L I Ganes and Another v Telecom Namibia Limited

The first appellant was employed by the respondent (Telecom Namibia Limited) as Manager: Procurement from 1995 until he resigned on 2 July 2000. The appellants were married in community of property. The respondent brought an urgent ex parte application for sequestration of the appellants' joint estate on 12 July 2001, alleging various debts including claims relating to under-invoicing of a scrap copper purchaser (Dresselhaus). The respondent alleged the first appellant received unlawful commissions and bribes. Before the answering affidavit was delivered, the appellants and their children were interrogated in terms of section 152 of the Insolvency Act. In his answering affidavit, the first appellant denied most allegations and claimed his assets (R4,045,000) exceeded his liabilities. In the replying affidavit, the respondent introduced evidence from the interrogation showing the first appellant admitted receiving substantial payments from various entities dealing with the respondent: Dresselhaus (R305,550.90), Global Telecom (R742,426.74), EPS and related entities (R1,253,185.00), and Temsa (R445,955.06), totaling R2,747,117.70. The first appellant admitted receiving these payments but claimed they were for consultancy services, loans, or legitimate commissions, not bribes.

• Whether the sequestration proceedings were properly authorized by the respondent
• Whether new matter introduced in the replying affidavit should be struck out
• Whether the court had discretion under section 12(2) of the Insolvency Act to allow further proof of insolvency in a replying affidavit
• Whether an employee who receives payments from third parties dealing with his employer breaches his fiduciary duty
• Whether such payments constitute bribes or secret commissions recoverable by the employer
• Whether the appellants' joint estate was insolvent

The appeal was dismissed with costs. The final sequestration order granted by the Cape of Good Hope Provincial Division against the joint estate of the appellants was upheld.

The binding legal principles established are: (1) An employee owes a fiduciary duty of good faith to his employer, which includes obligations not to work against the employer's interests, not to place himself in a position of conflict of interest, not to make secret profits at the employer's expense, and not to receive bribes, secret profits or commissions from third parties in the course of or by means of his employment. (2) Where an employee receives bribes, secret profits or commissions from third parties in connection with the employer's affairs without the employer's consent, the employer is entitled to claim such payments from the employee. Such payments are deemed to have been received for the employer. (3) The employer's claim for such payments does not require proof that the employer suffered loss; it is a claim for monies deemed beneficially received on the employer's behalf. (4) Under section 12(2) of the Insolvency Act, a court has discretion to allow further proof of insolvency in replying papers, even if it constitutes new matter, provided the debtor is afforded an opportunity to respond. (5) In motion proceedings, what must be authorized is the institution and prosecution of proceedings by the attorney, not the deponent to affidavits.

The Court made several non-binding observations: (1) It noted that Rule 7 provides a specific procedure for challenging an attorney's authority to institute motion proceedings, which the appellants failed to use. (2) The Court observed that an appellant has no right to argue matters not covered by leave to appeal, but may ask the court to allow such argument if there is sufficient merit, following the approach in S v Safatsa. The court will exercise discretion to condone delay and grant leave on wider grounds only where there are reasonable prospects of success. (3) The Court commented that whether to dismiss an application for sequestration or allow further proof of insolvency under section 12(2) is a matter relating to conduct of the court's business, where different judicial officers acting reasonably could reach different conclusions. (4) The Court noted that the first appellant's explanation for the payments in his supplementary affidavit could not be taken seriously given his failure to deny or explain his contradictory testimony at the interrogation, and therefore did not raise a genuine dispute of fact. (5) The Court cited English law from Chitty on Contracts as being to the same effect regarding employees' obligations concerning bribes and secret commissions, though this was not necessary for the decision based on South African authorities.

This case is significant in South African insolvency and employment law for several reasons: (1) It clarifies that under section 12(2) of the Insolvency Act, courts have discretion to allow further proof of insolvency in replying papers, even if such evidence constitutes new matter, provided the debtor is given opportunity to respond. (2) It affirms the fiduciary duties owed by employees to employers, including the duty not to receive bribes, secret profits or commissions from third parties in the course of employment. (3) It establishes that employers can claim such payments from employees without proving actual loss suffered, as such payments are deemed to have been received for the employer. (4) It demonstrates that payments received by an employee to secure favorable treatment for third parties dealing with the employer constitute bribes, regardless of how they are characterized by the employee. (5) It clarifies procedural matters regarding authorization of motion proceedings, distinguishing between authorization of the deponent and authorization of the attorneys instituting proceedings. The case reinforces strong protection of employers' interests against employee conflicts of interest and corruption.