IN THE HIGH COURT OF SOUTH AFRICA 
(WESTERN CAPE HIGH COURT, CAPE TOWN)
CASE NO: 15633/2010
In the matter between:

and

LUYANDA MPAHLWA DESIGNSPACEAFRICA

Judgment handed down on 8 June 2011

S Olivier AJ

(a) that the first respondent be removed as a signatory to the banking accounts in Cape Town of the applicant;
(b) that both the respondents be interdicted and restrained from:

(d)     that the respondents pay the costs of the application on the attorney and client scale.
2. The background to the dispute between the parties is as follows.

4. Mr Morojele and the first respondent, Mr Luyanda Mpahlwa - the latter is similarly a qualified architect - have been professionally associated with one another since 1997. At the time Mr Mpahlwa was in exile in Germany where he had been living for fifteen years. He was practising as an architect in Germany and during 1997 he sought an association or partnership with architects based in South Africa. The two agreed to join forces and they became involved in the construction of the South African embassy in Berlin. In 1998 they established MMA Architects CC, the present applicant.
5. The parties subsequently set up the Cape Town branch of MMA Architects. As Mr Morojele himself states, it was always envisaged that Mr Mpahlwa would operate MMA Architects' Cape Town branch and he has, in fact, done so for the last ten years

11. The argument advanced by Ms Clarke, who appeared on behalf of MMA Architects, was that members in a close corporation stand in a close relationship to each other and that they owe their fiduciary duties to the close corporation. She relied upon section 42 of the Close Corporations Act, 69 of 1984, as amended, the relevant provisions of which are as follows:

"42.   Fiduciary position of members
(1) Each member of a corporation shall stand in a fiduciary relationship to the corporation...
(2) Without prejudice to the generality of the expression 'fiduciary relationship', the provisions of subsection (1) imply that a member -

(i) shall exercise such powers as he may have to manage or represent the corporation in the interest and for the benefit of the corporation;

(iii) shall not compete in any way with the corporation in its business activities
...
(4) Except as regards his duty referred to in subsection (2)(a)(i), any particular conduct of a member shall not constitute a breach of a duty arising from his fiduciary relationship to the corporation, if such conduct was preceded or followed by the written approval of all the members where such members were or are cognisant of all the material facts."
12. Unlike a company, where the distinction between the shareholder - who owes no fiduciary duty to the company - and the director - who is responsible for the control and management of the company, and who owes, at common law, a fiduciary obligation to the company - the concept of membership in a close corporation has conflated the concepts of directorship and membership

The principles so stated remain true, not only for this country, but also in many Commonwealth (and United States) jurisdictions.

2. Once it is established that there is such a relationship, that relationship must be examined to see what duties are thereby imposed on the agent, to see what is the scope and ambit of the duties charged on him.
3. Having defined the scope of those duties one must see whether he has committed some breach thereof by placing himself within the scope and ambit of those dirties in a position where his duly and interest may possibly conflict It is only at this stage that any question of accountability arises.
4. Finally, having established accountability, it only goes so far as to render the agent accountable for profits made within the scope and ambit of his duty.'

"The most general formulation of corporate law's attempted solution to the problem of managerial accountability is the fiduciary duty of loyalty: the corporation's directors ... owe a duty of undivided loyalty to their corporations, and they may not so use corporate assets or deal with the corporation, as to benefit themselves at the expense of the corporation and its shareholders. The overwhelming majority of particular rules, doctrines, and cases in corporate law are simply an explication of this duty or of the procedural rules and institutional arrangements involved in implementing it. The history of corporate law is largely the history of the development of operational content for the duty of loyalty. Even many cases that appear to be about dull formalities or rules of the road in fact involve disputes arising out of alleged managerial disloyalty ... Most importantly, this general fiduciary duty of loyalty is a residual concept that can include factualsituation is that no one has foreseen and categorised. The general duty permits, and in fact has led to, a continuous evolution in corporate law.'

'It is the nature of the relationship, not the specific category of actor involved that gives rise to the fiduciary duty. The categories of fiduciary, like those of negligence, should not be considered closed.'

"Quite exceptionally, the defendant's duty to the claimants had been reduced to vanishing point by the acts (explicable and even justifiable though they may have been) of his sole fellow director and fellow shareholder Mr Plank Accepting as I do that the claimants' relationship with Constructive was consistent with successful poaching on Mr Pyke's part, the critical fact is that it was done in a situation in which the dual role which is the necessary predicate of [the claimants'] case is absent. The defendant's role as a director of the claimants was throughout the relevant period entirely nominal, not in the sense in which a non-executive director's position might (probably wrongly) be called nominal but in the concrete sense that he was entirely excluded from all decision-making

19. It should, however, always be remembered that a director cannot abdicate his responsibilities or abandoned his status without formally resigning. Accordingly, it must be only in the most exceptional circumstances that a director can avoid the no conflict rule by pleading impotence when it is his duty to act in the interests of the company and avoid the conflict. The same would no doubt apply to a member of a close corporation.

'And so it is when it comes to construing the language used in documents, whether the document be a statute, or a contract, or, as in this case, a patent specification-'

22.    Mr Acton, who appeared for the first and second respondents, pointed to the following facts, namely that:
(a) the professional indemnity insurance associated with the Cape Town branch had been cancelled by Mr Morojele;
(b) the obligation to pay the staff of the Cape Town branch had been transferred, again at the instance of Mr Morojele, to the first and second respondents;
(c) Mr Mpahlwa was precluded from taking decisions pertaining to the management of MMA Architects;
(d) He was not receiving any dividends as a member of MMA Architects;
(e) In summary, that all the material steps were taken by the first and second respondents to take over the Cape Town branch, which steps were taken with the knowledge and. by implication, the consent of MMA Architects.
23. Finally, Mr Acton submitted that Mr Mpahlwa continues to run the Cape Town business, has not done any damage thereto, and is keeping a full and up to date accounting record.
24. Mr Acton submitted that, accordingly, it is clear that all parties had given effect to the resignation of Mr Mpahlwa as a member of MMA Architects, to the renunciation by him of his member's interest in MMA Architects, and to the transfer of ownership of the Cape Town branch as a going concern from MMA Architects to the second respondent.
25. The real dispute between the parties, so he submitted, was the question of the settlement of the purchase consideration to be paid by Mr Mpahlwa. This dispute is a dispute to be resolved by way of a trial action. There, if I understand it correctly, the major bone of contention would be whether or not the Cape Town banking accounts, which reflected substantial balances in favour of MMA Architects, did or did not form part of the sale.

30. There was, finally, a debate regarding the wasted costs occasioned by the postponement of the application on 22 March 2011. It seems to me that there is no blame to be apportioned for the matter not being heard on that date and, in the circumstances these costs should be costs in the cause.
31. In the premises I make the following order: 
The application is dismissed with costs.