Abstract

Keywords

Corporate governance; shareholder oppression; oppression remedy; ubuntu; contract; public policy; constitutionalism.

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Scholars of corporate governance in South Africa are arguably fascinated by the concept of ubuntu1 having become an integral aspect of the country's corporate governance.2 My study on how the concept of ubuntu features in contemporary corporate governance in South Africa has led me to two observations.

Firstly, although ubuntu summons public policy3 as a guiding value in the interpretation of South African laws, including the Constitution of South Africa 1996,4 the concept has not been adequately embedded in the interpretation of corporate law. There is limited case law as evidence in that regard. Perhaps the private nature5 of corporate law may have led to the aforesaid development, considering that the notion of ubuntu is not as prominent in private legal relationships6 as it is in public ones. The default outcome has therefore been that ubuntu in corporate governance remains largely underscored in codes of practice referred to as "soft law"7 regulating corporate conduct in South Africa.8

My second observation is that in instances where the concept of ubuntu is emphasised in corporate governance, its relevance is often narrowed to how the company is expected to interact with its "stakeholders", who are the different constituents impacting on its business activities.9 Limited regard has been given to the role of ubuntu in promoting a legal understanding that public policy as a constitutional value may also demand that other commercial relationships within the corporate firm be aligned to the notions of justice, fairness, equity and reasonableness.10 This article is inspired by the second observation.

2 Setting the scene

This article fuses the principles of constitutional law and corporate law. As a starting point, majority-minority shareholder relations are presented as an important feature of the firm11 regulated by corporate law.12 Fair dealing by majority shareholders towards minority shareholders is hailed as an embodiment of sound corporate governance capable of promoting the economic success of the company - particularly its wealth-generating capability.13 Conversely, mala fide actions of majority shareholders towards their minority counterparts are bemoaned as threatening the entire

economic success of the company14 and the establishment of good corporate governance.

Mala fide actions of majority shareholders against minority shareholders include, among others, the unjustifiable withholding of dividends, exclusion from corporate decision-making processes and the denial of corporate information.15 Shkolnikov notes a "widespread" view, especially in transition economies, which considers minority shareholders as "dead weight" incapable of making a meaningful contribution of capital.16 In the author's view, minority shareholders still play a crucial role in the success of the firm and only good practices of corporate governance can entrench such a conviction.17

South African companies have not been immune from the abuse of minority shareholders. The country's corporate law provides a variety of remedies for minority shareholders in case of any harmful conduct being perpetrated against them. Against this background, it should be noted that minority shareholder remedies are a means by which corporate law furthers the practice of sound corporate governance.18 The statutory remedy which is the subject of this discussion is provided in terms of section 163 of the Companies Act.19 Under the legal provision cited, a minority shareholder can seek remedial judicial intervention if there is "oppressive conduct", "unfairly prejudicial conduct" or any conduct that "unfairly disregards" his or her rights. The conceptualisation of shareholder oppression involves an analysis of the peculiar merits of each case.20 Basically, the definition of oppression has been left to judicial construction.21 A challenge still remains, however, in relation to the remedy for oppression, particularly on how to formulate a statutory framework of acceptable commercial conduct to fulfill the dual purpose of tutoring the business community as well as guiding

judicial decisions.22 In South Africa, common law has continued to provide a yardstick on how shareholder oppression can be established.23

My thesis in this article is that time is here for South African corporate law to consider relying on public policy as a guide in determining whether certain actions of shareholders amount to "oppressive conduct".24 By that it is certainly not implied that the use of the common law standard to identify shareholder oppression, which has been the traditional approach, be abandoned. My contention is simple. I argue that courts can in a corroborative manner incorporate considerations of public policy25 into their interpretation of shareholder oppression under section 163 of the Companies Act. For South African courts, the conceptualisation of minority shareholder oppression with reference to public policy can be actualised with reference to the philosophy of ubuntu and its underlying principles.26 One of the leading objectives of corporate law is to protect the rights of shareholders. Notwithstanding the aforesaid, paradoxically, corporate law is accused of sometimes of failing to provide a comprehensive shield against shareholder prejudice.27

The application of natural justice has been suggested as an alternative capable of providing relief to shareholders who may fail to find protection because of the rigid application of statutory law.28 Natural justice is a dominant principle in administrative law and provides that a person receives a fair or unbiased hearing before a decision that negatively affects him or her is made. In the context of this paper, it is argued that natural justice should be characterised by unbiased decision-making by majority shareholders in instances where certain corporate decisions affect their

minority counterparts. It is on the same premise that ubuntu finds its applicability.

