Judicial construction of the requirement of good faith in section 165(5)(b) of the Companies Act 71 of 2008: Mbethe v United Manganese of Kalahari

• Jurisdiction: South Africa
• Citation: (2018) 4(2) JCCL&P 74
• Date: 16 August 2019
• Author: Hamadziripi, F.
• Published date: 16 August 2019
• Pages: 74-87

74

JUDICIAL CONSTRUCTION OF

THE REQUIREMENT OF GOOD

FAITH IN SECTION 165(5)(b) OF

THE COMPANIES ACT 71 OF 2008:

MBETHE V UNITED MANGANESE

OF KALAHARI

FRIEDRICH HAMADZIRIPI

LLD (Candidate) University of Fort Hare

I INTRODUCTION

A worrying practical weakness of the company law principle of

separation of ownership and control is that corporate governance

may potentially be undermined if directors, who are supposed to

institute litigation on behalf of the company, are the wrongdoers.

(Maleka Femida Cassim ‘The statutory derivative action under the

Companies Act of 2008: The role of good faith’ (2013) 130 SALJ 496

at 499. See also Wallersteiner v Moir (No 2) [1975] All ER 849 (CA) 857.)

For example, it is practically difficult for miscreant directors who

would have seized a corporate opportunity belonging to a company

for their own personal benefits to commence litigation on behalf

of the company. The separation of ownership and control principle

coupled with the proper plaintiff rule may result in corporate

injury without redress (Wallersteiner v Moir (No 2) supra). Every

sound system of corporate governance must provide for minority

shareholder remedies and other stakeholders’ protection. One way

of doing so is through a statutory derivative action, which is one of

the major highlights of the South African Companies Act 71 of 2008

(hereinafter ‘the Act’) which only came into effect on 1 May 2011.

Derivative remedy ‘is a representative action brought by [an

applicant on behalf] of all the shareholders in the company

other than those who are made defendants’. (Anthony O Nwafor

‘Shareholder derivative action – Nigerian statutory innovation – Not

yet a victory for the minority shareholder’ (2010) 7 Macquarie Journal

of Business Law 214 at 215.) The derivative action is so-called because

‘the [applicant] “derives” his or her right of action from that of the

company’. (Farouk HI Cassim, Maleka Femida Cassim & Rehana

(2018) 4(2) JCCL&P 74

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