Clearing the doubts on the concept of derivative action - Lesotho Ccourt of Appeal decision in Concrete Roots (Pty) Ltd v Lebakeng Tigali - an opportunity lost
| DOI | 10.10520/EJC192856 |
| Author | A.O. Nwafor |
| Published date | 01 January 2012 |
| Record Number | lesotho_v19_n2_a4 |
| Date | 01 January 2012 |
| Pages | 117-146 |
CLEARING THE DOUBTS ON THE
CONCEPT OF DERIVATIVE ACTION-
LESOTHO COURT OF APPEAL
DECISION
IN
CONCRETE ROOTS
(PTY) LTD V LEBAKENG TIGALI- AN
OPPORTUNITY LOST
A.O.
Nwafor
0
Abstract
The
concept
of derivative
action
by
the
minority
shareholder
on
behalf
of
the
company
has
continued
to
elude
the
understanding of many a practitioner
of
law
and
the
courts
alike.
Cases
bordering
on
this concept
are
not witnessed
regularly in courts unlike
others
dealing
with issues of
general
corporate
governance,
not
so
much
because
wrongs
that could give
rise
to
derivative
claims
do
not
occur
in
the
course
of company administration, but
more
out
of
the
deficiency of understanding
as
to
when
to
pursue such
claims
on
the
part
of
the
shareholder
and
the
practitioners.
The
Concrete's
case
provided
an
opportunitt;
for
the
appellate
court
in
Lesotho
to
streamline
some
of
the
misunderstood principles that guide
the
initiation
of
a
derivative
action,
but
the
court
glossed
over
it seemingly
contented with
the
equally unsatisfactory
decision
of
the
lower
court and
the
appellant counsel's capitulation when
confronted
by
the
appellate
court with
the
issue of derivative
action
being
an
exception
to
the
rule
in
Foss
v Harbottle.
This
paper
seeks
to
set
the
record
aright
for
future guidance
to
the
shareholders,
the
practitioners and
the
courts.
•
LLB
Hons (Unijos)
BL
LLM
(University of Nigeria) PhD (Unijos). Senior
Lecturer, Faculty
of
Law, National University of Lesotho. Email:
aonwafor@nul.ls
118 Corporate Criminal Responsibility
Introduction
The
respondent
and
two
other
persons
were
the
shareholders
and
directors of a
company
known
as Pile Enterprises (Pty)
Ltd
(Pile).
The
two
persons
were
the original subscribers
at
the
time
of
incorporation of the
company
in 2006
while
the
respondent
joined
subsequently
in 2007. The
respondent
was
the
chairman
of
the
board
of directors
comprising
of the three
shareholders
who
were
also
the
three directors. The
nominal
capital of Pile placed
at
M1000.00
was
held
virtually in
equal
shares
among
the
three
shareholders/
directors. The
personal
and
business
relationship
between
the
respondent
and
the
other
two
shareholders
went
sour
later in 2007. An
agreement
was
reached by the
shareholders
that
the
respondent's
shares
be
purchased
by the
other
two
shareholders
at
M90,000.00 in
addition
to transferring
to
the
respondent
a car belonging to the company.
The
respondent
had
received
part
payment
of M30,000.
00
and
the car
at
the time
the
respondent
initiated proceedings
on
the 191h
day
of March 2009
following a fresh
dispute
between
him
and
the
other
two
shareholders
as to the
actual
value of the
shares
..
Some
time
in 2008, the
other
two
shareholders,
in a
bid
to
disentangle
themselves from business relationship
with
the
respondent,
incorporated
another
company
known
as Concrete
Roots (Pty) Ltd (Concrete) in
which
they
were
also directors.
Concrete
was
engaged
in similar business as Pile
and
was
operating
from the
same
business
premises
as Pile.
The
respondent
saw
the
conduct
of
his
co-directors as being a
breach
of
their fiduciary
duty
to
Pile to
avoid
a conflict of interest.
The
business
of Concrete
was
seen by
the
respondent
as
unfair
competition.
The
respondent
was
piqued
by
what
he
saw
as
tremendous
improvement
in the life style of the
two
directors,
the
progress
of
Concrete,
and
the
dwindling
financial status of Pile.
He
believed
that
opportunities
available to Pile
were
being
diverted
by the
directors to Concrete,
and
the Pile's
funds
were
being
used
to
finance
such
transactions.
The
respondent
initiated action in the
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