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2007 Jsa Frl 169

2007 Jsa Frl 169

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Citation: 2007 J. S. Afr. L. 169 2007Content downloaded/printed fromHeinOnline (http://heinonline.org)Thu Jun 13 11:34:16 2013-- Your use of this HeinOnline PDF indicates your acceptanceof HeinOnline's Terms and Conditions of the licenseagreement available at http://heinonline.org/HOL/License-- The search text of this PDF is generated fromuncorrected OCR text.-- To obtain permission to use this article beyond the scopeof your HeinOnline license, please use:https://www.copyright.com/ccc/basicSearch.do?&operation=go&searchType=0&lastSearch=simple&all=on&titleOrStdNo=0257-7747
 
APPROPRIATIONOFCORPORATEOPPORTUNITIES
BY
DIRECTORS
AND
EMPLOYEES
169
APPROPRIATIONOFCORPORATEOPPORTUNITIES
BY
DIRECTORS
AND
EMPLOYEES
Phillips
v
Fieldstone
(Pty)
Ltd
2004
3
SA
465
(SCA);
2004
1
All
SA
15
(SCA)
1
Introduction
As
fiduciaries,
directorshave
to
account
totheircompanies
for
"secret
profits"
-
advantagesobtained
in
the
course
and
execution
of
their
office
other
than
those
to
which
the
directors
are
entitled
by
virtue
of
holding
that
office.
They
alsohave
anobligation
not
tousurp
business
opportunities
that
fall
in
the
company's
line
of
business
and
that
they
should
be
acquiring
onits
behalf,
often
described
as
"corporate
opportunities",
for
their
own
personal
gain.
The
circumstances
in
whichthese
two
obligations
arise
oftenoverlap,
but
there
are
also
clear
differences
between
them.The
distinction
is
important
when
it
comes
to
issues
like
ratification(Havenga
"Corporateopportunities:
a
SouthAfrican
update"Parts
I
and
11
1996
SA
Merc
LJ
40
and
233).
The
fundamental
dis-
tinction
between
acquiring
a
corporate
opportunity
andmaking
asecret
profit
is
that
in
the
latter
instance
the
profit
is
not
necessarily
made
at
the expense
of
the
company,
but
is
obtained
in
some
way
as
a
result
of
the
director's
office.
When
a
corporate
opportunity
is
appropriated,
it
is
deemed
to
be
at
the
ex-
pense
of
the company,
but
the
opportunity
was
not
necessarily
acquired
by
virtue
of
the
director'sposition
as
such
(eg,
in
Industrial
Development
Consul-
tants
Ltd
v
Cooley
1972
1
WLR
443,
1972
2
All
ER
162
(Birmingham
Assizes)the
opportunity
was
offeredto
a
director
inhis
private
capacity;
see
also
Beck
"The
quickening
of
fiduciary
obligation:
Canadian
AeroServices
v
O'Malley"
1975
CanadianBar
Review
771
782
andPrentice
"Regal(Hastings)
v
Gulliver
-
the
Canadian
experience"
1967
MLR
450
453
who
suggest
thatopportu-
nities
do
not
cometo
directors
in
any
particular
capacity).There
are
other
differences.
The
secret
profit
rule
extends
beyondthetaking
of
corporate
op-
portunities
to
all
kinds
of
fiduciary
relationships,includingnon-commercial
ones
(in
Boardman
v
Phipps
1967
2
AC
46
(HL)
eg,
the
defendants
were
not
companydirectors,
but
a
trusteeandthesolicitorto
a
trust).
It
also
extendsto
all
kinds
of
collateralprofits,
whereas
corporate
opportunity
matters
are
re-
stricted
to
the
exploitation
of
business
opportunities.
The
principles
underlying
these
two
rules
apply
to other
fiduciaries
as
well.
In
Phillips
v
Fieldstone
(Pty)
Ltd
2004
3
SA
465
(SCA);
2004
1
AllSA
15(SCA)
thefiduciary
was
an
employee.The
courtfound that
when
he
acquired
shares
in
a
companyfor
which
he
was
working
on
behalf
of
his
employer
in
his
own
name
and
notfor
the
company
that
hademployedhim
he
had
created
a
conflict
between
his
own
interestsand
his
obligations
to
the
lattercompany.
In
the
circumstances
theemployee
was
found
to
bein
breach
of
his
fiduciaryobligationsto
the
company.
The
decision
by
thesupreme
court
of
appeal
isdiscussed
below.
2
Phillips
v
Fieldstone
(Pty)Ltd
2.1
Thefacts
Safika
Wireless
(Pty)Ltd
("Safika"),
a
subsidiary
of
SafikaInvestment
Hold-
ings
(Pty)Ltd,
was
incorporated
as
a
SouthAfricancompanytopursueop-
TSAR
2007.1
ISSN
0257-7747]
HeinOnline -- 2007 J. S. Afr. L. 169 2007
 
