While six prominent South African business leaders maintain there was “nothing sinister” about the structure behind the Dimension Data Campus transaction, their bid to overturn a court ruling that exposes alleged governance failures and B-BBEE non-compliance is set to be a closely watched test case for corporate accountability.
In a judgment delivered on 25 November, the High Court in Johannesburg underscored the importance of corporate governance and the duty of directors to avoid conflicts of interest. The court declared a series of transactions between Dimension Data Facilities (Pty) Ltd and Identity Property Co (Pty) Ltd void and invalid.
The case, as summarised in the ruling, centres on a “conspiracy” by senior executives of a group of companies to use en commandite/limited partnerships and private equity fund management structures to circumvent the objects of the Broad-Based Black Economic Empowerment (B-BBEE) Act and its associated codes of conduct.
At its core, the matter involves the 2019 sale of the Dimension Data campus in Bryanston, Johannesburg.
The applicants – Dimension Data Facilities, Dimension Data Investments South Africa, and NTT Limited – accuse six prominent business figures, including Dimension Data co-founders Jeremy Ord and Bruce Watson, of orchestrating a scheme to gain control and beneficial ownership of the campus. The alleged scheme employed en commandite partnerships to conceal the true beneficiaries of what was intended as a BEE-compliant transaction.
The other respondents include Jason Goodall, Grant Bodley, Athanasios Missaikos, and Steven Nathan, a close associate of the group.
The applicants claim the structure not only deceived public and empowerment auditors but also kept Japanese holding structures in the dark.
On 3 December, the six “captains of industry in South Africa” filed an application for leave to appeal the ruling. In the 27-page document, they outlined several points of contention, including claims that the court relied on hearsay evidence, erroneously concluded that the BEE structure was subverted, and misinterpreted the fiduciary duty grounds at the centre of the case.
In a statement released the previous day, the former executives of Dimension Data said they were “resolute in our commitment to ensuring that we are exonerated from any wrongdoing”.
“The perception that this was no more than a surreptitious conspiracy by ‘six white males’ to arrest control of the campus property to feather our own nests at the expense of empowerment is just plain wrong and deeply distressing to us,” the statement read.
The ruling remains in place while the legal teams await a decision on whether they’ll have another opportunity to face off in court.
Section 75 – key allegations
In an analysis of Judge Denise Fisher’s judgment, Widaad Ebrahim-Fakier, a director of Norton Rose Fulbright, said the ruling is poised to serve as a landmark case in corporate governance and compliance with B-BBEE legislation.
“The court’s findings are particularly relevant to those involved in banking and finance structures,” she wrote, underscoring the broader implications for corporate governance under section 75 of the Companies Act, which addresses conflicts of interest.
Section 75 outlines key principles aimed at preventing conflicts of interest among directors. It defines “personal financial interest” broadly, covering any direct financial, monetary, or economic interest. Directors, including prescribed officers and committee members, must disclose any such interest in matters under discussion at board meetings. Once disclosed, the conflicted director must recuse themselves from both deliberation and decision-making to avoid undue influence.
Further, directors are required to disclose any personal financial interest acquired after board approval of a matter, along with details of its acquisition. However, decisions made despite undisclosed interests may still stand if later approved by shareholders or validated by a court.
Failure to disclose an interest renders the relevant board decision or transaction void unless it is ratified by the board or court-validated.
The key allegations in the case, as set out by Ebrahim-Fakier, include:
The impugned interest and conflict
The applicants claimed that the executives were the beneficial owners of and held ultimate control of Identity, through personal funding (of the cash portion of the purchase price for the sale of the campus) and using nominees and en commandite partnerships. The interest was present from the early stages of the transaction’s planning and structuring.
The affected nominee arrangements and en commandite partnerships
The executives used an entity controlled by one of the implicated executives as a nominee to hold their interests in Areti, an en commandite partnership. Areti, in turn, was the limited partner in Identity Property Fund 1, also a limited partnership and the sole shareholder of Identity Prop Co, which acquired the campus in the transaction.
Non-disclosure
The sale of the campus was approved by the applicants’ boards without any disclosure of the executives’ interests, in contravention of section 75 of the Companies Act. The relevant applicant (and shareholder of Dimension Data Facilities) also did not subsequently ratify the transaction (or underlying agreements) once it became aware of the non-disclosure.
Concealment
Despite the outward appearance of a BEE-compliant transaction involving independent black investors, the true investors were the implicated executives themselves. The transaction’s structure was deliberately complex, involving nominee agreements and en commandite partnerships, to conceal the executives’ interests.
The executives contended that they did not have a personal financial interest in the transaction at the time of the board approvals, or that they were in control of Identity.
“They also contended that their interests (acquired after the conclusion of the transaction and relevant board approvals) were indirect due to the complex structuring of the transaction,” Ebrahim-Fakier noted.
The court’s findings
The court rejected the executives’ claims. It found that the executives did not contest their personal financial involvement in the transaction or their failure to disclose this to the applicants and their holding companies – matters that were undisputed.
The executives had engaged legal and financial advisers to establish nominee arrangements and en commandite partnerships, specifically designed to conceal their interests. This included instructing attorneys to draft agreements and structure financial transactions to obscure their roles.
The judgment highlighted that the executives’ control over Identity Prop Co was unmistakable. Their covert actions, including their ability to replace the general partner and manager of Identity Property Fund 1 without the buyer’s consent, demonstrated their ultimate authority over the transaction.
Furthermore, the court noted that the executives later proposed reversing the transaction if they were assured that they would not be implicated in wrongdoing. This offer undermined their claim of non-involvement, because it was inconsistent with their purported lack of control over the scheme.
“The court held that the executives could not credibly claim not to be the controllers of the scheme, while at the same time offering to reverse it in exchange for their immunity,” wrote Ebrahim-Fakier.
The court declared the transaction (and underlying agreements) void and ordered the restitution of the campus property to Dimension Data Facilities.
The court noted that while nominee arrangements and en commandite partnerships have their place in corporate structures, they should entail the implementation of checks and balances that serve to prevent them from being used to make corrupt relationships possible and in fraudem legis (“in fraud of law”).
“The judgment underscores the stringent requirements of section 75 and the consequences of non-compliance, serving as a stern warning against corporate malfeasance and emphasising the importance of transparency and integrity in corporate governance,” Ebrahim-Fakier noted.
Read the full judgment here.
