Board autonomy and recourse to the courts in South Africa

• Jurisdiction: South Africa
• Published date: 28 October 2020
• Date: 28 October 2020
• Citation: (2020) 6(1) JCCL&P 24
• Author: Wagener, G.P.
• Pages: 24-39

24

BOARD AUTONOMY AND RECOURSE

TO THE COURTS IN SOUTH AFRICA

GENEVIEVE PAIGE WAGENER*

Attorney of the High Court of South Africa

ABSTRACT

In the aftermath of the recent comments made by the chairperson

of the Old Mutual Ltd board that the board cannot be dictated to by

the court on matters of corporate governance, it must be clarified

that the Constitution still grants anyone the right to have a legal

dispute settled by a court or other independent and impartial forum

or tribunal if the legal dispute is justiciable and if the party has legal

standing in relation to such dispute.

Key words: board autonomy; the Constitution of the Republic of

South Africa, 1996; corporate governance; impartial

forum or tribunal

I INTRODUCTION

One of the universally accepted fundamental principles underpinning

corporate law is good corporate governance. This principle has been

codified in South Africa’s corporate law by s 7(b) of the Companies

Act 71 of 2008 (‘the Act’), which provides that one of the purposes

of the Act is to encourage transparency and high standards of

corporate governance in order to promote the development of South

Africa’s economy. The principles of good corporate governance

provide guidance to company boards about how successful company

decisions are to be made and how to direct and control the company’s

business.1

The Act vests the management of the business and affairs of the

company in its board of directors and provides the board with ‘the

authority to exercise all of the powers and functions of the company,

except to the extent that [the] Act or the company’s Memorandum

of Incorporation provides otherwise’.2 However, as South Africa is

a constitutional democracy, the Constitution of the Republic of

South Africa, 1996 (‘the Constitution’) is the supreme law of South

*BCom Law LLB (Rhodes University).

1 F H I Cassim (ed) et al The Law of Business Structures (2018) 271.

2 Section 66(1) of the Act.

(2020) 6(1) JCCL&P 24

© Juta and Company (Pty) Ltd

25

BOARD AUTONOMY AND RECOURSE TO THE COURTS IN SOUTH AFRICA

Africa and ‘law or conduct inconsistent with it is invalid’.3 The Act

and directors’ conduct are therefore subject to the provisions of the

Constitution. The Constitution in turn vests judicial authority in the

courts, which are subject only to the Constitution and the law,4 and

further guarantees everyone the right to have their disputes resolved

by the application of the law by a court or other independent and

impartial tribunal or forum.5

A prominent South African director has recently brought attention

to the interplay and possible tension between the autonomy of boards

of directors and the power of the courts to preside over legal disputes

arising out of decisions made by company boards.6 This article

will therefore consider and analyse the power vested in company

boards and the extent to which this power affords them complete

autonomy and independence from the courts. The constitutional

principles relating to the inherent jurisdiction of the courts and the

right of access to courts are key considerations when considering

the autonomy of company boards, and this article will discuss these

aspects in detail.

II BOARD AUTONOMY AND CORPORATE GOVERNANCE

A company is a type of legal fiction, established in terms of the Act,

and cannot act on its own.7 A company therefore has to act through

the medium of its officers and directors.8 In terms of the previous

Companies Act 61 of 1973, a director was not conferred with original

powers to manage the business and affairs of a company. This power

therefore had to be delegated to him or her and limited by the

members of the company in a general meeting or by the constitution

of the company.9 However, s 66(1) of the Act now vests original and

3 Section 2 of the Constitution.

4 Section 165.

5 Section 34.

6 Daniel Friedman ‘Trevor Manuel calls Old Mutual judge a “single individual who

happens to wear a robe”’ The Citizen 13 September 2019 at 1, available at https://

citizen.co.za/business/business-news/2178915/trevor-manuel-calls-old-mutual-judge-

a-single-individual-who-happens-to-wear-a-robe/, accessed on 7 April 2020. Trevor

Manuel is quoted as saying ‘[i]f you take a board imbued with the responsibility

and accountability and you get that overturned by a single individual who

happens to wear a robe, I think you have a bit of a difficulty.’ Manuel is a

nonexecutive director and the chairperson of the Old Mutual board of directors

and in this quote he was referring to Mashile J, who had presided over Moyo v Old

Mutual Limited [2019] ZAGPJHC 229 (30 July 2019) (‘Moyo’) and who had found

against Old Mutual.

7 Section 19(1) of the Act.

8 F H I Cassim (ed) et al Contemporary Company Law 2 ed (2012) 187.

9 Kaimowitz v Delahunt 2017 (3) SA 201 (WCC) para 12. See also Cassim op cit note

1 at 240, Cassim et al ibid at 403; Piet Delport et al Henochsberg on the Companies

© Juta and Company (Pty) Ltd