De Bruyn v Steinhoff International Holdings NV and Others

• Jurisdiction: South Africa
• Citation: 2022 (1) SA 442 (GJ)

De Bruyn v Steinhoff International Holdings NV and Others
2022 (1) SA 442 (GJ)

2022 (1) SA p442

Citation	2022 (1) SA 442 (GJ)
Case No	29290/2018
Court	Gauteng Local Division, Johannesburg
Judge	Unterhalter J
Heard	June 26, 2020
Judgment	June 26, 2020
Counsel	A Bester SC (with M Sibanda) for the applicant.; A Subel SC (with A Smalberger SC, K Hofmeyr and M Musandiwa) for the first, second and forty-second respondents.; W Trengove SC (with M van Nest SC, DJ Smit and T Scott) for the third respondent.; CM Eloff SC (with A Morrisey) for the eighth respondent.; PL Uys for the fifteenth respondent.; PA Botha SC for the twentieth and twenty-fifth respondents.; A Cockrell SC (with I Kentridge) for the thirty-second respondent.; The remaining respondents opposing the application were represented only by the law firms cited at the end of the judgment.

Flynote : Sleutelwoorde

Accountant — Auditor — Duty of care during audit — Claim by shareholders against company's auditors for share-value loss — Auditor owing duty of care to company, not shareholders.

Company — Directors and officers — Directors — Liability — To shareholders for breach of duties under Companies Act — Section 218(2) not imposing general liability — Shareholders must prove breach of duty under substantive provision of Act — Section not imposing common-law liability for such breach — Companies Act 71 of 2008, s 218(2).

Company — Directors and officers — Directors — Liability — To shareholders for breach of duties under Companies Act — Section 20(6) imposing liability on company officers, not company itself — Conferring no cause of action against company — Companies Act 71 of 2008, s 20(6).

Company — Shares and shareholders — Shareholders — Proceedings by and against — Action under common law against directors for breach of duty resulting in drop in value of shares — Directors liable to company, not shareholders — In absence of special relationship between shareholder and company, directors not liable to shareholders or prospective shareholders for loss in share value.

Company — Shares and shareholders — Shareholders — Proceedings by and against — Action under s 218(2) against directors for breach of duty — Section 218(2) not itself providing cause of action but imposing liability only if duty under substantive provision of Act breached — Not imposing separate common-law liability for such breach — Shareholder's claim depending on wording of provision breached — Companies Act 71 of 2008, s 218(2).

2022 (1) SA p443

Practice — Class action — Certification — In absence of cause of action raising triable issue, no certification possible — Trumping all other factors — Since they have definitive answer, no reason to refer true questions of law to trial court.

Practice — Class action — Funding — Third-party funding arrangements — Acceptable parameters proposed.

Practice — Class action — Representation — Class representative — Suitability — Capacity to conduct litigation on behalf of class.

Headnote : Kopnota

On 5 December 2017 the value of shares in the Steinhoff companies [*] crashed after Steinhoff issued a press release disclosing accounting irregularities. The applicant (De Bruyn), a Steinhoff shareholder, sought authorisation to institute a class action on behalf of various groups of Steinhoff shareholders. The respondents opposed certification on several grounds.

In the class action De Bruyn intended holding the Steinhoff companies, their directors and their auditors, Deloitte (who allegedly failed to conduct a proper audit), liable for the shareholders' losses caused by the fall in value of their shares. [†] De Bruyn's application was the first shareholder class action brought for certification in South Africa. The parties disagreed, inter alia, on the proper way to decide whether a triable issue was raised; the sufficiency of the class definitions proposed by De Bruyn; whether De Bruyn was a suitable representative plaintiff; the acceptability of the third-party funding arrangements; [‡] and, crucially, whether the proposed class action indeed raised triable issues.

De Bruyn alleged (i) that the directors had incurred common-law delictual liability by breaching their duty of care to shareholders by making loss-causing negligent misstatements in the companies' financials; and (ii) that the directors and Deloitte had incurred statutory liability to shareholders by breaching various provisions of the Companies Act 71 of 2008 (the Act), including s 22 (reckless trading), ss 28 – 30 (financial information), and s 76 (directors' standards of conduct).

