An analysis of directors' fiduciary duties in the removal of a director from office
| Jurisdiction | South Africa |
| Date | 12 September 2019 |
| Author | Rehana Cassim |
| Pages | 212-233 |
| Published date | 12 September 2019 |
212
AN ANALYSIS OF DIRECTORS’ FIDUCIARY
DUTIES IN THE REMOVAL OF A DIRECTOR
FROM OFFICE*
Rehana Cassim
BA LLB LLM (WITS) LLD (Unisa)
Senior Lecturer in Law, Department of Mercantile Law, University of South Africa
Attorney and Notary Public of the High Court of South Africa
1 Introduction
The relationship between a director and his comp any is one of the ent renched
examples of commercial duciary relationships accepted i n South African
la w.1 The directors’ duciary d uties are derived from the Companies Act 71
of 2008 (“the Companies Act”) as well as t he common law. Section 76 of the
Companies Act, which partially codies the duciary duties of directors, does
not exclude the com mon law. Accordingly, the common-law duciary duties
of directors that are not ex pressly amended by section 76 of the Companies
Act or those that ar e not in conict with section 76 of the Compa nies Act are
still appl icable.2
The Companies Act introduced a provision into South African law, contained
in section 71(3), which for the rst time permits the board of directors to
remove a fellow director from ofce. This may be done i n instances where,
• a company has more than two directors and a sh areholder or director
alleges that
o the director in question has become ineligible or disqualied to be
a director, or
o has become incapacitat ed to the extent that he is unable to perform
the functions of a di rector and is unli kely to regain that capacity
within a reasonable ti me, or
• that he has neglected or has been derelict in the performance of the
functions of a dire ctor.
* This art icle is based on part s of the author’s LLD thesis
1 See M Havenga “Breach of Directors’ Fiducia ry Duties: Liability on what Basis” (1996) 8 SA Merc LJ 366
366; Robinson v Ra ndfontein Estates G old Mining Co Ltd 1921 AD 168; S v De Jager 1965 2 SA 616 (A);
S v Hepker 1973 1 SA 472 (W) 475; Bellairs v Hodnett 1978 1 SA 1109 (A); Atlas Organic Fertiliz ers (Pty)
Ltd v Pikkew yn Ghwano (Pty) Ltd 1981 2 SA 173 (T); Sibex Con struction (SA) (P ty) Ltd v Injectaseal CC
(Pty) L td 2008 6 SA 620 (SCA); Omar v In house Venue Technical Manage ment (Pty) Ltd 2015 3 SA 146
(WCC) paras 59-61; Mthimunye-Ba koro v Petroleu m and Oil Corpor ation of South Af rica (SOC) Ltd 201 5
6 SA 338 (WCC)
2 Mthimunye- Bakoro v Petroleum and O il Corporation of Sou th Africa (SOC) Ltd 2015 6 SA 338 ( WCC)
Invest NV v Petro tank South Afric a (Pty) Ltd 2018 1 All SA 450 (GJ) para 61
(2019) 30 Stell LR 212
© Juta and Company (Pty) Ltd
Under section 71(3) of the Companies Act the board of directors, other
than the direc tor concerned, must d etermine t he matter by resolution, and
may remove a director who it has determined to b e ineligible or disqualied,
incapacitated, negligent, or de relict, as the case may be.
This article argues th at when the boa rd of directors exercises its power
under the Compa nies Act to remove a director from ofce it must not br each
its duciary duties to t he company in doing so. T his a rticle explores the
specic ducia ry duties of d irectors which apply when the board removes a
director from ofce under section 71(3) of the Compan ies Act. The discussion
of directors’ duciary duties is restricted to the application of the principles in
situations where dire ctors are removed from ofce.
The consequences of directors breach ing their duciary duties in removing
a director from ofce u nder sect ion 71(3) of the Compan ies Act are also
considered in this ar ticle. The discussion also includes whether s uch a
director ru ns the risk of incur ring person al liability for removing a di rector
from ofce in breach of his duciary duties. In addition, the controversial
question whether an improperly removed director may be reins tated to ofce
is also canvassed. The pivotal and conte ntious English case of Lee v Chou Wen
Hsien (“Lee”),3 in which the cou rt did not rein state a director who had been
wrongly removed by the board of dir ectors as the lat ter had ulterior mot ives
and ac ted in bre ach of its duciary duties, is critically analysed. In light of
section 5(2) of the Companies Act, which provides that a court inter preting or
applying the C ompanies Act may consider foreign law to the extent that this
is appropriate, this article analyse s whether the decision i n Lee4 would be of
persuasive authority in South African law. It fur ther considers whet her any
distinctions may be drawn between t he applicable company law principles
in the United Kingdom (“UK”) on the removal of compa ny directors, and
the Companies Act. Thereaf ter recommend ations are made relating t o the
duciary duties of direc tors in removing fellow board members from ofce.
2 Application of fiduciary duties in the removal of directors by
shareholders and by the board of directors
It is trite that the rig ht of shareholders to vote is a proprietar y right.5 As
Lord Jessel MR in Pender v Lushingt on6 expressed it, a shareholder
“has a right to say, whether I vote with the majority or with the minority, you shall record my vote;
that is a right of property belonging to my interest in this company, and if you will not, I shall institute
legal proceedings to compel you. It seems to me that such an action could be maintained, without any
technical difculty.”
It follows, the cour t proclaimed, that if a shareholder votes in a manner
that is adverse to the interests of the company as a whole, on that ground
4 1202
5 Pender v Lushing ton 1877 46 ChD 317 321; Re HR Harmer Ltd 1959 1 W LR 62 82; Sammel v Pre sident
Brand Gold Minin g Co Ltd 1969 3 SA 629 (A) 680; Kuwait Asia Bank EC v N ational Mutu al Life Nominees
Ltd 1991 1 AC 187 (PC) 221
6 1877 46 ChD 317 321
DIRECTORS’ FIDUCIARY DUTIES WHEN REMOVING
A DIRECTOR FROM OFFICE
213
© Juta and Company (Pty) Ltd
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