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Financial Training Company

2007

Corporate and Business Law- F4 (Zimbabwe)


Casebook

Legislation as a source of law in Zimbabwe

Legislation, which is frequently referred to as Statute Law is the most important source of law in many of the worlds jurisdictions including Zimbabwe. In terms of the Constitution of Zimbabwe legislative power of the Republic is vested in the Parliament of Zimbabwe and the President.

There are two main forms of legislation, Acts of Parliament and delegated legislation. Delegated legislation is passed by bodies to whom Parliament has delegated authority. Although statutes of Parliament are the primary source of legislation, other types of legislation (delegated legislation) are promulgated by bodies and persons empowered to do so. Examples of such forms of legislation are:

(a) Proclamations by the State President in terms of the Constitution. (b) Ordinances, regulations and statutory instruments by Government Ministers in charge of state departments in terms of the relevant empowering statutes. (c) Bye-laws of the various municipalities and rural district councils throughout the country. (d) Rules and regulations by statutory bodies such as the Health Professions Council, The Traffic Safety Council etc. Sometimes legislation may be needed so urgently that the legislature can act very quickly (fast tracking) to enact the requisite legislation. But usually the legislative process goes through a lengthy and protracted procedure. The legislative phases can be broken down as follows:

(a) First Reading of the bill which is a mere formality. (b) Second Reading this is the most important stage in the introduction of most bills

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and the main principles of the Bill are discussed at this stage. (c) Committee Stage this gives members of Parliament an opportunity to discuss the Bill clause by clause and improve the wording and make amendments where necessary. (d) Report Stage if any amendments have been made at the previous stage they will be debated and considered by the House and further amendments can still be made. (e) Third Reading finally a bill is given a formal third reading and goes to the President for his approval and when the President signs a Bill it becomes an Act of Parliament and part of the law. To inform everybody what the new law is, it will be published in the Government Gazette (constructive notice).

Some of the well-known (if not controversial in some cases) pieces of legislation that have been enacted by Parliament in the last twelve months include: (1) The Public Order and Security Act No. 1 of 2002 (2) The Sexual Offences Act No. 8 of 2001 and (3) The Access to Information and Protection of Privacy Act No. 5 of 2002

Both the High Court and the Supreme Court have got the power to set aside legislation which is

ultra vires the Constitution, for example where legislation purports to derogate from rights
enshrined under Chapter Three of the Declaration of Rights in the Constitution. This is because our Declaration of Rights is justiciable (can be vindicated in a court of law). As for delegated legislation, there are many factors/reasons which justify its existence. Briefly some of the reasons are: 1. Pressure on Parliamentary time the Parliamentary calendar is very congested and there is no time to debate in detail all the matters which require legislation in the country; 2. Flexibility and adaptability-delegated legislation can easily be adapted to suit a change in circumstances. 3. Certain matters such as tax law, medical and engineering matters require unique expertise in terms of the legislative agenda of the Government and the details are then worked out by the experts and technocrats who are employed by the relevant government ministries, departments and statutory bodies. 4. In an emergency there may be insufficient time to resort to the laborious processes of Parliament; statutory instruments and proclamations can be brought into force much more

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quickly and expeditiously than statutes. The major criticism that is often made against delegated legislation is that it is undemocratic if not unconstitutional, in that important rules and regulations are made without recourse to the properly elected authority, Parliament. However, such criticism can be rebutted by the following factors: 1. Parliament still ultimately retains some control over delegated legislation. Statutory instruments are vetted by Parliament. 2. In our jurisdiction the superior courts (the High Court and Supreme Court) have control over delegated legislation and normally the validity of a statutory instrument can be challenged on two grounds namely: (i) if the Statutory Instrument is ultra vires (outside the scope) the parent legislation (ii) if the correct procedures were not followed in making the statutory instrument. In all it can be said that it is quite clear that legislation is the most important and authoritative source of law in our jurisdiction and the most common way by which legislation is terminated is through repealing.

The Zimbabwean court structure


The Zimbabwean court structure is relatively simple. It consists of the superior courts known as the Supreme Court and the High Court and inferior courts comprising village courts, community courts, magistrates courts, administrative courts, small claims courts and labour courts. The word inferior is not used to convey any suggestion of inadequacy or imperfection, it simply means that these courts have a smaller or inferior jurisdiction to the superior courts. Such courts are also referred to sometimes as the lower courts.

The Zimbabwean Constitution provides for the Supreme and High Courts, the conditions applicable to judges, their composition and powers. The remaining lower courts are created and governed by their own legislation. That is why they are termed creatures of statute. The role of the following court officials are as follows:

(a) The Public Prosecutor This official is appointed by the Attorney-General to appear on his behalf at preparatory examinations and to conduct prosecutions before the High Court and the Magistrates Court and is subject to the directions of the Attorney-General. He decides whether a person should be charged with an offence. If so, he appears for the state in presenting the case in court. He is responsible for preparing the case,

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securing the attendance of the accused person and the witnesses and having available any other evidence he may wish to add. He is concerned with putting all the facts before the court, not simply those necessary to establish the guilt of the accused. The prosecutor does not appear in the village court because this court deals only with civil matters.

(b) Messenger of Court A messenger of court is an important court official. His office is established in terms of the Magistrates Court Act [Chapter 7:10] s.10. In terms of s.10(5), all court process such as summons has to be served by the Messenger of Court. His conduct is also governed by the same Act.

(c) Judge The judicial office is created in terms of the Constitution. Judges appointment, tenure of office and disciplinary measures are governed by the Constitution as well as the High Court Act [Chapter 7:06] and the Supreme Court Act [Chapter 7:13]. Judges are very carefully selected from the leading lawyers and possess the minimum qualifications specified in the Constitution and the High Court Act [Chapter 7:06]. In practice our judges are usually appointed from the cream of the professionals in Zimbabwe, the selections coming from amongst practising legal practitioners or public servants such as regional magistrates or members of the staff of the Attorney Generals office. On occasions our judges have come from suitably qualified lawyers from other jurisdictions, subject to the requirements outlined in the Constitution.

(d) The Legal Practitioner Any person accused of committing a crime or any party in a civil matter may be represented by a legal practitioner. An exception to this rule is found in the village and community courts. Until recently, a lawyer was either an advocate or an attorney. Both were legally qualified but had different roles in legal affairs. They had been likened to the medical profession in that the advocate was the specialist whereas the attorney was the general practitioner in law. Only an advocate could represent persons in the High Court, and persons wishing to secure his services could do so only through an attorney. No direct access was permitted. Then in 1981 and in terms of the Legal Practitioners Act, No. 15 of 1981, the two branches were fused. There is therefore, no distinction between the advocate and the attorney now in theory, although in practice there are still advocates who continue to function independently as specialist representatives. Legal practitioners are very important court officials who help the court to reach the correct

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verdict. Their code of conduct is governed by the Legal Practitioners Act [Chapter 27:07]. The Act creates a statutory body, the Law Society of Zimbabwe which governs all legal practitioners. Upon receiving complaints from members of the public, the Law Society has the power to investigate and take appropriate disciplinary action.