De Bruyn's statutory claims were based principally on (i) s 218(2) of the Act, which provides that '(a)ny person who contravenes any provision of [the Act] is liable to any other person for any loss or damage suffered by that person as a result of that contravention'; and (ii) s 20(6) of the Act, which confers on each shareholder a claim for damages against 'anyone' who 'intentionally, fraudulently or due to gross negligence' causes the company to do anything inconsistent with the Act or ultra vires the powers of the company.

2022 (1) SA p444

The claims against Deloitte were also based on both common law and statute. De Bruyn claimed that Deloitte owed shareholders a common-law duty of care not to make negligent misstatements causing loss, while the statutory claim was based on s 46(3) of the Auditing Profession Act 26 of 2005 (APA), which provides that auditors incur liability to third parties who relied to their detriment on financial statements maliciously, fraudulently of negligently made by the auditors.

Held

Triable issue?

The common-law claims: Liability for negligent misstatements causing pure economic loss required proof of wrongfulness in the sense of an infringement of a right or legally recognised interest. Directors owed their fiduciary duties to the company, not the shareholders, except where there was a special relationship between directors and shareholders (see [134] – [141], [151]). Since no such relationship was pleaded, there was no foundation for the proposition the Steinhoff directors owed a fiduciary duty to the shareholders or prospective shareholders (see [143] – [146]). Given that the requirement of wrongfulness was thus absent, there was no cognisable common-law claim in delict against the directors (see [160]). As to Deloitte, it owed its duty of care to the company, not its shareholders (see [167]).

The statutory claims: Section 218(2) should not be interpreted literally but to chime with the common law and the limitations it imposed on liability. The specific requirements of liability under s 218(2) resided in the substantive provisions of the Act. Since the common law did not hold that company directors owed fiduciary duties to shareholders, the specific contraventions of the Act relied on by De Bruyn did not accord the shareholders a right of action against Steinhoff or the directors. (See [186] – [203].)

Section 20(6) imposed liability on persons who caused the company to act (in particular, its directors), and not on the company itself. It would be discordant with the common law and the rest of s 20 if s 20(6) were to be interpreted to provide shareholders with a claim for pure economic loss caused by the actions of directors. Properly interpreted, s 20(6) required those who caused the company to act ultra vires or unlawfully to make good to the company, not its shareholders, the loss caused. In casu, therefore, the shareholders had no claim under s 20(6) for losses suffered because of the conduct of Steinhoff or its directors. (See [225], [230], [232], [236], [246].)

The common-law claim against Deloitte: Since the duty of care of auditors was owed to the company, not its shareholders, the pleadings failed to disclose a common-law cause of action against Deloitte. There was no proximate or special relationship that would extend to any subset of shareholders a duty of care owed by Deloitte. (See [172], [174].)

The statutory claims against Deloitte: The problem here was that De Bruyn did not plead causation in the form of detrimental reliance required by APA, s 46(3): instead, she relied on the allegation that class members bought shares at inflated prices or held on to shares because of their inflated prices. That being the case, the particulars did not disclose a cause of action against Deloitte. (See [250] – [251], [256].)

Other matters

Certification of class action based on novel point of law: Whether a triable issue was raised was best assessed by the certification court itself on the standard of whether the proposed cause of action was tenable in law. This in turn would be important in deciding whether there were triable issues that warranted a class action. (See [18] – [19].)

2022 (1) SA p445

Class commonality: Class definition should permit class membership to be determined by recourse to objective criteria. The revised class definitions proposed by De Bruyn adequately cured the concerns raised by the respondents. Despite the multiplicity of claims against different defendants, there was sufficient class commonality for the purposes of certification. (See [27], [37], [45], [257] – [274], [293].)

Suitable representative: While De Bruyn lacked the technical expertise required of an optimal class representative, she was nevertheless a Steinhoff shareholder who had suffered a loss reflecting an identity of interest with the proposed classes she intended to represent. Even in complex cases, ordinary litigants, properly guided by their legal representatives, could make decisions in their own interests and those of their class. While not ideal, De Bruyn was a suitable representative for the proposed classes. (See [61], [64], [291].)

Funding arrangements: The requirements for the acceptance of the third-party funding arrangements were that they...