A comparative analysis of directors’ duty of care, skill and diligence in South Africa and in Australia

• Jurisdiction: South Africa
• Author: Jean J du Plessis
• Published date: 15 August 2019
• Date: 15 August 2019
• Pages: 263-289

A comparative analysis of directors’duty of

care, skill and diligence in South

Africa and in Australia

JEAN J DU PLESSIS*

The South African and Australian law regarding directors’duty of care, skill

and diligence were inf‌luenced considerably by English precedents of the late

1800s and early 1900s. Originally both jurisdictions adopted a conservative

approach towards directors’ duty of care, skill and diligence. This resulted in

very low standards of care, skill and diligence expected of directors. In

Australia, the standards of care and diligence expected of directors changed

drastically with the case of Daniels v Anderson, where objective standards were

used to determine a breach of directors’ duty of care and diligence, and when

objective standards of care and diligence were introduced in Australian

corporations legislation. In this article it is submitted that if the opportunity

arose for a South African court to consider whether a director is in breach of

his or her common law duty of care, skill and diligence, the form of fault that

will be required will be negligence as judged against the standards of a

reasonable person. This means that in actual fact objective standards of care

and diligence are expected of directors in South Africa.Although section 76(3)

of the South African Companies Act 71 of 2008 does not introduce purely

objective standards of care, skill and diligence, the section is defended in this

article. It is pointed out that encouraging emerging entrepreneurs to become

directors of South African companies provides justif‌ication for keeping sub-

jective elements as part of the test to determine whether a director was in

breach of his or her statutory duty of care, skill and diligence.

I INTRODUCTION

In this contribution the focus is on the new statutory duty of care, skill and

diligence contained in s 76(3) of the recently adopted South African

Companies Act 71 of 2008 (the Act). The provision is viewed from the

perspective of Australian law. Such a comparative approach seems to be

particularly relevant as s 5(2) of the Act provides that, ‘[t]o the extent

appropriate, a court interpreting or applying this Act may consider foreign

company law’. This is complimentary to s 5(1), which directs that the Act

‘must be interpreted and applied in a manner that gives effect to the

* Professor of Law (Deakin University,Australia), BProc LLB LLM LLD (UOFS). I would

like to thank Gregory Lyon, SC, Barrister in criminal and commercial law at the VictorianBar

(Crockett Chambers) and Professor Louis de Koker, Professor of Law, Deakin University, for

their useful suggestions on earlier drafts of this paper. I also want to thank Frank Ponte, the

Deakin Law Librarian, for his excellent and speedy assistance in identifying the leading

Australian academic articles in the research f‌ield of this article for me.

263

2010 Acta Juridica 263

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purpose of section 7’. In s 7(e) it is provided that one of the purposes of the

Act is to ‘continue to provide for the creation and use of companies, in a

manner that enhances the economic welfare of South Africa as a partner

within the global economy’.

Very closely related to directors’duty of care, skill and diligence, is the

so-called ‘business judgment rule’, or, as it is sometimes called, the

‘safe-harbour provisions’ for directors. It was considered seriously to also

include a discussion of the business judgment rule and the wider (wider

than just for ‘business judgments’) protection for directors under s 76(4)

of the Act. That will, however, have to wait for another day as the

literature on the business judgment rule is vast and there are many

diverging views on, not only the nature and scope of the protection of a

‘business judgment rule’, but also whether or not such a rule, or any wider

form of protection for directors, should form part of a modern Companies

Act.

II THE SOUTH AFRICAN LAW

(1) Directors’common-law duty of care, skill and diligence

The leading South African works on corporate law and directors’ duties

deal with directors’ duty of care, skill and diligence under slightly different

headings. However, it is fair to say that although South African commen-

tators use different headings to discuss this duty, there is in actual fact little

difference among the South African commentators when it comes to how

they explain the substance of directors’ duty of care, skill and diligence.

1

Based on the case of Fisheries Development Corporation of SA Ltd v

Jorgensen,

2

which was in turn inf‌luenced by the English cases of In re

Brazilian Rubber Plantation and Estates Ltd

3

and In re City Equitable Fire

Insurance Co Ltd,

4

Cilliers et al identify the following principles:

(a) The extent of a director’s duty of care and skill depends to a

considerable degree on the nature of the company’s business and on

any particular obligations assumed by or assigned to him. There is a

1

See and compare HS Cilliers et al Cilliers & Benade: Corporate Law 3 ed (2000) 147 para

10.30–10.32; B Galgut et al Henochsberg on the Companies Act: Volume 2 Loose Leaf 5 ed (1994 –

updated until June 2008 – Service Issue 27) 462; JT Pretorius et al Hahlo’sSouth African Company

Law through the Cases –A Source Book 6 ed (1999) 280–284; MS Blackman ‘Companies’ LAWSA

vol 4:2 (1996) 232–3 para 138; RC Beuthin and SM Luiz Beuthin’s Basic Company Law 2ed

(1992) 228; SJ Naudé Die Regsposisie van die Maatskappydirekteur met Besondere Verwysing na die

Interne Maatskappyverband (LLD Thesis University of South Africa 1969) 215; JL van Dorsten

Rights, Powers and Duties of Directors (1992) 170 and 172.

2

1980 (4) SA 156 (W) at 165. Cf JJ du Plessis Maatskappyregtelike Grondslae (LLD Thesis

University of the Orange Free State 1991) 80–3; R Brusser ‘The Role and Liability of

Non-executive Directors’1983 South African Company LJ 12.

3

[1911] 1 Ch 425.

4

[1925] 1 Ch 407.

264 MODERN COMPANY LAW FOR A COMPETITIVE SOUTH AFRICAN ECONOMY

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