at all that Cabinet has given this second approval.
To revert to the contract of employment. Clause 8.2 must certainly be read in context, which includes the fact that the Employer is a corporate body. The clause must also be read as a whole, not as though the occurrence of any one or more of the events set out in the further subsections of 8.2.1 entitle an employee to quit and claim generous financial benefits. Were that the case, the mere receipt of a take-over offer (clause 8.2.1.3) however disadvantageous for the Bank with little likelihood that the Bank would even consider it, would notionally enable irreplaceable executives to walk out wealthy. The events listed must fall into the category of event which in terms of section 8.2.1 is necessary namely "any compromise, arrangement or reconstruction of the Employer or its affairs .... under any scheme."
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It has not been shown that any "compromise, arrangement or reconstruction" has been yet effected, relating to the Bank, a corporate body, nor that whatever the intention of Government may be, the Scheme will inevitably be implemented and if so, when.
The argument advanced by Mr. Tip that it suffices if the employer has demonstrated its serious intention to arrange or reconstruct its affairs so that the employment relationship between the parties will inevitably be materially altered, can hold no water. The counter argument advanced by Mr. Alkema, for the Bank, may be crystallised in the adage: there's many a slip betwixt cup and lip. There are many hurdles still to cross, agreements for example relating to assets to be negotiated, steps to be taken, none of which are mere formalities. The new Bank could remain dormant for decades.
Mr. Tip could give no indication how far down the path of privatisation the Bank had to journey, to reach the dividing line between mere intention on the part of the employer and material alteration of the employee's situation. That, in my view, is the end of the matter, where there is in no evidence that so far the Bank has put its foot on the path defined in clause 8.2.1 at all, whatever Government's intentions for the future may be.
In short, the court a quo was correct in denying the appellants the relief they sought. That he discharged the rule nisi generally instead of limiting that order to the first three appellants and merely dismissing the application of the fourth, is a matter of form, not substance.
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The appeal is dismissed with costs, including the costs of two counsel.
Signed :
L. van den Heever
JUDGE OF APPEAL
I agree :
J.H.Steyn
PRESIDENT OF THE COURT OF APPEAL
R N Leon
Delivered at MASERU on this 13th day of April 2000
For the Appellants : Mr D G Roberts
For the Respondent: K E M Chambers
