Israel Kuchocha v B.P. and Shell Marketing T/A FMI Energy/Zuva Petroleum

### Preamble
IN THE LABOUR COURT OF ZIMBABWE
JUDGMENT NO. LC/H/479/13
HARARE ON 30TH JULY, 2013
CASE NO. LC/H/392/11
In the matter between
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IN THE LABOUR COURT OF ZIMBABWE	 JUDGMENT NO. LC/H/479/13

HARARE ON 30TH JULY, 2013				CASE NO. LC/H/392/11

In the matter between

ISRAEL KUCHOCHA	     			–	Appellant

And

B.P. AND SHELL MARKETING			–	Respondent

T/A FMI ENERGY/ZUVA PETROLEUM

Before The Honourable L. Hove, Judge

The Honourable R. Manyangadze, Judge

For Appellant: 	Mr Kufaruwanga (Legal Practitioner)

For Respondent: 	Mr G. Chingoma (Legal Practitioner)

MANYANGADZE, J.

This is an appeal against the decision of a Disciplinary Committee constituted by the Respondent, in terms of which the Appellant was dismissed from employment for breaching his contract of employment and conditions of service.

The facts that gave rise to the dismissal, briefly outlined, are as follows;

The Appellant was employed by the Respondent as Liquid Petroleum Gas (LPG) Sales Engineer.  The Respondent is a company engaged in the business of procuring and distributing petroleum products, which include LPG.

Sometime in 2006, the Appellant formed and registered a company named Big Eye Trading (Pvt) Ltd, in which he was Director and Company Secretary.  During October and November 2007, the Appellant’s Company bought 2 000kg of LPG from the Respondent, for a total amount of US$7 000.00.  The appellant did not disclose to the Respondent his directorship in Big Eye Trading.  When the Respondent became aware that Appellant was a Director in Big Eye Trading, charges of misconduct were leveled against the Appellant, for violating the Respondent’s Code of Business Ethics.

The Appellant was charged with 2 counts of misconduct.  The first count was cited as “violation of the Code of Business Ethics (Table C – Item 25)” and the second count as “Any act, conduct or omission inconsistent with the fulfillment of the express or implied conditions of your contract – Table C item 24”.

The basis of the misconduct as alleged in count 1 was that Appellant failed to disclose to the Respondent his interest in Big Eye Trading, which carried out some business transactions with the Respondent, a situation that gave rise to a conflict of interest.  In the second count, it is alleged that the Appellant did not, as required by his contract of employment and conditions of service, declare his interest in Big Eye Trading.

Details of the allegations, which appear to be very much inter-related if not overlapping, are itemised in the charge sheet as paragraphs (a) to (e) for count 1, and a single paragraph for count 2.  The charge sheet is filed of record (page 25).

In respect of the first count, Appellant’s contention is that there was no conflict of interest between his involvement with Big Eye Trading and his employment with the Respondent.  The two companies’ lines of business did not cross.  There was no competition between the activities of Big Eye Trading and the Respondent.  Appellant explained, in his Heads of Argument, that Big Eye Trading was basically a “non- profit making vehicle” devised to enable him to access his salary in cash and to facilitate the movement of funds from relatives in the diaspora for purposes of building a dwelling house.

As for the purchase of 2 000kg of LPG from the Respondent, Appellant contended that this transaction did not constitute a conflict of interest, as it caused no prejudice to the Respondent.  Instead, the Respondent made a profit of $7 000.00 from this purchase.  It cannot allege a conflict of interest from a transaction from which it benefitted.

Mr Kufaruwenga, in his oral submissions on behalf of the Appellant emphasized that the two companies must be in the same line of business and Appellant’s business must harm that of Respondent, for there to be a conflict of interest.  He elaborated the point by giving the example of a partner in one law firm also becoming a partner in another law firm as a typical conflict of interest situation.

Counsel for the Appellant further developed his analogy to that of a manager in a supermarket who buys goods at the till as a situation that does not give rise to a conflict of interest between the manager and his employer.  Similarly Appellant bought from his employer, benefitted his employer, and therefore cannot be said to have created a conflict of interest.

