Abstract:
The new statutory derivative action under the Companies Act 71 of 2008 is a paramount
protective measure or weapon for minority shareholders, which will be very useful in good
corporate governance and in policing boards of directors. The court is entrusted in terms of
s 165 with a pivotal role as the gatekeeper, and has a crucial screening function in the
exercise of its discretion to grant leave to a minority shareholder (or other applicant) to
institute derivative litigation to seek redress for the company, when those in control of it
improperly fail or refuse to do so. The approach that the courts adopt to the application of
the three guiding criteria in s 165(5)(b) for the exercise of their discretion—particularly
the open-textured criterion of ‘good faith’— is a matter of supreme importance that will
have a major impact on the effectiveness (or lack thereof) of the new statutory derivative
action. The focus of this article is this particularly elusive criterion of good faith, and its
many nuances, interpretations and applications in relevant foreign jurisdictions. A
framework for good faith in South African law is proposed, and further fundamental facets
of good faith are explored, with reference both to existing principles in our common law and
valuable lessons gleaned from other comparable jurisdictions such as Canada, Australia,
New Zealand and the United Kingdom.
