RFS Administrator v SLS and others
What are legal requirements when claim relates to disgorging secret profits and what is effect of secondment agreement?
“[62] In order to succeed with its claim for disgorgement of profits, RFS was required to establish that there was a fiduciary relationship between it and the respondents; that in breach of that obligation, the respondents placed themselves in a position where their duties and personal interests were in conflict; and that the profits were made in secret and as a consequence of untoward conduct by the respondents.”
Essence
LAC disallowed appeal because RFS failed to prove that payments were either contractual damages or secret profits which had to be disgorged.
Decision
(JA114/22) [2024] ZALAC 10 [2024] 7 BLLR 722; (2024) ILJ 2013; [2024] JOL 64180 (LAC) (11 April 2024)
Order:
Disallowed appeal with costs including those of senior counsel.
Judges
JE Smith AJA (Savage Ja and Malindi AJA concurring)
Heard : 14 November 2023
Delivered: 11 April 2024
Overview
“[63] An employee, when rendering his or her services, must always act in the best interests of the employer and is not entitled to use his or her employment relationship with the employer, without the employer’s permission, to make a profit or earn a commission for his or her own account.
[64] In Phillips v Fieldstone Africa (Pty) Ltd and Another , the Supreme Court of Appeal held that the rule is a strict one which allows little room for exceptions and “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”.
[65] Although my finding that the respondents were still employed by RFS when they received the payments means that they owed RFS a fiduciary duty, the common cause facts established that those payments were not made secretively. In fact, the evidence showed on a balance of probabilities that the additional payments were made with RFS’s full knowledge and acquiescence.
[66] Mr SLS had advised RFS of the payments immediately after the Funds’ Board of Trustees approved them. He also advised Mr Du Plooy, in his capacity as CEO, and provided Mr Mphahlele and Ms Heyneke with full details of the payments.
[67] Mr Mphahlele also confirmed in his testimony that the payments were processed in terms of RFS’s usual procedures, that the requisite supporting documents had been provided, and that he had approved the payments. In those circumstances, Mr Du Plooy’s contention that the payments were made in secret because he, in his capacity as CEO was unaware of them, rings hollow.
[68] The Labour Court therefore correctly found that there was no element of secrecy or untoward conduct on the part of the respondents in the way the additional payments were made. RFS’s claim for disgorgement of profits can therefore not succeed.”
Judgment
Summary
Flynote:
Claim in terms of s 77(3) of the Basic Conditions of Employment Act 75 of 1997 for contractual damages, alternatively disgorgement of profits – whether respondents were employees as defined in terms s 1 of the Act – respondents received or were entitled to receive remuneration from employer –
Held: employees fell within definition of ‘employee’.
Claimant for disgorgement of profits must establish fiduciary relationship and that profits were earned secretly – employer aware of payments – Held: profits therefore not secret and employer not entitled to disgorgement.
Contractual damages – no causal connection between additional payments to employees and damages suffered by employer – claim accordingly dismissed with costs
Summary: