Relief from oppressive or prejudicial conduct under the companies act

Section 163 provides that shareholders of a company may apply to the courts for relief under a number of circumstances. The first is where there has been an act or omission of the company, or a related person, which is oppressive or unfairly prejudicial to, or unfairly disregards the interest of the applicant (s163(1)(a)). Secondly, where the business of the company or a related person is carried on in a manner that is oppressive or unfairly prejudicial to, or unfairly disregards the interest of the applicant (s163(1)(b)), or thirdly, where the powers of a director or prescribed officer of the company, or a person related to the company are exercised in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of the applicant (s 163(1)(b)).

When applying to the courts for relief in any of the above mentioned circumstances, the court has a discretion to make any interim or final order it deems fit (s163(2)). The Act provides an extensive list of remedies, however it is non-exhaustive. The general view therefore is that the remedies available under this section are of wide import and constitute a flexible mechanism for the protection of a minority shareholder from oppressive or prejudicial conduct. The latter is clear from s163(2) itself which provides that a court may make any interim or final order it considers fit, including a variety of orders listed in (a) – (l).  MS Blackman, in Commentary on the Companies Act vol 2 (2002) at 9-4, is of the view that this section should be carefully controlled for its very wide jurisdiction and discretion may be potentially used as a means of oppression.
Cassim et al in Contemporary Company Law at 771 – 2 state that:

Despite the wide ambit of s 163, it must be borne in mind that the conduct of the majority shareholders must be evaluated in light of the fundamental corporate law principle that, by becoming a shareholder, one undertakes to be bound by the decisions of the majority shareholders. Thus not all acts which prejudicially affect shareholders or directors, or which disregard their interests, will entitle them to relief — it must be shown that the conduct is not only prejudicial or disregardful but also that it is unfairly so.

The court in Louw and Others v Nel 2011 (2) SA 172 (SCA) ([2010] ZASCA 161) recognised that the objective of the relief available to the courts was 'to empower the court to make such order as it thinks fit for the giving of relief, if it is satisfied that the affairs of the company are being conducted in a manner that is unfairly prejudicial to the interests of a dissident minority'.

The applicant seeking a relief from the court must prove two main elements, relevant conduct and conduct that is oppressive, unfairly prejudicial or unfairly disregards the interests of the applicant.

Firstly, relevant conduct refers to an act or omission of the company, encompassing resolutions of the board of directors and acts of the board of directors; acts of individuals authorised by a board or to whom powers of the board have been delegated; 
or resolutions of shareholders in general meeting (but not the conduct of a shareholder of his own affairs). It is the result of the act or omission that is important under this section, in other words the consequence of such act or omission. The conduct must either be ongoing conduct and/or previous conduct. Threatened or future conduct will not apply.

Secondly, conduct that is oppressive, unfairly prejudicial or unfairly disregards interests was drafted in broader terms than its previous equivalent section (s 252 of the Companies Act 61 of 1973). The applicant is required to establish that there has been ‘a lack of probity or fair dealing, or a visible departure from the standards of fair dealing, or a violation of the conditions of fair play on which every shareholder is entitled to rely... The emphasis is on the unfairness of the conduct complained of. It must be conduct which departs from the accepted standards of fair play, or which amounts to an unfair discrimination against the minority. The test will be one of unfairness as opposed to unlawfulness, as it is possible for conduct to be ‘oppressive or prejudicial’ without violating any rights of the applicant. In Utopia Vakansie-Oorde Bpk v Du Plessis 1974 (3) SA 148 (A) at 170H – 171D it was stated that the concept of 'interests' is much wider than the concept of 'rights'.

The court n Aspek Pipe Co (Pty) Ltd and Another v Mauerberger and Others 1968 (1) SA 517 (C) at 525H – 526E held that:

¹Faurouk HI Cassiem et al Contemporary Company Law 2 ed (2012) at 769 – 5.

²Donaldson Investments v Anglo Transvaal Collieries 1979 (3) SA 713 (W) at 722, affirmed on appeal 1980 (4) SA 204 (T) and on further appeal 1983 (3) SA 96 (A).

³Contemporary Company Law 2 ed (2012) at 693.