CASE LAW
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Nov 24, 2024
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Visser Sitrus v Goede Hoop Sitrus (2014) 5 SA 179 (WCC)
Facts
•
Visser sought approval to transfer shares held in Goede Hoop Sitrus (GHS) to another party
•
The GHS's MOI allowed the board of directors to approve or disapprove such transfers.
•
The board of directors of GHS (BoD) refused to approve the transfer, leading VC to believe they acted oppressively or unfairly
prejudicially.
•
VC applied for relief under Section 163 of the Companies Act, alleging that the conduct of GHS was oppressive, unfairly
prejudicial, or unfairly disregarded their interests.
Legal Question
Was the refusal by GHS's BoD to approve the share transfer oppressive or unfairly prejudicial to VC, and did it constitute a breach
of their fiduciary duties?
Ruling
•
The court found that the BoD of GHS did not act oppressively, unfairly prejudicially, or in breach of their fiduciary duties.
•
Their refusal to approve the share transfer was within their legal rights and met the standards set by the Companies Act.
•
The court concluded that VC's application was without merit, and it was dismissed with costs.
Outcome
•
The case revolves around the interpretation of Section 163 of the Companies Act and whether the actions of a company's
board of directors can be considered oppressive or unfairly prejudicial to a shareholder.
•
The court had to balance the rights of shareholders with the powers of the board, especially when the board's actions were
within the legal framework.
•
The court ruled in favor of Goede Hoop Sitrus (GHS), finding that their refusal to approve the share transfer was lawful, and
the application brought by Visser Sitrus (VC) was dismissed with costs.
•
This case underscores the importance of distinguishing between lawful board decisions and those that may genuinely be
oppressive or unfairly prejudicial to shareholders.
Philips v Fieldstone [2014] 1 All SA 150 (SCA)
Key Points and Takeaways
•
The following principles was established in this case = Fiduciary duties extend to anyone holding a position of trust within a
company, not just directors
•
The definition of director under Section 76(1) of the CA includes alternate directors, prescribed officers, and committee
members, expanding the scope beyond the definition in Section 75(1) concerning disclosures of personal financial interests.
•
The existence of a contract does not preclude the existence of fiduciary duties, which can be implied from the contract of
employment.
•
Once a fiduciary relationship is established, specific duties apply, including acting in the company's best interests, avoiding
conflicts of interest, exercising authority within its scope, and refraining from secret profits.
•
Fiduciary duties require directors to avoid conflicts of interest and act in good faith for the company's best interests.
•
Prophylactic duties surround directors, safeguarding the company's interests & preventing breaches of fundamental duty.
•
Directors may breach multiple duties depending on the circumstances, tasks assigned, and the nature of the company.
•
While avoiding conflicts of interest is a primary fiduciary duty, other duties like acting in the company's best interests, using
powers properly, and maintaining unfettered discretion may not always be considered fiduciary duties.
Summary
Fiduciary duties extend beyond directors to anyone in a position of trust within a company. These duties encompass acting in the
company's best interests, avoiding conflicts of interest, & refraining from secret profits, among others, with specific duties varying
depending on the circumstances & the nature of the relationship between the parties.
De Bruyn v Steinhoff International Holdings NV [2020] JOL 47482 (GJ)
Case Summary
The case involved claims against Steinhoff International Holdings Proprietary Limited, Steinhoff International Holdings NV, their
directors, & external auditors, Deloitte. Shareholders sought liability under common law and the Companies Act for losses due to
financial statement misstatements.
The court ruled that:
•
Directors owe fiduciary duties primarily to the company, not individual shareholders.
•
A special factual relationship is needed to establish a fiduciary duty from directors to shareholders.
•
Statutory claims under the Companies Act require harm to the company, not just shareholders.
•
Section 218(2) should align with common law principles, including the principle of reflective loss.
•
Section 20(6) aims to protect the company and third parties rather than providing shareholder rights of action for damages.
Legal Questions
(1)
Did Steinhoff companies, directors, Deloitte owe duty of care to Steinhoff shareholders for financial statement misstatements?
(2)
What are the common law principles regarding directors' fiduciary duties and their relationship with shareholders?
(3)
Can shareholders bring claims under the Companies Act for financial statement and director conduct contraventions?
(4)
How should Section 218(2) and Section 20(6) of the Companies Act be interpreted concerning shareholder claims?
Ruling
•
Directors owe fiduciary duties primarily to the company itself, and shareholders cannot claim losses due to breaches of these
duties unless a special factual relationship is established.
•
Statutory claims under the Companies Act also require harm to the company.
•
Section 218(2) should align with common law principles, and Section 20(6) aims to protect the company and secure the
position of third parties.
Conclusion
•
The case underscores limitations on shareholder claims against directors and auditors for losses caused by financial
misstatements and breaches of director duties.
•
To claim fiduciary duties from directors, shareholders must establish a special factual relationship.
•
Statutory claims under the Companies Act may necessitate harm to the company, not just the shareholders, and should be
interpreted considering common law principles, including reflective loss.
