Case Name:

S v Gardener and Another 2011 (4) SA 79 (SCA)

Area of Law:

Companies: Duties of Directors

Brief Facts:

Two chief executive officers had failed to disclose certain financial interests to the board of a company, and had secured substantial profits from these interests as a result of transactions by the company that they were directors of.

The Supreme Court of Appeal confirmed the High Court’s convictions of fraud.

Regarding the accused’s intention to defraud, the Court held that the probabilities that influence a decision as to whether, in failing to make disclosure, the accused intended to defraud the company, could be assessed by reference to the following factors:

(1)    What information had to be disclosed, not so much as a requirement of law, but rather as a matter of pragmatism;

(2)    The accused’s knowledge of the duty to disclose, and observance of it in general;

(3)    The opportunity to disclose;

(4)    Whether the failure to disclose was isolated or repeated;

(5)    The prominence and importance of the subject-matter requiring disclosure in the mind of the accused;

(6)    What the effects of disclosure would have been;

(7)    Whether there were reasons for withholding disclosure;

(8)    Whether the accused derived a clear benefit from non-disclosure; and

(9)    The conduct of the accused in relation to the performance of his duty.

Importance/ Significance:

When directors deliberately withhold information which is material to the affairs of their company from the board of directors, there is, in the absence of an explanation for such conduct, an a priori case of fraudulent non-disclosure.

This is so because they know that the company can only make decisions through a board properly informed, and that by withholding proper information they render it both blind and mute. Thus, in such circumstances, both prejudice and the intention to prejudice are proved beyond doubt.

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