Mr Kufaruwenga also contended that for the Appellant to disclose his interest in Big Eye Trading, such interest must have conflicted with that of the Respondent.  In other words the instance of a conflict of interest was a condition precedent to disclosure.  If there was no such conflict Appellant was under no obligation to disclose his interest.

On the other hand it is contented on behalf of the Respondent that a conflict of interest did exist between Appellant’s company and that of his employer.

In its Heads of Argument, the Respondent asserted that Appellant’s company traded with the employer “a product line that he was the sales person for.”  The Appellant secretly traded on behalf of his own company in a product line for which he was responsible at work.  The Respondent argues that this situation constituted “glaring conflict of interest.”

To properly determine the Appellant’s guilt or otherwise, the most appropriate starting point would be a look at the documents that formed the basis of his relationship with his employer. What were the employer’s expectations in this aspect of their relationship, and how were such expectations expressed or communicated to the employee?  In this regard, the contract of employment is instructive.

The contract of employment is filed of record and marked Exhibit 1.  The relevant clause is the one under the sub-heading “AVOIDANCE OF CONFLICT OF INTEREST.” This clause provides as follows;

“during the course of your employment you shall:

Not use your position, or confidential information obtained as a result of your employment for your own or any person other than the Company’s advantage.

Not be directly or indirectly involved with any organization where your own interest may conflict with that of the Company.

Advise the Company in writing before taking up any directoships or appointments held with any organization other than the Company or any associate or affiliate of the Company.

Any actual conflict, perceived or otherwise should be declared to your line manager in writing before engaging in such activity.  If in doubt as to what, to whom and when to declare, please refer to the ethics champion (Internal control Manager).”

The wording in this clause is broad enough to cover situations where actual or potential conflict of interest arises.  The second bullet refers to involvement where employee’s own interest “may conflict with that of the company”. Thus, involvement in another organization or business may not from the outset, cause prejudice to the employer, yet it is reasonably foreseeable that prejudice may result from the relationship.  The circumstances are such that there is potential for conflict of interest to arise.

The last bullet clarifies the issue further, as it refers to “actual conflict, perceived or otherwise”.  It seems this is stretched to cover an employee who finds himself in a position where it is conceivable a conflict of interest may arise.  As if to prevent the employee from taking chances, the clause goes on to emphasize;

“If in doubt as to what, to whom and when to declare, please refer to the Ethics champion (Internal Control Manager).”

The undisputed facts already adverted to, are that Appellant assumed directorship in Big Eye Trading, which went on to buy 2 000kg of LPG from the Respondent.  LPG is a product line Respondent dealt in among other petroleum products.  Appellant was a Sales Engineer for that same product.  For him to form a company that went on to purchase a product whose distribution he was responsible for, he certainly created a situation with great potential for conflict of interest.

On this aspect, Mr Francis Masangoma, the Sales and Marketing Manager/Complainant made some pertinent remarks.  (p.3 of the minutes of the Disciplinary Committee hearing).  He described Appellant’s role as one that entailed “customer acquisition, customer management, trouble shooting …”. He explained that, “The Defendant identified an opportunity relating to knowledge he has with regards to supply, marketing, pricing, product allocation and above all confirmation of balances into those customers’ accounts under his portfolio.  If the product is in short supply you could favour your company and also pass inside information to your company.”

The critical issue here is not whether any of the risks pointed out in the complainant’s explanation were proved to have actually resulted in loss or prejudice. It is whether the risk was created. Given Appellant’s position of trust and responsibility, in my view, the risk of a conflict of interest arising was created.

In Tobacco Sales Floors Ltd v Chimwala 1987(2) ZLR 210 (SC), the court referred to the remarks of Innes CJ in Robinson Co. Ltd 1921 AD, 177-178, which read as follows:

“Where one man stands to another in a position of confidence involving a duty to protect the interests of that other, he is not allowed to make a secret profit at the other’s expense or place himself in a position where his interests conflict with his duty …  [The doctrine] prevents an agent from properly entering into any transaction which would cause his interests and his duty to clash.  If employed to buy, he cannot sell his own property; if employed to sell, he cannot buy his own [principal’s] property; nor can he make any profit from his agency save the agreed remuneration; all such profit belongs not to him, but to his principal.  There is only one way by which such transactions can be validated, and that is by the free consent of the principal following upon a full disclosure by the agent.”

