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[2021] ZAST 2
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Special Investigation Unit and Another v Msagala and Others (GP05/2020) [2021] ZAST 2 (31 August 2021)
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IN THE SPECIAL TRIBUNAL ESTABLISHED IN TERMS OF SECTION
2 (1) OF THE SPECIAL INVESTIGATIONS UNIT AND
TRIBUNALS ACT 74 OF 1996
(REPUBLIC OF SOUTH AFRICA)
Case Number: GP05/2020
In the matter between:
SPECIAL INVESTIGATING UNIT First Plaintiff
TRANSNET SOC LTD Second Plaintiff
and
LINYENGA MAIKANE HERBERT MSAGALA First Defendant
LINYENGA HERBERT MSAGALA N.O
In his representative capacity as a Trustee and a Beneficiary of the
Msagala Investment Trust, the Msagala Family Trust,
and the Msagala Residence Trust Second Defendant
ROBERTO JORGE MEDONCA VELOSA N.O
In his representative capacity as a Trustee
of the Msagala Investment Trust, the Msagala Family Trust,
and the Msagala Residence Trust Third Defendant
LORETTA KGAKGAMATSO MSAGALA Fourth Defendant
BONOLO MATHULO MSAGALA Fifth Defendant
IGS CONSULTING ENGINEERS (PTY) LTD Sixth Defendant
SIPHO VICTOR SITHOLE Seventh Defendant
JUDGMENT
MODIBA J:
INTRODUCTION
[1] This action is jointly brought by the Special Investigation Unit and Transnet. They seek to disgorge secret profits from five of the six cited defendants. The secret profits are alleged to have been improperly earned by Herbert Msagala from IGS Consulting Engineers, at the time, a supplier contracted to Transnet, and its sole shareholder and director Sipho Sithole, while Msagala was in fulltime employment with Transnet. The plaintiffs rely on breach of contractual, common law and constitutional duties against receiving such secret profits.
[2] Msagala, in his personal capacity and in his official capacity as the co-Trustee of the cited Trusts, his wife Loretto Msagala and daughter Bonolo Msagala, jointly defended these proceedings, even though the plaintiffs seek no relief against Loretto. The plaintiffs merely cited Loretto due to the interest she may have in these proceedings as a beneficiary of the Msagala Trusts. For convenience, I refer to these defendants as the Msagala defendants.
[3] Msagala’s co-Trustee, Roberto Velosa (Velosa) did not enter the fray. Neither did IGS and Sithole.
[4] The Msagala defendants defended the proceedings until the commencement of the trial. On the first day of the trial, Msagala applied for a postponement. For the reasons set out in this judgment, Msagala’s postponement application was refused. He then decided not to participate in the trial and left the court. Loretto and Bonolo followed him. Consequently, although the Msagala defendants had filed a plea and witness statements, they did not subject the plaintiffs’ witnesses to cross examination. Their witnesses were also not called, and as a result, not cross examined. Therefore, the trial proceeded on a default basis against all the cited defendants.
THE BACKGROUND
[7] Msagala started working for Transnet in 1997. He occupied various positions. From 1 September 2014 to 17 May 2016, he served as Transnet’s Chief Group Executive: Capital Projects. Thereafter, he served as Transnet’s Group Executive: Business Development. It is common cause that between 1 January 2015 and 31 December 2016, while Msagala was employed by Transnet in the capacities described above, IGS was awarded a series of contracts by Transnet: Capital Projects. The contracts were awarded to IGS, either on its own or together with a joint venture partner, Turnmill ProQuip Engineering under Transnet’s New Multi Product Project (“the NMPP”). This period is conveniently referred to as the period under review.
[8] The NMPP involved the construction of a 715 kilometre multi-product pipeline for the high pressure transportation of liquid petroleum products from Durban, Kwa Zulu Natal to Heidelberg, Gauteng. The pipeline has two hubs: TM1 located in Durban, and TM2 located in Heidelberg. The Project was managed jointly by Transnet Capital Projects and Transnet Pipelines, both specialist divisions within Transnet. The plaintiffs allege that, IGS was paid in excess of R160 million, for the services it rendered under the contract. The plaintiffs further allege that during the same period, IGS and Sithole made various substantial payments to Msagala, which he received either directly or into the bank account of the Msagala Investment Trust. They also allege that Sithole made several payments on behalf of Msagala.
