17801/06 F BERGSTRÖM 1 JUDGMENT
Transcript of 17801/06 F BERGSTRÖM 1 JUDGMENT
17801/06 F BERGSTRÖM 1 JUDGMENT
LOM Business Solutions t/a Set LK Transcribers/LR
IN THE HIGH COURT OF SOUTH AFRICA
(WITWATERSRAND LOCAL DIVISION )
JOHANNESBURG CASE NO : 17801/06
2008.02.08; 2008.02.21
In the matter between
VOLVO (SA) PTY LTD Applicant
and
GERT YSSEL Respondent
J U D G M E N T
BERGER AJ :
[1] The applicant claims an amount of R775 107.00 from the
respondent, being the amount of undisclosed commissions earned by
the respondent allegedly in breach of his fiduciary obligations towards
the applicant.
[2] The issue in this application is whether the respondent, who had
no contract of employment with the applicant but performed services for
it, was, in the circumstances, under any fiduciary obligations towards the
applicant, and, if so, whether the undisclosed commissions were earned
in breach of such obligations.
[3] Before dealing with the facts of this matter, I need to deal with
the various affidavits filed by the parties and to set out my approach to
the factual allegations contained therein.
[4] The applicant launched these proceedings on 15 August 2006.
The respondent’s answering affidavit is dated 26 September 2006.
Approximately five months later, on 2 March 2007, the applicant served a
supplementary founding affidavit on the respondent’s attorneys. I was
informed by counsel for both parties that this affidavit was admitted by
this Court after hearing argument on the admissibility of such an
affidavit. Consequently, almost six months later, on 31 August 2007, the
respondent deposed to a further answering affidavit. Finally, on 23
October 2007, the applicant delivered its replying affidavit. In all, the
papers in this application run to some 513 pages.
17801/06 F BERGSTRÖM 3 JUDGMENT
[5] Not surprisingly, the papers contain numerous disputes of fact.
However, in my view, most of the significant and relevant facts are either
common cause or have not been disputed. Wherever there is a real
dispute of fact on a material point, I have decided the point on the
respondent’s version, regard being had to the principles laid down in
PlasconEvans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA
623 (A) 634E to 635C.
The factual background
[6] The applicant is Volvo (Southern Africa) (Pty) Limited. Its parent
company is AB Volvo, a public company in Sweden. I shall refer to the
applicant as “Volvo”.
[7] During 1999 Volvo was registered in South Africa after having
disinvested during the 1980s. It was contemplated that Volvo would
commence operations in South Africa during 2000.
[8] During the preparation phase of reestablishing Volvo’s business
in South Africa, it was recognised that Volvo would have to establish and
maintain an Information Technology Division to meet the demands of the
customers in the region and to interface with Volvo Sweden’s
IT systems.
[9] During 2000 Volvo contacted Renwick Management Consultants
(“Renwick”), a staff procurement and personnel placement agency.
Volvo mandated Renwick to interview and nominate suitable persons for
employment by Volvo as its IT manager.
[10] Renwick put forward the respondent, Mr Gert Yssel, as a
potential IT manager. The respondent met the requirements of Volvo
and Volvo decided to employ him.
[11] However, Mr Yssel was not prepared to enter into a contract of
employment with Volvo. He made it clear that he would only render
services at Volvo through his then labour broker, Highveld Personnel
(Pty) Ltd. Although not material to this application, I note that Highveld
Personnel (Pty) Ltd subsequently became Highveld PFS, a division of
Rothwell International BV, a company incorporated in the Netherlands. I
shall refer to both Highveld Personnel (Pty) Ltd and Highveld PFS as
“Highveld”.
[12] Mr Yssel’s contractual relationship with Highveld predated his
introduction to Volvo. When Volvo wished to employ him, Mr Yssel
stated that he wished to continue in employment with Highveld but that
he was prepared to render services at Volvo.
17801/06 F BERGSTRÖM 5 JUDGMENT
[13] In Mr Yssel’s view, there was certain tax benefits associated with
the type of arrangement he had with Highveld. In addition, such an
arrangement afforded him the economic freedom to become involved in
other business ventures.
[14] It therefore transpired that Volvo concluded an “independent
contracting agreement” in 2000 with Highveld for the services of
Mr Yssel. In terms of the agreement Volvo was identified as “the client”,
Highveld as “the contractor” and Mr Yssel as “the consultant”.
[15] Certain of the material terms of this agreement provided as
follows:
“1. APPOINTMENT AS CONTRACTOR
The parties wish to record the basis upon which the
CONTRACTOR has agreed to perform the services for the
CLIENT.
1.1 The CLIENT hereby appoints the CONTRACTOR who accepts
the appointment for the purposes of performing the functions
and related services set out in addendum “A”.
1.2 It is recorded that nothing in this agreement, whether express
or implied, shall be construed as creating the relationship of
employer and employee between the parties.
1.3 It is specifically recorded that the CONTRACTOR is an
independent contractor and not an employee of the CLIENT
and is, as such, not entitled to, inter alia benefits referred to in
clause 6.
1.4 The parties however record that there are certain areas where
the CLIENT requires to maintain control and/or supervision
over the CONSULTANT’S activities and performance of duties.
1.5 The CONTRACTOR gives the CLIENT full permission to sub
contract the CONSULTANT to any of the CLIENT’S clients.
…
3. FEES PAYABLE
3.1 For services rendered in terms of this agreement the CLIENT
shall pay the CONTRACTOR an allinclusive fee as set out in
addendum “A” or the prorata portion of the said amount in
respect of:
3.1.1 Time actually spent on rendering of such services,
and
3.1.2 Time spent on official trips undertaken during normal
17801/06 F BERGSTRÖM 7 JUDGMENT
working hours of the CLIENT.