The court, in Tobacco Sales Floors, described this quoted passage as a classic expression of the principle of conflict of interest in Roman Dutch Law.

In the instant case, the Appellant’s directorship of Big Eye Trading, involving as it did the purchase and sale of L.P.G., was a situation “which would cause his interests and his duty to clash”.  There was certainly need for the Appellant to make full disclosure to the Respondent of … he was involved in.

The other angle to Appellant’s argument was that the existence of a conflict of interest is a condition precedent to disclosure.  He was not obliged to disclose his interest in Big Eye, or any other organization for that matter, if such interest did not conflict with that of the Respondent.  It seems unnecessary to pursue this argument, in the light of the finding that a conflict of interest was created by Appellant’s directorship in Big Eye.  Notwithstanding that, the contract of employment and the conditions of service, it appears, do not even make existence of a conflict of interest a condition precedent to disclosure.  The relevant section of the contract of employment has already been looked at, when considering the question of whether or not a conflict of interest existed.

A close examination of the contract of employment, in particular the third bullet under the cited section, shows that mere assumption of directorship must be formally notified to the employer.  This bullet provides;

“Advise the Company in writing before taking up any directorship or appointments held with any organization other than the Company …”

Section 4 (third bullet) of the conditions of service has more or less similar wording, which reads;

“An employee must advise Human Resources Function in writing of any directorships or appointments held with any organization other than one’s own employing company.”

It appears, from these provisions of the employment documents, the fact of taking up directorship in another company without declaration constitutes a breach of the provisions.  Any resultant prejudice only serves to aggravate the situation, and is not an essential element of the contravention.  So whichever way one looks at it, Appellant’s assumption of directorship in Big Eye without declaration violated his contract of employment and conditions of service.

Appellant’s liability in respect of the second count of misconduct again turns on an interpretation of the relevant provisions of the contract of employment and conditions of service

These are the fundamental documents governing his relationship with the Respondent.  The provisions quoted above are equally applicable.  There is no need to quote them again.

In the second count, Appellant is charged with committing an act or omission inconsistent with the fulfillment of the express or implied conditions of his contract.  This commission or omission consists in his failure to declare his interest in Big Eye, as required by his Contract of Employment and Conditions of Service.

Appellant’s contention is that it is not clear at what stage he should have disclosed his interest.  Whilst the contract of employment states that he should disclose prior to assumption of directorship in another company, the conditions of service document is silent on this. It does not say when he should disclose.  It merely lays down the requirement to disclose.  The Appellant argues that the two documents are contradictory and confuse the issue.  He should therefore not be found liable on the basis of the contradictory provisions.  They gave him the leeway to declare his interest in Big Eye either before or after his assumption of directorship thereof.

The contract of employment is very clear and unambiguous on the question of when disclosure should be made.  The applicable excerpt has already been referred to in this judgment. It obliges the employee to advise the employer “before taking up any directorships.” The clause goes on to provide that if the employee is “in doubt as to what, to whom and when to declare”, he must refer the matter to the Internal Control Manager.  This declaration is to be done “before engaging in such activity.”

The employment contract is drafted in such a manner that the obligation to disclose arises prior to engagement in the activity in question.

The conditions of service document places the same obligation of disclosure, without specifying the stage at which such disclosure should be made.  One document is supplying a detail that is not appearing in the other document, on the same subject matter.  The two documents cannot, on that basis, be said to be contradictory.  They are, in my view, complimentary.  The Appellant cannot rely on the silence in the conditions of service, on a matter that is succinctly spelt out in his Contract of Employment.  In any case Appellant did not disclose his interest in Big Eye at any stage during its existence.

The facts of the matter establish Appellant’s liability in respect of the charges of misconduct preferred against him.

On the question of whether the penalty of dismissal was appropriate, the well established principle is that penalty is a matter primarily within the discretion of the employer.  Most of the authorities relied upon by the Respondent enunciate this principle.  The cases quoted by the Respondent are mainly appeals from the South African Commission for Conciliation, Mediation and Arbitration (CCMA) in the South African Labour Appeal Court (LAC).