[9] The NMPP was first investigated by Nexus, at Transnet’s instance. The Nexus investigation focused on the appointment of companies that provided engineering services on the NMPP, including IGS and Turnmill ProQuip. Nexus was appointed by Transnet before the Presidential Proclamation authorising the SIU investigation into Transnet was issued.[i] The Nexus report found that Msagala was living a flamboyant lifestyle and owned many properties. However, the Nexus report fell short of investigating how Msagala acquired his wealth, as Nexus lacks the necessary statutory powers to subpoena bank records. This became the focus of the SIU investigation. The SIU conducted a lifestyle audit on Msagala.
[10] Following the conclusion of the Nexus investigation in 2017, Transnet instituted disciplinary proceedings against Msagala by way of arbitration proceedings. Transnet charged Msagala with various acts of misconduct including misconduct in relation to IGS. The arbitrator acquitted Msagala of the charges.
[11] In May 2020, after the SIU investigation was concluded, Transnet instituted fresh disciplinary proceedings against Msagala on the basis of the new evidence unearthed from the SIU investigation. The lifestyle audit revealed that Msagala was living excessively beyond his remuneration at Transnet. It also revealed the source of his additional income as IGS and Sithole. Transnet charged Msagala with various acts of misconducts arising from his relationship with IGS and Sithole, including receiving secret profits. Transnet dismissed Msagala following this disciplinary hearing.
[12] In July 2020, the SIU and Transnet as applicants, launched an application against the defendants in the Tribunal in two parts, A and B. In Part A, the applicants sought an order on an urgent basis attaching and preserving assets listed in Schedule A attached to the notice of motion, and an interdict preventing Msagala from accessing his retirement benefits held with the Transnet Retirement Fund, pending an action to be instituted against Msagala within 5 days of the granting of the order in Part A. In part B, the plaintiffs sought an order for the final forfeiture of the listed assets to the State in terms of section 17 of the Prevention and Combating of Corrupt Activities Act[ii] (PRECCA), read with Tribunal Rule 3 and 26 (the forfeiture application).
[13] The forfeiture application came before my brother Motlhe J. He granted the order sought under Part A. On 17 November 2020, Motlhe J delivered a judgment and order in terms of Part B, declaring the listed assets finally forfeited to the State. Msagala’s application for leave to appeal that judgment was dismissed in a judgment handed down on 25 May 2021. The plaintiffs instituted this action on 5 August 2020. They seek to hold the cited defendants personally liable for the loss Transnet suffered as a result of Msagala’s alleged nefarious relationship with IGS and Sithole.
[26] In paragraph 17 of the particulars of claim, the plaintiffs seek a payment of R18m from the defendants. The total amount that the plaintiffs will prove in these proceedings is R26, 423,028.77. The seek to amend their particulars of claim to reflect the latter amount.
[27] The proposed amendment is consistent with the plaintiffs’ cause of action as pleaded. The defendants stand to suffer no prejudice if the amendment is granted. Therefore, the amendment stands to be granted.
[33] The plaintiffs allege that by using his position as a Transnet executive to derive substantial secret profits from IGS, a service provider contracted to Transnet, Msagala breached the above duties. Hence, they seek a disgorgement of the secret profits.
[34] The Msagala defendants deny these allegations and put the plaintiffs to the proof. The plaintiffs approached their case with reference to the version Msagala put before Motlhe J. There, the Msagala defendants contended that, Msagala derives additional income above his remuneration from Transnet, from his other businesses.