In a South African context, the concept of ubuntu to a large extent coheres with the values of social justice and fairness.29 In a legal milieu ubuntu is viewed as a lived system of norms that can go beyond abstract principles of law in curing injustices. Such injustices arguably include those of a commercial nature and can attract ethical30 or humanistic considerations in some instances. uBuntu is also intertwined with the notion of transformative constitutionalism.31 Transformative constitutionalism in a crude sense is an overarching and guiding philosophy advocating an interpretation of South African laws in a manner that advances the values of the Constitution; particularly, the promotion of human rights and the pursuance of substantive justice.32 Debatably, transformative constitutionalism should be applicable to private commercial law relations like those designed or established by corporate law. In my view, the infusion of constitutional values in the interpretation of corporate law in South Africa results in the latter legal discipline also being "transformative", due to it upholding a constitutional sense. For the South African corporate lawyer, transformative constitutionalism also calls for the perception of the country's current corporate law as constitutionally inspired, and socially constructed and situated.33

The discussion in this article starts with an articulation of shareholder rights recognised in corporate law. Thereafter, I proceed to explain the legal origin of such rights with reference to legal theories that have been utilised to define the corporate firm. Two economic perceptions of the company are discussed. The first theory, namely, the property rights theory, considers a

company as a vehicle conferring protectable private ownership rights to its shareholders, who are perceived as the "owners" of the company.34 According to the property rights theory, the company is characterised as a collection of people with assets35 vested in the company.

The second theory treats the company as a network of bargained or negotiated contractual relationships. In terms of the latter theory, the company does not extend any property rights to shareholders. Rather, all constituents in the company, including its shareholders, are deemed to be simply in contractual relationships with one another.36 For instance, when a shareholder receives dividends on shares, according to the contractual theory of the company, the shareholder is not perceived as getting dues from "personal and private property" but rather as a recipient of contractual proceedings. Corporate law is interpreted in a contractual sense, therefore becoming the law that sustains and actualises contractual relationships in the firm.

Having overviewed how shareholder rights feature in terms of the summarised theories of the firm, the concepts of ubuntu and "shareholder oppression" are briefly defined. The definition provides a point of entry into the theme of the discussion, which is the role ubuntu can play in interpreting shareholder oppression with reference to considerations of public policy. This is followed by a section in which I identify and address some possible criticisms of this article which are likely to be raised by other scholars of corporate law. Thereafter, I conclude the article.

3 The basic rights of shareholders, their legal nature and interpretation in terms of established theories of the firm

Shareholder rights are defined as a set of legal entitlements that shareholders enjoy vis-à-vis companies in which they invest.37 Corporate law recognises four basic rights which apply to shareholders. They are the right to capital, the right to income, the right to vote and the right to

information.38 The right to capital enables a shareholder to receive residual capital in the event of the company being wound up or liquidated. The right to income denotes the shareholder's entitlement to dividends or any distribution made by the company. The right to vote is how the shareholder participates in decision-making in the company. The right to information enables the shareholder to access information that pertains to his interest in the company.39 It has been argued that of the stated rights, the right to vote and the right to access to information are absolute and are provided in terms of legislation.40 While some rights can be considered to be absolute due to their provision by corporate law, some authors have argued that some shareholder entitlements remain structured as default entitlements and others as mere contractual entitlements.

Having outlined the basic rights of shareholders, it is important to explore their legal origin. The discussion below attributes the origin of shareholder rights to both the law of property and the law of contract.