(e) The Master of the High Court This office is created in terms of the High Court Act [Chapter 7:10]. The Master of the High Court plays a very pivotal role in the day to day running of the High Court. He occupies and performs both quasi judicial roles and administrative duties. He is responsible for keeping several books of accounts like the Guardians Fund. In terms of the Childs Act, he is the guardian of all minors. The Master of the High Court also administers estates, both Deceased and Insolvent Estates. In the High Court, he operates separate offices, the Deceased persons estate section and the Insolvent Estates section. The Insolvent Estates comprises individuals who have been declared insolvent, partnerships, companies, Trustees etc. In Zimbabwe, the master of High Court is the same person, who plays the Sheriffs role and Registrars role. This system is not desirable. The government is currently working on a new structure of the High Courts Master, Sheriff and Registrars posts.

Judicial precedent
Judicial precedent (stare decisis) is arguably the second most important source of law in Zimbabwe after legislation. The Latin maxim stare decisis means to stand by the precedents and not disturb settled points of law. Most advanced legal systems all over the world apply the doctrine of judicial precedent to a greater or lesser degree. As Salmond puts it, The importance of judicial precedent has always been a distinguishing characteristic of English law . . . Stare decisis is a good maxim and one to be generally followed but it is conceivable that circumstances may arise which would render it a lesser evil for a court to override its own legal opinion, clearly shown to be wrong, than to indefinitely perpetuate its error and save under the most exceptional circumstances however a court should be bound by its own decisions unless and until they are overruled by a higher tribunal on appeal. To adopt any other rule would impair the dignity of the court, and would introduce a total uncertainty into business transactions and legal proceedings . . .

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In Zimbabwe the decisions of the Superior Courts (High Court and Supreme Court) are binding on all the lower courts. Where a case is applicable the lower courts do not have any discretion in this respect, the Supreme Court and High Court decisions must be followed even if patently incorrect. The decisions of the Supreme Court are binding on all other courts including the High Court. The Supreme Court is not bound to follow its own previous decisions although generally it will only depart from its previous decisions if convinced that it was clearly incorrect. In the High Court a single judge is bound by decisions of two judges sitting together and by decisions of what is called a full bench which consists of three judges sitting together. Decisions of the High Court are binding on all lower courts and the decisions of the lower courts are not binding on any other court, not even themselves.

Advantages of Judicial Precedent The advantages of the principle of stare decisis (precedent) are many. 1. It enables the citizens, if necessary with the aid of practising lawyers to plan their private and professional lives with some degree of certainty and assurance as to their legal effects. 2. It cuts down the prospect of unnecessary litigation particularly with open and shut cases where the law is reasonably predictable. 3. It keeps the weaker judicial officer along right and rational paths, drastically limiting the space allowed to partiality, caprice or prejudice thereby retaining public confidence in the judicial system through like cases being treated alike. 4. It conserves the time of the courts and reduces the cost of law suits. Advantages of judicial precedent are certainty, predictability, reliability, equality, uniformity and convenience. The following are the disadvantages of judicial precedent;

1. Once a hierarchy of binding precedents has been established a certain amount of rigidity and inflexibility is introduced. 2. A strict principle of stare decisis fails to allow legal rules to change with the times. 3. Proliferation of past situations gives rise to reports and far from the law becoming predictable, this might result in a great deal of uncertainty. 4. It is sometimes said that the development of the law through new precedents is too sluggish and too irregular.

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When applying precedent, it is useful for the court to determine what the ratio decidendi of the precedent making case is. This term literally means the reason of the decision or the principle upon which the decision was based. It is the ratio decidendi of a previous case that is binding on the future generations of cases. Where a court considers that the case before it does not fall within the ratio decidendi of an earlier courts judgment, it is said to distinguish the case. Naturally this process only occurs when the previous case is similar or is cited as an authority applicable to the present case.

One post independence case which has fundamentally changed the face of African customary law in Zimbabwe thereby establishing a precedent for hundreds of similar cases in the last twenty years or so is the case of John Katekwe v Mhondoro Muchabaiwa (1984). The issue was what effect the Legal Age of Majority Act No. 6 of 1982 had on African women who hitherto were perpetual minors and needed the consent and assistance of a male guardian if they wanted to conclude a contract. The Supreme Court then made the following ruling which has become a binding precedent to all the other courts in the country including the High Court on numerous occasions.

It is common cause that the effect of the Legal Age of Majority Act is that the old customary law concept that an African woman was a perpetual minor who needed a guardian to assist her in her contractual obligations has been done away with because every person acquires majority status on the attainment of the age of 18 years. It is also common cause that an African woman with majority status can contract a marriage without the consent of her guardian because she no longer needs a guardian.

Advantages and disadvantages of our system of judicial precedent.

Where the doctrine of judicial precedent applies it means that the decisions of certain courts are binding on other courts. The following are the advantages of such a system. (i) The system leads to an element of certainty in law. It is true to say that when a client seeks advice from a legal practitioner he wants to know his legal position. As the courts follow previous decisions according to their positions in the hierarchy of the system, it will be possible to give the client advice in most cases. However, our Supreme Court position in allowing itself

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greater flexibility when considering its own decisions detracts from the element of certainty. (ii) The law is able to grow as the needs of the society alter. This was clearly confirmed by our Supreme Court in Zimnat Ins. Co. Ltd v Chawanda 1990 where, for the first time, it recognised the right of a customary law wife to claim as a dependant in an action for damages in delict. (iii) It allows greater flexibility in the development of the legal system. Thus a general ratio

decidendi may be extended to various fact situations. For example, the statement of what in law
is a duty of care for the purposes of the law of negligence has been extended to the situations where a taxi-driver, by his negligence in reversing his vehicle, caused illness to a mother in a bedroom. The following are the disadvantages of the system: (i) Once a hierarchy of binding precedent has been established, a certain amount of rigidity is introduced into the law. It may force some courts to give a decision which they know to be ridiculous. (ii) The courts often avoid applying rigidly a principle by distinguishing between previous cases and the one before them. No doubt, this leads to endless hair-splitting and time wasting. (iii) Proliferation of fact situations gives rise to much litigation and many reports. These two factors combined make the law, in many instances, most uncertain. In order to verify a case law principle, there are over a thousand law reports in which to search. (iv) It is sometimes said the development of the law through new precedents is too slow and too irregular.