THE EVIDENCE OF THE PLAINTIFF’S WITNESSES
[35] The following witnesses testified on behalf of the plaintiffs:
35.1 Mr Aiden Gerdian Smith (Smith). He is employed by Transnet as a security practitioner. When the plaintiffs’ cause of action arose, he was assigned to Msagala as his VIP protector. He testified concerning the three occasions when Msagala sent him to Standard Bank Sandton City, to cash IGS cheques on Msagala’s behalf;
35.2 Mr Vervandhan Govender (Govender) is employed by the SIU as a Chief Forensic Investigator. He led the SIU investigation into Msagala’s life style and testified regarding the outcome of the investigation. He deposed to affidavits in the Transnet disciplinary proceedings against Msagala, and in the forfeiture application. He also deposed to the discovery affidavit in these proceedings;
35. 3 Ms Leanne Jane Jamieson (Jamieson) is employed by Steyn City Real Estate in the Sales Department. She markets properties on sale at the Steyn City Development. She testified in relation to the sale of stand 2288, later swapped with 2295, to the Msagala Investment Trust for R7 million, and Sithole’s role in the sale;
35. 4. Lamprecht Fick Bezuidenhout (Bezuidenhout) is also employed by Steyn City Real Estate. He testified concerning his role in following up with Sithole when Msagala defaulted on the payment terms in respect of the sale of stand 2295, the emails he exchanged with Sithole, as well as the proof of payment he received from Sithole;
35.5 Mr Julian Scher (Scher) is a director at Strauss Scher Attorneys. Strauss Scher Attorneys did the conveyancing on Stand 2295 Steyn City when the Msagala Investment Trust took ownership of this property. Scher testified in relation to the payment of the purchase price as received into the Strauss Scher Trust Account;
35.6 Mr Janie Viljoen Bester (Bester) is a Senior Forensic Document examiner. He examined a sample of specimen and questioned documents on which Msagala’s hand writing and/ or signature appears. He prepared and filed a forensic report concerning this assignment. He testified concerning the contents of this report;
35.7 Mr Ishmael Dagwood Varachia (Varachia) is employed by the SIU as the Chief Forensic Accountant. He testified in relation to the forensic analysis he conducted on the bank accounts held in the names of Msagala and the Msagala Investment Trust, IGS, Sithole’s Trusts, Melusi Ntumbe (Mtumbe) and Thulambube and compiled a spreadsheet. Varachia’s spreadsheet reflects payments Sithole made on behalf of Msagala, payments Msagala and the Msagala Investment Trust received from IGS, cash deposits that correlate with Transnet’s payments to IGS and cheques cashed by Msagala or on his behalf by others. Varachia also testified in relation to the transactions between Msagala and Mtumbe, used by the Msagala defendants’ in their defence in the forfeiture application.
[36] The evidence of these witnesses is set out in their sworn witness statements which were served on the Msagala defendants and filed with the Tribunal. All the above witnesses, testified at the trial under oath, and confirmed the correctness of their sworn witness statements.
[37] The evidence of these witnesses, that Msagala received over R26 million in secret profits from IGS, and Sithole, while Msagala was employed by Transnet, is compelling. Govender found that during 2015 to 2016, Msagala earned approximately R3,8m from his employment with Transnet. Varachia’s analysis of the statements of the bank accounts mentioned in paragraph 35.7 above reveals that Msagala derived over R26 million from IGS and Sithole during the period under review.
An analysis of the Msagala Investment Trust Account
[38] Govender testified, with reference to the bank statements, that between November 2015 and September 2016, on each occasion, shortly after IGS cash cheques were presented for payment at Standard Bank Sandton City, cash was deposited into the Msagala Investment Trust Account.
[39] The Msagala Investment Trust Account with Standard Bank was opened in or about October 2015. The account opening documents reflect that Msagala opened the account. He controlled it, as he was its sole signatory. The Msagala Investment Trust Account first bank statement, issued in November 2015, reflects the first deposit into this account, in the amount of R500,000 in cash. By 31 December 2016, R24,292,300.00 had been deposited into this account. R15,792,300 was deposited in cash. The cash deposits attracted deposit fees in the amount of R197,209.50. The deposits correlate with Transnet payments to IGS over the same period and cash cheques IGS issued over the same period, which were presented for payment at Standard Bank Sandton City. Smith’s evidence, dealt with below, is enlightening in this regard.
[40] The above evidence negates Msagala’s version before Motlhe J, that he earned this income from his other businesses, which he has been running since 2009, over and above his income from Transnet.
[41] It is improbable that Msagala would earn cash from various businesses in such a substantial amount, and wait six years to open a bank account to deposit the business income. Only R85,565.93 was deposited into Msagala’s current account excluding what appears to be employment related deposits during the period under review. These payments were excluded from the forensic analysis.
[42] In the forfeiture application, Msagala’s further version was that he received R1,9 million from Mtumbe, with whom he invested money for interest in Mtumbe’s Smart Billions account. This is improbable. These investments do not reflect on any of Msagala and the Msagala Investment Trust bank statements. R3,555,000.00 was withdrawn by Mtumbe from Casinos during 2015 as reflected from his bank statement. The difference between this amount and the R1,9 million he supposedly paid Msagala, is not explained. It is unclear why Mtumbe would pay Msagala such a large amount in cash.