Of the extensive quotations made by the Respondent from decisions of that court, the one from the case of County Fair Foods (Pty) v CCMA & Others (1999) 20 ILJ 1701 (LAC) is particularly worth noting:

“…. It lies in the first place within the province of the employer to set the standard of conduct to be observed by its employees and to determine the situation with which non-compliance will be visited, interference therewith is only justified in the case of unreasonableness and unfairness.”

The approach basically is that the courts will not interfere with the employer’s discretion, unless the resultant penalty is so unreasonable.  It cannot in the circumstances be allowed to stand.  This is how the approach was expressed in Country Fair Foods case, supra;

“If you look at the sentence and you say to yourself “this sentence is so excessive … that I cannot allow it to stand”, it is open to interference.  If you think merely that you would not have imposed the same sentence, it is not.  Unless the sentence makes you whistle, it must stand.”

There is thereof need to determine whether there is a basis on which to interfere with the Respondent’s decision to dismiss the Appellant from employment.  The pertinent question is, was the Respondent justified in imposing a penalty of dismissal in the circumstances?

In Tobacco Sales Floors Ltd v Chimwala 1987(2) RLR 210 (SC) McNally JA, considering whether the penalty of summary dismissal was justified had this to say:

“I consider that the seriousness of the misconduct is to be measured by whether it is “inconsistent with the fulfillment of the express or implied conditions of his contract” If it is, then it is serious enough prima facie to warrant summary dismissal.” (p.218).

In making these remarks, the Judge had make reference to a passage in Halsbury’s Laws of England 4th ed Vol 16 paragraph 642 which reads:

“misconduct inconsistent with an employee’s proper discharge of the duties for which he was engaged is good cause for his dismissal, but there is no fixed degree of misconduct which will justify dismissal.”

The learned Judge, whilst recognizing the employer’s discretion in this regard, was also wary of the dangers of an employee being summarily dismissed for trivial offences.  He went on to state that the employee must show that the misconduct in question “was so trivial, so inadvertent, so aberrant or otherwise so excusable that the remedy of summary dismissal was not warranted.” (p.219A).

The facts in casu show that Appellant engaged in conduct inconsistent with the fulfillment of the express or implied conditions of his employment contract.  He formed a company, and became director thereof, without informing the respondent.  He was a senior member of staff who must have been well aware of the requirements in his contract of employment regarding disclosure or declaration of interest.  The contract contained clear clauses to that effect.

Appellant ran his company for 4 years, and even traded with the Respondent, without disclosing what he was doing.  This cannot be viewed as a trivial, inadvertent, aberrant or otherwise excusable contravention of his contract of employment and conditions of service.  It was a breach of trust that went to the root of his relationship with the Respondent.  In Standard Chartered Bank Zimbabwe Ltd v Chapuka, SC 125/04 Malaba JA (as he then was) stated:

“conduct which is found to be inconsistent or incompatible with the fulfillment of the express or implied conditions of a contract of employment goes to the root of the relationship between an employer and an employee, giving the former a prima facie right to dismiss the latter”.

The learned Judge further stated:

“The relationship between Standard Chartered and Chapuka was one based upon trust and confidence.  It is sufficient that in dismissing Chapuka from employment Standard Chartered felt that as a result of his own acts of misconduct it could not continue in future to repose in him the trust and confidence that he would perform his duties as a Senior member of staff with a high degree of honesty.  It was also sufficient that any reasonable employer in the position of Standard Chartered would on the facts have dismissed Chapuka for what he did.”

Considering the fundamental breach of his contract of employment and conditions of service when he operated Big Eye Trading without Respondent’s knowledge, it can be similarly stated that Respondent could not continue to repose in Appellant the trust and confidence that he would perform his duties with the high degree of honesty expected of a senior employee in his position.  There is no basis on which to fault the Disciplinary Committee’s decision dismissing Appellant from employment.

The appeal fails both on the question of liability and penalty.  Accordingly, it is ordered that;

The appeal be and is hereby dismissed in its entirety with costs.

Hove, J:	I agree.

Dzimba, Jaravaza & Associates Legal Practitioners Representing the Appellant.

Dube, Manikai & Hwacha Legal Practitioners Representing the Respondent.