PIKES LAW, 1108 - Maritime and Corporate Lawyers

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					                                                           30 NOVEMBER 2008

Welcome to the November 2008 edition of Pike’s Law Monthly, our legal window to
the South African legal and business scene. We intend keeping the content light
and readable. If we don’t achieve that, please let us know.

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 Beware the exemption clauses
 Directors may not pursue corporate opportunities for their own benefit
 Shops must keep their floors clean
 Whistle-blower legislation to be strengthened
 Children’s indemnity clauses not always applicable

 Restraints of trade enforceable only if there is a right to protect
 Road traffic regulations spoil drivers’ fun


Beware the exemption clauses
In a recent Witwatersrand Local Division case between Masstores and Murray &
Roberts in which Makro’s West Rand store burnt down in 2004 in consequence of
what Masstores said was gross negligence on the part of Murray & Roberts, the
High Court found that Murray & Roberts could avoid the R170million claim against it
on the basis of an exemption clause in its contract.

Masstores alleged in the case that Murray & Roberts had failed to supervise the use
by sub-contractors (S Roche Projects) of steel cutting equipment without taking
precautions. This caused a fire which totally destroyed the store and its contents
and Masstores alleged that this was gross negligence. The court did not need to
consider whether there was gross negligence or not because Murray & Roberts
successfully relied on a clause in a standard building contract which exempted them
from liability for negligence.

Readers are therefore cautioned to check all contracts very carefully to determine
whether they have exemption clauses which could be used in similar cases.


Directors’ may not pursue corporate opportunities for their own benefit
In the recent Supreme Court of Appeal decision of Da Silva v CH Chemicals (Pty)
Ltd (304/2007) [2008] ZA SCA 110, CH Chemicals had, in the High Court in
Pretoria, successfully sued its former managing director and two companies for
disgorgement of profits and damages by reason of an alleged breach of his fiduciary
duties owed to CH Chemicals and for unfair competition. In broad terms, CH
Chemicals said that Da Silva had exploited two business opportunities which it was
alleged were corporate opportunities and should have been exploited for the benefit
of CH Chemicals. CH Chemicals had also alleged that, whilst Da Silva was still its
managing director, in certain respects he had performed actions aimed at furthering
his own interest and those of two other companies to the detriment of CH
Chemicals. The Pretoria Court had found in favour of CH Chemicals on all claims.
The facts of the case are complex and can be found in the full judgment on the SCA
website (hyperlinked above). However, essentially Da Silva exploited for his own
benefit or for that of two other companies the opportunity which CH Chemicals
would have had of establishing a joint venture or some other form of collaboration

with a company called Resinex and also the exploitation for his own benefit to
acquire a business called Plastomark. Da Silva also procured for his own benefit or
for that of the other companies of the existing business which the Plaintiff had with
Dow Chemical and with a company called DDE.

The court reviewed the cases regarding “corporate opportunities” and defined a
corporate opportunity as one which is being “actively pursued” by a company or
which can be said to fall within a company’s existing or prospective business
activities or which relates to the operations of the company within the scope of its
business or which falls within its line of business. In each instance, one needs to
look at the facts of each particular case to see whether it falls within one of the
above definitions. In any event, the court found that, except in one instance, Da
Silva was not in breach of his fiduciary duties.

It is a well established rule of company laws that directors have a fiduciary duty to
exercise their powers in good faith and in the best interests of the company. They
may not make a secret profit or otherwise place themselves in a position where
their fiduciary duties conflict with their personal interests. The consequence of the
rule is that a director is in certain circumstances obliged to acquire or pursue an
economic opportunity for the company, if it is acquired at all. If it is acquired by
the director, but not for the company, the law will refuse to give effect to the
director’s intention and will treat the acquisition as having been made for the
company.      The opportunity may then be claimed by the company from the
delinquent director. Where such a claim is no longer possible, the company may in
the alternative claim any profits which the director may have made as a result of
the breach or damages in respect of any loss it may have suffered. The court also
held that it is of no consequence that in the particular circumstance of the case the
opportunity would not or even could not have been taken up by the company. The
court also said that a director will not escape liability by first resigning before
seeking to exploit an opportunity which the company was actively pursuing.

In the circumstances, the SCA after examining each of the complaints against Da
Silva, found that only one of them was a corporate opportunity of which CH
Chemicals could have taken advantage and accordingly the appeal succeeded
except with regard to that particular opportunity.

The message for directors is to be extremely careful about pursuing corporate
opportunities without ensuring that they do not fall within the ambit of the
definition explored by the SCA.


Whistle-blower legislation to be strengthenedThe SA Law Reform Commission
on amendments to whistle-blowing legislation has finally recommended changes to
the Protected Disclosures Act (PDA), which sets out procedures for employees to
report illegal or irregular activities in their workplaces and to ensure they are not

victimised for their disclosures. I have written before on a number of shortcomings
in this Act, so the proposed changes are to be welcomed. As the PDA stands at
present, only an employee is protected e.g. an ex-employee, supplier, etc. can be
victimized and discriminated against for blowing the whistle on someone in a
company. If the legislative proposals are adopted by Parliament, the ambit of the
PDA will be broadened to include the protection of independent contractors and
people employed by labour brokers, who are not strictly speaking employees.

The report deals with and considers a number of other issues such as extending the
scope of person to whom the whistle can be blown, extending the definition of
“detrimental action”, the nature of the wrong-doing, remedies, and the like. The
full report can be found at SALRC Protected Disclosures report (PDF file). It
remains now to be seen whether the recommendations become law.


Children’s indemnity clauses not always applicable
A boy called Michael Byrne (13) is at the centre of a multimillion-rand court battle
between his parents, the Department of Education and the youth camp where he
suffered serious brain damage after falling from the top of a double-bunk bed.
According to the Sunday Times, he fell from the bunk bed at the Hawekwa
Jeugterrein in Wellington more than four years ago. His parents, Helena and Gary,
said the tragedy could have been avoided had there been protective railings on the
bed. The Department of Education tried to avoid liability by asserting that Helena
had signed an indemnity form before the trip. The youth camp also denied being
responsible for the accident. However, the Cape High Court found that the
indemnity form did not absolve the department of liability. This ruling paves
the way for the parents to enter the second phase of the case, which involves the
determination of the amount to be awarded for damages. However, this will be
placed on hold, while the department and the camp appeal against the judgment.
The family is claiming R9m for future medical expenses and loss of earnings.


Restraints of trade enforceable only if there is a right to protect
In the recent Supreme Court of Appeal case of Digicore Fleet Management v Steyn
(722/2007) [2008] ZA SCA 105, the High Court dismissed an appeal against the
decision of the Durban High Court which refused an interdict restraining Mrs. Steyn
from working for a competitor after leaving the employment of Digicore. Although
she had signed an agreement in which she undertook not to work for a competitor
of Digicore for two years after the termination of her employment in the greater
Durban area, the court found that Digicore did not have a proprietary interest that
was threatened by Steyn. She had acquired no confidential information while in the
employ of Digicore and had taken with her when she left no more than she had
brought to Digicore in first place: her own experience, expertise and contacts. The
restraint was therefore not reasonable and was accordingly unenforceable.

As a matter of practice, historically the South African courts have never been very
keen on restraints of trade and will look very closely at their reasonableness before
enforcing them.


Road traffic regulations spoil drivers’ fun
In two proposed amendments to Road Traffic Regulations, drivers will have some of
their fun spoilt because:

   Any speed trap detection, jamming or warning devices carried in vehicles will
    henceforth be outlawed;
   Other than GPS displays, any video/DVD display screen which is visible to a
    driver will also be outlawed.




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Editor: Andrew Pike


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