THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Case number : 84/06
Reportable

In the matter between :

STEFANO BRUNO GHERSI

1ST APPELLANT
MICHELE VITTORIO GHERSI

2ND APPELLANT
PHARMTEC SA

3RD APPELLANT

and

TIBER DEVELOPMENTS (PTY) LTD

1ST RESPONDENT
FRANCESCO RIVERA

2ND RESPONDENT
STEVEN DAVID SCOTT

3RD RESPONDENT
GASPAR DA SILVA CARDOSO

4TH RESPONDENT

CORAM :
HOWIE P, CLOETE, JAFTA, PONNAN et CACHALIA JJA

HEARD :
15 MARCH 2007

DELIVERED :      29 MARCH 2007

Summary: Section 266 of the Companies Act, 61 of 1973: The mandate of a
provisional curator ad litem to investigate the affairs of the company is limited
to the grounds alleged in the shareholder’s application to court; but a court
may in certain circumstances authorise the institution of legal proceedings
against the company based on wider grounds.

Neutral citation: This judgment may be referred to as Ghersi v Tiber
Developments (Pty) Ltd [2007] SCA 43 (RSA).

_________________________________________________________________________

CLOETE JA/

CLOETE JA:

[1] The Ghersi and Rivera families around whom this litigation primarily revolves
have been involved in the construction industry in South Africa since Mr Bruno
Ghersi and Mr Paolo Rivera came to this country at the end of the Second World
War and built Tiber Mansions in Rosebank, Johannesburg. It is unnecessary to set
out all the complex and at times confusing inter-relationships which existed from time
to time between them in the corporate vehicles which they used to advance their
business interests. The following summary will suffice. The first respondent, Tiber
Developments (Pty) Ltd (‘the Company’), was established in 1976. In 1983 it was
restructured so that 45% of the shares were held by the Ghersi family and 55% by
the Rivera family and the fourth respondent. The shareholding of the Ghersi family is
held by the appellants. The second, third and fourth respondents, Messrs Francesco
Rivera, Steven David Scott and Gaspar da Silva Cardoso, became directors of the
company in 1973, 2000 and 1988 respectively. After the 1983 restructuring of the
company, the second, third and fourth respondents undertook property
developments through companies in which members of the Ghersi family had no
interest. In due course Tiber Projects (first a closed corporation and later a company)
was formed. The shareholders of Tiber Properties were effectively the second and
third respondents and Mr Germano Cardoso, the son of the fourth respondent, and
they were also the directors of that company. In 1991 Tiber Properties was
appointed by the Company to manage its affairs.

[2] The appellants, as the shareholders of the company, sought redress against
the second to fourth respondents, the directors of the Company, in terms of s 266 of
the Companies Act, 61 of 1973. That section provides:
‘(1)
Where a company has suffered damages or loss or has been deprived of any benefit as a
result of any wrong, breach of trust or breach of faith committed by any director or officer of that
company or by any past director or officer while he was a director or officer of that company and the
company has not instituted proceedings for the recovery of such damages, loss or benefit, any
member of the company may initiate proceedings on behalf of the company against such director or
officer or past director or officer in the manner prescribed by this section notwithstanding that the

company has in any way ratified or condoned any such wrong, breach of trust or breach of faith or
any act or omission relating thereto.
(2)
(a)
Any such member shall serve a written notice on the company calling on the company to
institute such proceedings within one month from the date of service of the notice and stating that if
the company fails to do so, an application to the Court under paragraph (b) will be made.
(b)
If the company fails to institute such proceedings within the said period of one month, the
member may make application to the Court for an order appointing a curator ad litem for the company
for the purpose of instituting and conducting proceedings on behalf of the company against such
director or officer or past director or officer.
3.
The Court on such application, if it is satisfied ─
(a)
that the company has not instituted such proceedings;
(b)
that there are prima facie grounds for such proceedings; and
(c)
that an investigation into such grounds and into the desirability of the institution of such
proceedings is justified,
may appoint a provisional curator ad litem and direct him to conduct such investigation and to report
to the Court on the return day of the provisional order.
(4)
The Court may on the return day discharge the provisional order referred to in subsection (3)
or confirm the appointment of the curator ad litem for the company and issue such directions as to the
institution of proceedings in the name of the company and the conduct of such proceedings on behalf
of the company by the curator ad litem, as it may think necessary and may order that any resolution
ratifying or condoning the wrong, breach of trust or breach of faith or any act or omission in relation
thereto shall not be of any force or effect.’
A provisional curator was appointed by the Johannesburg High Court but the
provisional order was discharged on the return day by Fevrier AJ. It is against that
order which the appellants appeal, with the leave of this court.