Customary law

Soon after independence a new structure was put in place for the administration of customary law through the Primary Courts Act (1981). The rationale underpinning the new legislation was to revamp the use and administration of customary law. Chiefs courts, district commissioners court and the court of appeal for African civil cases were abolished. These were replaced by the village courts, community courts, district courts. From the district court appeals would go directly to the Supreme Court, which is the highest judicial authority in the country. Under this system, the primary courts (village and community courts) had jurisdiction only to apply customary law. In 1989 the system was further refined through the enactment of the Customary Law and Local Courts Act (1989). The changes brought about by that legislation mean that both the Magistrates Court and the High Court will have original jurisdiction to determine all civil cases whether governed by

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customary law or general law, whereas local courts will have jurisdiction to hear only customary law claims falling within the limits of their monetary jurisdiction and also not falling within areas that have been expressly excluded from their jurisdiction which areas include claims for custody and guardianship of children, maintenance and divorce. Finally in our jurisdiction, the case of Van Breda and Others v Jacob and Others (1921) lays down requirements that must be fulfilled in order for custom to be recognised as a binding rule of law. (1) The custom must be reasonable (2) The custom must have existed for a long time (3) The custom must be generally recognised and observed by the community (4) The content of the customary rule must not contradict any existing statute law.

Customary law versus general law


A dual legal system is the co-existence of legal systems as valid sources of law. The existence of the two legal systems was created by s.89 of the Constitution of Zimbabwe, which sanctions the applicability of both customary law and general law (Roman-Dutch law) as valid sources of law. As a result of this system of co-existence a lot of problems arise as discussed below:

Section 89 of the Constitution states as follows: subject to the provisions of any law relating to the application of African customary law, the law to be administered shall be the law in force in the Colony of Good Hope as at 10 June 1891, as modified by subsequent legislation . It is clear that the Constitution recognises both sources of law. The first problem of the dual legal system stems from the choice of law process. The system responds in this regard by conferring a duty on the courts to judicially determine which source of law should apply to a particular case. The court in deciding which law is applicable, guidelines are provided for in terms of s.3 of the Customary Law and Local Courts Act [Chapter 7:02]. It provides that customary law will apply where the parties in dispute agree that it must apply. In the absence of express agreement, customary law will apply, where having regard to the nature of the case and the surrounding circumstances, it appears that the parties have agreed that it shall apply. The court can also decide whether in view of the particular circumstances, and nature of the case, it is proper and just that customary law should apply. For example, a contractual dispute relating to the payment of lobola (bride price) or a succession dispute over chieftainship would necessarily involve an application of customary law. Section 3 of the Act further defines surrounding circumstances to include the parties mode of life, subject matter of the case,

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knowledge of the parties of customary law and general law and the closeness of the case to general law or customary law. This section further abolishes the old colonial choice of law, which was based on racial considerations. Ultimately the court is supposed to reach a decision after weighing all the above given factors.

The choice of law problem is more pronounced if there is a legal dispute between Africans and non-Africans. This was encountered in the case of Lopez v Nxumalo (1985), where the appellant was a white man of Portuguese extraction, while the respondent was a black Zimbabwean woman. The appeal was against the decision of a Community Court, (as it then was) which had held that it had jurisdiction to entertain an action under customary law, for damages for seduction by the respondent against the defendant.

The appellants contention was that he knew no African custom and therefore was not acquainted with African customary law. The Supreme Court rejected the appellants argument and ruled that it was just and proper for customary law to be applied and saw no basis for interfering with the decision of the Community Court. Some argue that the guidelines afford creative flexibility in the choice of law process. Guidelines end up leaving too much discretion to the court. The ambiguity created by phrases such as unless the justice of the case requires makes the system too fluid to give it judicial effect and, resultantly, it would be uncertain and flawed with unpredictability and inconsistency. According to customary law, it is the eldest male child who becomes heir to his deceased fathers intestate estate. However the eldest female child does not enjoy a similar right. In the case of Chihowa v Mangwende (1987), the Supreme Court ruled that the eldest child, regardless of gender, inherits his or her deceased fathers estate by virtue of the Legal Age of Majority Act, now part of The General Law Amendment Act s.15. The unpredictability of the dual legal system was revealed in Vareta v Vareta (1990) where it was held that the eldest son is the natural heir of his fathers estate even if there is an older daughter irrespective of the Legal Age of Majority Law. In Magaya v Magaya the Supreme Court ruled that the Chihowa v Mangwende case was incorrectly decided. Complexities are created where there exists the potential application of two different systems of law with different legal consequences in the same case. The conflict heightens, especially when customary society might not accept or identify with the rulings of general law.

In S v Matyenyika (1996) which involved the crime of incest, the High Court set aside the conviction of two first cousins, who according to customary law are prohibited from having sexual relations. Under Roman Dutch law, there is no similar prohibition because the two do not fall within the prohibited degree of consanguinity of blood affinity. Whilst there are anomalies and contradictions inherent in the application of a dual system of law, it is also true to say that in

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many ways the concept of dualism has stood (in spite of the imperfections) the test of time since it started operating with the advent of colonialism in 1890. After independence in 1980 the system was retained and it will continue to be our law for the foreseeable future.

The Magistrate had convicted them on the basis of customary law. The decision was set aside because customary law did not apply to criminal law. In summation it can be said that the legal complexities that arise as a result of applying a dual system of law inevitably provide our superior courts (High Court and Supreme Court) with an opportunity to break new legal ground in the application of customary law.

Further cases of common vs customary law


In Zimbabwe, sources of law, that is, legislation, the common law and the customary law are binding on the state and its citizens, whereas persuasive sources of law, which include texts and legal judgments from other jurisdictions can only persuade the courts that a particular legal principle ought to be binding. What is considered binding is that set of rules which a community accepts as being so and generally, such rules are seen as emanating from a binding source and enforced by the various organs of the state.

These binding sources alone, in the strict sense of the word can be said to be the legal or formal sources of law. However, the laws of any given state can never be exhaustive or comprehensive. Thus lawyers in arguing and judges in deciding cases where there is no legislation, judicial precedent or legal rule in point may argue in their search for material that will identify interests such as justice, convenience, morality and social utility that may be of significance in determining the appropriate rule of decision. The persuasive nature of any source of law depends on the courts estimate of its value and worth in the circumstances. Thus there is need for persuasive sources of law to be taken into account in order to fill in the gaps arising from legal principles that are in a state of moot. It must be said therefore that the evergrowing body of authority which encapsulates many sources of law is, although binding, never complete and hence the need to draw constantly from persuasive sources of law.

