Temporary relief for govt

as Netcare’s M1.6 Billion lawsuit hits setback

PASCALINAH KABI

MASERU – Government can breathe a sigh of relief after the Court of Appeal overturned a decision by High Court judge, Justice Moroke Mokhesi, who had granted a default judgment in favour of South Africa’s Netcare Hospital.

The High Court ruling had cleared the way for Netcare to sue the government for M1.6 billion in damages, claiming the 2008 public-private partnership (PPP) agreement between government and the Tšepong Consortium was unlawfully terminated.

Tšepong Consortium challenged Justice Mokhesi’s ruling through an appeal filed shortly after the December 2024 decision.

The Court of Appeal handed down its judgment in April 2025.

“The appeal is upheld. The judgment of the Commercial Division of the High Court in CCT/0079/2024, delivered on 5 December, 2024, is hereby set aside. The matter is remitted to the Commercial Division of the High Court to be heard afresh on the merits of the rescission application before a judge other than Mokhesi J The respondents shall pay the appellant’s costs in this Court,” reads the Court of Appeal judgement.

Netcare, the majority shareholder in Tšepong, was part of the consortium that had been contracted to design, build, and manage Queen ‘Mamohato Memorial Hospital (QMMH) along with associated filter clinics.

Other shareholders are Afrai’nnai Health, Excel Health Services, D10 Investments and Women Investments. The government of Lesotho terminated the agreement with the Consortium in March 2021, following prolonged nurses’ strike at QMMH. The contract, originally signed in 2011, was set to run until 2026.

In February 2024, Netcare filed a case in the High Court seeking permission to pursue legal action against the government. The company argued that the Tšepong Consortium had failed in its responsibility to claim compensation from the government, which prompted Netcare to act on the consortium’s behalf.

When Tšepong did not respond to the summons, Justice Mokhesi granted Netcare a default judgment on April 23, 2024. Following that decision, Tšepong approached the court to have the judgment set aside. The consortium explained that it had not properly received the court papers and therefore had not intentionally ignored the case.

Tšepong further argued that it had a valid defence, including a counterclaim of more than M200 million. It alleged that Netcare had mismanaged and misused funds while operating QMMH and the associated filter clinics on behalf of the consortium.

Despite these claims, Justice Mokhesi ruled in favour of Netcare. This prompted Tšepong to appeal the decision. In the appeal, Tšepong is the appellant, while Netcare Hospitals, Netcare Hospitals Lesotho and Botle Facilities Management are the first, second, and third respondents, respectively. The court papers on behalf of Tšepong Consortium were filed by Professor Lehlohonolo Mosotho.

“The core procedural controversy in the court below (high court) centred on the authority of one Professor Mosotho, a director of Tšepong, to have initiated the rescission proceedings on behalf of the company.”

Netcare Hospitals and its co-respondents challenged Professor Mosotho’s authority to act on Tšepong’s behalf. They argued that the round robin resolution – purportedly authorising the application – was invalid because not all directors had been properly notified.

“Specifically, they contended that Dr Richard Friedland and Mrs May Moteane – both de jure directors -had not been served with the resolution. Furthermore, the respondents argued that Dr Chris Smith, whose status as a director had been confirmed by the court below as a matter of precedent, had also not received notice of the resolution, thereby vitiating its legal effect,” read the Court of Appeal Judgement.

The Court of Appeal explained that Justice Mokhesi’s ruling was based in part on a previous case – Richard Friedland and Others v Lehlohonolo Mosotho and Others – where the court had said Dr Chris Smith was a de facto director of Tšepong.

Because of that, the court said Dr Smith “was entitled, as a matter of law and good corporate governance, to be informed of any decision of the board, including a resolution authorising litigation.

The court said Justice Mokhesi believed that failing to inform Dr Smith made the decision by the board – called the round robin resolution – “fatally defective.” This meant Professor Mosotho had no right to take legal steps to cancel the earlier ruling, so “the application accordingly stood to be dismissed.”

The court also pointed out that confirmatory affidavits, which were filed late to support the case and show that certain directors had given proper approval, were “irregularly filed and could not be admitted.”

“At the commencement of proceedings before this Court, Mr Fiee, appearing with Advocate Lerotholi for the appellant, identified the dispositive issue as whether the court a quo had correctly determined that Dr Smith was a de facto director and, if so, whether he was legally entitled to be given notice of the round robin resolution.

Advocate Stais SC (with Advocate Motseki) raised two further preliminary objections for the respondents. First, the appeal should be struck off for want of security for costs, in contravention of the Court of Appeal Rules. Second, the round robin resolution was invalid because it had also not been served upon Dr Friedland and Ms Moteane, who are admittedly de jure directors of the appellant company,” reads the papers.

The court said that Professor Mosotho’s appeal asked it to decide what happens legally when some board members are not informed about important company decisions. It had to look at whether people like Dr Smith – who act as directors even if not formally appointed – should be notified about such decisions.

The court also had to decide if failing to follow these internal company rules makes the board’s decisions, and any court cases based on them, legally invalid. In addition, the appeal raised a technical question: Should the case be thrown out because the appellant (Tšepong) did not pay the required security for legal costs?

In the end, the court found that Justice Mokhesi’s judgment – which had allowed Netcare and its partners to sue the Lesotho government for M1.6 billion over the alleged unlawful termination of the PPP agreement – could not stand.

“The learned judge erred in treating as conclusively established the proposition that Dr Chris Smith was, at the material time, a de facto director of the appellant company. That conclusion rested on a finding in earlier litigation that had not been properly pleaded and proven in the current proceedings.”

The court further emphasised the need to evaluate each case on its own merits: “Indeed, as was stated in Private Sector Foundation of Lesotho v Thabo Qhesi and Others, whether the res judicata and issue estoppel approach to the relaxation of the principles will be justified will depend on considering each case’s circumstances.”

Even if the earlier ruling in Friedland carried persuasive weight, the Court held that the lower court still had the responsibility to examine the issue anew. In this case, it found that the necessary evidence to establish Dr Smith as a de facto director had not been presented.

“Dr Smith’s apparent attendance at meetings by invitation, unaccompanied by authority or participation in governance decisions, does not satisfy the test in Section 56 of the Companies Act of 2011.

Without a finding that Dr Smith was a de facto director at the material time, it cannot be said that the failure to notify him of the round robin resolution invalidated that resolution. The learned judge’s reliance on the prior judgment, without reassessing the matter on the record before him, constituted a material misdirection in law and fact.”