3.1 The property rights foundation of shareholder rights

The legal objects at the centre of the law of property are things or property.41 The law of property provides that ownership is the most complete right a legal subject can have in relation to any form of property.42 Ownership confers various entitlements to the owner in relation to the property, such as the ability to control it, use it, encumber it, alienate it and vindicate it.43 It is argued that ownership without entitlements is impossible as it amounts to the provision of a right without content.44 In terms of property law, shares in a company are movable, incorporeal property45 and the owner thereof can

enjoy various entitlements which come with ownership. Shares become the property of the person who purchases them.46

The property rights theory47 of the company owes its origin to the notion of the ownership of shares by a company's shareholders. In terms of the property rights theory of the firm, shareholders are "to do as they wish" with their shares which are their property.48 The rights of shareholders are limitable, however, particularly in terms of the law or any of the internal arrangements of the company usually expressed in its founding documents, such as the articles of association or its memorandum of incorporation. The exercise of its pre-emptive rights, restrictions on the transferability of certain kinds of shares, and the prohibition of insider trading49 are some of the examples through which the entitlements of shareholders are limited. The significance of corporate law in the context of the property rights theory is to regulate the enjoyment of ownership entitlements. Arrangements actualised by corporate law such as the election of directors by shareholders and the voting of shareholders are legal conduits through which shareholders express their entitlements over their property.50 The property rights theory advances the understanding that share ownership is encapsulated in the right to property, which is a fundamental entitlement provided under modern constitutional law.51

3.2 The contractual rights foundation of shareholder rights

It has been mentioned that the contractual theory of the firm postulates that the firm is merely a web of contractual relationships.52 In simpler terms, two or more parties conclude a contract to carry on a commercial activity and it is from this contract that a company is born.53 The common approach adopted by most contractualists is to treat various constituent groups as "stakeholders"54 contracted with the company.55 This includes the company's shareholders.56 In terms of the contractual theory, the rights of the different stakeholders in the company originate from their having contributed "certain inputs in exchange for certain rights with respect to outputs".57

Contractualists have, however, scantily explored the nature of the relationship between stakeholders inter se;58 that is, whether it is also contractual in design. Since the focus of this article is shareholder relations, it will be investigated whether the relationship between shareholders can be of a contractual nature. The above question is answered in the affirmative. Support for the contractual interpretation of shareholder relations will be rendered through an exploration of important designs in the company which reflect a contractual arrangement between shareholders. Such corporate arrangements can further be assumed also to be "sources" of the basic rights of shareholders under South African corporate law and in other jurisdictions. Moreover, they are capable of being enforced at a contractual dimension, as will be extrapolated below.

3.2.1 The memorandum of incorporation

The memorandum is the founding document of the company. Due to its significance, it is often termed the "constitution of the company".59 Section

1 of the Companies Act provides that shareholders and directors derive rights, duties and responsibilities from the company's memorandum of incorporation. Section 15(6) of the Act provides that it is binding "between and among the shareholders of the company". It has been submitted that the memorandum of incorporation also constitutes a statutory contract among the shareholders of the company inter se.60 For example, Gower argues that the enforcement of the right of pre-emption among shareholders of a company when the same is provided for in the company's founding document is a manifestation of a contractual relationship among shareholders.61

3.2.2 Shareholder agreements

Section 15(7) of the Companies Act provides that shareholders of a company may enter any agreement with one another concerning any matter relating to the company. Any agreement entered in terms of the provisions of section 15(7) of the Companies Act must be consistent with it and the company's memorandum of incorporation. Any provision of the shareholder agreement that conflicts with the Act or the memorandum of incorporation is void to the extent of the inconsistency. The binding nature of shareholder agreements is informed by the principles of the law of contract.62

3.2.3 Shareholders' legitimate expectations

The doctrine of legitimate expectations has its origin in administrative law. The doctrine of legitimate expectation operates as a control over the execution of discretionary powers by a public authority.63 It is argued that the doctrine of legitimate expectations is aimed at granting relief to legal subjects when they are not able to justify claims based on strict legal rules after they have suffered a civil consequence due to a violation of their "legitimate expectation". According to Talagala, a legitimate expectation arises "where a person responsible for taking a decision has induced in someone who may be affected by the decision, a reasonable expectation

that he will receive or retain a benefit or that he will be granted a hearing before the decision is taken".64

