This article examines the Lesotho Court of Appeal’s decision in Tšepong (Pty) Ltd v Netcare Hospitals (Pty) Ltd and Others, focusing on key questions of corporate governance, procedural compliance in litigation, and the legal recognition of de facto directorships. The case turns on the validity of a round robin resolution authorising the institution of court proceedings, and the procedural implications of non-notification of certain directors. It also touches on the interplay between standing, issue estoppel, and appellate procedural rules. The article critiques the High Court’s treatment of directorship status and procedural irregularities and endorses the appellate court’s commitment to substantive justice and legal clarity.
Corporate litigation, particularly when undertaken by complex entities involved in public-private partnerships (PPPs), demands a high standard of procedural and governance compliance. The Tšepong case presents a compelling intersection of company law, civil procedure, and litigation ethics. At its core is the question: What are the legal consequences of a failure to notify all directors, including de facto ones, of a board resolution authorising litigation?
The Court of Appeal’s judgment provides important jurisprudence on the procedural requirements for valid corporate action and affirms the need for evidence-based litigation. This article assesses the correctness of the appellate court’s ruling, the legal treatment of de facto directors, and broader reflections on board accountability and procedural rigour.
The case arose from the termination of a PPP agreement between the Government of Lesotho and Tšepong (Pty) Ltd. Netcare and its affiliates, service providers under that framework, instituted proceedings against Tšepong for services rendered. Tšepong failed to respond to the summons, leading to a default judgment. A subsequent application for rescission was launched under the authority of a round robin board resolution, which was challenged on the basis that not all directors had been notified, particularly Dr Chris Smith (allegedly a de facto director), and two de jure directors, Dr Friedland and Mrs Moteane.
The High Court dismissed the rescission application, finding that the resolution was invalid due to these procedural irregularities. On appeal, the Court of Appeal was tasked with determining the legal effect of such non-notification and whether the lower court erred in its conclusions.
De Facto Directorship: Legal Standard and Evidentiary Requirements
Section 56 of the Companies Act 2011 introduces the concept of a de facto director, someone who, while not formally appointed, performs the functions of a director. This provision reflects a functional approach aligned with modern governance principles, ensuring that persons who act as directors are subject to the same duties and liabilities as those formally appointed.
However, as the Court of Appeal emphasised, mere attendance at board meetings or informal involvement does not suffice. There must be clear evidence of governance functions, decision-making authority, and acceptance by the company. The record in this case, particularly the internal notices distinguishing between “Directors” and “Invitees” made clear that Dr Smith was not participating as a director. Accordingly, the High Court’s reliance on prior judgments to affirm Dr Smith’s de facto status, without assessing current evidence, was a legal misdirection.
This reinforces the principle that issue estoppel must be properly pleaded and contextualised, not assumed. As confirmed in Smith v Porritt and followed in Private Sector Foundation of Lesotho v Qhesi, any application of estoppel requires careful scrutiny and cannot substitute evidential proof in a fresh matter.
Round Robin Resolutions and Non-Notification
Corporate decisions, including those taken by round robin resolutions, must adhere to procedural standards of inclusivity and transparency. Each director, whether de jure or de facto, is entitled to participate. The failure to notify all directors may, in principle, render the resolution invalid.
However, the Court of Appeal carefully distinguished between procedural irregularities raised by affected directors themselves and those invoked by third parties. The majority held that since Dr Friedland and Mrs Moteane were not parties to the litigation and had not challenged the resolution through affidavit or otherwise, the High Court erred in invalidating the resolution on their behalf. This reasoning is grounded in the principle of legal standing: one cannot assert another’s rights without proper mandate or representative capacity.
This element of the judgment contributes significantly to the jurisprudence on internal corporate governance. It reinforces that procedural rights are personal, and unless actively invoked by those affected, courts must avoid substituting their judgment for hypothetical objections.
Procedural Integrity in Appellate Litigation
A striking portion of the Court’s judgment addresses a widespread but under-criticised issue: excessive and poorly curated court records. Over 1,800 pages were filed in a matter dealing with just three legal issues. The Court issued a stern rebuke of this practice, citing Rule 5(16) and Rule 15 of the Court of Appeal Rules.
This commentary highlights the Court’s growing intolerance for inefficiency and wasteful litigation. The obligation to compile focused, relevant records is not procedural pedantry, it safeguards judicial economy and access to justice. The Court’s warning that future breaches may result in costs orders or referrals to regulatory bodies is both appropriate and timely.
Security for Costs and Rule 8 Compliance
The Court also addressed a preliminary objection that the appeal should be struck off for non-compliance with Rule 8(1), which requires security for costs if the judgment has not been executed. However, the objection was raised informally from the bar, without affidavit evidence or formal notice of motion. The Court rejected this approach, reiterating that jurisdictional objections must be substantiated by proper application and proof. This portion of the judgment is a textbook restatement of procedural due process.
Critical Reflections on the Dissenting Judgment
The dissent, authored by Van der Westhuizen AJA, argued that failure to notify directors of a resolution, regardless of their participation in litigation, objectively invalidates the resolution. While the concern for collective board wisdom is laudable, the dissent arguably overlooks the doctrine of standing. Corporate governance must balance ideal procedure with legal justiciability. The majority rightly observed that procedural rights cannot be vindicated without the participation or protest of those directly affected.
Conclusion
The Court of Appeal’s judgment in Tšepong v Netcare serves as a powerful reminder that procedural compliance, evidentiary rigour, and respect for standing are foundational to corporate litigation. It clarifies the evidentiary threshold for de facto directorship, reaffirms the legal requirements for valid board action, and cautions against procedural sloppiness in appellate practice.
The judgment appropriately balances the need to uphold good governance with the realities of litigation, and ensures that courts do not overreach into the internal affairs of companies absent proper legal basis. It is a welcome development in Lesotho’s corporate and procedural jurisprudence and offers instructive guidance for legal practitioners, directors, and courts alike.