…
6. SERVICE OF BENEFITS
6.1 The CONTRACTOR hereby acknowledges and confirms that
neither he nor the CONSULTANT is entitled whatsoever to the
benefits below offered by the CLIENT to its permanent
employees, or to any other benefits not stated expressly in this
contract.
6.1.1. Vacation, public holidays, maternity, paternity, sick or
any other absence of leave;
6.1.2 Pension, medical or housing benefits;
6.1.3 Payment of bonuses and salary increases; and
6.1.4 Remuneration of any nature whatsoever in terms of the
CLIENT’S personnel retrenchment policy.
6.2 The CONTRACTOR hereby acknowledges and confirms that
neither this contract nor any other fixedterm service contracts
which may be entered into between the parties after expiry
hereof will entitle the CONTRACTOR to, or create any
expectation whatsoever in respect of:
6.2.1 Continued service for an indefinite term;
6.2.2 The extension of the term of any such contract;
6.2.3 The conclusion of any further service contract between
the CLIENT and the CONTRACTOR.
…
12. AUTHORITY
12.1 The CONTRACTOR shall not have the authority to incur any
debt or other liability or to obtain any credit facilities either in
the name of or on behalf of the CLIENT without having
obtained the power of authority of the CLIENT signed by duly
authorised representative of the CLIENT.
12.2 The CONTRACTOR shall frankly and timeously advise
suppliers, creditors and financial institutions with whom the
CONTRACTOR transacts that he has no authority to bind the
CLIENT.
…”
[16] In terms of annexure “A” to this agreement, Mr Yssel’s services
were to be provided by Highveld to Volvo at the rate of R175.00 per hour.
His job description was recorded as “IT Manager” and his duration of
service was stated to be six months.
17801/06 F BERGSTRÖM 9 JUDGMENT
[17] A further agreement was concluded between Volvo and Highveld
during April 2001 (“the 2001 agreement”) in terms of which Highveld
undertook to provide Volvo with “a person ... with the necessary skills
and expertise to perform the tasks as required by the Client”. It is
common cause that the person was Mr Yssel and that the tasks required
by Volvo were those specified in annexure “A” to the 2001 agreement,
namely:
“The management of the I.T. infrastructure of Volvo (Southern Africa)
(Pty) Ltd by means of:
• User support
• User training
• Investigation and development of new I.T. processes to
stay abreast with technology
• Liaison with Volvo Information Technology Sweden
• Staff management
• Liaison with local suppliers
• Work in close conjunction with line managers”
[18] In terms of the 2001 agreement, which ran from 1 January to 31
December 2001, Volvo undertook to pay Highveld a fixed price of
R40 000.00 per month, excluding VAT, for the services rendered by
Highveld through Mr Yssel.
[19] The legal relationship between Volvo (the client) and Highveld
was expressed as follows in the 2001 agreement.
“14 LEGAL RELATIONSHIP
The Client is a client of Highveld Personnel and this agreement does
not constitute and shall not deem to create a principal/agent
relationship or joint venture or partnership or employment between
The Client and Highveld Personnel.”
[20] During January 2002, and again in March 2003, Volvo and
Highveld concluded agreements on the same terms and conditions as
the 2001 agreement, subject to annual increases in the fees charged by
Highveld.
[21] During August 2004 Volvo and Highveld concluded a “temporary
service agreement” in terms of which Highveld (referred to in the
agreement as “the Company”) undertook to provide individuals to render
services at Volvo (referred to in the agreement as “the Client”). Two
further terms, “Confirmation of Assignment” and “Services”, are defined
in the agreement as follows:
“…
2.1.5 “Confirmation of Assignment” means the contract document
17801/06 F BERGSTRÖM 11 JUDGMENT
for the supply of services containing specific contractual
details signed by the Company and Client for each contract
assignee placed, attached as annexure “A” hereto;
…
2.1.8 “Services” means the services to be rendered by the
assignee to the Client as more fully described in the
Confirmation of Assignment.
…”
[22] I shall refer to this agreement as “the 2004 agreement”. Certain
of the material terms of the 2004 agreement provided as follows:
“…
5. REQUEST FOR STAFFING
5.1 Upon receipt of a request for the supply of contract staff, the
Company shall make available to the Client upon request, the
relevant and sufficiently detailed Curriculum Vitae and
confirmation of attainment of a particular competency, where
required, of all prospective assignees.
5.2 The Client shall be entitled to conduct interviews with
prospective assignees to ascertain their suitability, and shall
not be liable in any way for the selection or rejection of any
potential candidate, nor any costs incurred by any party in
attending interviews.
5.3 Similarly, the Company shall not be liable in any way should
the Contractor, after the interview process, prove to be
unsuitable to the Client’s needs. The Company shall however,
reserve the right to provide a replacement within 7 (seven)
days of notification.
5.4 Upon acceptance of a potential candidate, the Client shall sign
the Confirmation of Assignment document provided by the
Company, reflecting the specific contract details.
5.5 Once signed, the Confirmation of Assignment shall become an
official order from the Client and shall be governed by this
agreement except as specifically provided in writing.
5.6 In circumstances where the Client, for its own purposes,
issues an official order for service provision, these provisions
will not apply and the Client’s order shall govern.
6. DURATION
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This Service Agreement shall commence on the date of any
specified Confirmation of Assignment (notwithstanding the
date of signature of the agreement) and shall remain in force
until the completion of the specified assignment, unless
terminated earlier in accordance with the provisions of this
agreement.
