, PLEASE USE THIS DOCUMENT AS A GUIDE TO ANSWER YOUR ASSIGNMENT
Question 1
Skylab (Pty) Ltd wishes to have a database designed and installed that will receive, process and store
information generated by the work done in its laboratory. It wants to appoint a service provider to
design and install this system, and also wants the service provider to maintain the database for the next
ten years. Internet World (Pty) Ltd is keen to conclude this contract with Skylab (Pty) Ltd as it is a
very profitable contract. It appoints Lerato, one of its directors, to enter into negotiations with Skylab
(Pty) Ltd for this purpose. After a few weeks of negotiations, Skylab (Pty) Ltd decides that it does not
want to conclude the contract with Internet (Pty) Ltd but wishes to enter into the contract with Lerato
in her personal capacity. It offers the contract to Lerato personally. Lerato subsequently resigns as a
director of Internet World (Pty) Ltd and informs the 4 company that she wishes to take early retirement
and travel the world before she gets too old. Internet World (Pty) Ltd appoints Themba to continue the
negotiations with Skylab (Pty) Ltd in place of Lerato. When Themba tries to arrange a meeting with
Skylab (Pty) Ltd for this purpose, he is informed by Skylab (Pty) Ltd that it had already concluded a
contract with Lerato in her personal capacity for the design and installation of the database, and that
Lerato had recently commenced working on the database. Internet World (Pty) Ltd wishes to pursue
legal action against Lerato for a breach of her fiduciary duties. Lerato argues that she signed the
contract with Skylab (Pty) Ltd only after she had resigned from Internet World (Pty) Ltd and that she
had therefore not breached her fiduciary duties to Internet World (Pty) Ltd.
1. With reference to the Companies Act 71 of 2008, relevant case law and the facts provided,
discuss whether Lerato has breached any specific fiduciary duties she owed to Internet World
(Pty) Ltd. Also consider the validity of Lerato’s argument that she did not breach her fiduciary
duties to Internet World (Pty) Ltd since she signed the contract with Skylab (Pty) Ltd only after
she had resigned from Internet World (Pty) Ltd.
To determine whether Lerato has breached her fiduciary duties to Internet World (Pty) Ltd, it is
important to examine the facts of the Skylab dispute in light of the Companies Act 71 of 2008 and
relevant common law principles governing directors' duties.
1. Lerato's Role and the Skylab Facts
Lerato was a director of Internet World (Pty) Ltd and was specifically tasked with negotiating a
"very profitable contract" for the design, installation, and maintenance of a database with Skylab (Pty)
Ltd. After several weeks of negotiations, Skylab (Pty) Ltd decided not to proceed with Internet
World (Pty) Ltd but instead offered the contract directly to Lerato in her personal capacity.
Following her resignation as a director, Lerato concluded the contract with Skylab (Pty) Ltd and
commenced working on the database. Internet World (Pty) Ltd now wishes to pursue legal action
against Lerato for a breach of her fiduciary duties. Lerato argues that she did not breach her fiduciary
duties because she signed the contract only after resigning from Internet World (Pty) Ltd.
2. Fiduciary Duties Owed by Directors
Directors owe fundamental fiduciary duties to their company, including the duty to act in good faith,
in the best interests of the company, and for a proper purpose. The fiduciary duties of directors are
mandatory, prescriptive, and unalterable, meaning directors cannot contract out of them. One of the
most important fiduciary duties is the duty to avoid a conflict of interest, which is closely tied to the
corporate opportunity rule and the no-profit rule:
Question 1
Skylab (Pty) Ltd wishes to have a database designed and installed that will receive, process and store
information generated by the work done in its laboratory. It wants to appoint a service provider to
design and install this system, and also wants the service provider to maintain the database for the next
ten years. Internet World (Pty) Ltd is keen to conclude this contract with Skylab (Pty) Ltd as it is a
very profitable contract. It appoints Lerato, one of its directors, to enter into negotiations with Skylab
(Pty) Ltd for this purpose. After a few weeks of negotiations, Skylab (Pty) Ltd decides that it does not
want to conclude the contract with Internet (Pty) Ltd but wishes to enter into the contract with Lerato
in her personal capacity. It offers the contract to Lerato personally. Lerato subsequently resigns as a
director of Internet World (Pty) Ltd and informs the 4 company that she wishes to take early retirement
and travel the world before she gets too old. Internet World (Pty) Ltd appoints Themba to continue the
negotiations with Skylab (Pty) Ltd in place of Lerato. When Themba tries to arrange a meeting with
Skylab (Pty) Ltd for this purpose, he is informed by Skylab (Pty) Ltd that it had already concluded a
contract with Lerato in her personal capacity for the design and installation of the database, and that
Lerato had recently commenced working on the database. Internet World (Pty) Ltd wishes to pursue
legal action against Lerato for a breach of her fiduciary duties. Lerato argues that she signed the
contract with Skylab (Pty) Ltd only after she had resigned from Internet World (Pty) Ltd and that she
had therefore not breached her fiduciary duties to Internet World (Pty) Ltd.
1. With reference to the Companies Act 71 of 2008, relevant case law and the facts provided,
discuss whether Lerato has breached any specific fiduciary duties she owed to Internet World
(Pty) Ltd. Also consider the validity of Lerato’s argument that she did not breach her fiduciary
duties to Internet World (Pty) Ltd since she signed the contract with Skylab (Pty) Ltd only after
she had resigned from Internet World (Pty) Ltd.
To determine whether Lerato has breached her fiduciary duties to Internet World (Pty) Ltd, it is
important to examine the facts of the Skylab dispute in light of the Companies Act 71 of 2008 and
relevant common law principles governing directors' duties.
1. Lerato's Role and the Skylab Facts
Lerato was a director of Internet World (Pty) Ltd and was specifically tasked with negotiating a
"very profitable contract" for the design, installation, and maintenance of a database with Skylab (Pty)
Ltd. After several weeks of negotiations, Skylab (Pty) Ltd decided not to proceed with Internet
World (Pty) Ltd but instead offered the contract directly to Lerato in her personal capacity.
Following her resignation as a director, Lerato concluded the contract with Skylab (Pty) Ltd and
commenced working on the database. Internet World (Pty) Ltd now wishes to pursue legal action
against Lerato for a breach of her fiduciary duties. Lerato argues that she did not breach her fiduciary
duties because she signed the contract only after resigning from Internet World (Pty) Ltd.
2. Fiduciary Duties Owed by Directors
Directors owe fundamental fiduciary duties to their company, including the duty to act in good faith,
in the best interests of the company, and for a proper purpose. The fiduciary duties of directors are
mandatory, prescriptive, and unalterable, meaning directors cannot contract out of them. One of the
most important fiduciary duties is the duty to avoid a conflict of interest, which is closely tied to the
corporate opportunity rule and the no-profit rule:
