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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

JUDGMENT

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.

[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 Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 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 re-establishing 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.

[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 all-inclusive fee as set out in addendum “A” or the pro-rata 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 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 fixed-term 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.

[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 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

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 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;

2. security requirements of the Client;

2. the normal reporting procedures of the Client in respect of any work undertaken by the employee; and

2. working outside normal working hours in order to meet the requirements of assignment.

3. The Company shall instruct and ensure that the assignees obey all reasonable instructions given by the Client.

3. 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.

3. 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.

3. The Client shall ensure that no assignee works in excess of the following working hours:

1. 45 (forty five) hours during any 1 (one) week:

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 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 126-127.)

[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.

[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.

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)

[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:

“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 these three contractors dropped by R8 820.00 per month.

[46] This was not the first time that Mr Yssel had become involved in labour-related 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 B-Safe 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 B-Safe Systems CC was Mr Steyn who subsequently contracted with Integr8 IT.

[48] As a result of the transaction with B-Safe 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 all-round 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 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 co-operation 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.

212.10 The agreements were consequently concluded as envisaged and Highveld duly paid me commissions totally R775 107-00 (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 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 C-F)

[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:

1. the trust has suffered no loss or damage;

2. the trust could not itself have made use of the information or opportunity, or probably would not have done so;

3. the trust, although it could have used the information or opportunity, has refused it or would do so;

4. 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;

5. it was no part of the fiduciary’s duty to obtain the benefit for the trust; or

6. the fiduciary acted honestly and reasonably, although 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 177-180, 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 98-99:

“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 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 non disclosure 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 non-disclosure, 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 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 177-180.

[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 C-D and Hospital Products Limited v United States Surgical Corporation and Others [1984] 156 CLR 41 at 96-97.) 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 D-G in Phillips, of the following approach, enunciated by Lord Upjohn in Boardman v Phipps [1966] UKHL 2; [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 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 177-180.

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.

[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.

[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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