7. PAYMENTS
7.1 The Client shall pay the Company on a monthly basis for all
authorised hours worked by the assignees during the month,
at the stipulated rate.
7.2 The fees payable shall be for services rendered by the
assignees in terms of the Confirmation of Assignment and are
inclusive of all remuneration, allowances, insurances and all
other costs and expenses and are only subject to variation or
amendments upon written agreement between the Client and
the Company.
7.3 The Client shall be obliged to pay the Company amounts in
respect of any confirmed assignment on presentation of
approved, properly completed claims in accordance with the
procedure set out below.
7.4 The Company and the assignees shall complete and sign
timesheets as a record of all hours worked by each assignee.
Time sheets shall be submitted to the Client together with the
relevant monthly tax invoices and detailed statements three
working days before the end of that month.
7.5 The Company shall make payment to the assignees in such
manner as they may have agreed with each other, and the
Client shall have no obligation to make any payments
whatsoever to any assignee. The Company indemnifies and
holds the Client harmless against any claim of whatsoever
nature that may be brought by any assignee against the
Company in consequence of this Agreement.
7.6 The Company shall be responsible for the deduction of
payment of all income tax in respect of its assignees.
7.7 The Client will withhold the required employees’ tax from all
payments made to the Company, unless the Company
provides the Client with an exemption certificate issued by the
South African Revenue Services.
8. RESPONSIBILITIES AND UNDERTAKINGS
8.1 The Company shall remain responsible for all assignees
17801/06 F BERGSTRÖM 15 JUDGMENT
throughout the duration of this Agreement and any confirmed
assignments.
8.2 The Company warrants that the assignees are competent to
render the required Services.
8.3 The Company shall instruct the assignees to comply with all
the rules and procedures of the Client. Without derogating
from the generality of the aforegoing, the Company will ensure
that the assignees comply with the following:
8.3.1 the working hours of the Client applicable to the premises at
which the assignee is to render services;
8.3.2 security requirements of the Client;
8.3.3 the normal reporting procedures of the Client in respect of any
work undertaken by the employee; and
8.3.4 working outside normal working hours in order to meet the
requirements of assignment.
8.4 The Company shall instruct and ensure that the assignees
obey all reasonable instructions given by the Client.
8.5 Should any assignee fail to comply with the requirements of
the Client or with any lawful and reasonable instruction given
by the Client’s representative, the Client shall be entitled to
cancel the assignment in respect of that assignee’s Services
forthwith, in which event the Company undertakes to ensure
that the assignee leaves the premises immediately.
8.6 The Company recognises its sole responsibility to take any
disciplinary action against any assignee should the need so
arise. The Company recognises that by virtue of its status as
the employer of such assignee, it has the responsibility to
discipline the assignee where required and to do so in a fair
and reasonable manner and in full compliances of the LRA or
any employment law.
8.7 The Client shall ensure that no assignee works in excess of
the following working hours:
8.7.1 45 (forty five) hours during any 1 (one) week:
8.7.2 12 (twelve) hours during any 1 (one) working day.
…”
[23] On 24 August 2004 Mr Yssel, designated “the contractor”, signed
a document entitled “Confirmation of Assignment”, as envisaged in
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clause 2.1.5 of the 2004 agreement. Volvo had signed the document the
day before. Highveld signed the document on 25 August 2004.
[24] As will appear later in this judgment, Mr Yssel was not the only
contractor to sign such a document on or about 24 August 2004.
[25] The Confirmation of Assignment signed by Mr Yssel provided
that he would “be responsible for the management of the I.T.
infrastructure of Volvo (Southern Africa) Pty Ltd”. The areas of
responsibility expressly listed in the document are identical to the tasks
that were identified in the 2001 agreement. The price payable by Volvo
to Highveld for Mr Yssel’s services was recorded as follows:
“A fixed price of R54 000.00 (Fifty Four Thousand Rand) excluding
VAT will be levied per month as from the 1 January 2004 until the
31 December 2004 according to terms as per this agreement. (Based
on R303.00 per hour for 178 hours per month.)”
[26] An identical agreement was concluded between Volvo and
Highveld to govern the period from 1 January to 31 December 2005,
save for an increase in the monthly fixed price to R57 240.00.
[27] In the founding affidavit deposed to by Ms Van Eeden, Volvo’s
National Human Resources Manager, it is contended that the various
agreements between Volvo and Highveld from 2001 until 2005 provided
that the fixed monthly price stipulated therein was to be paid to Mr Yssel.
This is clearly incorrect and reflects a mistaken understanding of the
express terms of the successive agreements.
[28] In my view, it is clear from the papers that there was no privity of
contract between Volvo and Mr Yssel. His signature on the confirmation
of assignment was no more than an indication that he accepted his
contractual responsibilities towards his employer Highveld, and that his
services at Volvo were required to discharge Highveld’s contractual
obligations towards Volvo.
[29] It therefore follows that Mr Yssel was not an employee of Volvo.
Indeed, the documents referred to above make it plain that Mr Yssel’s
contract of employment was with Highveld. (Compare Crown Chickens
(Pty) Ltd t/a Rocklands Poultry v Rieck 2007 (2) SA 118 (SCA) at
126127.)
[30] Mr Barrie SC, who appeared on behalf of Volvo with Mr G J Nel,
submitted that the relationship between Mr Yssel and Volvo was so
close to an employment relationship that it should be regarded as
practically indistinguishable.