HAVENGA
portunities
in
telecommunications.
Thesecond
respondent
in
this
case,
Field-
stone Private
Capital
Group ("Fieldstone Capital"),
operated
from
New
York
as
a
partnership.
It
conducted an
international
business, raising investment
capital
and
advising on
activities
in
the
infrastructure
sector
(described
at
470F
as
an area
which
includespublic utilities,
port
and
road construction
andtelecommunications). It frequentlyworked
with
small
enterprises
which
acquired
or
hoped toacquire
large
opportunities
for
which
they
had neither the
expertise
nor
the
ability
to
raise capital beyondthe means
of
their individual
members.
Fieldstone
Capitaloften
agreed
to
partial
satisfaction
of
its
fees
in
the
form
of
equity
participation
in
the
client
or
in
the investment acquired
by
the
client.
The
first
respondent, Fieldstone
Africa
(Pty)
Ltd
("Fieldstone
Afri-
ca"),
was
a
SouthAfrican
company
set
up
by
Fieldstone
Capital
to
provide
a
corporate
face
for
its
activitiesin
SouthAfricaandto render
services
on
its
behalf.
The
plaintiff("Phillips")had
been
recruited
by
FieldstoneCapital
in
theUnited States
because
of
his
expertise
in
the
field
of
telecommunications.
Safika
sought
to
raise
the
capital
required
to
finance
theacquisition
of
all or
part
of
the
ordinary
shares
in
MTN
Holdings(Pty)
Ltd
from
SBC
Commu-
nications
Corporation.
To this end
Safika
andFieldstone Capital,
represented
by
Fieldstone
Africa,
concluded
a contract
in
1997
in
terms
of
which
the lattercompanywould render certain
services
in
respect
of
thefinancing
of
the MTN
deal
to Safika.
If
Safika
acquired the
shares
during
theterm
of
theagreement,Fieldstone
Capital
would
be
entitledto
full
payment
of
the
agreed
compensa-tion,
which
consisted
of
a
structuring
fee
of
1,5%
of
the
total
nominal
face
value
of
the
financing
and
a
placement
fee
of
the
same
percentage.Phillips
was
seconded
toSouthAfrica to
carry out
this
contract,
which
wouldrun
for one
yearor
such
extended period
as
would
be
negotiated
by
him.
According
to
evidence
led,
he
was
employed on
a
fixed
salary
but
would
receive
additionalremuneration
if the
project
was successfully
executed
(472F).
During
the period
that
the
Fieldstone
companies
were
workingonthe
con-
tract,
Phillips
mentioned
to
the
managing director of
Fieldstone
Capital ("Ca-
pitman")that
there might
be
an
opportunity
toacquire
10%
of
the
shares
in
Safika.
Capitman
instructedPhillips
to
pursue
the
matter
andto
report
to
the
company
on
the terms
of
the
offer.
Some
months
later
when
asked what pro-
gress
he
had
made
with
thisdeal Phillips informed
Capitman
that
Safika,
which
was
a
black
empowerment
company and
wantedonly black
shareholders,
did
not
want
to
sell
the
shares
to
the
Fieldstone
companies
but
would
sell
them
to
him personally. An
argument
arose
andCapitman
toldPhillips
that
if
he
acquired
the
shares
in
his
personal
capacity
there would
be
a
conflict
of
interest
and
he
would
be
appropriating
an
opportunity
of
thecompany.At
about
this
time
Phillips
also
informedCapitman
that
he
had
been
invited
to
become
a
director
of
Safika.
Capitman
agreed
to
this
on
conditionthat
Safika provided
a
letter
to
this
effect
and
that
any
remuneration
received
would
be
handed
over
tothe
company.
Accordingto normal company
policy,
fees
so
received
would
be
refunded
to
the
payee
on
a
dollar-for-dollar
basis.
The
required
letter
wasreceived
and Phillips
continued
to
work
on
the
Safika
project
as
well
as
other
projects
in
which
he
was
involved
on
behalf
of
Field-
stone Capital. Late
in
1998
he
did
so
without
keeping
the
company informed
of
his
whereabouts.
He
made
contact
in
January
1999
and then
disappeared
untilthe end
of February
when
he
resigned from
the
employment
of
FieldstoneCapital.TSAR
2007.
1
[ISSN
0257-77471
HeinOnline -- 2007 J. S. Afr. L. 170 2007

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