A ‘fair and reasonable proposal’ by the board may still amount to a breach of duty to exercise directors’ powers for a proper purpose

Authors Tshepo H Mongalo

ISSN: 2521-2575
Affiliations: Associate Professor University of the Witwatersrand, Johannesburg
Source: Journal of Corporate and Commercial Law & Practice, Volume 5 Issue 2, 2019, p. 29 – 43


Following the welcome abandonment of the proposal by Africa’s biggest retail chain, Shoprite Holdings Ltd, to buy out Christo Wiese’s high-voting deferred shares at a cost of about R3.3 billion because the proposal received more than 15 per cent of the minority shareholders’ disapproval, the real possibility of breach of duty by the company’s directors if the deal had proceeded has become moot. Using a long-standing legal authority — in the form of the judicial decision in the case of Howard Smith v Ampol Petroleum Ltd [1974] AC 821, and the more recent UK Supreme Court’s judgment in Eclairs Group Ltd v JKX Oil & Gas PLC [2015] UKSC 71 — this article argues that the directors would have found themselves in breach of their fiduciary duty had the deal materialised. This is regardless of the fact that the proposal had ‘allegedly’ been determined as ‘fair and reasonable’ by the auditing and accounting firm of Ernst & Young. Keywords: directors’ duties; proper purpose; fair and reasonable proposal; collateral purpose; multiplicity of purpose; substantial purpose; chairman’s influence.