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Outa Heads of Arguments IN THE HIGH COURT OF SOUTH AFRICA GAUTENG DIVISION, PRETORIA CASE NO: 15996/17 In the matter between: ORGANISATION UNDOING TAX ABUSE First Plaintiff SOUTH AFRICAN AIRWAYS PILOTS ASSOCIATION Second Plaintiff and DUDUZILE CYNTHIA MYENI First Defendant SOUTH AFRICAN AIRWAYS SOC LTD Second Defendant AIR CHEFS SOC LTD Third Defendant MINISTER OF FINANCE Fourth Defendant PLAINTIFFS’ HEADS OF ARGUMENT: CLOSING ADDRESS 2 TABLE OF CONTENTS INTRODUCTION ........................................................................................................ 3 THE LEGAL FRAMEWORK ....................................................................................... 7 Delinquency ............................................................................................................ 7 Directors’ duties .................................................................................................... 12 The SAA governance framework .......................................................................... 22 OVERVIEW OF THE EVIDENCE............................................................................. 26 The plaintiffs’ evidence ......................................................................................... 26 Ms Myeni’s evidence ............................................................................................ 28 THE EMIRATES DEAL ............................................................................................ 32 Overview ............................................................................................................... 32 The issues ............................................................................................................ 34 Summary of the plaintiffs’ evidence ...................................................................... 35 Ms Myeni’s evidence ............................................................................................ 72 First issue: The merits of the Emirates proposal ................................................... 73 Second issue: No valid reason to obstruct the signing of the non-binding MOU .. 75 Third issue: The events of 16 June 2015 .............................................................. 90 Fourth issue: The consequences of Ms Myeni’s conduct ..................................... 95 Conclusions on Ms Myeni’s delinquency ............................................................ 101 THE AIRBUS “SWAP TRANSACTION” ................................................................. 102 The issues .......................................................................................................... 103 Summary of the plaintiff’s evidence .................................................................... 104 Ms Myeni’s evidence .......................................................................................... 152 First issue: Ms Myeni’s misrepresentations to Airbus ......................................... 154 Second issue: The section 54 application ........................................................... 161 Third issue: Wilful and reckless exposure of SAA to risks and harm .................. 170 Fourth issue: Breach of financial reporting obligations ....................................... 175 DELINQUENCY AND THE APPROPRIATE SANCTION ....................................... 180 COSTS ................................................................................................................... 181 Punitive costs ..................................................................................................... 181 Reimbursement of public entities for Ms Myeni’s costs ...................................... 184 CONCLUSION AND REMEDY .............................................................................. 186 3 “The extent of capture, corruption and mismanagement in SOEs is best demonstrated at South African Airways, which was placed in business rescue late last year.” President Ramaphosa, State of the Nation Address, 13 February 2020 "SAA belongs to government 100% … they wouldn't allow South African Airways to fail." Ms Dudu Myeni, High Court testimony, 25 February 2020 INTRODUCTION The mismanagement of South African Airways SOC Ltd (SAA) and its current plight are matters of public record. SAA is under business rescue, many of its routes are set to be cancelled, billions of Rand in public funds have been squandered, and thousands of jobs are threatened. This case is a first step towards holding all who are responsible for this disaster to account. The plaintiffs seek an order declaring Ms Dudu Myeni, the former non-executive chairperson of SAA, to be a delinquent director for life in terms of section 162(5) of the Companies Act 71 of 2008. From 2009 to 2017, Ms Myeni was the one constant on a constantly rotating SAA Board.1 From 2012 until her departure in 2017, she served as its non-executive chairperson.2 1 PoC p 8 para 9; Plea p 101 para 5. See Annexure A to the Opening Statement, which reflects the SAA directors from 2009 to 2017. 2 Ibid. 4 During her time at SAA, Ms Myeni blocked, delayed and obstructed key initiatives to turn the airline around. In doing so, she broke the law and flouted basic governance principles. The plaintiffs’ case focuses on two glaring examples of this misconduct: 5.1 The Emirates deal: Ms Myeni scuttled a non-binding Memorandum of Understanding (MOU) between SAA and Emirates in 2015 which deprived SAA of the opportunity to earn a guaranteed minimum revenue of USD 100 million per year and irreparably harmed SAA’s relationship with Emirates, the world’s largest international airline. 5.2 The Airbus “Swap Transaction”: Ms Myeni took SAA and the country to the brink of financial ruin by improperly obstructing a deal with Airbus to allow SAA to escape an onerous contract for the purchase of aircraft. In doing so, Ms Myeni misrepresented board resolutions, acted without board authority, misrepresented the facts to the Minister of Finance and parliament, and further imperilled SAA’s financial position. The plaintiffs contend that Ms Myeni’s misconduct in the Emirates and Airbus deals is sufficient for a lifelong declaration of delinquency. However, this is only the tip of the iceberg. To ensure that this trial could be completed in the allotted five weeks, the plaintiffs elected not to lead evidence on three additional causes of action in these proceedings: the 2016 BNP Deal, the 2013 Pembroke Transaction, and the Ernst & Young Report. In doing so, the plaintiffs do not absolve Ms Myeni of her further misconduct nor do they concede any weakness in their case. 5 The plaintiffs maintain that Ms Myeni’s misconduct in these and other events must be fully investigated by the appropriate authorities and action must be taken without further delay. The plaintiffs, as non-profit organisations with limited means, cannot do the work of law enforcement. The need for swift action by the authorities is underlined by the shocking evidence that has continued to emerge of Ms Myeni’s alleged involvement in further acts of corruption, maladministration, and money laundering at SAA. It is for this reason that the plaintiffs ask that this matter be referred to the National Prosecuting Authority for further investigation and action. In addressing the two causes of action, we have demonstrated that Ms Myeni's conduct satisfies multiple grounds of delinquency under section 162(5)(c) of the Companies Act. The evidence has established four repeated forms of serious misconduct: 10.1 Dishonesty: Ms Myeni repeatedly misrepresented Board resolutions and decisions; 10.2 Obstruction and interference: Ms Myeni repeatedly interfered in SAA’s operations to delay and obstruct key deals, contrary to SAA’s best interests, in a manner that was wilful, alternatively grossly negligent, 10.3 Improperly inserting middle-men: Ms Myeni supported the insertion of middlemen into key deals, in breach of SAA’s procurement obligations and her fiduciary duties to act in SAA’s best interests. 6 10.4 Governance failures: Ms Myeni flouted fundamental governance procedures and principles in the manner in which she managed the affairs of the board. In what follows, we address the following issues in turn: 11.1 The relevant legal framework; 11.2 An overview of the evidence; 11.3 The Emirates deal; 11.4 The Airbus “Swap Transaction”; 11.5 The appropriate sanction; 11.6 Costs; 11.7 Conclusion and remedy. 7 THE LEGAL FRAMEWORK Delinquency A declaration of delinquency under section 162(5) of the Companies Act has the effect that a person may not serve as a director of a company for a minimum period of seven years.3 In Gihwala v Grancy Property Ltd,4 Wallis JA explained that section 162 has a protective purpose: “Its aim is to ensure that those who invest in companies, big or small, are protected against directors who engage in serious misconduct of the type described in these sections. That is conduct that breaches the bond of trust that shareholders have in the people they appoint to the board of directors. Directors who show themselves unworthy of that trust are declared delinquent and excluded from the office of director. It protects those who deal with companies by seeking to ensure that the management of those companies is in fit hands. And it is required in the public interest that those who enjoy the benefits of incorporation and limited liability should not abuse their position.”5 This protective purpose assumes even greater significance in the case of SOEs. The interests of the entire South African public are at stake,
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