[3] The purpose of s 266 is, briefly stated, to create a remedy whereby delinquent
directors or officers of a company can be compelled to compensate the company for
a wrong committed by them, whilst seeking to minimise the risk of unmeritorious
claims being brought against the company by disaffected shareholders.1 For present
purposes, it is necessary to emphasise that the section seeks to achieve this latter
object by what has aptly been categorised as a ‘dual screening procedure’.2 At the

1 Commission of Enquiry into the Companies Act, Main Report RP 45/1970 para 42.10-18.
2 Blackman Jooste & Everingham, Commentary on the Companies Act vol 2 p 9-177.

first stage, when the appointment of a provisional curator ad litem is sought, the
court must be ‘satisfied’ inter alia that there are prima facie grounds for the
proceedings that the member seeks to have instituted against the company. This
requirement would be fulfilled:
‘. . . where there is evidence which, if accepted, will show a cause of action. The mere fact that such
evidence is contradicted would not disentitle the applicant to the remedy. Even where the probabilities
are against him, the requirement would still be satisfied. It is only where is it quite clear that he has no
action, or cannot succeed, that [a remedy] should be refused . . . on the ground here in question.’3
The court also has to be satisfied at the first stage that an investigation into the
grounds alleged by the shareholder and the desirability of the institution of the
proceedings proposed, is justified. At the second stage, on the return day, when the
court has to consider whether to discharge the provisional order or to confirm the
appointment of the curator, the section envisages that it will have the advantage of a
report by the provisional curator dealing inter alia with his investigation into the
grounds for the proceedings proposed by the member. A decision by the court that
proceedings should be instituted by the curator can have serious implications for the
company concerned, its directors and members. It therefore goes without saying that
a proper report by the provisional curator is vital to the exercise by the court of the
powers vested in it by s 266(4).

[4] The provisional curator is not confined in the investigation to the remedies
suggested by the shareholder.4 The provisional curator is, however, confined in the
investigation to the grounds advanced by the shareholder in the application (not the
statutory notice, because a shareholder may decide to jettison some of these
grounds in the application to court). It is the grounds advanced in the application
which constitute the basis of the finding by the court that a prima facie case for the
appointment of a curator has been made out and therefore the ambit of the mandate
given to the curator by the court is confined to those grounds. Consequently,
although a provisional curator has the powers of an inspector under s 260 of the

3 Bradbury Gretorex Co (Colonial) Ltd v Standard Trading Co (Pty) Ltd 1953 (3) SA 529 (W) at 533C-
E. See also Brown v Nanco (Pty) Ltd 1976 (3) SA 832 (W) at 835D.
4 Thurgood v Dirk Kruger Traders (Pty) Ltd 1990 (2) SA 44 (E) at 52I-53C, distinguishing Loeve v
Loeve Building and Civil Engineering Contractors (Pty) Ltd 1987 (2) SA 92 (D).

