Are shareholders exclusive beneficiaries of fiduciary obligations in South Africa? The role of fiduciary obligations in the 21st Century

• Jurisdiction: South Africa
• Pages: 54-81
• Author: Brian Peter Lee Jennings
• Citation: (2015) 1(2) JCCL&P 54
• Date: 16 August 2019
• Published date: 16 August 2019

54

ARE SHAREHOLDERS EXCLUSIVE

BENEFICIARIES OF FIDUCIARY

OBLIGATIONS IN SOUTH AFRICA?

THE ROLE OF FIDUCIARY

OBLIGATIONS IN THE 21st

CENTURY*

BRIAN PETER LEE JENNINGS†

Director at ENSafrica

ABSTRACT

This paper investigates and evaluates the existing South African

common law position of to whom directors owe their duties, in

light of the transformative requirements of the Constitution.

Unsurprisingly, the South African legal position largely mirrors

the position found within Anglo-American jurisdictions, on

which our company law is based. But whether this is justified,

or warranted, in a post-constitutional South Africa, which values

equality, dignity and freedom as being paramount, is the subject

of this paper.

This paper will attempt to address the question whether

South Africa’s Constitution, and the recently promulgated 2008

Companies Act, appropriately balances the competing ideological

tensions found within South African society. In undertaking this

balancing act, one will consider whether the Companies Act gives

effect to the most appropriate ideology in the most appropriate

circumstances, to give effect to the constitutional values of dignity,

equality and freedom.

The hypothesis at the forefront of this paper is that the legal

interpretation of the beneficiary of the duties owed by directors

in South Africa must be revisited in a post-constitutional

environment, in the very least. That revisiting must be dependent

* This is the shortened version of the research report prepared in partial fulfillment

of the requirements of the degree of LLM under the supervision of Prof Tshepo

Mongalo at the University of Witwatersrand, Johannesburg, in 2015.

† LLB (UKZN), Certificate in Advanced Company Law I (Wits), Certificate in

Advanced Company Law II (Wits). Admitted attorney of the High Court of South

Africa.

(2015) 1(2) JCCL&P 54

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55

SHAREHOLDERS AS EXCLUSIVE BENEFICIARIES OF FIDUCIARY OBLIGATIONS

on the company to whom the rule is being applied, and its position

in society. This will, in turn, determine the most appropriate

theory (from a legal, socio-economic and philosophical point of

view) to apply to determine to whom such company’s directors

owe their duties.

I INTRODUCTION

‘I make this state of affairs my excuse to examine the law of directors’

duties not simply as an analysis of the precedents appears to show it

but, rather more radically, as I believe we ought to be beginning to

see it.’1

These words of Sealy are particularly apt in the context of this paper,

which attempts to lay the foundation for a flexible legal theory

underpinning directors’ duties in a post-constitutional South Africa

(SA). One of the pioneering legislative reform exercises in SA has

produced a Companies Act,2 so novel and so flexible3 that it has the

ability to appropriately regulate from the smallest of companies to the

largest. This adaptability, as will be shown, appropriately balances the

competing tensions between the different ideologies of individualism

and communitarianism found within the Constitution4 itself. It is

an immensely powerful and novel tool which we, as legal scholars,

should utilise going forward.

To respond to Sealy, legal society should not merely maintain

the status quo without at least revisiting the foundational legal

principles governing the neo-classical conception of to whom

directors’ duties are owed. In doing so, the writer postulates a theory

of directors’ duties which incorporates the adaptability provided by

the Companies Act, to develop an all-encompassing theory tailor-

made to the myriad of sizes, industries and forms of companies

found within the SA economy.

As this topic has certainly been in vogue for decades, it has

naturally produced an enormous volume of academic material.

Most, if not all, seem limited to justifying either a narrower or wider

set of recipients of the directors’ duties, and have pointed out the

1 LS Sealy ‘Directors’ “Wider” Responsibilities — Problems Conceptual, Practical

and Procedural’ (1987) 13 Monash U L Rev 164 at 164.

2 Companies Act 71 of 2008 (as amended) (Companies Act).

3 Flexibility is a key aim, as set out in s 2 of the Department of Trade and

Industry’s Explanatory Memorandum to the Companies Bill, 2007 (Explanatory

Memorandum).

4 Constitution of the Republic of South Africa, 1996.

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