[43] Msagala has not discovered books of accounts for his businesses. Govender’s investigations reveal that, most likely, Msagala does not have a bank account for his businesses. Msagala opened only one bank account for the Msagala Investment Trust, which mainly received cash deposits from cash correlated to IGS cash cheques issued at approximately the time when Transnet paid IGS. He did not withdraw these funds from any of his other bank accounts and deposit them into the Msagala Investment Trust Account. The evidence presented, that several IGS cheques were either cashed by him or on his behalf at Standard Bank, Sandton City, establish that Msagala received all the cash deposited into the Msagala Investment Trust Account from IGS. An analysis of these cash cheques, established that the cheques were presented for payment by either Msagala himself, Smith or Chauke.
[44] Another improbability arises from the fact that Msagala did not make one or a few cash deposits, after he opened the Msagala Investment Trust Account. These deposits were made over the entire period under review, corroborating the plaintiffs’ version that during the IGS NMPP contract period with Transnet, whenever Transnet made payments to IGS, IGS made payments to Msagala.
[45] The developments in this trial show that the Msagala defendants crafted a defence in an attempt to meet the plaintiffs’ case before Motlhe J. There, the plaintiffs’ sought a forfeiture of the listed assets to the amount of R18 million, being the amount they we able to prove at that stage. This amount was reflected in the notice of motion. Therefore, the Msagala defendants had prior notification of it. In this trial, initially, the plaintiffs sought an order for the same amount. They are able to prove a higher amount as reflected in the amended particulars of claim. The amendment, introduced at the end of the trial, gave the Msagala defendants no opportunity to tailor a defence accordingly. This adds to the improbabilities in the defence of the Msagala defendants, as presented before Motlhe J.
[46] A forensic analysis by Bester, of the control signature from the documents Msagala signed when he was suspended from Transnet, and the specimen signature from the back of several of the cashed IGS cheques, confirms Msagala as the person who signed at the back of the said cash cheques. The telephone number at the back of these cheques, is Msagala’s. Sithole’s cell number also appears at the back of some of the cheques. According to Govender, the bank teller would have written Sithole’s cell number at the back of the cheque, after calling Sithole to obtain verbal confirmation from him, that the bank may honour payment of the respective cash cheques. These are standard requirements and procedures when a person presents a cash cheque for payment at a branch of a bank.
[47] Although the IGS’s mother branch is in Polokwane, more than 20 of its cheques were cashed at the Standard Bank, Sandton City branch. This is the same branch where Msagala’s cash deposits were made. This branch happens to be the Msagala Investment Trust Account mother branch.
[48] On 22 April 2016, R2 million was deposited in the Msagala Investment Trust Account in 10,000 R200 notes. This also renders Msagala’s version, that he earned the funds from his businesses, improbable. He has not attested to what he did suddenly, to earn so much money in one day, from his purported businesses.
An analysis of the IGS bank statements
[49] An analysis of the IGS bank records over the same period by Varachia, reveals that Sithole is the sole account signatory. During the period under review, there were 190 cash cheques above R 5 000 that were drawn on this account amounting to R70, 710,786.24. Of the 190 cash cheques drawn, there were over 20 cheques that were cashed that correspond in amounts and timing with the various deposits made into the Msagala Investment Trust Account. These cheques were drawn between 3 November 2015 and 12 May 2016, just after the Msagala Investment Trust Standard Bank account was opened. The cheques amount to a total of R 20,981,000.00.
[50] Govender’s evidence, based on the analysis of the IGS and the Msagala Investment Trust Accounts conducted by Varachia, as well as Smith’s evidence, establish beyond any reasonable doubt that the deposits made to the Msagala Investment Trust Account were deposits made from the cheques issued by IGS and Sithole.
Cashed Cheques not reflecting on the Msagala Investment Trust Account
[51] Several IGS cashed cheques do not correspond to deposits made into the Msagala Investment Trust Account. These cheques are pleaded at paragraphs 17 (b) to g and (j) of the plaintiffs’ amended particulars of claim. They include cheques deposited by Smith and Chauke, pleaded at paragraphs 17 (b) and (c).