17801/06 F BERGSTRÖM 19 JUDGMENT
[31] In this regard, Mr Barrie emphasised Mr Yssel’s areas of
responsibility. It is indeed so that Mr Yssel performed the functions of
an Information Technology Manager at Volvo. However, his functions
were expressly limited by the terms of the successive contracts
concluded between Volvo and Highveld over a period of more than five
years. He had no authority to bind Volvo contractually with third parties;
he was bound to comply with the rules and procedures of Volvo,
because Highveld instructed him to do so; he was bound to obey all
reasonable instructions given by Volvo, because Highveld instructed him
to do so. If he committed any act of misconduct while performing his
services at Volvo, Volvo had no jurisdiction to discipline him. Instead, it
was Highveld, by virtue of its status as his employer and the express
terms of its contract with Volvo, that bore the sole responsibility of
disciplining Mr Yssel.
[32] In Volvo’s supplementary founding affidavit (par. 30), Ms Van
Eeden described Mr Yssel’s functions as follows:
“As Volvo’s IT manager he did, in fact, manage “the IT infrastructure of
Volvo”, as was later spelt out in annexures “RVE 3” (papers p. 43),
“RVE 4.2 (papers p. 50), “RVE 4.3” (papers p. 66) and “RVE 4.4”
(papers p. 82). He managed the User Support and User Training
functions (i.e. the functions to assist users of Volvo’s IT systems to
utilise the IT systems), and he was responsible to keep abreast of
IT developments and to advise Volvo’s Managing Director and chief
financial officer regarding what needed to be implemented to enable
Volvo to utilise new technologies and developments to its advantage.
On behalf of Volvo, he liaised with IT staff employed by Volvo Sweden
to ensure that Volvo’s IT systems would be compatible with and would
integrate with Volvo Sweden’s, and managed and exercised authority
over staff in the IT department on behalf of Volvo all of whom reported
to him (see e.g. annexures “RVE 5.1” and “RVE 5.2” to the founding
affidavit). He also dealt with and negotiated and contracted with local
suppliers of IT equipment and software on behalf of Volvo and worked
in close conjunction with all Volvo’s managers whose departments
used Volvo’s IT systems. Putting it generally, he, on behalf of Volvo,
performed all the tasks and functions that would fall to somebody who
is the head of the IT department of a business of Volvo’s nature and
size.”
[33] Mr Yssel’s answer to the allegations in paragraph 30 of
Ms Van Eeden’s supplementary founding affidavit was as follows:
“32.1 It is correct that I managed the Applicant’s IT infrastructure by
means of only performing the functions specified on pp 43, 50,
66, and 82 of the papers.
17801/06 F BERGSTRÖM 21 JUDGMENT
32.2 I deny that it was part of my agreed functions to contract with
local suppliers of IT equipment and software on behalf of the
Applicant or to enter into any contract on behalf of the
Applicant.
32.3 I strongly deny that I contracted with Highveld to “generally ...
perform all tasks and functions that would fall to somebody
who is the head of the IT department of the business of
Volvo’s nature and size.” That was at no time a term of the
agreement. A fortiori, the tasks and functions of the heads of
IT Departments of businesses of the Applicant’s nature and
size in any event differ from one business to another. In some
businesses the recruitment of staff may be allocated to the
IT Department, or to a division within the IT department whilst
in other businesses, as in the case of the Applicant, the
recruitment of all staff and contracts with labour brokers were
allocated and done by the Human Resources Department, of
which Ms Van Eeden was the manager. As appears from
“RVE 3” (papers, p 43), “RVE 4.2” (papers, p 60), “RVE 4.3”
(papers, p 66) and “RVE 4.4” (papers, p 82), the recruitment,
employment or acquisition of staff was neither a function that I
had agreed with Highveld to perform, nor a service that
Highveld had contracted with the Applicant to provide.”
[34] To the extent that there is a contradiction between
Ms Van Eeden’s and Mr Yssel’s description of his functions, I must
accept Mr Yssel’s version. In any event, it seems to me that Mr Yssel’s
version accords with the terms of the agreements between Volvo and
Highveld.
[35] However, the recruitment, employment and/or acquisition of staff
require further attention. In this regard, Volvo stresses that one of the
express areas of Mr Yssel’s responsibility was “liaison with local
suppliers”. According to Ms Van Eeden, local suppliers included labour
brokers.
[36] It is common cause that Mr Yssel, in his capacity as IT Manager,
did communicate with certain labour brokers. He confirms that he
“signed invoices from labour brokers because, in managing the staff, I
was able to verify that they performed the functions in terms of the
Applicant’s contracts with the labour brokers that employed them.” (par.
51)
17801/06 F BERGSTRÖM 23 JUDGMENT
[37] However, Mr Yssel denies that labour brokers fell into the
category of “local suppliers” as envisaged in the contracts between
Volvo and Highveld. He contends that suppliers as envisaged in the
contracts were suppliers of IT equipment and software.
[38] In my view, I must interpret the phrase “liaison with local
suppliers” by having regard to the ordinary meaning of the words and
the context in which they appear. In doing so, I am of a view that
Mr Yssel is correct in his assertion that the suppliers envisaged were
suppliers of IT equipment and software, and not labour brokers.
[39] Furthermore, the fact that Volvo had its own Human Resources
Department, managed by Ms Van Eeden, that was responsible for the
recruitment, employment and acquisition of all staff, reinforces the
conclusion that Mr Yssel had no duty or authority to liase with labour
brokers for the purpose of negotiating or concluding contracts for the
provision of labour.