Act,5 the order of court appointing the provisional curator must be interpreted as
being limited to this purpose.6 If a provisional curator seeks to go outside his
mandate the directors or officers of the company could refuse to cooperate or
interdict him from doing so. What would ordinarily be required for the investigation to
continue in such a case would be an amplification of the provisional curator’s
mandate by the court, based on a prima facie case that the new grounds exist and
should be investigated; and it is a shareholder, not the curator (and not necessarily
the same shareholder who brought the original application) who would have to bring
such an application, after a notice to the company in terms of s 266(2)(a) had been
served on the company. Nevertheless, form should not be allowed to defeat the
purpose of the section. It is conceivable that a court might be satisfied that the
company would not institute proceedings even if given the statutory notice, that the
new grounds not specified in the order appointing the provisional curator had been
adequately investigated and that the institution of proceedings on those grounds
would be desirable. In such a case a court could, at the instance of a shareholder,
legitimately confirm the appointment of the provisional curator to enable the latter to
institute action based on such grounds. The alternative would be for the court to
require formal compliance with the requirements of s 266(2) and (3) ─ a hollow
exercise if the resultant confirmation would be a foregone conclusion.7 Such cases
will, however, be rare.

[5] I return to the facts of the present matter. The appellants served a statutory
notice dated 27 November 2003 on the company. The notice required the company
to institute proceedings against the directors for payment of amounts totalling
R98 288 446,53, allegedly misappropriated by the directors in one way or another;
interest on such amounts, totalling R122 759 992; and a statement of account of
transactions undertaken by the directors which had been improperly funded by the
Company together with an order compelling the directors to pay to the Company the

5 In terms of s 267(1) but subject to s 267(2) of the Companies Act.
6 Loeve’s case above, n 4, p 102B-E.
7 I therefore respectfully disagree with the decision in Loeve (above, n 4, at 101F-I) to the extent that it
holds the contrary.

profits (past and future) made from such transactions. The Company instructed its
auditors, KPMG, to investigate the allegations made in the notice, and after
consideration of this report, it took a formal decision not to institute the proceedings.
The appellants brought an application in the Johannesburg High Court for the
appointment of a provisional curator ad litem. The application was not opposed by
the company or the directors, who took up the attitude that the grounds alleged in the
founding affidavit were without foundation but that they had nothing to hide, and it
was granted subject to all questions relating to costs being reserved.

[6] The notice of motion followed the terms of the statutory notice, with one
possible exception. The appellants’ counsel argued, and the respondents’ counsel
disputed, that the statutory notice referred to misappropriation of corporate
opportunities divorced from the allegation that company funds had been
misappropriated. It is not necessary to resolve the dispute as the appellants’ counsel
was constrained to concede that there was no such allegation in the notice of
motion. In the founding affidavit, the purpose of the application was thus stated:
‘As will appear more fully hereunder, this application has been brought with a view to legal
proceedings being instituted by [the Company] against three of its directors, Rivera, Cardoso and
Scott (“the implicated directors”) whom, the Applicants maintain, have misappropriated, or
unlawfully withdrawn funds from [the Company] which they have utilised for their own private
purposes. The funds concerned were paid to, and utilised by certain companies, in which [the
Company], subject to what is stated in 21 has no shareholding or other financial interest whatsoever,
and which have been described in the financial statements of [the Company] as “affiliated
companies”. The implicated directors or their nominee are members of the affiliated companies and
the affiliated companies are controlled by the implicated directors or their nominees.’
Misappropriation of the Company’s funds was the repeated refrain in the allegations
which followed. There was no allegation that the directors had misappropriated
corporate opportunities, as opposed to, or independently of, the alleged
misappropriation of funds of the Company. The appellants’ counsel sought to
contend the contrary, relying on the following paragraph of the founding affidavit:
‘In respect of transactions of the affiliated companies where funds and assets of [the Company] were
not so deployed by the implicated directors, I am advised and submit, that the implicated directors are
nonetheless accountable to [the Company] for the secret profits made because they embarked upon