Since its evolution the doctrine of legitimate expectations has been subsumed by South African jurisprudence with its manifestations being witnessed in legal specialties such as labour law.65 It has been averred that South African courts have often treated the doctrine of legitimate expectations as an expansion of the rules of natural justice.66 The concept of legitimate expectations has also featured in corporate law, particularly in the interpretation of shareholder relations. In the leading English case of Ebrahimi v Westbourne Galleries Ltd67 the court held that a shareholder in a privately held company that typified a quasi-partnership had a legitimate expectation that his management role in the company would continue and that the voting provisions of its articles would not be used by fellow shareholders to force him out of the enterprise.68 Based on the Ebrahimi decision, it is contended that shareholders in privately-held companies will not consider their commercial relationship as being comprehensively regulated by the constituting documents of the company, but rather premised on "rights, expectations and obligations inter se which may not necessarily submerge in the company structure".69 Legitimate expectations are also viewed as a form of inter-shareholder contract recognised in terms of corporate law.70

4 Defining the concepts of ubuntu and "minority shareholder oppression"

uBuntu is an African philosophy viewed as being exemplary of normative ethics, which concentrates on classifying certain actions as being right or wrong. From this notion, normative rules governing human conduct are developed.71 It is a culture which places some emphasis in the commonality and on the interdependence of the members of the community. uBuntu embraces personhood, humanity, humaneness and morality.72 It recognises

a person's status as a human being entitled to unconditional respect, dignity, value and acceptance from the members of the community that such a person may be part of.73 A crucial moralistic aspect of ubuntu which is pertinent to the theme of this article is articulated by Munyaka and Motlhabi, who state that "ubuntu ethics can be termed anti-egoistic as it discourages people from seeking their own good without regard for, or to the detriment of, others and the community".74 In essence, ubuntu finds its content in its emphasis in communalism and particular social values.75

According to Biney, commonly agreed upon values encapsulated in the concept of ubuntu are interdependence, dignity, self-respect, respect for others, co-operation or communalism, forgiveness, sharing and equality.76 Although the view that remains dominant in scholarship focusing on ubuntu is that the concept promotes values of dignity and equality, it would be unjust to omit mentioning that, paradoxically, ubuntu has also been criticised by some authors as entrenching social ills such as patriarchy and homophobia, which are considered to be repugnant to communalism.77

With regard to "minority shareholder oppression", it is accepted that the conceptualisation of oppressive conduct in corporate law largely depends on judicial construction based on the peculiar merits of each case.78 Generally speaking, oppressive conduct by shareholders has been described as any conduct that is coercive and abusive.79 The common judicially-constructed definition of oppressive conduct was articulated in Scottish Co-operative Wholesale Society Ltd v Meyer.80 In the case, oppressive conduct was considered to be "conduct that is burdensome, harsh and wrongful, a visible departure from the standards of fair dealing and an abuse of power which results in an impairment of confidence in the probity with which the company's affairs are being conducted".81 Another far-reaching definition of oppressive conduct was provided in Elder v Elder & Watson,82 where the opinion was expressed that the conduct in question should indicate a "departure from the standards of fair dealing and a

violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely".83

The ascertainment of minority shareholder oppression in litigated cases remains a difficult task. Equally cumbersome is the task of compiling an exhaustive list of oppressive acts against shareholders, due to their multi-faced manifestations. An analysis of case law has provided a starting point for the classification of certain acts as oppressive conduct, however. Actions which have been identified as oppressive both in South Africa and in other jurisdictions include but are not limited to the following activities by majority shareholders:

In O'Neil v Phillips92 the court made a persuasive observation which appears to be still useful in classifying purportedly unfair commercial acts. Lord Hoffmann expressed the opinion that "unfairness may consist in [either] a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith". From the given examples and in my opinion, self-dealing acts such as directors awarding themselves excessive financial benefits and the diversion of business to a company in which the majority shareholders have an interest characterise a blatant breach of the rules of corporate law. Concomitantly, the other examples typify to some extent a manipulation of the rules of corporate law to further a mala fide purpose.93 The above submissions will be supported later in the discussion as I focus on the most common methods used to perpetuate shareholder oppression.

