Stefano Bruno Ghersi and Others v Tiber Developments (Pty) Ltd and Others

The Ghersi and Rivera families had been involved in the construction industry since the post-World War II era. Tiber Developments (Pty) Ltd ('the Company') was established in 1976 and restructured in 1983 so that the Ghersi family held 45% of shares (held by the appellants) and the Rivera family and the fourth respondent held 55%. The second, third and fourth respondents were directors of the Company. After 1983, these respondents undertook property developments through separate companies (particularly Tiber Projects/Properties) in which the Ghersi family had no interest. In 1991, Tiber Properties was appointed to manage the Company's affairs. The appellants, as shareholders, served a statutory notice under s 266 of the Companies Act 61 of 1973 on 27 November 2003, alleging that the directors had misappropriated Company funds totaling over R98 million plus interest of over R122 million. The Company investigated via KPMG and decided not to institute proceedings. The appellants then applied for appointment of a provisional curator ad litem under s 266, which was granted. The provisional curator investigated thoroughly and concluded that the claims for misappropriation could not be sustained, but recommended proceedings against the directors for a statement of account regarding property developments not offered to the Company over 23 years. The court a quo (Fevrier AJ) discharged the provisional order on the return day.

• What is the scope and mandate of a provisional curator ad litem appointed under section 266 of the Companies Act 61 of 1973?
• Can a provisional curator investigate and recommend proceedings on grounds beyond those alleged in the shareholder's application to court?
• In what circumstances may a court authorize institution of legal proceedings based on wider grounds than those in the original application?
• What constitutes an adequate investigation and report by a provisional curator to justify confirmation of the appointment under section 266(4)?
• What is the extent of fiduciary duties owed by directors to a company in respect of property development opportunities?

The appeal was dismissed with costs, including costs of two counsel. The order of the court a quo (Fevrier AJ) discharging the provisional order appointing the curator ad litem was upheld.

A provisional curator ad litem appointed under section 266 of the Companies Act 61 of 1973 has a mandate limited to investigating the specific grounds alleged in the shareholder's application to court, as these grounds form the basis of the court's finding of a prima facie case. While the curator may consider remedies beyond those suggested by the shareholder, the investigation must remain confined to the grounds in the application. Although a court may in exceptional circumstances authorize proceedings on wider grounds not specified in the original order (where there has been adequate investigation and formal compliance with statutory notice requirements would be a hollow exercise), the curator's report must provide a sufficient basis for the court to properly exercise its powers under section 266(4). Before confirming an appointment and authorizing litigation, particularly of broad scope, the court must be satisfied that the curator has conducted an adequate investigation. In matters concerning directors' fiduciary duties regarding corporate opportunities, the existence, nature and extent of such duties are questions of fact to be determined from the substance of the relationship and relevant circumstances; directors are not automatically obliged to offer all conceivable business opportunities to their company merely because such opportunities fall within the company's powers or might be useful to it.

The court made several non-binding observations: (1) It respectfully disagreed with the decision in Loeve v Loeve Building and Civil Engineering Contractors (Pty) Ltd 1987 (2) SA 92 (D) to the extent that it held that a court could never authorize proceedings on grounds outside the curator's original mandate without strict compliance with section 266(2)-(3), stating that form should not be allowed to defeat the purpose of the section in rare cases where the necessary investigation has been done. (2) The court noted that it was unnecessary to determine what remedies a shareholder has when a provisional curator's report is inadequate, as in this case the appellants themselves supported the curator's recommendations based on the report provided. (3) The court observed that the scope of litigation itself is not a reason for refusing confirmation of the rule, but the extent of recommended litigation is relevant in assessing whether the investigation provides a sufficient basis for exercising discretion under section 266(4). (4) The court distinguished between grounds alleged in a statutory notice under section 266(2)(a) and grounds alleged in the application to court, noting that a shareholder may choose to jettison some grounds from the notice when bringing the court application.

This case provides authoritative guidance on the proper interpretation and application of section 266 of the Companies Act 61 of 1973 (now replaced by similar provisions in the Companies Act 71 of 2008). It clarifies: (1) the limited mandate of a provisional curator ad litem, which is confined to investigating the specific grounds alleged in the shareholder's application to court; (2) the 'dual screening procedure' designed to balance shareholder remedies against frivolous litigation; (3) the standard and thoroughness required of a curator's investigation and report to justify confirmation of the appointment; (4) that while form should not defeat substance, courts will rarely authorize proceedings on grounds outside the original mandate without proper investigation and compelling circumstances; and (5) important principles regarding the nature and extent of directors' fiduciary duties concerning corporate opportunities, which are fact-dependent and do not automatically extend to all opportunities that might conceivably benefit the company. The judgment reinforces the importance of procedural safeguards in derivative actions and the need for thorough investigations before subjecting companies and directors to costly litigation.