The most important binding source of law is legislation. Legislation refers to statutory law and covers those rules made by the legislature. The legislative authorities promulgate the law in various statutory forms, such as Acts of Parliament, Presidential decrees and Ministerial Regulations. In Zimbabwe, the legislative authority is the legislature, which is composed of Parliament and the President. Legislation by Parliament is embodied in a specialised legal document called an Act of Parliament law. It can, however, delegate its law-making powers to

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the President, his ministers, local authorities or other organs and this is known as delegated or subsidiary legislation. There is one piece of legislation under Zimbabwean law, which is supreme and overrides all other laws to the contrary. This piece of legislation is known as the Constitution of Zimbabwe and it renders void any source of law that contradicts it. S89 of the Constitution clearly and unequivocally spells out the law to be applicable in Zimbabwe. What distinguishes legislation from persuasive sources of law is that it is the publication of binding rules of law in a precise and well-defined form by a person or body having the legal power to do so, whereas, persuasive sources of law do not have authority and can merely make propositions over various points of law. Legislation is therefore by far more important than any other source of law, persuasive or otherwise, in any advanced legal system as all law is created, amended or abolished by the legislative process.

The next most important binding source of law is case-law, otherwise known as judicial precedent and sometimes referred to as common law. The term common law refers to that portion of the law, which is not derived from legislation but emanates from a collection of principles made by judges over generations in the course of resolving issues brought before the courts. It has, therefore, been described as judge-made law.

Historically, the common law is derived by judges from general principles of justice, common sense and morality. In the modern sense, the common law is largely a question of precedent. Its distinctive character is that a decision made in one case may be binding on future cases. A judge in a later case is bound to consider the relevant previous cases and in certain instances, he or she is required to accept previous decisions even if he considers them to be wrong. However, it should be noted that previous decisions should not be followed blindly for if an erroneous decision has been given, it ought not to be allowed to spread and corrupt the justice delivery system for all time. The Supreme Court exhibited the correct attitude by departing from its previous decisions in a number of relatively recent celebrated customary law cases of

Katekwe v Muchabaiwa (1984), Chihowa v Mangwende (1989) and Magaya v Magaya (1999).

The common law base of Zimbabwean law is Roman-Dutch law, which is a fusion of Roman law and Dutch customary law. It is a unique brand of law in that its elements may be traced mainly to the writings of Roman-Dutch jurists such as Hugo Grotius, Johannes Voet and van der Linden. Having said this, the Constitution of Zimbabwe implies that the common law of Zimbabwe is Roman-Dutch law to the extent that it was influenced by English law. It must be noted however, that, unlike Roman-Dutch authority which is binding on the courts, English law only has persuasive influence, that is, it is not binding on the courts but may be resorted to where the law is unclear. Therefore, the distinction between judge-made law and persuasive sources of law is that like with legislation (both primary and delegated) both are binding sources

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(they must be followed where appropriate) whereas with persuasive sources of law (e.g decisions of other jurisdictions) they may be followed where appropriate. Customary law is the final binding source of law. African customary law is a specialised form of law in Zimbabwe. The countrys dual legal system means that, in certain matters, there is the potential application of two different systems of law, general law and customary law, each with different legal consequences. Customary law comes into force where an act has, for some considerable time, been performed in that particular way. Where the state requires obedience to the custom, it is law. This was illustrated in the case of Van Breda v Jacobs (1919), where the court upheld the custom in fishing trade whereby persons involved in fishing could lay a claim to fish in the sea not yet captured in their nets as long as they were in the line of their nets. The custom must be reasonable, proved to have been in existence for a long time, generally recognised and observed by the community and certain, clear and consistent with statute. Customary law, as a source of law is binding on our courts, subject to certain statutory entrenched legal considerations.

Having considered the nature and distinction of binding sources of law, it is necessary to consider the nature and distinction of persuasive sources of law.

Authoritative texts are the principal persuasive sources of law. The term authoritative texts refers to writings by leading authorities in the field of law. As already noted, books written by Roman-Dutch jurists are binding sources of Roman-Dutch law and are treated as such in the courts. Under the head of authoritative texts fall modern textbooks and scholarly articles and publications. Unlike binding sources of law, these have no inherent authority of their own, but may be regarded as very persuasive sources of law, where neither legislation nor case law are in point; or where they are explaining a legal point, which is not clearly covered in a binding source of law. Into the same category may fall legal judgments from foreign jurisdictions such as South Africa or England.

Decisions from South African courts are highly persuasive having regard to the fact that they have a Roman-Dutch law basis. Any worthy system of law is prepared to be influenced by the reasoning on basic legal issues of another i.e legal borrowing. The persuasive nature of an opinion of an author depends, inter alia, on the standing of the author or jurisdiction in the field of law in question, the reputation of the author among judges, the scholarly level of the piece of work involved and the covering nature of the presentation.

It can be concluded, therefore, that what distinguishes a binding source of law from a persuasive one is that the former is compelling on the courts, whereas the latter merely puts

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forward provisions to the courts, where binding sources are unclear or brief in their explanation of a particular legal principle.

Magistrates Courts
Magistrates Courts and Primary Courts are creatures of statute. The Magistrates Courts are established through the Magistrates Courts Act [Chapter 7:10] and the Primary Courts are established and governed by the Customary Law and Local Courts Act [Chapter 7:05] respectively. It is by these respective pieces of legislation that civil and criminal jurisdiction of the Primary Courts and the Magistrates Court is governed. The Magistrates Court As indicated these are a creature of statute and are established by the Magistrates Court Act.

Civil Jurisdiction The Civil Jurisdiction of the Magistrates Courts is governed by ss.11, 12 and 14 of the Act. In terms of s.14(a)(I) the Court has no jurisdiction in a suit wherein is sought the dissolution of a marriage, other than a marriage solemnised in terms of the Customary Marriages Act. This provision seems awkward. The Magistrates can validly solemnise any marriage but, this provision takes away the power of dissolution. The same applies to any disputes arising out of a marriage, other than a marriage solemnised in terms of the Customary Marriages Act [Chapter 5:07]. Jurisdiction here lies with the High Court. The Court has no jurisdiction in determining the validity of or interpretation of a written or oral will or other testamentary document. This is provided for in terms of s.14(1)(b) as read with s.14(2). The determination of the status of person in respect of his/her mental capacity or soundness cannot be determined by a Magistrates Court. This power and jurisdiction lies with the High Court. The same applies in respect of the determination of an application for an order of specific performance. The Magistrates Court cannot give an order of specific performance which is not accompanied by an alternative for damages. This is provided for in terms of s.14(d) of the Act. Jurisdiction What the Court can Do Civil In respect of Civil Jurisdiction, the court shall have it in all civil cases determinable by general law of Zimbabwe or by customary law. The causes of action should fall within the force of the Act and Regulations requirements. This is provided for in terms of s.11 of the Act.

