Advancing the Statutory Remedy for Unfair Prejudice in South African Company Law: Perspectives from International Jurisprudence

JurisdictionSouth Africa
Citation(2015) 27 SA Merc JL 401
Pages401-417
Date25 May 2019
Published date25 May 2019
ADVANCING THE STATUTORY REMEDY
FOR UNFAIR PREJUDICE IN SOUTH
AFRICAN COMPANY LAW: PERSPECTIVES
FROM INTERNATIONAL JURISPRUDENCE
AUBREY SIBANDA*
Lecturer, School of Undergraduate Studies, Faculty of Law,
North West University
I INTRODUCTION
The existence of minority shareholders’ remedies in company law serves
to provide mechanisms for minority shareholders to protect and enforce
their rights when they have reasonable grounds to believe that they have
been violated by the directors or majority shareholders.
1
Due to the
exercise of the majority rule principle in the governance of companies,
minority shareholders are prone to abuse by controlling shareholders.
2
Company law attempts to drift away from the judicial non-intervention
principle in corporate management by creating statutory means for
judicial involvement in the exercise of majority rule by shareholders.
Against this background, the oppression remedy emerges as an impor-
tant legal mechanism to regulate the exercise of majority shareholder
power in corporate governance. The remedy remains one of the options
available for minority shareholders to confront cases of corporate
* LLB LLM (Fort Hare). Lecturer, School of Undergraduate Studies, Faculty of Law, North
West University. I extend my special appreciation to Dr Femida Cassim of the University of
Pretoria and Mr Phumudzo Munyai of the University of South Africa for their valuable
comments that assisted me in improving the initial draft of this article.
1
Sharar, ‘Minority shareholders’ remedies in public shareholding companies: Comparing
the state of Qatar and Australia’ 18, available at http://epublications.bond.edu.au/cgej/18,
accessed on 13 May 2013. See Coffee, ‘The future as history: The prospects for global
convergence in corporate governance and its implications’ (1998–1999) 93 Nw UL Rev 641 at
707, who states that the protection of minority shareholders is an essential prerequisite for an
effective securities market.
2
Having been f‌irst articulated in the common-law case of Foss v Harbottle (1843) 2 Hare
461, the concept of majority rule of shareholders has been consistently applied in company
law. The concept has been explained by f‌ive other legal notions, namely, the internal
management principle; the proper plaintiff principle; the ratif‌iability principle; the irregular-
ity principle; and the business judgment rule. For discussion in this regard, see Mwenda &
Wiseberg, ‘Corporate-law safeguards against oppression of minority shareholders’ (1999) 11
SA Merc LJ 28 at 33; 34.
401
(2015) 27 SA Merc LJ 401
© Juta and Company (Pty) Ltd
misconduct, particularly by their majority counterparts.
3
Commenting
on the use of the oppression remedy in Canada, Peterson observes that
the ‘potential protection it offers corporate stakeholders is awesome’.
4
Moreover, the remedy has also been described as ‘the broadest, most
comprehensive and most open-ended shareholder remedy in the com-
mon law world’.
5
In South Africa, since its introduction by the adoption of s 111bis of
the Companies Act, 1926
6
the oppression remedy has undergone
substantive amendment. Section 163 of the recently promulgated
Companies Act, 2008
7
presents the remedy in a form that differs
substantially from its predecessor, s 252 of the Companies Act, 1973.
8
Section 163 grants the oppression remedy a wider scope of application
ranging from the locus standi of applicants, specif‌ic conduct that can be
challenged under it and wide remedial orders the court can grant. The
amendment of the oppression remedy by the Companies Act, 2008 is
welcomed as it ref‌lects serious effort towards the betterment of South
Africa’s minority shareholder protection regime. Whilst embracing the
amendments, this article submits that the oppression remedy in South
African company law can further develop in light of lessons provided by
international jurisprudential developments mainly in England, Canada,
Australia and others. Voluminous legal literature exists on the oppres-
sion remedy in South Africa, prior to and after its latest amendment.
Much of the literature, particularly case law and scholarly opinions,
merely synopsise the requirements for utilising the oppression remedy
under the antiquated s 111bis the Companies Act, 1926 and the recently
repealed s 252 of the Companies Act, 1973 respectively.
9
Notwithstand-
3
See Leon & Armstrong, ‘The relevance of the oppression remedy as a control on corporate
governance in Canada’ (2003) 27 Advocates’ Quarterly 402 at 404.
4
See Peterson, Shareholders Remedies in Canada (loose-leaf) (Butterworths 1989)
18.1 at p 18.1. See also Ellyn, ‘Shareholders’ Remedies in Canada in 2010’ 15, available at
http://www.ellynlaw.com/pdfs/
I.Elyn,%20QC%20et%20al.%20%20Shareholders%20Remedies%20in%20Canada%202010.
pdf, accessed on 20 May 2013. The author states that the oppression remedy is ‘one of the
most powerful weapons in the arsenal of the shareholder’.
5
Beck, ‘Minority shareholders’ rights in the 1980s’ (1982) Spec Lect LSUC 311 at 312.
6
Act 46 of 1926, hereinafter, Companies Act, 1926.
7
Act 71 of 2008, hereinafter, Companies Act, 2008.
8
Act 61 of 1973, hereinafter, Companies Act, 1973.
9
See City Crushers Ltd v Central Crusher Supplies Ltd 1933 TPD 111 at 116; Lawrence v
Lawrich Motors (Pty) Ltd 1948 (2) SA 1029 (W); Taylor v Welkom Theatres (Pty) Ltd & others
1954 (3) SA 339 (O) 350; Aspek Pipe Co (Pty) Ltd & another v Mauerberger & others 1968 (1)
SA 517 at 517–525. See also Donaldson Investments (Pty) Ltd v Anglo-Transvaal Collieries Ltd
& others 1979 (3) SA 713 (W); Oosthuizen, ‘Statutêre minderheidsbeskerming in die
maatskappyereg’ (1981) TSAR 223; Hurter, ‘Unfairly prejudicial, unjust or inequitable
conduct by members in a close corporation’ (1997) 9 SA Merc LJ 207.
(2015) 27 SA MERC LJ402
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