An Appraisal of the Modification of the Director’s Duty of Care and Skill

• Jurisdiction: South Africa
• Date: 25 May 2019
• Published date: 25 May 2019
• Pages: 509-534
• Author: Natasha Bouwman

An Appraisal of the Modif‌ication of the

Director’s Duty of Care and Skill

NATASHA BOUWMAN*

The Institute of Directors in Southern Africa,

Sandton, Johannesburg

1 Introduction: Directors’ Duties

Prior to the Companies Act (‘the 2008 Act’),

1

directors’ rights and duties

were derived principally from contracts entered into with the company, the

memorandum and articles of association, the Companies Act (‘the 1973 Act)

2

and the common law. The common law imposes on directors both a f‌iduciary

duty and a duty of care and skill. The 2007 Companies Bill (the ‘2007 Bill’)

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initially proposed to codify directors’ duties, and now the 2008 Act partially

codif‌ies both the f‌iduciary duties and the duty of care and skill.

I will concentrate on the duty of care and skill and not deal with the

f‌iduciary duties. I will discuss the existing duty of care and skill in terms of

the common law, the business judgment rule, the inf‌luence of the King Codes

on Corporate Governance on the duty of care and skill in South Africa, and

the proposed codif‌ication of directors’ duties, including the duty of care and

skill, introduced by the 2007 Bill and contained in the 2008 Act. Finally,I will

consider whether the South African duty of care and skill should have been

partially codif‌ied and whether the business judgment rule should have

been incorporated into South African law.

2 The Difference between Fiduciary Duties and the Duty of Care

and Skill

Delineating the respective duties is important, not only because I

concentrate here on the duty of care and skill as opposed to the f‌iduciary

duties but also because (as discussed below) the business judgment rule

muddles the application of the underlying principles of the duty of care and

skill and the f‌iduciary duties.

The f‌iduciary duties that directors owe their company require that they act

in good faith and for the benef‌it of the company. These duties are based on the

‘general principle that a person standing in a f‌iduciary relationship to another

* LLM, Commercial Law (Wits) LLB (UJ). The Institute of Directors in SouthernAfrica, Sandton,

Johannesburg.

1

71 of 2008, available at http://www.saica.co.za/TechnicalInformation/LegalandGovernance/Acts/

tabid/774/language/en-ZA/Default.aspx#corp.

2

61 of 1973, available at http://www.saica.co.za/TechnicalInformation/LegalandGovernance/Acts/

tabid/774/language/en-ZA/Default.aspx#corp.

3

The Companies Bill, 2007 was published in GN 166 of 2007 in Government Gazette 29630 of 12

February 2007, available at http://www.thedti.gov.za/ccrdlawreview/COMPANIESBILL07.htm.

509

(2009) 21 SA Merc LJ 509

© Juta and Company (Pty) Ltd

commits a breach of trust if he acts for his own benef‌it or to the prejudice of

the other’.

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It follows that the cause of action for a breach of a f‌iduciary duty

does not derive from delict or contract, but is unique (sui generis).

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The f‌iduciary

duties originate from Roman-Dutch law, not English law.

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The remedy for breach

is restitution to the company of the loss suffered by the company or the benef‌it

gained by the director.

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The cause of action for the breach of the duty of care is based on delict and

requires proof of the following elements: conduct, wrongfulness, fault (in the

form of intent or negligence), loss suffered and causation.

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The standard of

care in our law is derived from English common law.

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The remedy for breach

of the duty of care is delictual damages recoverable by the company, not

restitution.

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3 The Duty of Care and Skill

3.1 The Gist of ‘Care’ and ‘Skill’ In Terms of the Common Law

In exercising his powers and carrying out his officein good faith and for the

benef‌it of the company, a director is required to act with the required degree

of care and skill. The standard by which the required degree of ‘care’ and

‘skill’ is measured remains unclear. To a certain extent it is possible to

establish ‘care’ objectively; ‘skill’, though, varies from person to person.

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The standards attached to these concepts were formulated in English case law

during the late nineteenth and early twentieth centuries.

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These developments

were summarised by Margo J in Fisheries Development Corporation of SA Ltd v

Jorgensen & Another; Fisheries Development Corporation of SA Ltd v AWJ

Investments (Pty) Ltd & Others

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as containing the following principles:

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• The extent of a director’s duty of care and skill depends to a considerable

4

Cilliers & Benade: Corporate Law 3 ed (2000) by HS Cilliers, ML Benade, JJ Henning, JJ du

Plessis, PA Delport, Lde Koker & JT Pretorius at 141. See also Robinson v Randfontein Estates Gold

Mining Co Ltd 1921 AD 168 at 242.

5

Cilliers & Benade op cit note 4 at 141. See also Robinson v Randfontein Estates Gold Mining Co

Ltd supra note 4; Cohen NO v Segal 1970 (3) SA 702 (W) at 706G; Du Plessis NO v Phelps 1995 (4) SA

165 (C). A variety of acts may amount to breach of directors’f‌iduciary duties. Cilliers and Benade (op

cit note 4 at 141-7) arrange the directors’ duties under four headings: to prevent a conf‌lictof interest, not

to exceed the limitations of their power, to maintain an unfettered discretion, and to exercise their

powers for the purpose for which they were conferred.

6

MS Blackman ‘Companies’ in: WA Joubert (founding editor) The Law of South Africa vol 4 part 2

(1996) in par 116 n2.

7

E Jones ‘Directors’ Duties: Negligence and the Business Judgment Rule’(2007) 19 SA Merc LJ 326

at 334.

8

Ibid. See also J Neethling, JM Potgieter & PJ Visser Deliktereg5 ed (2006) at 4.

9

Jones op cit note 7 at 334.

10

Ibid.

11

Cilliers & Benade op cit note 4 at 147.

12

See Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 (CA), which is often referred to as

containing the roots of the common-law duty of care. See also Re Cardiff Savings Bank; Marquis of

Bute’sCase [1892] 2 Ch 100; Re Kingston Cotton Mill Co (No 2) [1896] 1 Ch 331.

13

1980 (4) SA 156 (W).

14

Michele Havenga ‘The Business Judgment Rule – Should We Follow the Australian Example’

(2000) 12 SA Merc LJ 25 at 34. See also Cilliers & Benade op cit note 4 at 147-8.

(2009) 21 SA Merc LJ510

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