Any cause of action founded upon any Bill of Exchange, promissory notes, bond, a written

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acknowledgement of debt or any liquid document together with interest due thereon, the court shall have jurisdiction over that cause of action. Irrespective of rank and seniority SI 31/2000 sets value and monetary jurisdiction of all magistrates at $200 00000. All actions relating to ejectments against the occupier of any house, land or premises, the court shall have jurisdiction as long as the right of occupation of any such premises does not exceed the prescribed amount under SI 31/2000. Recently the High Court ruled that the Magistrates Courts power to hear and grant Ex parte applications should be greatly monitored and exercised with great caution especially ex parte applications for ejectments. Actions in which is claimed a decree of divorce, judicial separation or nullity of a marriage solemnized in terms of the Customary Marriages Act fall within the force of the Magistrates Courts jurisdiction. Related thereto is the payment of maintenance in terms of the Matrimonial Causes Act [Chapter 5:13]. In terms of the Act, the Magistrates Courts can validly determine actions relating to the guardianship and custody of children born from a marriage solemnised in terms of the Customary Marriages Act [Chapter 5:13]. Even in unregistered customary law unions, all issues relating to the guardianship, custody and access of children born from them, the Magistrates can validly determine.

All in all, though the amount which may be claimed may exceed the prescribed one, under SI 31/2000 parties may agree and confer jurisdiction upon the court through a written memorandum of agreement signed by both parties in terms of s.11(1)(C) of the Magistrates Courts Act.

Magistrates Criminal Jurisdiction In terms of s.49 of the Magistrates Court Act, the court shall have jurisdiction over all offences except treason, murder or any other offence where an enactment requires that a person convicted of an offence shall be sentenced to death. Criminal jurisdiction is unlike civil jurisdiction. It is determined by the rank and seniority of that particular presiding magistrate. Magistrates are ranked as follows: (i) Magistrates (ordinary) (ii) Senior Magistrate (iii) Provincial Magistrate (iv) Regional Magistrate (v) Chief Magistrate Criminal jurisdiction can be ordinary, special or remittal by the Attorney General. Criminal jurisdiction was amended by the General Laws Amendment No 2 of 2002 and No 14 of 2002.

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An ordinary Magistrate can convict a person and imprison him for a period not exceeding two years. On cases of remittal by the Attorney General his jurisdiction shall not exceed four years. Similarly, in ordinary cases, he may impose a fine of $400 00000 and $750 00000 or remittal. A senior magistrate can impose a custodial sentence of five years or less or a fine of $750 00000. On remittal, his jurisdiction is similar to that of an ordinary magistrate. A Provincial Magistrate also can impose a maximum custodial sentence of five years or a fine of ($1 000 00000) one million dollars. A Regional Magistrate on summary trial can impose 10 years of custodial sentence or $1 500 00000 (one million five hundred thousand dollars) fine.

Special Jurisdiction This is provided for in terms of s.51 of the Magistrates Court Act. Under the new General Laws Amendment Nos 2 and 14 of 2002, the powers of ordinary, Senior and Provisional Magistrates in dealing with the offences outlined under s.51(I) (a)(e) of the Act, the jurisdiction is seven years imprisonment or $1 250 00000 fine. The Regional Magistrate has now a special jurisdiction of 12 years imprisonment or $2 000 00000 fine. Under the new s.51(4) of the Act, in respect of sexual offences the special jurisdiction of Regional Magistrates is now 20 years imprisonment or $2 500 00000 fine.

Community Courts and Primary Courts


These courts generally deal with civil matters fully falling within the force of customary law and custom practices. Therefore, clearly, these courts have no criminal jurisdiction. Primary Courts are presided over by a headman in terms of s.11(1) of the Customary Law and Local Courts Act (hereinafter called the Act) and the Community Courts are presided over by chiefs in terms of s.11(2) of the Act. Jurisdiction In terms of s.15 of the Act, a local court shall have jurisdiction to hear, try and determine any civil case in which customary law is applicable where the defendant is normally resident within the area of jurisdiction of the court, the cause of action or any element thereof arising within such area or where the defendant consents to the jurisdiction. In terms of s.16(I) of the Act, local courts have no jurisdiction in any case where the claim is not determinable by customary law. In terms of s.2 of SI 220/2001, SI 30/2002 and SI 29/2002, the court has no jurisdiction where the claim of any article exceeds $40 00000 for chiefs. Like the Magistrates, local courts cannot determine the validity or effect of interpreting a will. Local courts have no jurisdiction whatsoever to dissolve any marriage. However local courts can adjudicate upon marital relationships which, though recognised by customary law, have not been solemnised in terms of the Customary Marriages Act. These are better known as unregistered customary unions.

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Matters involving the custody or guardianship of minors are not determined by customary law and therefore, it naturally follows that local courts have no jurisdiction. Since maintenance is also governed by the Maintenance Act, only Magistrates Courts are Maintenance Courts and can validly adjudicate maintenance claims. Even the High Court is not a Maintenance Court, but of course can hear the maintenance claim because of its unlimited jurisdiction. However local courts may make various orders under s.17(a)(f) of the Act, for example payment of damages, order specific performance of a contract or order the payment of penal damages where customary law so permits or requires.

Interpretation of statutes
(a) The Literal Rule In terms of the canons of statutory interpretation, the court will usually begin its interpretation of a statute by applying the literal rule, that is, the words of a statute must be interpreted in their ordinary literal meaning. In construing the statute the object is, of course, to ascertain the intention which the legislature meant to express from the language which it employed. By far the most important rule to guide courts in arriving at that intention is to take the language of the instrument as a whole and when the words are clear and unambiguous, to place upon them their grammatical construction, and to give them their ordinary effect. As was said by the court in Volschenk v Volschenk (1946)

The cardinal rule of construction is that words must be given their ordinary effect . . .
(b) The Golden Rule The courts will normally seek to ascertain the intention of the legislature from the words of the statute itself. However in practice, the court may find that the literal rule is inadequate to interpret a particular statute as Malan J puts it in Volschenk v Volschenk (1946)

If a rigid grammatical construction of the language employed leads to a result which is manifestly absurd, unjust, unreasonable, inconsistent with other provisions or repugnant to the general object, tenor or policy of the statute, the court will be justified in departing from the literal sense and in modifying or extending it in such a manner as will secure a conclusion which will eliminate such objective and give expression to the true intention of the legislature . . .
The golden rule provides that the ordinary meaning of the words used must be followed unless

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this would lead to absurdity or is at variance with the intention of the legislature. What is such an absurdity is well illustrated by Quenet JP in the Rhodesian case of R v Takawira and Others (1965). The statute concerned, without any qualification or exception made it an offence to be in possession of subversive material. If interpreted literally, this would mean that the policeman who took possession of the subversive statement, the Public Prosecutor who tendered it as evidence, the judicial officer who examined it at the trial would all be guilty of an offence and as a result, it would never be possible to secure a conviction under the statute at all and as a result the intention of the legislature would be completely frustrated and negated. In the circumstances of the case, the court held that it would be permissible to qualify the literal meaning by reading into the clause words such as without lawful authority so as to permit officials to be in possession of the statement in the exercise of their duties (golden rule).