[52] Govender identified Smith’s role in the relationship between Msagala, IGS and Sithole from 3 cash cheques that were presented to Standard Bank for payment. Smith’s name, ID number and cell number, was written behind these cheques. He then interviewed him. Smith subsequently made a sworn statement to Sergeant Dlamini, the investigating officer in the pending criminal investigation against Msagala. The plaintiffs filed the statement in these proceedings as Smith’s witness statement.
[53] Smith’s evidence was most explosive and illuminates one of the modus operandi used by IGS to make payments to Msagala. Smith was employed by Transnet as a security practitioner. Together with Jabulani Chauke (Chauke), Smith was assigned to Msagala, as his personal VIP protector.
[54] Smith testified concerning the three cheques that he cashed on behalf of Msagala, amounting to R1,450,000.00. He received these cheques from Msagala who asked him to cash the cheques on his behalf. On the first occasion, Msagala sent Smith to the bank, Msagala went with him to show him the procedure he should follow. They went to Standard Bank at Sandton City. When they arrived at the bank tellers, Msagala asked for a lady referred to by a specific name. He would ask for this lady on his subsequent visits to the bank. Smith presented the cheque to this teller, who asked him to verify his identity and sign at the back of the cheque. The teller then handed the cash to Smith. Smith put the cash in the bag Msagala gave him for that purpose. He kept the bag in the car. When he dropped off Msagala at home in the evening, he left the bag in Msagala’s study, in Msagala’s care, together with Msagala’s other bags that he had taken to his Transnet office.
[55] Smith followed this procedure on the two subsequent occasions Msagala sent him to the bank to cash cheques on his behalf. He did not know the source of the cheques at the time. He did not personally receive any cash from Msagala for his own benefit.
[56] Govender also traced some of the cashed cheques to have been presented for payment by Chauke. Chauke confirmed this when Govender interviewed him, but when his statement was reduced to writing, he disavowed the handwriting at the back of the cheque. Subsequently, Govender discovered from Chauke’s bank statement, payments from IGS to Chauke, referenced to Msagala. These include an electronic transfer of R300,000. Transnet subjected Chauke to disciplinary proceedings in relation to these events. Chauke was acquitted. Chauke is under ongoing criminal investigation, together with Msagala, relating to Msagala’s relationship with IGS, and Chauke’s role in that relationship.
Payments made by IGS or Sithole to or on behalf of Msagala
[57] Govender also testified concerning these payments as pleaded in paragraph 17 (h) to (j) of the plaintiffs’ amended particulars of claim. These payments include:
57.1 a R50 000 deposit by Sithole on 15 September 2015, towards the purchase of Msagala’s vacant stand in Steyn City in Dainfern, Johannesburg. Sithole sent proof of payment to the estate agents and the conveyancers. This money was paid by EFT directly from Sithole’s Akani Residence Trust Account to the conveyancers’, Strauss Scher, Trust Bank Account. Bezuidenhout confirmed receiving the proof of payment from Sithole. Scher confirmed that this money did reflect in the Strauss Scher Attorneys Trust Account in respect of the sale of stand 2295 Steyn City. The Akani Residence Trust Account opening documents show that Sithole opened this account and is its sole signatory. At the time, the Msagala Investment Trust did not have a bank account. This explains why Sithole would directly make this payment on Msagala’s behalf.
57.2 R300,000.00 paid to Baydon Vogel and Partners Inc. Conveyancers for the purchase of the Harrismith property from a cash cheque drawn from the IGS bank account. In addition to this cheque, R540,000.00 was deposited. These transactions are reflected in a R840,000.00 deposit slip dated 1 September 2015, Govender received when he subpoenaed banking records for the relevant accounts. Bonolo, in whose name the property is registered, is referenced on the deposit slip. Msagala’s cell number is stated.
Other evidence of impropriety between Msagala, IGS and Sithole
[58] Msagala made further payments to settle the balance of the purchase price, conveyancing and transfer costs for the Steyn City property, without any loan financing, in the form of 6 ATM transfers in the amount of R999,999.99. He made these payments from the Msagala Trust Investment Account to the Strauss Scher Attorneys Trust Account on 09 February 2016. According to Govender and Varachia, these amount were made to avoid scrutiny for purposes of banking and Financial Intelligence Centre controls. This is consistent with the pattern of substantial money being channelled from IGS to Msagala for his personal benefit, and that of his Trusts and family, secretly, to avoid detection.