The undisclosed commissions
[40] By the middle of 2004, there were six members of staff working
in Volvo’s IT department under Mr Yssel’s management. They had all
been contracted through labour brokers. They were: Mr Steyn and
Mr Streak, whose services had been supplied in terms of a contract
between Volvo and a labour broker known as Integr8 IT; Mr Coop, who
had been similarly contracted through ITSS, and Mr Van Rensburg,
Mr Van Rhyswijk and Mr Du Plessis, whose services had been supplied
through Optimising Systems.
[41] In Volvo’s founding affidavit Ms. Van Eeden states (at par. 18 and
19):
“18 Towards the end of 2004 it came to my attention that Volvo
intended terminating its contract with Integr8 IT. As a result, I
approached Yssel and informed him that the IT personnel who
were contracted through Integr8 IT needed to come onto the
payroll system of Volvo.
19 Yssel’s response was that the IT personnel concerned were not
willing to come onto Volvo’s payroll and wished to be contracted
through Highveld PFS as they would, according to him, receive
a better tax benefit...”
[42] In his answering affidavit (par. 39) Mr Yssel disputes the version
put forward by Ms Van Eeden. He states as follows:
17801/06 F BERGSTRÖM 25 JUDGMENT
“39.1 … What really occurred was the following.
39.2 During or about the middle of 2004, the IT personnel who were
contracted through Integr8 IT and the contractor (David Coop)
who worked for ITSS intimated to me that they were unhappy
with the way that they were treated by their respective
employers. The contractors who were at the time employed by
Integr8 IT were Justin Streak and Johan Steyn.
39.3 I then went to Van Eeden, the deponent to the Applicant’s
founding affidavit, being the Applicant’s Human Resources
Manager, and I explained to her that some of the contractors
were unhappy with their present employers and I suggested to
her that I could arrange for the Applicant to hire the services of
all the IT personnel contractors through Highveld at the same
or a lower rate than that which the Applicant was at the time
paying the then current labour vendors for the services of the
said contractors. Having myself been employed by Highveld
for a number of years, I was also aware that everyone would
be better off if all the IT personnel contractors were to be
employed by Highveld and seconded to the Applicant by
Highveld. I had, by that time, also approached Lelani
Pieterse, the Manager: Marketing and Support of Highveld and
enquired from her whether Highveld would be agreeable to
employ the said IT personnel and to second them to the
Applicant with immediate effect. Lelani Pieterse indicated her
agreement on behalf of Highveld and also agreed on behalf of
Highveld to pay me a commission for my efforts in facilitating
the transaction, from which Highveld would derive a financial
benefit.
39.4 Van Eeden similarly agreed to my suggestion and all the
contractors were likewise happy with the proposal.”
[43] Ms Van Eeden subsequently sought to distance herself from the
obvious and clear meaning of paragraph 18 of her founding affidavit.
[44] During August 2004, Mr Van Rensburg, Mr Van Rhyswijk and
Mr Du Plessis resigned from the employment of their existing employers
and concluded contracts of employment with Highveld. Mr Coop,
Mr Streak and Mr Steyn followed during April 2005 and concluded
employment contracts with Highveld.
[45] It is common cause that neither Volvo nor the six individual
IT contractors were worse off as a result of the new contracts with
Highveld. Volvo was not required to pay any additional costs. On the
contrary, Mr Steyn, Mr Streak, and Mr Coop all received a higher basic
salary from Highveld than that which they had received from their
previous labour brokers and Volvo’s payments to Highveld in respect of
17801/06 F BERGSTRÖM 27 JUDGMENT
these three contractors dropped by R8 820.00 per month.
[46] This was not the first time that Mr Yssel had become involved in
labourrelated issues at Volvo. Indeed, prior to his reporting for duty at
Volvo, Mr Yssel had operated a small labour brokerage under the name
PSP Projects. After his arrival at Volvo, Mr Yssel informed Volvo’s chief
financial officer (Mr Ericsson) that the then current labour broker (NJA
Computers) was charging Volvo more than a reasonable sum for the
services of two support assistants in the IT department.
[47] Pursuant to Mr Yssel’s recommendations to Mr Ericsson, Volvo
terminated the contracts relating to the two support assistants and
concluded a contract with a labour broker known as BSafe Systems CC
for the secondment of two other support assistants at a substantially
reduced price. Significantly, Mr Ericsson was at all times aware that B
Safe Systems CC was owned by Mr Yssel’s brother. One of the support
assistants seconded by BSafe Systems CC was Mr Steyn who
subsequently contracted with Integr8 IT.
[48] As a result of the transaction with BSafe Systems CC, Volvo
saved an amount of approximately R23 000.00 per month. It is not
alleged that Mr Yssel earned any commission on that transaction.
[49] The manner in which Mr Yssel came to conclude an agreement
with Highveld in respect of the six IT contractors is described by him as
follows in paragraph 212 of his answering affidavit:
“212.1 During the first part of 2004 I became aware that Streak and
Steyn, who were both employed by Integr8 IT, were
dissatisfied by the treatment they received from Integr8 IT.
212.2 Later on, Coop also became dissatisfied with the treatment he
received by his employer, ITSS, due to late payments being
made to him on a regular basis. At some time after having
become aware of the dissatisfaction of Streak and Steyn, the
thought occurred to me that they could terminate their existing
contracts with Integr8 IT and conclude contracts with Highveld,
with whom I had received good allround treatment at all
times. The thought eventually also occurred to me that should
I take their business to Highveld, that I might procure a
remuneration for myself in the form of a commission. This in
turn led to the thought that I could arrange for all the
IT personnel, who at that stage were employed by three
different labour vendors, to take up employment with Highveld
and in so doing, perhaps procure a regular income in the form
of a commission for myself.
