Well, it seemed a good idea at the time
20 October 2017 09:11 (South Africa)
Opinionista Pierre de Vos

The life of Brian – deception or public fraud?

  • Pierre de Vos
    Pierre de vos
    Pierre de Vos

    Pierre De Vos teaches Constitutional law at the University of Cape Town Law Faculty, where he serves as deputy dean and as the Claude Leon Foundation Chair in Constitutional Governance. He writes a regular blog, entitled 'Constitutionally Speaking', in which he attempts to mix one part righteous anger, one part cold legal reasoning and one part irreverence to help keep South Africans informed about Constitutional and other legal developments related to the democracy.

The “revelation” that former CEO Brian Molefe never resigned from Eskom but was on “extended long leave” while moonlighting as an ANC MP and has now returned as the CEO has shocked many South Africans. After reading the legal papers, it is difficult not to conclude that whatever might have happened, Molefe and the chair of the Eskom Board, Baldwin (Ben) Ngubane were less than honest about matters. This is why.

On 11 November 2016, then CEO of Eskom Brian Molefe issued a statement in which he wrote: “I have‚ in the interests of good corporate governance‚ decided to leave my employ at Eskom from 1 January 2017. I do so voluntarily…”

On the same day Eskom issued a statement in which it said: “It is with a great sense of loss and regret that the Board of Eskom announces a decision by Brian Molefe to step down in the interest of good corporate governance.” On the same day Public Enterprises Minister Lynne Brown issued a statement confirming that: “Mr Group Chief Executive Brian Molefe today announced his resignation, with effect from 1 January 2017 as Group Chief Executive of Eskom.”

It was widely reported in the media at the time that Molefe had resigned from Eskom. Neither Molefe nor Ngubane at any point stated that he had taken “early retirement” and had not in fact resigned as the Eskom media statement and Brown had indicated and as reported in the media.

There are two possible reasons for this. First, it is possible that Molefe had indeed resigned and had not taken early retirement and that the story that he took early retirement was concocted after the fact.

However, Ngubane has now produced two letters, one from Molefe and one from himself, which “confirms” that Molefe had sought to take early retirement. Neither of the letters are printed on an official letterhead. Neither has any official document from the board generated at the time when Molefe left Eskom been produced to confirm that Molefe had taken early retirement. (Minutes of a board meeting held in May this year several months after the events does refer to Molefe’s alleged early retirement.)

Given the fact that the story of an early retirement was only revealed last week in court papers and that none of the parties had done anything to alert Minister Brown that she was mistaken when she told the South African public in November last year that Molefe had resigned, it is not beyond the realm of possibility that these letters could have been fraudulently fabricated after the fact.

From a legal perspective, the story of a botched early retirement would be the only way to ensure that the court does not declare the reinstatement of Molefe irrational and invalid.

In terms of section 239 of the Constitution Eskom is an organ of state as it performs a public function in terms of legislation. This means that any decision taken by the Board must comply with the principle of legality and must be rational. As I have written before, this principle has been confirmed by the Constitutional Court, most notably in the judgments of Albutt v Centre for the Study of Violence and Reconciliation and Others and Democratic Alliance v President of the RSA and Others (the so-called Simelane judgment).

These decisions confirmed that both the process by which an impugned decision is made and the decision itself must be rational. In the Simelane judgment the court held that the process through which the President appointed the then head of the National Prosecuting Authority was not rational because the President had ignored the facts which suggested that Simelane was not an appropriate person for the job. The court explained:

If in the circumstances of a case, there is a failure to take into account relevant material that failure would constitute part of the means to achieve the purpose for which the power was conferred. And if that failure had an impact on the rationality of the entire process, then the final decision may be rendered irrational and invalid by the irrationality of the process as a whole. There is therefore a three stage enquiry to be made when a court is faced with an executive decision where certain factors were ignored. The first is whether the factors ignored are relevant; the second requires us to consider whether the failure to consider the material concerned (the means) is rationally related to the purpose for which the power was conferred; and the third, which arises only if the answer to the second stage of the enquiry is negative, is whether ignoring relevant facts is of a kind that colours the entire process with irrationality and thus renders the final decision irrational.”

The legal problem faced by Eskom is that the Public Protector Report on state capture contains damning evidence implicating Molefe in possibly unlawful and corrupt activities. While the report did not make any definitive findings against Molefe, the facts and allegations ventilated in the report would certainly be considered relevant factors that had to be taken into account by Eskom if it wanted to re-appoint Molefe as Group CEO of the company.

But this Eskom did not do. In fact, in his affidavit Ngubane explicitly states that the facts and allegations contained in the State of Capture report were irrelevant to Eskom as the Public Protector had made no definitive findings against Molefe. It is difficult to see how this failure of the Board to consider the very serious allegations against Molefe before re-appointing him as Group Chief Executive of Eskom would not render the appointment irrational and invalid.

It would be quite shocking if Ngubane and Molefe fabricated evidence to try and regularise the otherwise unlawful re-appointment of Molefe and I am reluctant to embrace this version of events. Given the fact that Ngubane admitted in his affidavit that Eskom did agree to foot the bill for Mr Molefe’s early retirement and did in fact pay him R30-million as an early retirement pension, it is possible that the version presented by Molefe and Ngubane is substantially correct.

However, even on their own version of events, the two gentlemen – through acts and omissions – deliberately misled Brown and the public in order to secure a secret and, as it turns out, an unlawful, pay-out of R30-million for Mr Molefe. If the Sunday Times had not revealed the R30 million pay-out to Molefe and if Brown had not vetoed this pay-out, Molefe would have kept the R30-million illegally paid to him by Eskom and none of us would have been the wiser.

The fact is that the relevant pension fund rules do not permit Molefe to take early retirement. The rules only permit early retirement from the age of 55 and Molefe has not yet reached that age.

Molefe had previously worked for the National Treasury and had also headed up the Public Investment Corporation which invests public servants’ contributions to the Government Employees Pension Fund. It would therefore be surprising if Molefe was not aware that the pension fund rules do not permit an employee to take early retirement before the age of 55. (It would also suggest a lack of knowledge and extreme incompetence not associated with somebody of Molefe’s abilities and experience.)

Ngubane has refused to explain why neither he, nor Molefe, thought it prudent to alert the minister that Molefe had not resigned as she had told the public but had taken early retirement. The gentlemen have also not explained why they never corrected the statement issued by Eskom that Molefe had stepped down.

If it is correct that Molefe’s resignation was indeed at the time secretly framed by the parties as an early retirement, and if Ngubane and Molefe had believed that such an early retirement (and the “pension pay-out” – the cost being carried by Eskom – of R30-million) was perfectly legal and ethically defensible, why was Minister Brown and the public not explicitly told of this?

The irresistible inference to be drawn from the obfuscation and failure to correct the alleged facts, is that the two gentlemen sought to hide the pay-out (couched in the affidavits as an early retirement) because they knew that it was not proper and that there would be a huge public outcry if it were to become known that Eskom was forking out R30-million to the man implicated in serious wrongdoing by the Public Protector Report on state capture.

In his affidavit Ngubane admits that legal advice on the lawfulness of the early retirement and the R30-million payment to Molefe was only sought after the Sunday Times revealed its existence and after the minister had intervened. Why was this not done before Eskom paid R30-million to Molefe?

It might be that the failure to comply with the law and the failure to take the minister and the public into its confidence was out of sheer incompetence. But if they also knew, as they surely should have, that the “early retirement” and the R30-million pay-out was unlawful, they may well have committed fraud.

(Ngubane does claim in his affidavit that he and the board at all times acted in good faith. If he is ever charged with fraud, it would be for a court to decide whether this claim is plausible, given the secretive nature of the “retirement” arrangement between Ngubane and Molefe.)

So, even if one believes the version of events presented by Ngubane and Molefe, they at best acted in an underhand, incompetent, and secretive manner to effect an unlawful payment of R30-million to Molefe. At worse, they intentionally defrauded Eskom (and hence the public) of R30-million. DM

  • Pierre de Vos
    Pierre de vos
    Pierre de Vos

    Pierre De Vos teaches Constitutional law at the University of Cape Town Law Faculty, where he serves as deputy dean and as the Claude Leon Foundation Chair in Constitutional Governance. He writes a regular blog, entitled 'Constitutionally Speaking', in which he attempts to mix one part righteous anger, one part cold legal reasoning and one part irreverence to help keep South Africans informed about Constitutional and other legal developments related to the democracy.

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