Human rights
Under the Constitution of Zimbabwe fundamental human rights are enshrined in Chapter III, the Declaration of Rights. A number of fundamental rights and freedoms are listed and some of the most common ones are: . the right to life . the right to personal liberty . protection from inhuman or degrading punishment . protection from arbitrary deprivation of property . protection from arbitrary search or entry . the right to due process of law . freedom of conscience, expression, assembly and movement In order to protect the multi-ethnic and multi-cultural nature of the country, discrimination based on race, tribe, place of origin, political opinions, colour or creed is outlawed. It is important to note that most of the fundamental human rights and freedoms are not absolute. There are a number of derogations and exceptions recognised by the law and a few examples may suffice.

(a) The right to life In Zimbabwe unlike countries like South Africa and European Union member states, the death penalty is a competent criminal sanction for crimes like murder (where there are no extenuating circumstances) and treason. According to the law certain categories of offenders are exempted from the death penalty and these are:

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(a) a person who at the time of the offence is below 18 years of age (b) a person who at the time of conviction is aged at least 70 years (c) a pregnant woman

(b) Protection from torture, inhuman or degrading punishment Exceptions to this very important right include, the infliction of moderate corporal punishment in appropriate circumstances upon a person under the age of 18 years by his parent or guardian or by someone in loco parentis or in whom are vested any of the powers of his parent or guardian. Another exception here would include the infliction of moderate corporal punishment in execution of the judgment or order of a court, upon a male person under the age of 18 years as a penalty for breach of any law. Although by and large the Supreme Court is an appeal court it can operate as a court of first instance on matters relating to the Bill of Rights since it is justiciable.

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2007

Corporate and Business Law- F4 (Zimbabwe)


Casebook

Essentials of a simple contract


The essentials of a simple contract can be summarised as follows: there must be an agreement, intention to enter into legal relations, capacity to contract, reality of the consent and lawfulness of the object.

Agreement: In most cases if not all, an agreement may be analysed as an offer made by one party to another and acceptance by that other party. It was said in Ley v Banket Holdings (Pvt) Ltd 1956 that, in considering whether there is an agreement between two parties, the court is not interested in the state of mind of the parties considered in the abstract. It must decide the issue on the state of mind of the parties as manifested by word or deed. Intention to create legal relations: Even when parties have reached an agreement, there is not necessarily a contract in being. The Roman-Dutch common law demands also that there be an intention to enter into a legal relationship. Without this intention there will be no contract but only an agreement. An invitation to dinner may result in an agreement, but such an arrangement is unlikely to be intended to have legal consequences. An arrangement of this kind is likely to be a social one with no legal consequences intended, Edwards v Skyways 1964.

Capacity to contract: The law does not allow every person to enter into contracts freely. In some cases the law denies a person contractual capacity in order to protect him. Classes of persons who fall into this category are infants (sometimes called minors), persons of unsound mind and drunk persons.

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Reality of consent: Where there is an offer and acceptance and both parties are of full age, there is an apparent contract. Yet this may have no legal effect at all on account of the presence of some additional factors. These factors are known as vitiating factors. They include mistake, misrepresentation, duress and undue influence, illegality and non-disclosure in contracts of utmost good faith.

Lawfulness of the object: Any contract in which the provision or the object is unlawful will be void and, from the point of view of one or both of the parties, will be unenforceable. This situation may arise because the contract is (a) illegal at common law or (b) illegal by statute or (c) void by statute.

Invitation to treat
A contract is defined as a lawful agreement made by two or more persons within the limits of their contractual capacity with the serious intention of creating a legal obligation, communicating such intention without vagueness, each to the other being of the same mind as to the subject matter to perform positive or negative acts which are possible of performance.

For the contract to be binding there must be a valid offer and a clear acceptance of the same. Before the offer can lead to a binding contract, the offer must define all the terms on which agreement is sought, must be consistent with the essentials of contract and must be firm and deliberate with an intention of its being accepted and not a mere invitation to do business.

The invitation to do business is commonly known as the invitation to treat. Invitation to tenders, advertisements and the display of prices on a shop window usually constitute an invitation to treat rather than a firm offer. In Crawley v Rex (1909), a shopkeeper advertised a particular brand of tobacco at a cheap price, displaying a placard outside his shop on which the price was shown. Crawley entered the shop, bought some tobacco and left. He then re-entered the same shop and asked for some more tobacco. This time around, the shopkeeper refused and upon being requested to leave the shop Crawley refused to do so without the tobacco. Ruling on the matter the court said: It is clear that according to the ordinary law of contract the display of an article with a price on a shop window is merely an invitation to treat. It is in no sense an offer for sale, the acceptance of which constitutes a contract Likewise a quotation is not a firm offer but simply an invitation to treat.

In this case Nelion Dubes statement that you might be interested in this and why not get a

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quotation together and let me have a look at it, clearly is not a firm offer to create a binding contract but simply an invitation to treat or to do business. The fact that an offer must be firm and deliberate and not a mere invitation to do business is highlighted by the case of Crawley v

R (1909) (supra), Carlill v Carbolic Smoke Ball Company (1893), Lee v American Swiss Watch Company (1914).

The present case must clearly be distinguished from the case of Brown and Company v

Jacobson (1915) in which J wrote saying should you require a guarantee from me l am quite
willing to do so trusting you agree to my proposal. And where B and Company replied, we beg to state that we shall be very pleased to agree to your request in consideration of your guarantee. It goes without saying that the court held that there was a contract of guarantee.