Hlumisa Investment Holdings (RF) Ltd v Kirkinis 2020 (5) SA 419 (SCA)
Case Summary
•
The case involved shareholders of African Bank Investments Limited (ABIL) suing its directors, alleging that misconduct by the
directors led to a significant loss in the value of their shares.
•
Shareholders relied on section 218(2) of the Companies Act, which allows claims against persons who contravene the Act
and cause damage to others.
•
The SCA ruled that a company is a separate legal entity from its shareholders, and harm to the company should be remedied
by the company itself.
•
Shareholders do not have a direct cause of action against wrongdoers who harm the company.
•
The SCA dismissed shareholders' appeal, confirming the company alone has the right of action for harm directly to company.
Legal Questions
(1)
Can shareholders sue company directors for a decrease in the value of their shares based on alleged director misconduct?
(2)
Does section 218(2) of the Companies Act provide a basis for shareholders' claims against directors for share value losses?
(3)
What are the principles related to a company's separate legal personality and shareholders' rights to bring claims against
directors?
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Ruling
•
The SCA ruled that shareholders cannot sue directors for a decrease in share value due to alleged director misconduct.
•
Section 218(2) does not provide a basis for such claims.
•
Shareholders are not direct parties in claims against directors for harm to the company; the company has the right of action
in such cases.
Conclusion
•
This case underscores the principle that a company is a distinct legal entity, and its shareholders do not have a direct cause of
action against directors for harm done to the company.
•
Directors' duties are owed to the company, and claims for damages from director breaches should be pursued by the
company itself.
•
Shareholders should consider the specific provisions of the Companies Act and seek legal advice when contemplating claims
against directors.
Gihwala v Grancy Property Ltd [2016] 2 All SA 649 (SCA)
Case Summary
•
This case involved a joint venture between an overseas investor, Mawji, and the Dines Gihwala Family Trust and Manala, with
Seena Marena Investments (SMI) as the front company.
•
Disputes arose regarding the 2005 agreement, Grancy Property Ltd's role, and loans provided for share acquisition.
•
The court found that the 2005 agreement had tacit terms, and breaches included not acknowledging Grancy as a
shareholder and denying certain rights, constituting a breach of fiduciary duties.
•
Orders of delinquency against Gihwala and Manala were upheld, as their actions met the grounds for a delinquency order
under the Companies Act.
Legal Questions
(1)
Whether the 2005 agreement was breached in this case?
(2)
Whether the court was correct in issuing orders of delinquency against Gihwala and Manala?
(3)
What were the fiduciary duties of the directors concerning the interests of Grancy as a shareholder?
(4)
Did the directors grossly abuse their position, leading to harm to the company?
Ruling
•
The court found that the 2005 agreement had tacit terms and was breached due to non-acknowledgment of Grancy as a
shareholder and denial of shareholder rights.
•
Orders of delinquency were upheld, as Gihwala and Manala's actions constituted gross negligence and a breach of fiduciary
duties, causing harm to SMI and meeting the grounds for a delinquency order under the Companies Act.
Organisation Undoing Tax Abuse v Myeni [2020] 3 All SA 578 (GP)
Case Summary
•
In this case, the Organisation Undoing Tax Abuse (OUTA) and the South African Airways Pilot Association (SAAPA) filed a
lawsuit against Ms. Duduzile Myeni, the former non-executive chairperson of South African Airways (SAA).
•
The plaintiffs sought to have Myeni declared a delinquent director under section 162(5) of the Companies Act.
•
This section allows court to declare a person delinquent director for various reasons, including gross abuse of position, taking
personal advantage of information or opportunities & causing harm to the company through negligence or misconduct.
•
The court considered Myeni's actions during her tenure as chairperson of the SAA board, which included opposing a
beneficial deal with Emirates, acting dishonesty & grossly abusing powers, leading to harm to SAA and the country.
•
The court found Myeni's explanations unconvincing, and her conduct satisfied several grounds for delinquency.
•
She was declared a delinquent director, and the court ordered that this status would apply not only for seven years but for
Myeni's lifetime.
Legal Significance
•
This case emphasizes the duties of directors & circumstances under which a court may declare a director to be delinquent.
•
Directors must act in good faith, for proper purposes, and in the best interests of the company.
•
The court's decision to declare Myeni a delinquent director highlights the seriousness with which courts view breaches of
these duties and the potential lifelong consequences for directors who engage in misconduct.
Zulu and Others v Zulu and Others (D429/2023) [2023] ZAKZDHC 25 (6 April 2023)
Facts
•
The case concerns the removal of a director in a South African company under Section 71 of the Companies Act.
•
Section 71 provides two options for removing a director: by an ordinary resolution adopted by shareholders or by a
resolution of board members other than the director concerned.
•
The Act does not explicitly require directors to be informed of reasons for their removal under the first option (shareholders'
resolution).
Issue
The main issue in the case is whether directors must be provided with reasons for their removal when it's initiated by shareholders
under a resolution.
Ruling
•
The Pretorius case in the Western Cape High Court found that the removal of directors by shareholders is invalid unless the
director is furnished with reasons for their proposed removal.
•
This ruling is based on Section 71(2) of the Act, which requires the director to be given notice and a reasonable opportunity to
make a presentation.