[59] Govender identified several indications of Msagala’s interest in the awarding of contracts to IGS. These include the fact that the emergency tender process was used. Further, IGS commenced works long before the contracts were signed. This is highly irregular. Evidence show that IGS and Sithole started making payments to Msagala as early as February 2015, before IGS was awarded contracts. When IGS became active in the Transnet contracts, Msagala’s bank accounts became very active in the form of deposits.
[60] During the Transnet proceedings, Msagala attempted to hide his relationship with IGS. Initially Msagala said he does not know Sithole. Then he said he knows him through his brother, whom did not name. This evidence is refuted by Jamieson’s evidence that, Msagala and Sithole attended the Steyn City development offices together, twice. On the first occasion, Msagala showed an interest in purchasing stand 2288. He signed the relevant documents to purchase the property. He informed Jamieson that Sithole will handle the transaction going forward, which he did as confirmed by Bezuidenhout’s evidence. On the second occasion, when Msagala came to swap stand 2288 to 2295, they were in the company of two women.
[61] Msagala’s version in the forfeiture application, that the R300,000 used to purchase the Harrismith property was a repayment to him by Sithole of a loan Sithole owed him is also improbable. He has not provided proof that the loan was advanced. It is unclear why Sithole would take a loan from a Transnet Executive, when he has cashed cheques for over R70 million. In any event, in terms of the Transnet Code of Ethics, this transaction is impermissible. Msagala was required to declare to Transnet his relationship with Sithole. He failed to do so.
[62] The fact that no evidence of Msagala’s role in the awarding of contracts to IGS was found during the Nexus and SIU investigations does not Imperil the plaintiffs’ cause of action. Proof that Msagala received secret profits from IGS in breach of his employment duties is sufficient to give rise to liability for disgorgement.
Assets purchased during the period under review
[63] Msagala purchased the following properties during the period under review, without financing:
63.1 Bedworth Park, acquired on 16 September 2015 for R1,460 million. Payments for this transaction were made out of Standard Bank Auto Plus for R999,999 and R219,643.60 from the Msagala Investment Trust Account on 23 April 2016;
63.2 Dainfern, Steyn City, acquired on 8 September 2015 for R7 million. The payments for this property were dealt with earlier;
63.3 Farm 336 Meddilin, acquired on 17 February 2016 for R1,197,000;
63.4 The Rondheuwel property, acquired on 23 March 2016 for R4,560 million. R3,605,465.16 was paid on 23 April 2016 and R999,999,99 on 12 May 2016;
63.5 the Harrismith property, dealt with earlier, purchased for R840,000 on 16 November 2015;
63.6 the Phuthaditjaba property, acquired on 8 October 2015 for R200,000. It is unclear how this amount was paid. Given that, the Msagala Investment Trust Account was not yet opened, and that Msagala had started receiving cash from IGS, for example the cheques cashed by Smith valued at R1,450,000, it is probable that Msagala paid for this property from these substantial cash receipts.
[64] The total value of these properties is R15,2 million. They were all purchased between September 2015 and March 2016. Two of the properties were registered in Bonolo’s name. The rest were registered in the name of the Msagala Investment Trust. Msagala has never purchased so many immovable properties within such a short period before he started receiving payments from IGS.
[65] Msagala acquired thirty-six cars between February 2016 and January 2017. These cars are owned by the Msagala Family Trust. Although the cars were paid for using his personal current account into which he made several cash deposits during the period under review, it is highly probable that the substantial payments that Msagala received from IGS, enabled him to purchase these cars. Similarly, Msagala has never purchased so many cars within such a short period before he started receiving payments from IGS.
Bonolo’s Liability
[66] Bonolo had no income during the period under review. She was only 17 years old when she purchased the relevant properties. Her Capitec bank account never received a deposit in excess of R4,000 and never had a balance in excess of that amount since inception. The documents she completed when she purchased the Harrismith property as required in terms of the Financial Intelligence Centre Act, indicate that she receives a R25,000 allowance per month from her parents. The impression created is that because she receives a monthly allowance from her parents she can afford to buy the property. The purchase price was paid directly to MJ Mofokeng, the seller. R300,000 has been shown to be paid through an IGS cash cheque on 25 August 2015. The deposit slip bears Msagala’s details. It is highly probable that Msagala paid for this transaction.
[67] Although the documentary evidence reveal Bonolo’s direct involvement in the purchase of the Harrismith property, the plaintiffs have established that Msagala purchased or financed the properties registered in Bonolo’s name from the money he received from IGS. It is probable that Bonolo knew nothing about her father Msagala’s nefarious activities and the source of the money used to purchase the properties. The properties have been forfeited to the state in terms of the forfeiture order. Under these circumstances, justice would not be served by holding Bonolo personally liable for the losses Transnet has been proved to have incurred in this trial.
[68] Therefore, no order is made against Bonolo.
FINDINGS
[69] The plaintiffs have, by way of oral and documentary evidence adduced during the trial, established on a balance of probabilities that Msagala did in fact receive secret profits amounting to R26, 423,028.77 from IGS and Sithole whilst he was still employed by Transnet, in breached of his employment duties as pleaded by the plaintiffs.
[70] The timing of many of the payments Msagala received from IGS coincided with the timing of IGS having received payments from Transnet, pursuant to a series of contracts it was awarded by Transnet. Govender’s and Varachia’s testimony, the subpoenaed bank records and Varachia’s spreadsheets illustrate this.
[71] Msagala received the said amount without any requisite disclosures to Transnet. Therefore, the amount constitutes secret profits, giving rise to Transnet’s right to disgorge the profits.
[72] The plaintiffs have also made out a proper case against IGS and Sithole. They have elected not to participate in these proceedings. As such, they have not disputed the documentary evidence in the form of the IGS banking records, including bank statements and cashed cheques issued by IGS and shown to have been presented for payment by Msagala, Smith and Chauke. Accordingly, IGS and Sithole have not disputed any of the evidence that IGS, made multiple payments to Msagala which constituted secret profits, which Msagala received improperly and without disclosing or accounting for those profits to Transnet as his employer.
[73] The plaintiffs have established, as pleaded, that IGS, Sithole and Msagala acted in concert, in an unlawful conspiracy, to benefit Msagala, his family Trusts and his relatives, to the prejudice of Transnet, in relation to benefits that should have been for the advantage of Transnet, and not for the personal enrichment of Msagala as its employee, or for his relatives or Trusts. By so doing, IGS and Sithole intentionally and unlawfully interfered with Transnet’s contractual rights. As such, the Plaintiffs have established IGS and Sithole’s liability to Transnet.[iii] Therefore, IGS and Sithole are jointly and severally liable, with the other relevant Defendants to Transnet, for the amount representing secret profits received by Msagala from IGS and Sithole.
[74] The plaintiffs have also succeeded in making out a case for the statement and debatement of account as prayed for in paragraph 17 (l) of the particulars of claim. The investigations into IGS and Msagala’s financial relationship is continuing. Evidence of this relationship has been progressively unearthed. During the forfeiture proceedings, the plaintiffs established that Msagala received over R18 million from IGS and Sithole. In these proceedings, they have been able to established that Msagala received further amounts of over R8 million from IGS and Sithole. Given the vast extent of the evidence of financial dealings between Msagala and IGS and the covet nature of their transactions, it is probable that there are further financial transactions only they are aware of.
[75] The claim for the statement and debatement of account is justified under these circumstances. It is consistent with the employment duties Msagala owed Transnet as an employee and as an official of a state entity to disclose secret profits, act honestly, be transparent and accountable, to observe a high standard of professional ethics, and to use public resources efficiently and economically. IGS and Sithole’s liability for this claim also arises from their interference with Transnet’s contractual rights.
[76] The monies recovered in terms of the forfeiture order as well as Msagala’s pension fund preserved in terms of an order granted by Motlhe J, are to be offset against Msagala’s liability to Transnet established in these proceedings.
COSTS
[77] The investigations against Msagala have been ongoing since 2017, when the Nexus investigation commenced. Both Transnet and the SIU have employed a lot of time and resources to hold Msagala accountable. The costs associated with this action alone are estimated at approximately 20% of Msagala’s liability to Transnet, as established in these proceedings. The costs of other prior proceedings both within Transnet and before Motlhe J, will dig deeper into the amount Transnet stands to recover in terms of the forfeiture order and this trial. Msagala has continued to evade responsibility to account to Transnet by not participating in Transnet’s second disciplinary hearing and in this trial where overwhelming evidence of his financial dealings with IGS and Sithole was adduced. He was aware of the evidence as the witness statements filed in this trial were served on his erstwhile attorneys of record.