those opportunities in competition with [the Company], in circumstances where [the Company]
declined the opportunity to participate itself in those opportunities, because of the false picture which
had been created by the implicated directors in the minds of the directors who represented the
Applicants, namely John Ghersi and myself, that [the Company] had limited resources with which to
pursue some of the corporate opportunities concerned, when  that situation was attributable to the
misappropriation and/or unlawful lending of [the Company’s] funds to the affiliated companies at the
instance of the implicated directors.’
Counsel’s reliance on this paragraph is misplaced. The allegations in that paragraph
also have as their foundation the allegation that monies of the company were
misappropriated: the reason why the Company did not pursue opportunities,
according to the appellants, is because the directors represented that it did not have
the funds to do so whereas, according to the appellants, the reason why there was
no money in the Company was precisely because funds of the Company had been
misappropriated.

[7] The curator went about his task conscientiously. The Company made
available to him 2000 pages of documents which he collated, paginated and indexed
in six files. In view of the complexity of the accounting issues which required forensic
investigation, he retained the services of an acknowledged expert in the field,
Professor Wainer, who furnished him with a report. The Company commissioned a
separate forensic accounting report by PricewaterhouseCoopers. The provisional
curator examined the deponent to the founding affidavit, Mr Paolo Michele (Michael)
Ghersi, the second applicant, Mr Michele Vittorio Ghersi, and the second and third
respondents, Messrs Francesco Rivera and Steven David Scott, over a period of
eight days. Not surprisingly, in view of the contents of the notice of motion and the
allegations in the founding affidavit, the provisional curator concentrated on the
allegation that funds of the Company had been misappropriated. The curator
produced a 129 page report which dealt in detail with his investigation and the views
he had formed, which were fully motivated. He came to the following conclusions:
‘The claim advanced in the application for payment of R98 288 446,53 cannot be sustained.
. . .
The claim for interest which is sought to be recovered in the sum of R122 759 992 is not based on
valid grounds  . . .

. . .
At present, there has been no loss or damage or deprivation of opportunity as a result of the
contravention of s 226 of the Companies Act or any breach or fiduciary duties by the named directors
on any grounds set out in the application.’ (Underlining supplied.)
The provisional curator went on, however, to recommend the institution of
proceedings against the directors for a statement of account of all property
developments and opportunities undertaken by them (direct or indirectly) over the
previous 23 years which were not offered to the Company, for debatement of the
account and for payment of all profits (present and future) made by them. In making
this recommendation, the provisional curator went outside his mandate. The
question which arises, however ─ assuming in favour of the appellants that the
Company would not have instituted proceedings had the statutory notice been
served on it ─ is whether there was nevertheless a proper investigation on the
strength of which the court a quo could legitimately have granted the relief
recommended by the provisional curator. The appellants’ counsel submitted that
there was. I disagree.

[8] The curator investigated the competing versions as to the shareholders’
agreement which both sides contended existed, and rejected both. He then said:
‘I am of the view that no agreement has been demonstrated which relieved the named directors of
their fiduciary duties which required them to present each opportunity identified by them for property
development to [the Company] for consideration by the Board of Directors of [the Company] or which
released to them or to companies in which they had an interest the opportunities not presented by
them through Tiber Projects to [the Company].’
It is in this respect that the investigation by the curator was inadequate to support the
relief recommended by him. What would have been required absent amplification of
the provisional order was an investigation of the ambit of the fiduciary duty owed by
the directors to the Company; an examination of the property developments
undertaken by the directors to ascertain whether they should have been offered to
the Company in compliance with that fiduciary duty; and an investigation as to the
extent of profits earned from those developments.

