How The Judiciary Sees Fiduciary Duties | Legal Articles

 

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How The Judiciary Sees Fiduciary Duties

The Directors of a company and Trustees of a Trust owe a fiduciary duty towards the company or trust. It is required that they perform their responsibilities and duties with care, skill, in good faith and with diligence. Where it is found that a director or Trustee was grossly negligent or utterly reckless in the discharge of their duties, they may be removed from such capacity and in some circumstances personal liability may be attributed to them either by the company or beneficiaries of the trust.

 

The Trust Property Control Act 57 of 1988 (TPCA) in Section 9 provides that,

 

9. Care, diligence and skill required of Trustee

(1) A trustee shall in the performance of his duties and the exercise of his powers act with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another. (2) Any provision contained in a trust instrument shall be void in so far as it would have the effect of exempting a trustee from or indemnifying him against liability for breach of trust where he fails to show the degree of care, diligence and skill as required in subsection (1)

 

The law takes this duty so serious such that it prohibits any provision in the trust deed that seeks to cushion a trustee who has violated this duty, from liability.

Similarly, the directors of a company owe a fiduciary duty towards the company as was held in the case of Hlumisa Investment Holdings (RF) Ltd and Another v Kirkinis and Others (1423/2018) [2020] ZASCA 83 (3 July 2020). In fact, section 76 (3) of the Companies Act of 2008 provides as follows;

 

76 (3) Subject to subsections (4) and (5), a director of a company, when acting in that capacity, must exercise the powers and perform the functions of director—

(a) in good faith and for a proper purpose;

(b) in the best interests of the company; and

(c) with the degree of care, skill and diligence that may reasonably be expected of a person—

 

In the mater of Robinson v Randfontein Estates Gold Mining Co Ltd [1921] AD 168 a director of a company had purchased an immovable property in his own name, ahead of the company in which he served as director, which was moving to finalize with the sellers. He then sold the property at an increased price to the company. Clearly there was a conflict of interest on the part of the director and he did not act in good faith as he ought not to have purchased the property that his company was pursuing. As a director of the company, the position allowed him to be privy to some information (sale of the property) and therefore to use that information for his own personal interests is mala fide and violates his fiduciary duty towards the company. 

In the UK case of Industrial Development Consultants Ltd v Cooley [1972] the managing director of a company had resigned in order to enter into a contract with a third-party company who had indicated that they are not prepared to enter into the contract with the company he was engaged with as Managing Director. The Court held that he should be held accountable for all the profits that he had made from the contract as clearly his actions were not in good faith, let alone honest.

In the same vein the case of Sibex Construction (SA) (Pty) Ltd v Injectaseal CC (1988) the Court confirmed that directors must not use their position to acquire information and then pursue personal interests using that same information. In fact, section 76 (2) of the Companies Act of 2008 specifically prohibits such conduct.

 

76 (2) A director of a company must— (a) not use the position of director, or any information obtained while acting in the capacity of a director— (i) to gain an advantage for the director, or for another person other than the company or a wholly-owned subsidiary of the company;

 

At Van Deventer and Van Deventer Incorporated we assist with company law disputes amidst a wide array of other matters. Our approach is committed.

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