5 Fitting ubuntu into the judicial interpretation of "shareholder oppression"

Before drawing a nexus between ubuntu and the interpretation of the remedy for oppression, may I spare a moment to comment on the synergy between corporate law and some principles of constitutional law. The foregoing legal exploration delivers both a starting point and a solid understanding on how ubuntu can be infused in the interpretation of the remedy, as I shall explain later. It was alleged in the introduction of this article that corporate law in the past escaped thorough constitutional

scrutiny.94 This can perhaps be blamed on the private nature of corporate law. Corporate law is traditionally understood to institute a system of private ordering95 starting from its incorporation of the business enterprise which undoubtedly appears to be a private organisation. Moreover, corporate law provides the basic rules, also of a private nature, which determine how the enterprise functions.

In South Africa, the traditional detachment96 of corporate law from constitutional interpretation appears to be disappearing. Primarily, the Bill of Rights in the Constitution is binding on juristic persons,97 which include companies. The resultant legal implication of this arrangement is that it extends the same protection of some fundamental rights to juristic persons as it does to natural persons.98 A corresponding obligation also arising from the same constitutional provision is that companies, although they are private persons, are impliedly implored to uphold constitutionally-protected rights, be they the rights of individuals who interact with the entity, or of members99 of it. It is my opinion in this contribution that whether South African jurists view the corporate firm in terms of the property theory or the contractual theory,100 the Bill of Rights remains central to the protection of the fundamental corporate rights of shareholders.101 Lastly, an additional legal development promoting constitutional inroads into South African corporate law is that the Companies Act itself is aligned to the Constitution as the supreme law in South Africa.102

5.1 Ubuntu and the conceptualisation of "shareholder oppression" from a property theory perspective

It is trite that if the company is viewed in terms of the property theory, the shareholder is a legal subject who bears property rights. Such property rights also find protection in terms of the principles of constitutional law. As a result, any corporate transaction that dispossesses the shareholder of basic property rights, specifically ownership, must be treated with suspicion. With reference to case law on shareholder oppression, I now turn to some prominent techniques used by majority shareholders to strip their minority counterparts of property ownership in the firm. I will conclude by arguing that apart from their being in clear breach of primarily corporate law and secondarily constitutional law, such methods of dispossession conflict with the communitarian ethics or morals that underlie ubuntu.

The common method of dispossessing minority shareholders of their property interests in a company is through "tunneling", which has also been regarded as oppressive conduct in terms of the remedy for oppression. The practice undoubtedly amounts to the theft of corporate assets, which can be the company's cash flow, its physical assets or its equity.103 Tunneling is the transfer of resources out of the company to the benefit of the controlling shareholder,104 literally leaving minority shareholders as owners of an "empty shell". Tunneling happens in various forms, such as shareholders siphoning off resources from the company by awarding themselves unjustifiably exorbitant salaries or benefits. In the South African case of Grancy Property Limited v Manala,105 a case of minority shareholder oppression was successful after majority shareholders, being also directors of the company, plundered its financial resources. As its cause of action, Grancy Property Ltd alleged that Manala and Ginwala, both majority shareholders and directors in Seena Marena Investments (Pty) Ltd in which the former held minority equity, made unauthorised hefty payments to themselves and other individuals connected to them. The payments which were disguised as "director remuneration", "surety fees" and "auditors' remuneration" had the effect of denying Grancy Property Ltd profit entitlements as one of the minority shareholders.

Another tunneling method employed by majority shareholders is establishing a new company where the minority shareholder has no interest and then transferring the company's assets or business to the new company

and perhaps dissolving the old company. In Omar v Inhouse Venue Technical Management (Pty) Ltd,106 the oppression of minority shareholders consisted in the directors of Inhouse Venue Technical Management using their positions to divert business to other companies, the Greenhouse Group of Companies in which they had vested interest. The directors had also orchestrated a steep increase in rental amounts which Venue Technical Management was paying for using facilities belonging to the Greenhouse Group of Companies.

The other method which does not amount to tunneling per se but is rather a dispossession of the property of a minority shareholder, is the termination by majority shareholders of the minority shareholder's contract of employment, despite his having perhaps invested in the establishment of the company, perhaps by sacrificing personal assets. This happens especially in private companies where someone can be both a shareholder and an employee of the firm. In De Villiers v Kapela Holdings (Pty) Ltd107 a minority shareholder was granted judicial relief, having averred that a retrenchment process had been initiated by the company for the sole purpose of ousting him from it and preventing him from deriving economic benefit from a merger favourable to the company. The interim relief was granted despite the majority shareholders having offered to buy the minority shareholder's shares at what they considered to be a fair value.

