THE BUSINESS JUDGMENT RULE: DIRECTORS’ DUTY OF CARE, SKILL
AND
DILIGENCE
Submitted in partial fulfillment of the requirements for the LLB degree
BACHELOR OF LAWS
In the
DEPARTMENT OF MERCANTILE LAW
SCHOOL OF LAW
UNIVERSITY OF SOUTH AFRICA
SUPERVISISOR: LC COETZEE
RRLLB81 ASSIGNMENT 03
ACADEMIC HONESTY DECLARATION
1. I understand what academic dishonesty entails and am aware of Unisa’s
policies in this regard.
2. I declare that this assignment is my own, original work. Where I have used
someone else’s work, I have indicated this by using the prescribed style of
referencing. Every contribution to , and quotation in, this assignment from
the work or works of other people has been referenced according to the
prescribed style.
3. I have not allowed, and will not allow, anyone to copy my work with the
intention of passing it off as his or her own work.
4. I did not make use of another student’s work and submit it as my own.
NAME: DALINCEBO MANGALISO SIBONELO MPILA
1
,SIGNATURE: DALINCEBO MANGALISO SIBONELO MPILA
STUDENT NUMBER: 65153707
MODULE CODE: RRLLB81
DATE: 2/3/2025
TOPIC SELECTED: BUSINESS JUDGMENT RULE
MARK RECEIVED FOR ASSIGNMENT 01: 93%
MARK RECEIVED FOR ASSIGNMENT 02: 70%
ABSTRACT
This research is a detailed discussion of the business judgment rule, which is a
rule in South African company law which prescribes that a director will be
regarded as having acted in the best interests of the company and with the
required degree of care, skill and diligence if the director: took reasonable
steps to become informed about the matter; had no material personal financial
interest in the subject matter of the decision or had no reasonable basis to
know that any related person had a personal financial interest in the matter, or
disclosed his or her interests, and; made, or supported, a decision in the belief
that it was in the best interests of the company.
In this paper I looked at Australian and American origins of the business
judgment rule, while comparing the extent to which it mitigates the duty of
care, skill and diligence required of directors from those jurisdictions to that of
our jurisdiction. My paper discussed into detain the law of delict in an attempt
to determine as to what constitutes a breach of a director’s duty of care, skill
and diligence. In the course of this discussion it becomes evident that the
business judgement rule is more favourable to negligent directors in South
African than it is in Australia and the United States of America.
The aim of this paper is to determine whether the business judgment rule is a
justifiable mitigation of the higher standard of directors’ duty of care, skill and
diligence, or whether it is just an excuse for negligent directors to escape
liability. In my research I came to the conclusion that while the business
judgement rule has many flaws in that a director who may be found negligent
by a court of law may nevertheless not be found to be in breach of their duty of
care, skill and diligence, it is still a justifiable mitigation of the high standard of
the said duty since directors do deserve more leeway when making decisions
in this complicated corporate world of ours.
KEYWORDS
● Business judgment rule
2
,● The duty of care, skill and diligence
● Delict
● Negligence
● Director
● Company (business/corporation)
● Business decision
LIST OF ABBREVIATIONS AND ACRONYMS
Abbreviation/acronym Meaning
ALI American Law Institute
ASIC Australian Security and Investment Commission
UK United Kingdom
USA United States of America
3
, TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION..............……………….................................…8
1.1 Background…........................................……………………..........……...…8
1.2 Research question………………...........................................….…………..8
1.3 Research purpose.….........….…………………………….…………………..8
1.4 Research methodology.................…………………………..…………….….8
1.5 Assumptions and points of departure..............................................……….8
CHAPTER 2: COMMON LAW..........................................…….…………….….9
2.1 Introduction.............................................................…………………………9
2.2 Delict as a basis for liability for the breach of duty of care and skill……......9
2.2.1 background on delict....................................................……….....……….9
2.2.2 Five elements of delict.......................…………………………….……….10
2.2.2.1 Conduct…………………………………..……………………………..…10
2.2.2.2 Wrongfulness …………………………………………………….……….11
2.2.2.3 Fault……………………………..………………………………..………..13
2.2.2.4 Causation……………………………………………………………….…15
2.2.2.5 Damage……………………………………………………..……………..16
CHAPTER 3: STATUTORY LAW..................…………………………….……17
3.1 The duty of care, skill and diligence................................……..………...…17
3.1.1 Standard of conduct: section 76(3)(c).......................................………...17
3.1.2 The impact of section 76(3)(c) on Fisheries Development Corporation v
Jorgensen ….……………………………………………………………………….18
3.1.3 Section 76(3)(c) and the Banks Act of 1990….................……………….19
3.1.4 Liability for the breach of duty of care, skill and diligence ...........…..…..20
3.1.5 Comparison of statutory law and common law liability ............…………20
3.2 Section 76(4)(a): the business judgment rule..............…………………….21
4
AND
DILIGENCE
Submitted in partial fulfillment of the requirements for the LLB degree
BACHELOR OF LAWS
In the
DEPARTMENT OF MERCANTILE LAW
SCHOOL OF LAW
UNIVERSITY OF SOUTH AFRICA
SUPERVISISOR: LC COETZEE
RRLLB81 ASSIGNMENT 03
ACADEMIC HONESTY DECLARATION
1. I understand what academic dishonesty entails and am aware of Unisa’s
policies in this regard.
