The Companies Act is rightly regarded as the primary source of directors’ duties and liabilities in South Africa, coupled with the common law. However, directors’ risk exposures are not limited to these sources.
The recent Supreme Court of Appeal (“SCA”) judgment in Samancor Chrome Limited v Bila Civil Contractors (Pty) Ltd and Others (159/2021) [2022] ZASCA 154 (7 November 2022) highlights that directors may be held in contempt of court for acts unrelated to their statutory duties, but where they are nevertheless responsible for the conduct of the company they direct.
The SCA went on to fine each implicated director R50 000 for their failure to comply with an interdict that lay against their company.
What happened?
Bila Civil Contractors (Pty) Ltd (“Bila”) held a prospecting right over land co-owned by Samancor Chrome Ltd (“Samancor”). Bila exceeded the limits of its prospecting right by mining the land. In response, Samancor obtained an interdict from the Pretoria High Court prohibiting Bila from continuing its activities on site.
Despite the interdict, Bila continued operations. Samancor launched a second application in which it sought to join the directors of Bila, declare them in contempt of court for failing to adhere to the interdict, impose a fine on each for R100 000 and commit each to prison for 90 days should they fail to comply with the order.
What is contempt of court?
To prove contempt by the directors, Samancor had to show, beyond a reasonable doubt, that:
- a court order existed;
- the order was served on or notified to the respondents, being the directors;
- there was non-compliance with the order; and
- there was wilfulness and bad faith on the part of the respondents.
Once the first three of the above requirements are established, the evidentiary burden shifts to the respondents to prove that they did not act wilfully or in bad faith.
Contempt – or not?
The High Court granted Samancor’s application to join Bila’s directors but dismissed the application for contempt of court. The High Court reasoned that granting both the joinder and contempt application at once would allow effectively for judgment against the directors summarily, without affording them the right to be heard. Samancor appealed to the SCA against the dismissal of the contempt application.
The SCA scrutinises director behaviour
- Bila’s directors were aware of the interdict and had ample time to consider it, prepare their defence and obtain legal advice. The first two requirements for contempt were therefore met.
- The directors did not seriously or explicitly engage with the extensive evidence led by Samancor which indicated that Bila continued its activities in spite of the interdict. They thus failed to comply with the order and so the third element for contempt was met.
- The SCA was critical of the directors’ conduct and interpreted their actions “against the backdrop that [Bila’s directors] deliberately and intentionally caused Bila to continue acting against [the interdict], whilst contending that it was not mining but prospecting”. Additionally, Bila’s defence that it had contravened the interdict upon legal advice was contrived.
- The SCA held that the directors had a duty to ensure that once the court order had been received, Bila did not act unlawfully and seek to avoid accountability. In consequence, the directors were held jointly liable with Bila and fined R50 000 each.
Relevance for directors
What is plain from the judgment is not only the importance of complying with a court order, but that directors are at risk if they fail to ensure that orders against their company are complied with.
As the SCA put it:
“[the directors] could not simply wash their hands and walk away from accountability”.
Potential liability sits not only with the contravening company, but also with the directors who are at its helm and serve as its controlling mind.
The Samancor judgment reminds us that directors must act not only in accordance with the Companies Act, but the prescripts of the common law.