Tunneling has been classified as a "moral hazard"108 due to how it hurts the interests of minority shareholders. It is the negative effects of tunneling which invite its assessment in terms of the provisions of ubuntu. Professor Thaddeus Metz, a renowned philosopher, makes crucial observations in one of his writings which I find pertinent in judging tunneling practices in terms of the values that underlie ubuntu. Metz identifies what he terms "moral judgments that are commonly accepted by both adherents of ubuntu and Western people in modern, industrialised, constitutional democracies".109 The author proceeds to cite acts such as murder, rape, deception, theft, violation of trust and discrimination, which he describes as being "uncontroversially pro tanto immoral" be it in African or Western societies.110 Considering the earlier description of tunneling as theft perpetuated against fellow shareholders with the result of dispossessing them of their property, the assumption that tunneling is not only a corporate

governance ill but also a social ill that is repugnant to ubuntu hereby finds support. The practical way to fit tunneling into the precept of ubuntu is to construe it as a delict committed against a fellow shareholder who to some extent cannot be separated from the broader society. In terms of delictual law, the wrongfulness of a delict lies in its being boni mores, meaning that it conflicts with public policy that is the prevailing convictions of society regarding what is right or wrong.111

The approach of the court in De Villiers v Kapela Holdings (Pty) Ltd112 in granting relief in terms of section 163 of the Companies Act to a shareholder who alleged unfair ousting from the company also mirrors ubuntu principles. It came to the attention of the court that the petitioning shareholder had, together with other members of the companies, sacrificially forfeited drawing salaries from the company for several years after its establishment. The forfeiture of salaries was based on the shareholders' collective hope of deriving benefits in the future. The court rejected the majority shareholders' bid to buy out the minority shareholder, basing its decision on an argument that indirectly buttresses the communitarian and emphatic elements of ubuntu. Van der Linde J observed that:

In response then, to the respondents' central submission, there is in my view no principle of fairness, derived from the larger concept of majority rule in corporate law, which compels a court always to honour a majority offer to buy out a minority, provided that the price was right, and irrespective of the circumstances. And here, as pointed out, the circumstances are two-fold: first, the common cause background that the shareholders all sacrificed in the early days so as to benefit in the later years, yet to come, and second the retrenchment process, mala fide in its design and application, so as to trigger the deemed offer provisions by means of which to expropriate the applicant's shares at undervalue.

Additionally, in what can be inferred to be a veiled reference to the principles of property entitlements underlying the property theory of the firm, the court held that a prima facie right had been established by the petitioner to protect share value.113 The judicial observation can be interpreted as asserting the perception that a shareholder has a right to protect his shares from any acts that may result in the diminution of their value. Allen notes, however, that the question whether South African courts have no need to refer to the principle of ubuntu in the interpretation of property rights remains to be seen.114

5.2 uBuntu and the conceptualisation of "shareholder oppression" from a contractual theory perspective

The contractual theory of the firm starts with an assumption that all the constituents of the firm are in a contractual relationship. Such constituents include shareholders of the company, who are also viewed as bearing contractual responsibilities towards one another. It follows that any conduct perpetuated by a shareholder against a fellow counterpart becomes a violation of contractual duties assumed by the shareholder under the corporate contract. When interpreted in accordance with the contractual theory of the company, the remedy for oppression is some form of cure for the breach of a contractual relationship.

The interpretation of the oppression remedy in terms of contractual principles is not a new phenomenon in the scholarship of corporate law. In Fulton v Callahanyn,115 in applying the oppression remedy where the plaintiff alleged oppressive conduct perpetuated because of a "squeeze-out" transaction, Justice Houston of the Supreme Court of Alabama remarked that:

Corporate law is a form of contract law; and [squeeze out] should be a contractual action, because the minority shareholders' injuries flow from a breach of an implied contract the behavior of the majority shareholders (officers, directors, etc) violates the reasonable expectations of the minority shareholders that is generated by the business relationship which the contract created.

