What Is A "stakeholder" And Why Does It Matter?

• Published date: 27 August 2020
• Subject Matter: Corporate/Commercial Law, Government, Public Sector, Corporate and Company Law, Constitutional & Administrative Law
• Law Firm: Schoemanlaw Inc.
• Author: Ms Nicolene Schoeman-Louw

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,¹ 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 Probert² 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,³ 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...