212.3 I visited Pieterse and shared my thoughts with her. She
17801/06 F BERGSTRÖM 29 JUDGMENT
indicated that Highveld would be prepared to employ the
existing IT personnel, second them to the Applicant and pay
me a monthly commission.
212.4 At that stage I had of course not yet discussed my proposals
with the IT personnel or with the Applicant.
212.5 I in broad terms discussed the tariffs that were being charged
by the existing labour vendors and the approximate amounts
of their gross profits and also the amount of commission that
Highveld would be willing to pay me if the transfers were to be
agreed upon by all concerned. It was agreed at that stage
that, if the conclusion of the agreements with Highveld were
successful, that Highveld would charge the Applicant the same
monthly fixed price as the existing labour vendors were
charging the Applicant, or less. The amount that would be
payable to me by way of commission would be equal to the
fixed price, less the contractor’s salary plus R1 000,00. The
R1 000,00 would be Highveld’s own net commission. In
addition, Highveld would by virtue of its own agreement with
the contractors, deduct an amount of R425,00 plus 2% from
the contractor’s agreed salary as an administration fee.
212.6 I suggested to Pieterse that the payment of commission
payable to me should not be discussed with the contractors or
with the Applicant, to which suggestion she agreed. She
naturally had to inform the contractors of the amounts by
which their salaries were to be reduced. The aforegoing made
good business sense to me and there was nothing abnormal
about it.
212.7 I indicated to her that I would eventually seek to establish a
business by expanding the same concept in cooperation with
Highveld by means of establishing outsourcing links with other
businesses, for IT personnel which were either on Highveld’s
books or IT personnel which I would procure. Pieterse was
amenable to my suggestions.
212.8 I thereafter over a period of time enquired from the
IT personnel as to whether they were willing to terminate their
existing contracts and transfer same to Highveld. All of them
were agreeable to the suggestion as confirmed in the affidavits
of the IT personnel that are annexed to the Applicant’s
application.
212.9 I also discussed the matter with Van Eeden, who is the Human
Resources Manager, and she indicated her willingness to
conclude contracts in respect of the same IT personnel with
Highveld.
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212.10 The agreements were consequently concluded as envisaged
and Highveld duly paid me commissions totally R775 10700
(before tax) and reflected in Annexure “JASB1” to the affidavit
of Borthwick.
...”
[50] Mr Barrie submitted that this extract and the previous extract
from Mr Yssel’s answering affidavit prove that a contract of agency or
mandate came into existence between Volvo and Mr Yssel, regarding
the termination of the existing contracts of the six IT contractors and the
transfer of their services to Highveld. I do not agree.
[51] In my view, Mr Yssel exploited an opportunity that presented
itself when certain of the IT contractors conveyed to him their
unhappiness with their then labour brokers. After having negotiated a
secret deal with his employer, he then approached Ms Van Eeden with
his suggestion. She was clearly amenable to the suggestion because
Volvo would pay Highveld less than what it was paying the current
labour brokers and the IT contractors would no longer be unhappy.
[52] There is no suggestion in Mr Yssel’s affidavit that Ms Van Eeden
mandated him to conclude the transaction on behalf of Volvo. Indeed, in
her founding affidavit, Ms Van Eeden described Mr Yssel as having
acted as the representative of the six IT personnel at all times. She also
described Mr Yssel as having “facilitated” the move of the IT personnel.
[53] The real issue for decision, in my view, is whether Mr Yssel’s
exploitation of the opportunity that presented itself was in breach of any
fiduciary duties he may have owed to Volvo. Before dealing with this
issue, it is necessary for me to consider the relevant law.
The law on breach of fiduciary duty
[54] A claim for secret profits made through a breach of a fiduciary
duty is based neither in the law of contract nor in the law of delict. It is a
17801/06 F BERGSTRÖM 33 JUDGMENT
claim that is sui generis and one in which the successful claimant is
entitled to a disgorgement of the profit so made. The claim is not one
for damages. Accordingly, the fact that the claimant has suffered no
damages is of no consequence. (See Symington and Others v Pretoria
Oos Privaat Hospitaal Bedryfs (Pty) Ltd 2005 (5) SA 550 (SCA) at 562
CF)
[55] In Phillips v Fieldstone Africa (Pty) Ltd and Another 2004 (3) SA
465 (SCA) at 479D to 480D, Heher JA summarised the present state of
our law relating to breach of fiduciary duty and its consequences as
follows:
1. The rule, that a person who occupies a position of trust
towards another is not allowed to make a secret profit at the
other’s expense or to place himself in a position where his
interests conflict with his duty, is a strict one which allows little
room for exceptions.
2. The rule extends not only to actual conflicts of interest
but also to those which are a real sensible possibility.
3. The defences open to a fiduciary who breaches his trust
are very limited: only the free consent of the principal after full
disclosure will suffice.
4. Because the fiduciary who acquires for himself is
deemed to have acquired for the trust, once proof of a breach of
a fiduciary duty is adduced it is of no relevance that:
a. the trust has suffered no loss or damage;
b. the trust could not itself have made use of the information
or opportunity, or probably would not have done so;
c. the trust, although it could have used the information or
opportunity, has refused it or would do so;
d. there is not privity between the principal and the party
with whom the agent or servant is employed to contract
business and the money would not have gone into the
principal’s hands in the first instance;
e. it was no part of the fiduciary’s duty to obtain the benefit
for the trust; or
f. the fiduciary acted honestly and reasonably, although
17801/06 F BERGSTRÖM 35 JUDGMENT
English and Australian Courts make some allowance for
equity in calculating the scope of the disgorgement in
such cases.