Likewise, Professor Benjamin Means of the University of South Carolina presents what he labels as the "justification for judicial protection of vulnerable minority shareholders"116 in terms of the principles of contractual.117 I will expound the author's argument in detail owing to its persuasiveness to my submission at this point of the discussion. Means observes that the standard law principles and economics assume that shareholders can protect themselves from prejudices by bargaining against opportunistic behaviour by controlling shareholders before investing in a firm.

According to Means, because of the stated assumption, courts offer a remedy for shareholder oppression on the notion that controlling shareholders owe fiduciary duties to the minority or must honour the

minority's reasonable expectations.118 The author finds the articulated legal position wrong on two grounds; the first being that shareholders often fail to anticipate and comprehensively bargain against various forms of oppression that may arise against them in the future. Secondly, Means avers that even if a shareholder may have due diligence in the bargaining process to protect his interests, such a shareholder can still fall victim to oppressive conduct by fellow shareholders.119

As a panacea to the shortcomings of shareholder bargaining power, Means proposes the application of the principles of contractual equity in the interpretation of the oppression remedy to attain justice for an affected shareholder. Central to Means' argument is that apart from oppressive conduct being hurtful to targeted shareholders; it also exhibits corporate opportunism which can be controlled by a strict interpretation of the relationship between shareholders as a contract governed by the principles of good faith. It is from the notion of good faith in contractual relationships that ubuntu finds its entry into the interpretation section 163 of the Companies Act. Considering the intricate connection between ubuntu and constitutionalism in South Africa, it becomes inevitable that the application of the concept of ubuntu in the shareholder contract subjects such a corporate contract to constitutional scrutiny.

The potency of ubuntu as a value that advances the law of contract in South Africa has been emphasised in the country's courts and by legal scholars.120 It has been underscored to be an indispensable legal assumption in the interpretation of the law of contract in South Africa, that contracts are concluded in good faith.121 In Eerste Nasionale Bank van Suidelike Afrika Bpk v Saayman,122 the concept of good faith was considered to enhance the functionality of contractual law by giving effect to the public's perception of fairness or reasonableness in the adjudication of a contractual matter. In a manner that signals the development of contractual law beyond the abstraction of common law, the Constitutional Court in South Africa has argued that the duty of any contractual party to negotiate contractual

relationship in good faith ought to be informed by public policy considerations such as ubuntu.123

uBuntu does not only buttress the concept of good faith at the conclusion of the contract but it has also been extended to the establishment of principles of contractual equity or fairness124 regarding the enforcement of contractual clauses. Mupangavanhu notes that by developing and expanding concepts such as good faith and ubuntu, "unfairness and inequality [in contractual relationships] will be ameliorated".125 To some extent, ubuntu provides a judicial standard on how parties to a contractual relationship ought to treat one another. In a striking example, in Barkhuizen v Napier126 Ngcobo J held that it would be contrary to public policy as informed by ubuntu to enforce a time limitation clause in a contract that did not afford the person bound by the contract an adequate and fair opportunity to seek judicial redress. The learned judge acknowledged that public policy necessitated the execution of simple justice between individuals. Also, in Everfresh Market Virginia (Pty) Ltd v Shoprite Checkers (Pty) Ltd, Moseneke J acknowledged the persuasiveness of the argument that it was contrary to ubuntu where a lessor to a contract of lease chose not to negotiate with the lessee on the possibility of renewing the contract when the likelihood of the renewal was provided in terms of a contractual clause.127

Turning to the question of how certain oppressive shareholder acts can be regarded as conflicting with ubuntu in the purview of the contractual interpretation of the remedy for oppression, it is paramount that such shareholder acts must openly exhibit contractual bad faith. To begin with, it can be assumed that any shareholder entering into a corporate contractual relationship has an expectation to be treated fairly, to rightfully participate in its affairs or to profit from it. Any conduct denying the shareholder the aforesaid privilege to some extent "runs afoul of the implied covenant of good faith and fair dealing implied in every contract".128