Validity of a contract
Indeed it is common cause that the general rule is that no formalities are prescribed for the validity of a contract. This means that the parties do not have to announce their intention to contract in any formal manner. If an offer is clear, unconditional, complete, unambiguous, communicated to the offeree with the intention that it will serve as an offer and equally the acceptance is clear, unambiguous, communicated by the offeree to the offeror within the stipulated time and manner, a valid contract will result therefrom. Thus the contract may be concluded verbally or even tacitly and still be perfectly valid. Legislation has however created certain exceptions to the general rule and in such specific instances contracts would have to comply with certain formalities in order to be valid. The three broad categories of exceptions are as follows: (1) That the contract must be rendered in writing (2) That the contract must be notarially executed (3) That the contract must be registered. 1. Writing If a contract is in writing irrespective of whether this is due to the decisions of the parties or whether it is required by law the parole evidence rule applies to the contract. In terms of this rule the document is the sole and exclusive source of the terms of the contract and the terms of the contract may therefore not be sought in any other expression of intention whether written or verbal. Any amendments, omissions or additions must also be in writing. Contracts that have to be in writing are, inter alia, the following: The alienation of immovable property must be in writing and signed by and on behalf of all the

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parties in order to be valid. Alienation includes purchase and sale, exchange and donation of immovable property. Contracts concluded in terms of the Hire Purchase Act. Suretyship agreements must be written and signed by or on behalf of the parties. Contracting parties may agree verbally that their contract will be reduced to writing. If the intention is that the writing down of their contract will be a condition precedent or prerequisite for the validity thereof, no contract will be deemed to exist until such time as the contract has been written. In Woods v Walters (1921), in an action to compel execution and performance of a contract for the lease by Woods to Waltersof certain land plus a furnished house and other buildings, Woods argued that he was not bound since it had been agreed that the contract must first be reduced to writing which had not been done. The court ruled that although

the broad rule is that writing is not essential (except in certain cases) to the validity of a contract ... parties may of course agree that there will be no vinculum juris (legal bond) between them until that has been done... In conclusion, the principle here is that where a signed written document is agreed
between parties to be a pre-condition of a contract, such contract is void without it. But where writing is simply mentioned as desirable for the record, lack of a written agreement does not void the contract.

2. Notarial Execution Notarial execution entails the conclusion of the document in the presence of a Notary Public. Examples of contracts that have to be notarially executed are the following: (a) antenuptial contracts (b) leases of mineral rights and cessions of the right flowing from these contracts have to be notarially executed (c) change of name.

3. Registration Registration entails the making of an entry in the registers of the state in order to publicise the contents of the particular contract. Examples include antenuptial contracts, leases of immovable property for ten years or longer, marriage contracts, etc.

Implied contracts

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Parties to a contract can agree on anything as long as it is legal. This is called freedom of contract. Parties can agree on whatever term of their contract either expressly or impliedly. Terms of a contract determine the consequences of a contract. In the absence of express agreement, certain terms are implied by operation of the law, trade usage or facts. In the event of any dispute, it should be borne in mind that it is not the courts business to improve on the contract the parties have made. The court should imply terms reasonably necessary in the circumstances. Courts should not make contracts for the parties implying terms which parties would never have agreed. In the case of Reigate v Union Manufacturing Co (1918) Sculton L J said a term can be implied if it is necessary in the business sense to give efficacy to the contract i.e. if it is such a term that it can confidently be said that if at the time the contract was negotiated someone had said to the parties: What will happen in such a case? They would both have agreed that: of course so and so will happen we did not trouble to say that, it is too clear.

Necessity in the business sense must be clearly distinguished from reasonableness and a term will not be implied merely because it would seem reasonable to do so. Business efficacy must be judged against the circumstances contemplated by the parties and not in light of any unusual situations that have subsequently developed. An implied term is a term which is implied either ex lege or as a result of circumstances pertaining when the contract was concluded. In the case of Alfred McAlpine and Son (Pty) Ltd v

Transvaal Provincial Administration (1974), Corbet JA said the term implied term denotes two
distinct concepts. Firstly, it is used to describe an unexpressed provision of a contract which the law imports, generally as a matter of course. It is imposed by the law from without, often where it is by no means clear that the parties would have agreed to incorporate it in the contract. Secondly, an implied term is used to denote an unexpressed provision of the contract which derives from the common intention of the parties as inferred by the court from the express terms of the contract and surrounding circumstances.

It should be emphasised that in order to have business completeness, common intention should include not only the actual intention but also imputed intention. In other words, the court implies not only terms which the parties must actually have had in mind but did not trouble to express, but also terms which the parties, whether or not they actually had them in mind, would have expressed if the question, or the situation requiring the term had been drawn to their attention.

Implied terms of law may be derived from the common law, trade usage or custom, or from the statute. Despite the general principle that parties are free to contract as they wish, the common law permits the term that would be implied to be expressed, modified or excluded (Electra Rubber Products (Pvt) Ltd v Socrat (Pvt) (1981)). Under the common law,

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the sellers implied guarantee or warranty against latent defects is usually an implied term in a contract of sale. However, parties can agree to expressly exclude the implied term in a contract of sale. The same applies where parties can agree to expressly exclude the implied warranties see Elston v Dicker (1995). Under the sale of movables some terms of a contract are implied from the Consumer Contracts Act [Chapter 8:03].

By implying so many terms in the sale of many movables, it saves a lot of time, effort and affords protection to weaker parties in the contract, particularly consumers. For instance, every day one buys bread, salt or cooking oil in a supermarket, it is not necessary to enter into full contracts of sale expressly stating all terms and conditions of sale. Terms implied by law may be affected by trade usage. This occurs when a person enters into an agreement under circumstances which are governed by a particular trade. That usage must be considered part of the agreement whether the parties knew of the usage or not, unless they have expressly agreed to exclude it. The requirements of trade usage are that it must be notorious, certain, reasonable and not contrary to positive law. Coults v Jacobs (1927). The application of these requirements is exemplified by Barclays Bank Ltd v Smallman (1976) in which the banking usage of charging compound interest on overdrafts was sufficiently proved. Similarly, in the case of Greenacres Farm (Pvt) Ltd v Haddon Motors (Pvt) Ltd (1983) in which an alleged usage in the motor vehicle trade that a request to check over a vehicle included putting it to running order was not properly and sufficiently proved.

It should be noted that some terms of a contract may be implied from the facts. In Elite Electrical

Contractors (EEC) v The Covered Wagon Restaurant (CWR) (1973) CWR, a restaurateur, hired
EEC, a proprietor of a small electrical business, to do all the electrical work involved in moving a stove and other electrical appliances from one part of his kitchen to another. Due to difficulties in making an advance estimate of the cost of work of this kind, no firm quotation was given and the parties agreed that EEC would proceed on this basis. Having duly completed the work, EEC contended there had been an implied agreement that CWR would pay a fair and reasonable price for the materials supplied and services rendered. The court held that the term implied and relied upon by EEC was valid and enforceable. The court emphasised that the term implied in any particular contract will depend upon the circumstances surrounding that contract and it is not a matter to be decided by reference to other cases.