5. The duty may extend beyond the term of the employment.
[56] That the rule is a strict one admits of no doubt. Nor is there any
doubt in my view that the consequences of its breach are exact. But,
does the rule apply in the circumstances of this case?
[57] In Robinson v Randfontein Estates Gold Mining Co Ltd 1921 AD
168 at 177180, Innes CJ set out the law in relation to the rule. The
learned Chief Justice also identified certain relationships in which the
rule would apply, namely guardian and ward, solicitor and client, agent
and principal, but was careful to note that this was not a closed list. At
180 Innes CJ stated:
“Whether a fiduciary relationship is established will depend upon the
circumstances of each case. Where the director was at the date of the
acquisition the agent of the company for such a transaction, the
fiduciary relationship would of course be created. That element has
generally been present in the decided cases where profits have been
awarded. But, so far as I am aware, it is nowhere laid down that in
these transactions there can be no fiduciary relationship to let in the
remedy without agency. And it seems hardly possible on principle to
confine the relationship to agency cases.”
[58] Generally speaking, directors stand individually in a fiduciary
relationship to their company. However, the circumstances of a
particular case may be such that a director is not liable to account to his
company for secret profits made by him at the expense of the company.
[59] Burland and Others v Earle and Others 1902 AC 83 was such a
case. There Burland, a director of the company, had sold to the
company certain assets which he had purchased from the liquidator of
the Burland Lithographic Company, a company in liquidation. Burland
was interested in the insolvent company, both as a stockholder and as a
creditor. He had paid the liquidator $21 564 for the assets which he
shortly thereafter sold to the company for $60 000. On appeal from the
Court of Appeal for Ontario, the Privy Council held that Burland was not
liable to account to the company for the profit of $38 436 that he had
made in the transaction. Lord Davey, delivering the judgment of the
Privy Council, stated the following at 9899:
“In these circumstances Burland has been ordered to pay to the
company the sum of $38 436, being the amount of the profit realised
by him on the resale. Both Courts have held that the resale was made
17801/06 F BERGSTRÖM 37 JUDGMENT
by Burland’s advice and influence, and was made without disclosing to
the company the price at which he had purchased. It was also held in
the Court of Appeal that Burland had bought the property with the
intention and for the purpose of reselling it to the company...
There is no evidence whatever of any commission or mandate to
Burland to purchase on behalf of the company, or that he was in any
sense a trustee for the company of the purchased property. It may be
that he had an intention in his own mind to resell it to the company; but
it was an intention which he was at liberty to carry out or abandon at
his own will. It may be also that a person of a more refined self
respect and a more generous regard for the company of which he was
president would have been disposed to give the company the benefit
of his purchase. But their Lordships have not to decide questions of
that character. The sole question is whether he was under any legal
obligation to do so. Let it be assumed that the company or the
dissentient shareholders might by appropriate proceedings have at
one time obtained a decree for rescission of the contract. But that is
not the relief which they ask or could in the circumstances obtain in
this suit.”
[60] In Robinson, after referring to Burland and other contemporary
English decisions with approval, Innes CJ stated the following at 179:
“And it is clear from these decisions that, in every such inquiry, regard
must be had to the relationship in which the director stood to the
company when he acquired the property. The test is, not what honour
would dictate, but what the law will allow. And that depends upon his
duty to the company at the date of acquisition. If he was under no
obligation at that time to acquire the property for the company, instead
of for himself, then his nondisclosure would entitle it to repudiate the
sale and restore the original position, because, as already explained,
the transaction could not bind the company without its free consent. It
could affirm the contract, but only by an acquiescence in its terms.
The acquisition being untainted by any breach of duty, the company’s
only claim to the subject matter would be based on the contract. It
could not seek to retain the property at a price reduced by a deduction
of the director’s profit. For that would amount to a new contract
between the parties. When, however, the director’s default extends
further than nondisclosure, when a breach of duty attended the
original acquisition, then the company may, if it chooses, retain the
property purchased and also demand a refund of the profits.”
[61] As far as companies are concerned, fiduciary duties are not
limited to directors. In Phillips, the Supreme Court of Appeal confirmed
a decision of this Court in which an employee had been held liable to
account to his former employer for secret profits made by him in breach
of his fiduciary duties towards his employer.
[62] In Hodgkinson v Simms [1994] 3 SCR 377 (SCC); (1995) 117
17801/06 F BERGSTRÖM 39 JUDGMENT
DLR (4th) 161, the Supreme Court of Canada held an accountant liable
for breach of his fiduciary duties towards his client. In Phillips, at 482B,
our Supreme Court of Appeal referred with approval to Hodgkinson
where La Forest J stated:
“It is the nature of the relationship, not the specific category of actor
involved that gives rise to the fiduciary duty. The categories of
fiduciary, like those of negligence, should not be considered closed.”
[63] Mr C J Nel, who appeared on behalf Mr Yssel, submitted that, by
virtue of the successive written agreements between Volvo and
Highveld, and the lack of any privity of contract between Volvo and
Mr Yssel, the relationship between Volvo and Mr Yssel was not
susceptible to fiduciary duties. I do not agree.
[64] It is clear, in my view, from the authorities cited above, that the
absence of contractual privity between two parties does not preclude the
existence of a fiduciary relationship between them.
[65] Mr Nel also argued, in the alternative, that the nature and extent
of the fiduciary duties that attached to the relationship between Volvo
and Mr Yssel have to be determined before it can be said that Mr Yssel
breached them. In my view, this alternative submission accords with the
dicta of Innes CJ in Robinson at 177180.
