Boardroom Battles – When Shareholders fall out.

The Johannesburg High Court has set out the duties of directors of a company where the only two shareholders locked horns in dispute with each other.

• An application made by the majority shareholder (60%) was met by a counter-application by the minority shareholder (40%). The two had clearly fallen out, were involved in other litigation against each other, and did not trust each other.
• The judge confirmed certain general principles of company law:
  • Courts generally declined to interfere in the running and management of companies unless there is a lack of fair dealing or honesty.
  • Shareholders do not owe their company a fiduciary duty, and may thus vote their selfish interest unless in so doing a majority acts in a way that is oppressive or unfairly prejudicial of the minority.
  • Board power must be exercised in good faith and in the best interests of the company as a whole, and if not, it will be set aside, even if technically speaking the power exists.
• The court had regard to judicial authority handed down in cases as far afield as Australia, Canada, the United States of America, and England. The yardstick for measuring the exercise of power against the purpose for which it was given in the first place, is objective. A director’s subjective belief that power was exercised in good faith is still subject to court control where there is no rational basis for that belief.
• On the facts of this case, the application of the majority shareholder failed, and the counter-application of the minority shareholder succeeded.

CDH Invest NV v Petrotank South Africa (Pty) Ltd and Another [2018]1 All SA 450 (GJ)