[9] It does not follow that because a person is a director of a company which

engages in property development, such person is automatically, in the absence of an
agreement to the contrary, obliged to offer all property developments of whatever
nature to the company, on pain of being held to have breached his or her fiduciary
duty to the company and being required in consequence to hand over profits made
from the developments not so offered. As Bristowe AJA held in Robinson v
Randfontein Estates Gold Mining Co Ltd:8
‘To establish that the defendant’s purchase in 1906 was covered by his fiduciary relation or his
agency or an implied mandate (I do not think it makes much difference which term is employed) it
would not be enough to show that the purchase was within the company’s power or that the property
might have been useful to it. Burland v Earle is against this. Besides it would be intolerable if a
director, even though occupying the defendant’s position, could be held accountable for any private
purchase of property merely because his company might conceivably want it.’
That the ambit of the duty can change from time to time, appears from the decision
of this court in Bellairs v Hodnett.9 In summary, as this court held in Phillips v
Fieldstone Africa (Pty) Ltd:10
‘The existence of [a fiduciary duty] and its nature and extent are questions of fact to be adduced from
a thorough consideration of the substance of the relationship and any relevant circumstances which
affect the operation of that relationship …’.11
Such an investigation was not adequately performed by the provisional curator. In
particular, the business that the Company was actually carrying on or intended to
carry on at the time when each development was undertaken was not sufficiently
identified. Nor, indeed, were most of the developments undertaken by the directors
over the 23 year period stipulated by the curator identified at all. It does not suffice,
as was submitted on behalf of the appellants, for the curator to recommend the
institution of proceedings where the directors would be obliged, as a first step, to
provide a statement of all property developments undertaken by them and not
offered to the Company. The anterior question is what property developments, if any,
the directors were required to offer to the Company; and that depends as much on
the extent of the fiduciary duty owed by them to the Company from time to time as it

8 1921 AD 168 at 268.
9 1978 (1) SA 1109 (A) at 1128A-1134D.
10 2004 (3) SA 465 (SCA) at 477H.
11 See also Howard v Herrigel NNO 1991 (2) SA 660 (A) at 678B-C.

does on an identification of the property developments themselves. In addition the
investigation into profits made in some property developments ─ which may or may
not have been in breach of the directors’ fiduciary duties ─ was superficial. Only a
handful of property developments out of scores which were undertaken in the past
20 or so years by the 15 companies involved were even mentioned and the curator’s
examination of the second respondent in this limited regard was prefaced by the
introduction: ‘Just by way of interest were all of these properties besides this one
which you told you have lost money on, were they profitable projects or were there
others on which money was lost?’ The reply was in fairly general terms.

[10] All in all, the investigation of the provisional curator does not provide a
sufficient basis for the massive litigation recommended by him. Of course, the scope
of the litigation is not itself a reason for refusing confirmation of the rule; but before
the Company and the directors are put to the inconvenience and expense of such
litigation, the court must be in a position properly to exercise the powers conferred
on it in terms of s 266(4). That, of necessity, requires a proper report from the
provisional curator. It is not necessary to consider what remedies the shareholder
who has brought s 266 proceedings has when the provisional curator’s report is
inadequate. In the present matter the appellants supported the recommendation of
the curator on the basis of his report. In the circumstances the court a quo was
correct in discharging the provisional order.

[11] The appeal is dismissed with costs, including the costs of two counsel.

______________
T D CLOETE
JUDGE OF APPEAL
Concur:   Howie P

Jafta JA

Ponnan JA

Cachalia JA
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal
Date:
29 March 2007
Status:
Immediate
Please note that the media summary is intended for the benefit of the
media and does not form part of the judgment of the Supreme Court of
Appeal

S B GHERSI & OTHERS  v TIBER DEVELOPMENTS (PTY) LTD &
OTHERS

The shareholders of a property development company, Tiber
Developments (Pty) Ltd, obtained an order from the Johannesburg High
Court appointing a provisional curator to investigate whether legal
proceedings should be instituted against the directors of the company for
the alleged misappropriation of over R98 million and interest of over
R122 million. The curator found the allegations baseless but
recommended the institution of legal proceedings to recover the profits
made by the directors from development opportunities not offered by
them to the company during the previous 23 years. The SCA upheld the

decision of the Johannesburg High Court that the curator had gone
outside his mandate and held that the investigation by the curator was
not sufficient to found the massive litigation recommended by him.

--ends--