A DIRECTOR’S FIDUCIARY DUTIES POST RESIGNATION
The fiduciary duties of a Director post-resignation, is often a contentious issue, especially where such person has joined a competitor or is functioning in competition to his/her previous employer. Although case law on this topic is very limited in South Africa, the case of Big Catch Fishing Tackle Proprietary Limited vs. Kemp (17281/18) 2019 ZAWCHC 20 (5 March 2019) however is important because it, to some degree, clarifies the area of law concerning the fiduciary duties of a Director post-resignation.
In this case, the Court had to decide whether a former director of a company still owed fiduciary duties after resigning and if so, whether such director could be provisionally barred from competing (incl. the enforcement of Section 163 of the Companies Act 71 of 2008 (as amended)). A synopsis of the facts is that Big Catch supplied, inter alia, fishing equipment and was involved in fishing expeditions inside of South Africa. Kemp and some others were shareholders and members of a trust and were subsequently appointed as directors of Big Catch.
During their tenure as directors, the fishing expeditions business advanced and expanded beyond the borders of South Africa. After some time, Kemp resigned as director of Big Catch, but remained as a shareholder. The reason for the resignation is irrelevant for the purpose of this article, but the important aspect is the effect that such resignation may have on the fiduciary duties owed. The Court was faced with the legal questions of whether Kemp owed fiduciary duties after his resignation and, if so, whether Kemp and others should be provisionally barred from competing with Big Catch.
In this case, the Court confirmed that an executive director may not carry on business activities within the Company’s scope of business during such time as he/she is a director, but may change upon resignation, in the absence of a restraint of trade or the limitation on use of confidential information agreements, et cetera. In the case of post-resignation, and in the absence of aforementioned agreements, a director does not commit a breach of fiduciary duties by starting a similar business or joining a competitor, however a breach could very well be committed if the company’s confidential information is used or if such use violates the company’s interest, which is worthy of protection.
The Court reiterated that, in the absence of these agreements, putting a stop to the director’s means of income (including business) after resigning would most likely be an infringement of the director’s constitutional right as set out in Section 22 of the Constitution of the Republic of South Africa, 1996. If this is allowed, directors in general would then be obligated to change careers every time he or she leaves a company.
As regards the second question, the Court affirmed that an applicant must satisfy the four requirements for an interim interdict: (a) prima facie right to the relief sought, (b) a well-grounded apprehension of irreparable harm if not granted, (c) a balance of convenience in favour of granting the interim interdict, and (d) the absence of any other remedy. These requirements should be considered in conjunction. In this case, the Court held that these requirements were not met, and hence dismissed the application for interim relief with costs, specifically given that Big Catch did not, inter alia, prove that it suffered any irreparable harm.
According to these principles and the Court case, a company that wants to prevent a director from competing after resigning should, inter alia, impose the necessary agreements. In the alternative, it should prove to the Court that it has an interest worthy of protection, such as being commercially valuable. The seriousness of restraint of trade or confidentiality agreements is highlighted again and should be seen as a courteous reminder of the risks and dire consequences that may be faced by a company without the appropriate agreements in place.
Article by Marinus Barnard (LLB)
For more information, contact Marinus Barnard on marinus@rgprok.com or 044 601 9900. www.rgprok.co.za
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Disclaimer
Nothing contained in this publication is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This publication is intended for educational and informational purposes only.