•
However, the Gauteng High Court in the Miller case held that Section 71(1) of the Companies Act does not require
shareholders to provide reasons for the removal and that directors serve at the behest of shareholders who can remove them
at will without having to provide reasons.
Impact
•
The inconsistency in these court decisions has created uncertainty in the requirements for removing a director at the instance
of shareholders.
•
The Companies & Intellectual Property Commission (CIPC) published a guidance note in 2019 that aligns with the Pretorius
case, requiring proof of reasons for removal. However, the CIPC has not updated this note to reflect the Miller case.
Legal Question
The legal question at the heart of this case is whether shareholders must provide reasons for removing a director under Section
71(1) of the Companies Act when initiating a resolution, or if such removal can be done without providing reasons.
Context
•
The case highlights the inconsistency in the interpretation of Section 71 of the Companies Act in different South African
courts and among regulators, creating uncertainty for shareholders and companies.
•
Practical implications are outlined for shareholders who wish to remove a director by shareholder resolution, suggesting a
course of action that includes giving notice, providing reasons, and allowing the director to make a presentation.
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Miller v Natmed Defence (Pty) Ltd and Others 2022 (2) SA 554 (GJ)
Facts
•
The case involves the removal of a director from a company, governed by Section 71 of the Companies Act 71 of 2008.
•
The director, Mr. Miller, was notified of shareholder's meeting where a resolution to remove him as a director was proposed.
•
The meeting took place in his absence, & he was removed as a director.
•
Mr. Miller contested his removal, arguing that it violated Section 71(2)(b) of the Companies Act because he was not provided
with reasons for his proposed removal, which would have allowed him to make representations against the resolution.
Case Summary
•
Mr. Miller sought to have his removal as a director set aside and be reinstated.
•
He argued that Section 71(2)(b) required not only a reasonable opportunity to make a presentation but also that reasons for
the proposed removal be given to the director.
•
The court disagreed, distinguishing between the removal of a director by shareholders and by the board of directors.
•
The court clarified that while Section 71(3) requires reasons for removal by the board, shareholders can remove directors
without providing reasons when they no longer support them.
•
Mr. Miller's removal by shareholders was deemed valid under the Act.
Legal Question
The central legal question is whether shareholders must provide reasons for removing a director under Section 71 of the
Companies Act when initiating a resolution to remove the director.
Court Ruling
•
The court ruled that shareholders do not have to provide reasons for removing a director.
•
Section 71 of the CA draws a clear distinction between removal by shareholders and removal by the board of directors.
•
While the Act requires reasons for removal by the board (Section 71(3)), no such requirement exists for shareholders
•
Shareholders can remove directors at will without providing reasons.
Impact
•
The case clarifies the distinction & requirements for removing a director by shareholders vs. the board of directors.
•
Shareholders have the power to remove directors without providing reasons when they no longer support them.
•
The ruling confirms the main position that directors serve the order of shareholders, who have powers in this regard.
•
The case emphasizes that, from a legal perspective, shareholders can freely remove directors without the obligation to explain
their decision.
Connection to the 2021 Judgment
This judgment is consistent with the earlier 2021 decision in Miller v Natmed Defence (Pty) Ltd, which also affirmed the authority
of shareholders to remove directors without giving reasons.
Barry v Clearwater Estate NPC
Case Summary
•
This case revolves around a dispute regarding a special general meeting held by Clearwater Estates Homeowners Association.
•
The appellant, Mr. Richard Du Plessis Barry, a director of the association, sought an order declaring the business and
resolutions transacted at the meeting unlawful and void, primarily due to issues with proxies submitted for the meeting.
•
The association's MOI contained provisions stating proxies would only be valid if deposited at least 48 hours before meeting.
•
The board of the association proposed a vote to condone the late proxies, which was accepted by a majority decision,
addressing the lack of quorum.
•
The appellant contested that the meeting wasn't properly constituted due to the absence of a quorum for passing special
resolutions.
•
The core issue was whether the MOI provisions setting a 48-hour time limit for proxy submission were consistent with the
Companies Act 71 of 2008, particularly Section 58(1) of the Act, which allows shareholders to appoint a proxy "at any time."
•
The court found in favor of the association, ruling that the MOI provisions were inconsistent with the Act and, to that extent,
void, as they could not restrict a shareholder's right to appoint a proxy "at any time" as allowed by the Act.
Key Legal Points
•
Section 58(1) of the Companies Act 71 of 2008 allows shareholders to appoint a proxy "at any time."
•
An MOI provision that contradicts an unalterable provision of the Act is void
•
The MOI's provisions that required proxies be submitted at least 48 hours before a meeting were inconsistent with the Act.
•
The distinction between the appointment of a proxy and the exercise of a proxy's rights is artificial.
•
The Act's wording changed from the repealed Companies Act 61 of 1973, indicating a change in legislative purpose. |
Outcome
The appeal was dismissed with costs. The court upheld the ruling that the provisions in the MOI regarding proxy submission time
were inconsistent with the Companies Act and void. The practical difficulties raised by the appellant were deemed insufficient to
change this interpretation of the Act. Any resolution of those difficulties would require legislative intervention. |