[66] Various tests have been formulated to assist in the determination
as to whether a particular relationship gives rise to a fiduciary duty.
(See, for example, Phillips at 482 CD and Hospital Products Limited v
United States Surgical Corporation and Others [1984] 156 CLR 41 at
9697.) Heher JA cautioned however, at 482D in Phillips, that the
analysis of power, discretion, and vulnerability in any relationship is
helpful but not decisive in determining whether a fiduciary obligation has
been imposed.
[67] Heher JA approved, at 480 DG in Phillips, of the following
approach, enunciated by Lord Upjohn in Boardman v Phipps [1966] 3 All
ER 721 (HL) at 758, as a practical way of dealing with cases of this
nature.
“1. The facts and circumstances must be carefully examined to
see whether in fact a purported agent and even a confidential
agent is in a fiduciary relationship to his principal.
2. Once it is established that there is such a relationship, that
relationship must be examined to see what duties are thereby
imposed on the agent, to see what is the scope and ambit of
the duties charged on him.
3. Having defined the scope of those duties one must see
17801/06 F BERGSTRÖM 41 JUDGMENT
whether he has committed some breach thereof by placing
himself within the scope and ambit of those duties in a
position where his duty and interest may possibly conflict. It is
only at this stage that any question of accountability arises.
4. Finally, having established accountability, it only goes so far as
to render the agent accountable for profits made within the
scope and ambit of his duty.”
[68] This approach, in my view, also accords with the approach of
Innes CJ in Robinson at 177180.
Were any fiduciary obligations breached in this case?
[69] It is clear that Mr Yssel performed services at a relatively high
level within Volvo. As the manager of Volvo’s IT department he bore
certain responsibilities. The nature and extent of those responsibilities
were expressly set out in the successive agreements concluded
between Highveld and Volvo. In my view, the circumstances surrounding
the performance of his services at Volvo did indeed create a legal
relationship of trust between Mr Yssel and Volvo.
[70] Mr Yssel therefore owed certain fiduciary duties to Volvo. For
example, Mr Yssel was responsible for managing the investigation and
development of new IT processes so that Volvo could stay abreast of
new technology. In his liaison with local suppliers of IT equipment and
software, Mr Yssel was legally obligated to advance the interests of
Volvo. He could not put himself in a position where his personal
interests conflicted with those of Volvo. He could not, for instance,
recommend the introduction of new software on the basis of a secret
deal between himself and the software supplier that he would earn a
commission if Volvo accepted his recommendation.
[71] That much is clear because such fiduciary duty fell squarely
within the scope and ambit of Mr Yssel’s responsibilities as the manager
of Volvo’s IT department.
[72] But, as I have already noted, Mr Yssel’s duties did not include
the recruitment, employment and/or acquisition of staff. That was the
function of Volvo’s Human Resources Department managed by Ms Van
Eeden.
17801/06 F BERGSTRÖM 43 JUDGMENT
[73] It is common cause that each of the six IT consultants who
contracted with Highveld signed a “confirmation of assignment” similar
to the one signed by Mr Yssel. Three of the six documents were
attached to Volvo’s founding affidavit. Each document bears three
signatures, namely Ms Van Eeden (who signed “on behalf of: Volvo
(Southern Africa)”), Ms Pieterse (who signed “on behalf of: Highveld
PFS”) and the individual consultant (who signed “on behalf of: The
Contractor”). All three documents were signed by the parties between
23 and 25 August 2004.
[74] Just as in Mr Yssel’s case, the “confirmation of assignment” in
respect of each IT consultant recorded the price that Volvo would be
required to pay to Highveld in terms of their agreement for the services
of that consultant.
[75] Each of the IT consultants knew what they were being paid by
Highveld. They were therefore each able to determine the difference
between Volvo’s monthly payment to Highveld for their individual
services and their monthly income from Highveld.
[76] In terms of clause 7.5 of the 2004 agreement concluded between
Volvo and Highveld, and renewed annually, the payments agreed
between Highveld and each of the assignees were of no concern to
Volvo.
[77] Although I have found that the absence of contractual privity
between Volvo and Mr Yssel did not preclude the existence of certain
fiduciary obligations on the part of Mr Yssel towards Volvo, I am also of
the view that sight should not be lost of the deliberate contractual
arrangements that were concluded between Volvo and Highveld (on the
one side) and between Highveld and Mr Yssel (on the other), in order to
avoid the creation of any employment or agency relationship between
Volvo and either Highveld or Mr Yssel.
[78] I have also considered the decision of the Federal Court of
Australia in Avtex Airservices (Pty) Ltd and Others v Bartsch and Others
[1992] 107 ALR 539. In my view, that case is clearly distinguishable on
the facts from the present application.
[79] Having regard to the scope of Mr Yssel’s duties at Volvo, I have
come to the conclusion that his arrangement with his employer to earn
secret commissions did not constitute a breach of his fiduciary
obligations towards Volvo.
17801/06 F BERGSTRÖM 45 JUDGMENT
[80] “The test”, as Innes CJ observed in Robinson at 179, “is, not
what honour would dictate, but what the law will allow.” In my view, the
law will allow Mr Yssel to retain the commissions that he earned in terms
of his secret deal with Highveld.
[81] Accordingly, the application is dismissed with costs.
On behalf of the applicant: Adv F G Barrie SC, with
Adv G J Nel
Instructed by Bowman Gilfillan
Ref: Mr G Higgins
On behalf of the respondent: Adv C J Nel
Instructed by Malherbe Rigg & Ranwell Inc.
Ref: Mr B Macgregor
Date of hearing: 8 February 2008
Date of judgment: 21 February 2008
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