A discussion on the duty of care, skill and diligence to be exercised by a director in light of the Companies Act 71 of 2008, as well as the common law and an overview of the business judgement rule : a company law perspective.
The duty of care, skill and diligence is a duty on a director that has been considered both internationally as well as locally. It is a duty that has come under the microscope, and is thus of importance to consider in a country such as South Africa, whom attempts to update its corporate law, to meet international standards. This duty is therefore of importance to consider, as well as to gain some insight as to exactly what the tests for negligence will be or is. This “confusion” is as a result of the development of the common law as well as the statutory law, standard of care, skill and diligence. This is because it will need to be determined whether both objective and subjective tests are to be adopted in determining a director’s negligence, and thus whether a director’s performance of such care and skill resulted in negligence. The business judgement rule is a recent addition to the South African corporate law regime, and is seen with its codification in the Company’s Act 20081. In essence this rule is there as a means to protect directors, as a result of having both objective and subjective elements mentioned above. It also allows for a director to defend him or herself from liability, but also safe harbour them from a possible breach of the duty of care, skill and diligence, that is expected of a director. Although the business judgement rule is one that has been applied in many foreign jurisdictions, it is a rule that has come under the microscope in South Africa, for criticism, as to whether it is really a rule that is needed in South African corporate law. The rationale of this dissertation is therefore to allow for readers to have a better understanding of the duty of care, skill and diligence in terms of both the common law as well as the statutory law, in South Africa. It will also allow for a reader to have insight on the business judgement rule, and its applicability in South African law.