What is a “stakeholder” and why does it matter?

28 Aug 2020

A stakeholder is commonly known as a person with an interest or concern in something. In the recent case of Gobi Holdings Limited v Fairbridge Arderne and Lawton Incorporated t/a Fairbridges Wertheim Becker and Another, a thorough understanding of a stakeholder is critical.

According to case law, a stakeholder has two meanings. The first meaning refers to someone who has an interest in an issue. In Baker v Probert it was extended to entail a position where an independent party holds a stake on behalf of two interested parties. Secondly, its obligation was to keep the transaction documents ‘in trust’ on behalf of both transacting parties and no more. As a custodian, that obligation only arose after closing, once it received the transaction documents, and not before.

The liability of a stakeholder finds support in the court’s decision in Baker v Probert, where Botha JA noted that:

‘It is also known in the context of a person who holds money which is the subject of a wager, to be paid over to the party who turns out to be the winner of the bet … it is of the essence of the stakeholding that at its inception it is uncertain which of the two parties involved will ultimately become entitled to receive what the stakeholder is holding.’

As such, a stakeholder could owe a duty to one or all parties concerned.

In Arthur E Abrahams & Gross v Cohen and Others, the executor of the deceased estate employed by a firm of attorneys to unwind an estate failed to inform the intended beneficiaries that there was an insurance benefit in their favour. The failure was despite numerous correspondence by the insurance company to the executor calling for the signature and return of discharge forms. There was a five-year delay to the payment. In imposing the legal duty to inform, the court had regard to the peculiar characteristics of the entitlement and benefit to decide who should bear the loss of the external beneficiaries. Marais J held that:

‘As I see the position it comes to this. A defendant may be held liable ex delicto for causing pure economic loss unassociated with physical injury. Still, before he is held liable it will have to be established that the possibility of loss of that kind was reasonably foreseeable by him and that in all the circumstances of the case he was under a legal duty to prevent such loss occurring. It is not possible or desirable to attempt to define exhaustively the factors which would give rise to such a duty because new situations not previously encountered are bound to arise and societal attitudes are not immutable. However, that does not mean that capriciousness in the adjudication of claims of this kind is permissible. If liability is to be imposed, a court must satisfy itself that there are adequate grounds for doing so and be able to say what they are. It follows that the pleader of such a claim must allege the facts which give rise to the alleged duty.’

As such, where actions result in loss – such party could be held liable. In this regard, it is essential to restate an issue dealt with by the Constitutional Court in Le Roux and Others v Dey, that reasonableness in respect of wrongfulness ‘concerns the reasonableness of imposing liability on the defendant for the harm resulting from that conduct.’ As Mr Loxton SC pointed out, in Telematrix (Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards Authority SA, the court held that the fact that an act is negligent does not make it wrongful. The question of wrongfulness is a policy consideration.

See also:

• Prescription Alert System notice – External stakeholders
• When can you be held personally liable within your company and how can this be brought about?
• Understanding the concept of a delinquent director

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)