2. I declare that this assignment is my own, original work. Where I have used
someone else’s work, I have indicated this by using the prescribed style of
referencing. Every contribution to , and quotation in, this assignment from
the work or works of other people has been referenced according to the
prescribed style.
3. I have not allowed, and will not allow, anyone to copy my work with the
intention of passing it off as his or her own work.
4. I did not make use of another student’s work and submit it as my own.
NAME: DALINCEBO MANGALISO SIBONELO MPILA
1
,SIGNATURE: DALINCEBO MANGALISO SIBONELO MPILA
STUDENT NUMBER: 65153707
MODULE CODE: RRLLB81
DATE: 2/3/2025
TOPIC SELECTED: BUSINESS JUDGMENT RULE
MARK RECEIVED FOR ASSIGNMENT 01: 93%
MARK RECEIVED FOR ASSIGNMENT 02: 70%
ABSTRACT
This research is a detailed discussion of the business judgment rule, which is a
rule in South African company law which prescribes that a director will be
regarded as having acted in the best interests of the company and with the
required degree of care, skill and diligence if the director: took reasonable
steps to become informed about the matter; had no material personal financial
interest in the subject matter of the decision or had no reasonable basis to
know that any related person had a personal financial interest in the matter, or
disclosed his or her interests, and; made, or supported, a decision in the belief
that it was in the best interests of the company.
In this paper I looked at Australian and American origins of the business
judgment rule, while comparing the extent to which it mitigates the duty of
care, skill and diligence required of directors from those jurisdictions to that of
our jurisdiction. My paper discussed into detain the law of delict in an attempt
to determine as to what constitutes a breach of a director’s duty of care, skill
and diligence. In the course of this discussion it becomes evident that the
business judgement rule is more favourable to negligent directors in South
African than it is in Australia and the United States of America.
The aim of this paper is to determine whether the business judgment rule is a
justifiable mitigation of the higher standard of directors’ duty of care, skill and
diligence, or whether it is just an excuse for negligent directors to escape
liability. In my research I came to the conclusion that while the business
judgement rule has many flaws in that a director who may be found negligent
by a court of law may nevertheless not be found to be in breach of their duty of
care, skill and diligence, it is still a justifiable mitigation of the high standard of
the said duty since directors do deserve more leeway when making decisions
in this complicated corporate world of ours.
KEYWORDS
● Business judgment rule
2
,● The duty of care, skill and diligence
● Delict
● Negligence
● Director
● Company (business/corporation)
● Business decision
LIST OF ABBREVIATIONS AND ACRONYMS
Abbreviation/acronym Meaning
ALI American Law Institute
ASIC Australian Security and Investment Commission
UK United Kingdom
USA United States of America
3
, TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION..............……………….................................…8
1.1 Background…........................................……………………..........……...…8
1.2 Research question………………...........................................….…………..8
1.3 Research purpose.….........….…………………………….…………………..8
1.4 Research methodology.................…………………………..…………….….8
1.5 Assumptions and points of departure..............................................……….8
CHAPTER 2: COMMON LAW..........................................…….…………….….9
2.1 Introduction.............................................................…………………………9
2.2 Delict as a basis for liability for the breach of duty of care and skill……......9
2.2.1 background on delict....................................................……….....……….9
2.2.2 Five elements of delict.......................…………………………….……….10
2.2.2.1 Conduct…………………………………..……………………………..…10
2.2.2.2 Wrongfulness …………………………………………………….……….11
2.2.2.3 Fault……………………………..………………………………..………..13
2.2.2.4 Causation……………………………………………………………….…15
2.2.2.5 Damage……………………………………………………..……………..16
CHAPTER 3: STATUTORY LAW..................…………………………….……17
3.1 The duty of care, skill and diligence................................……..………...…17
3.1.1 Standard of conduct: section 76(3)(c).......................................………...17
3.1.2 The impact of section 76(3)(c) on Fisheries Development Corporation v
Jorgensen ….……………………………………………………………………….18
3.1.3 Section 76(3)(c) and the Banks Act of 1990….................……………….19
3.1.4 Liability for the breach of duty of care, skill and diligence ...........…..…..20
3.1.5 Comparison of statutory law and common law liability ............…………20
3.2 Section 76(4)(a): the business judgment rule..............…………………….21
4
