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

• Jurisdiction: South Africa
• Author: Aubrey Sibanda
• Pages: 401-417
• Date: 25 May 2019
• Citation: (2015) 27 SA Merc JL 401
• Published date: 25 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.

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(2015) 27 SA Merc LJ 401

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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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