Case Note: What Is a Legal Interest as Required for Derivative Actions? A Brief Look at Lewis Group Limited v Woollam & Others [2017] 1 All SA 192 (WCC)

• Jurisdiction: South Africa
• Pages: 356-363
• Date: 17 June 2020
• Citation: (2019) 31 SA Merc LJ 356
• Published date: 17 June 2020
• Author: Killian, N.

WHAT IS A LEGAL INTEREST AS REQUIRED

FOR DERIVATIVE ACTIONS? A BRIEF LOOK

AT LEWIS GROUP LIMITED v WOOLLAM &

OTHERS [2017] 1 ALL SA 192 (WCC)

NEELS KILIAN

Associate Professor in the Faculty of Law, University of the North-West

IINTRODUCTION AND BACKGROUND TO DERIVATIVE

ACTIONS

Specif‌ic statutory regulation plays an important role in understanding

the nature of derivative actions in the Companies Act 61 of 1973,

repealed by the Companies Act 71 of 2008. In the 1973 Act, derivative

actions were regulated by section 266 to ameliorate the highly technical

and complicated common-law principles governing such actions in

South Africa (Griggs, ‘The Statutory Derivative Action: Lessons that

May Be Learnt from the Past’ (2002) 6 Univ of Western Sydney LR 64).

The rule of Foss v Harbottle (1843) 2 Hare 461 [67 ER 189] — that the

courts are reluctant to interfere in the management decisions of the

company — is germane to South Africa. The common-law rule may be

ignored where the interests of justice require a derivative action, such as

where the directors acted ultra vires. One of those rather complex

common-law instances was a breach of f‌iduciary duties (Stoop, ‘The

Derivate Action Provisions in the Companies Act’ (2012) 129 SALJ 527

at 529). It is trite that directors owe f‌iduciary duties to the company. The

remedies for the breach of f‌iduciary duties made available to the

company (to the shareholders as an organ of the company) were simply

sui generis (a claim could be based on the law of delict). The South

African government established the Van Wyk De Vries Commission of

Enquiry into the Companies Act of 1926 to review South African

company law and propose reforms. These reforms included section 266

of the 1973 Act (Stylianou, Evolution of the Derivative Action as an

Enforcement of Rights Mechanism Under the Companies Act 71 of 2008

(unpublished LLM dissertation, University of Pretoria, 2017) available

at https://repository.up.ac.za/bitstream/handle/2263/60099/Stylianou_

Evolution_2017.pdf?sequence=1&isAllowed=y, accessed 11 February

2019).

An example of pre-1973 mischief was the ratif‌ication of a breach of

f‌iduciary duties by the company, which would have left the shareholders

356

(2019) 31 SA Merc LJ 356

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