The Business Judgment Rule — Should We Follow the Australian Example?

• Jurisdiction: South Africa
• Citation: (2000) 12 SA Merc LJ 25
• Published date: 03 September 2019
• Author: Michele Havenga
• Date: 03 September 2019
• Pages: 25-37

The Business Judgment Rule—

Should We Follow the Australian Example?

MICHELE HAVENGA

University of South Africa

1 Introduction

It is a firmly established principle of South African company law that a

director owes his or her company a duty of care. Exactly what this duty

entails is less sure. The uncertainty arises from what has been described

by Farrar, with regard to Australian company law, as the 'confused

inheritance of English law' (John H Farrar 'The Duty of Care of

Company Directors in Australia and New Zealand' (1996)

7 Canterbury

LR

228). It is compounded by the fact that the duty is not regulated in

our company legislation. However, this much is clear— the duty of care

reaches broadly, applying to all decisions directors make and, indeed, to

all decisions they should make were they to exercise ordinary care.

The incorporated company in South African law is modelled after its

English counterpart. Obviously English law has therefore been

influential, and many English company-law rules have been readily

accepted in our law. However, English company law has merely

persuasive, and not binding, authority in South African law (see eg

Hahlo's South African Company Law Through the Cases

6 ed (1999) by

JT

Pretorius (gen ed) at 2;

Jonker v Ackerman en Andere

1979 (3) SA 575

(0) at 588F—G and the authorities cited there;

Welkom Steel (Welkom)

(Pty) Ltd v Jatu Construction (Pty) Ltd (in provisional liquidation)

1983

(3) SA 815 (0) at 821A). Developments in other countries have in recent

times become more significant, especially where the company laws have

been the subject of reform and where they have not been shaped by

Directives of the European Union. Australia, in particular, is becoming a

system of considerable comparative value for South African company

law (see also

JJ

du Plessis 'Enkele Internasionale Maatskappyregtelike

Ontwikkelings: Moet Ons Navolg?' 1992

Tydskrif vir die Suid-Afrikaanse

Reg

561 in respect of the comparative value of Australian and New

Zealand company law). It is the aim of this analysis to investigate to what

extent, if any at all, Australian developments on a director's duty of care

should influence our law.

2 The Common-law Duty of Care

The rules governing the standard of care required of directors were

established in a series of English decisions during the late nineteenth and

early twentieth centuries (see eg

Marquis of Bute's Case

[1892] 2 Ch 100;

In re Kingston Cotton Mill Co (No 2)

[1896] 1 Ch 331;

Lagunas Nitrate

25

(2000) 12 SA Merc LJ 25

© Juta and Company (Pty) Ltd