[78] These factors, as well as Msagala’s egregious dishonesty and the unlawfulness of his conduct warrants a punitive cost order against the cited defendants, with the exception of Loretto and Bonolo. The SIU and Transnet should not be out-pocketed by their own attorney and client costs, as a result of Msagala, IGS and Sithole’s dishonest and unlawful conduct.
[79] In the premises, the following order is made:
ORDER
1. The plaintiffs are granted leave to amend their particulars of claim to reflect the amendments set out in the notice of amendment dated 28 May 2021.
2. The first, second, third, sixth and seventh defendants (the defendants), jointly and severally, the one paying, the other to be absolved, shall pay to Transnet the total sum of R26, 423,028.77 comprised of the amounts pleaded in paragraph 17 of the amended particulars of claim.
3. The defendants shall provide, and enter into, a statement and debatement of account of all amounts as may have been paid, in addition to the amounts set out in paragraph 2 above, to the first and second defendants and/or the Msagala Investment Trust, the Msagala Family Trust and/or the Msagala Residence Trust, by the sixth and/or seventh defendants, as secret profits earned or received by Mr Msagala or any other person or entity on his behalf, arising from his dealings, as an employee of Transnet, with the sixth and/or seventh defendants.
4. If, pursuant to the statement and debatement of account referred to in paragraph 3 above, it is determined that any amounts may have been paid to Mr Msagala or any other person or entity on his behalf, by sixth and/or seventh defendants, arising from his business dealings as an employee of Transnet, in excess of the amounts set out in paragraph 2 of this order, the amount representing such excess shall be paid to Transnet by the defendants, jointly and severally, the one paying the other to be absolved.
5. If the plaintiffs are able to execute against, and recover proceeds from, the assets which are the subject of the forfeiture order granted on 17 November 2020 by Motlhe J in the Tribunal under case number GP/03/2020, such amounts as may be realised through such execution process shall be deducted from the amounts to be paid in terms of paragraphs 2 and 4 of this order.
6. In addition to the payments required to be paid under paragraphs 2 and 4 of this order, the first, second, third, sixth and seventh respondents, jointly and severally, the one paying, the other to be absolved, shall pay interest on each such amount at the applicable prescribed rate of interest from date of judgment to date of payment.
7. The Plaintiffs’ costs of these proceedings to date shall be paid by the first, second, third, sixth and seventh defendants, jointly and severally, the one paying, the other to be absolved, on the attorney and client scale.
8. The plaintiffs are able to execute against the first defendant’s pension benefits held with the Transnet Retirement Fund, which have been preserved under the order granted on 17 November 2020 by Motlhe J in the Tribunal under case number GP/03/2020. The amount as may be realised through such execution process shall be deducted from the amounts to be paid in terms of paragraphs 2,4,6 and 7 of this order.
JUDGE L. T. MODIBA (Ms.)
MEMBER OF THE TRIBUNAL
APPEARENCES
Counsel for the plaintiffs: Adv. P. Kennedy SC assisted by Adv. G. Ngcangisa, instructed by Mr R. Carr, Bowman Gilfillan INC
The first, second, fourth and fifth defendant appeared in person, then withdrew from court when their postponement application was refused.
Date of hearing: 3 to 6 and 13 May 2021
Date of Judgment: 31 August 2021
Mode of delivery: this judgment is handed down on the Micro Soft Teams Platform and livestreamed on the Tribunal’s YouTube channel. It is also emailed to the parties’ legal representatives and loaded on Caselines. The date and time for hand-down is deemed to be 12:00 pm on 31 August 2021.
[i] Proclamation No. 11 of 2018
[ii] Act No. 12 of 2004
[iii] Masstores (Pty) Ltd v Pick n Pay Retailers (Pty) Ltd and Another [2015] ZASCA 164 para 8, Country Cloud Trading CC v MEC: Department of Infrastructure Development 2014 (2) SA 214 (SCA) para 26, Country Cloud Trading CC v MEC, Department of Infrastructural Development, Gauteng 2015 (1) SA 1 (CC) para 27