There is a plethora of case law in South Africa where the remedy for oppression was upheld by the courts to provide relief to shareholders from

conduct that is manifestly mala fide. For example, in Aspek Pipe Co Ltd v Mauerberger,129 which was decided under then section 111 bis of Companies Act 1926 that provided the oppression remedy, the applicant had been removed not only as a director of the company but also from his position as its rental and supervision agent. The applicant had apparently been replaced by an agent who was under the control of the respondent and the new agent's remuneration had been increased regardless of his being incompetent. Also, in Livanos v Swatzberg,130 the applicant alleged that the respondent formed another company to compete with the company in which the parties were fellow shareholders. It was further alleged that the respondent delayed some tenders available to the company in a bid to award them to his newly formed company. The applicant also averred that the respondent attempted to persuade an employee of the former company to join the respondent's newly formed firm. In Omar v Inhouse Venue Technical Management (Pty) Ltd,131 bad faith manifested in the directors of the respondent company's prejudicing the firm and its shareholders by diverting business opportunities to another company in which they had an interest.

In Grancy Property Limited v Manala, one of the arguments that persuaded the court to grant the applicant relief under the oppression remedy was that the directors had acted "in bad faith and with the fraudulent intention to deceive and prejudice" when they made unathorised payments to themselves.132 Apart from the conduct of the directors being in bad faith and in my view contrary to the contractual equity connotations of ubuntu, the manner in which the directors handled the complainant's grievance was also castigated by the court. The court observed that there had not been a demonstrable attempt by the respondents to address the Grancy Property Limited's protest against the unauthorised payments. To some extent, the failure by respondents to address the complainant's query flouted the good faith required in dispute resolution in terms of ubuntu.

Commenting on the role of ubuntu in conflict resolution, Johansen observes that; "[t]he purpose of [ubuntu] is to work toward a situation that acknowledges a mutually beneficial condition. Its emphasis is on cooperation with one another for the common good as opposed to

competition that could lead to grave instability within any community".133 Similarly, in Afriforum v Malema,134 Lamont J expressed the opinion that:

Ubuntu is recognised as being an important source of law within the context of strained or broken relationships amongst individuals or communities and as an aid for providing remedies which contribute towards more mutually acceptable remedies for the parties in such cases. Ubuntu is a concept which…dictates a shift from confrontation to mediation and conciliation; … [ubuntu] favours the re-establishment of harmony in the relationship between parties.135

The above observations qualify the presumption that under company law, ubuntu may present an opportunity of having shareholder disputes resolved in a manner that does not damage the entire company. Instances where shareholders are compelled to resort to acrimonious litigation can somehow be avoided.

6 Possible criticism and responses

I find it appropriate to identify and address two possible criticisms that may be raised against this argument. The first one is that the extension of ubuntu to shareholder relations may imply that majority shareholders owe fiduciary duties to their minority counterparts. This view remains rejected under South African corporate law.136 I too argue that majority shareholders do not owe any fiduciary duty to minority shareholders. The emphasis on the application of ubuntu in shareholder relations is purely for the promotion of equity and fair dealing among shareholders. Both attributes can be considered important to South African corporate governance, particularly when one considers the alignment of the country's corporate law with its constitutional principles.

Another criticism is that the submissions made in this article may sound at odds with majority rule, the latter being a fundamental principle of corporate law. It is correct that majority rule remains orthodox under South African corporate law. Nevertheless, the courts have emphasised that majority shareholder decisions may be upheld only if they "are arrived at in accordance with the law".137 While the proprietary right of shareholding may be exercised in the best interest of the shareholder,138 majority shareholders cannot be permitted to wilfully prejudice their minority counterparts through

the employment of unlawful methods. The court in De Villiers v Kapela Holdings (Pty) Ltd139 expressed its reluctance to endorse a decision taken by majority shareholders which met certain procedural requirements but fell short of other considerations of equity.

7 Conclusion

The statutory remedy for unfair prejudice, section 163 of the Companies Act, remains a potent legal weapon for minority shareholders in South Africa. It follows that the entrance of ubuntu into the law of contract presents a starting point for a possible extension of the concept in the interpretation of the remedy. An innovative interpretation of section 163 of the Companies Act which incorporates the concept of ubuntu is necessitated by the fact that shareholder relations remain a revered feature of the corporate firm. It is hereby submitted that the values embodied in ubuntu can offer guidance in defining what can be viewed as fair shareholder resolutions in pursuance of good corporate governance.

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List of Abbreviations