Implied terms are necessary to enhance business efficacy but there is a danger that the courts may end up making contracts for the parties, by implying terms which the parties never agreed on. This would end up conflicting with the time honoured Roman Dutch principles of freedom of

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contract and the doctrine of sanctity of contracts. In Hamlyn and Company v Wood (1891) W, who were brewers, agreed in writing to supply H all the grains made by W for ten years. After five years W sold their business. The court held that, a term would not be implied that W would not by any voluntary act of their own prevent themselves from continuing the sales of grains to H for ten years. The court ought not to imply the term unless it necessarily arises from the language of the contract itself, and the circumstances under which it is entered into. Such interference with the parties contract, that the parties must have intended the stipulation in question must be exercised cautiously and sparingly.

Unless specifically excluded by the agreement of sale it can be said in summary that the corresponding duties and rights of the buyer and seller are in a way part of the implied terms of an agreement of sale. These are as follows: The buyer (implied duties)

1. To pay the price as agreed and if no specific figure has been mentioned it is implied that the purchaser is liable to pay a reasonable price. 2. To compensate the seller for any expenses incurred in safe-keeping and maintaining the thing sold until delivery can take place. The sellers duties are the following: 1. To care for the thing sold until delivery takes place. 2. To deliver the thing sold. 3. To guarantee the purchaser undisturbed possession. This is known as the tacit warranty against eviction and it forms an integral (ex lege) part of the contract of sale. The warranty ensures that the purchaser will not be disturbed in his possession, that is, he will have peaceful and quiet enjoyment of the thing. 4. To give the purchaser a warranty against latent defects. The seller (ex lege) is obliged to deliver the thing sold to the purchaser without defects. The seller is therefore liable for any latent defects in the thing sold irrespective of whether he was aware of such defects at the time of the conclusion of the contract of sale.

Apart from the contract of sale there are a lot more other forms of contracts in which the rights and duties of the parties are regulated and governed by the implied terms of the agreement. The parties are at liberty to agree on the regulatory framework of their contract as long as the proposed terms are not specifically outlawed by legislation or any other positive law. Examples (among others) of such contracts include agency, lease, partnership and many more.

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caveat subscripto rule


In terms of the caveat subscripto rule the general rule of law in RomanDutch law is that a person who signs a document is presumed to have familiarized himself with the contents of that document. The general effect of signing a contract is that the party signing the contract is bound. This rule is applied not only when the person signing studies the document but also when he signs carelessly or recklessly and when he fails to avail himself of an opportunity to study provisions incorporated by reference. In George v Fairmead (1958) G, a hotel guest signed a hotel register which contained contractual terms some of which he completed by filling in blank spaces but the rest of which he did not read. One clause exempted the proprietor from liability for loss caused by theft. Certain clothing belonging to G was stolen and he sued the hotel company. The court held that G was bound by the terms because he knew that he was signing a contractual document. And in the case of Bhikhagee v Southern Aviation Company (1949) the court made the following apposite remark in relation to the caveat subscripto rule.

It is a sound principle of our law that when a man signs a contractual document he is taken to be bound by the ordinary meaning and effect of the words which appear over his signature, although he may not have read them and professes to be ignorant of their contents . . .
However in situations where simple justice between man and man so requires our courts can depart from the caveat

subscripto rule. For example where there is fraud, illegality, duress, mistake and
misrepresentation the affected party might not be bound by his signature. Ultimately each case will depend on its own facts.

The following cases illustrate how the exceptions operate. In Curtis v Chemical Cleaning and Dyeing Company (1951), C, when delivering a dress to a company for cleaning, was asked to sign a document which contained a clause that the dress was accepted on condition that the company was not liable for any damage howsoever arising. C asked why she had to sign it and was told the company would not accept liability for damage done to beads and sequins on the dress. She signed without reading the whole document. HELD, the companys assistant had made the misrepresentation innocently, but nevertheless as C had relied on it, she was not bound by the wide indemnity contained in the document. And in Shephard v Farrels Estate Agency (1921) S who wished to sell his business had gone to the estate agency, being induced by a newspaper advertisement of the agency: Our motto no

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sale, no charge. He was given a document to sign which was in direct conflict with the advertisement, namely that the agency would have the sole selling right and would receive commission if the business was sold within three months, whether through the agency or not. Ss attention had not been drawn to the fact that the terms of the advertisement were being departed from. HELD, S was not bound by the condition.

Quasi-mutual assent
As a general rule if a dispute arises in terms of the existence of a contract, it becomes necessary to determine the content of the promises made and the obligations undertaken by either party. The idea is to establish the true intentions of the parties at the time they conclude the contract or purported to conclude one. The intention of the parties is therefore paramount and if the parties do not envisage legal consequences the agreement between them is not a contract.

A contract can only come into being if the contracting parties have the intention to be bound to each other and if they intentionally reach unanimity on all the terms of their agreement. The unanimity between the contracting parties (consensus ad idem) is therefore the cornerstone of a contract. When consensus is achieved between the parties and provided that the other requirements have been met a contract comes into existence between the parties. Apart from an express offer and the acceptance, an agreement can be reached through conduct. Conduct can take the place of written and spoken words in the case of both offer and acceptance or in the case of the one or the other. In deciding whether there is an intention to contract the test is objective and not subjective. The practical effect of the quoted statement is that, in the main, in determining the existence of a contract the courts look for offer and acceptance, be it express or implied. Short of that formula, the parties might still be deemed to have concluded a binding agreement on the basis of quasi-mutual assent. In terms of this doctrine a person who gives a reasonable man the impression of consensus in relation to an intended contract will be taken to have indeed consented even if inwardly they have reservations and misgivings which remain unexpressed. Some of the case law which underscores how the principle of quasi-mutual assent operates was decided as follows:

In Levy v Banket Holdings (Pvt) Ltd (1956), B was successor in title to a partnership to which L had sold a business in Banket and leased the plot on which the business was situate for five years. B alleged a verbal agreement between L and the partnership to grant an option to renew the lease for a further five years. L denied this despite the fact that he accepted 600 proffered

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in terms of the contract which unequivocally stated that the money was consideration for the option to renew. It was held that Ls conduct gave rise to an inference that he had agreed to grant an option to renew the lease.

Equally in the case of Collen v Reitfontein Engineering Works (1948), after some correspondence regarding the supply of a pump and a Fairbanks Morse engine, C wrote to R: Enclosed please find my cheque in part payment of pumping plant. R paid the cheque for 150 into its banking account but did not reply to the letter. Later R supplied a different type of pump which proved unsatisfactory and C repudiated the contract. It was held that treating Cs letters as an offer, R did by its conduct accept the offer.

It did not reply in writing that it accepted, but it paid Cs cheque into its banking account. Its conduct in so doing and its retention of the proceeds of the cheque, coupled with the fact that it failed to notify C that it did not accept this offer, was a sufficient indication to C that it had accepted his proposal. Finally in the case of Peters and Company v Salomon (1911), having undertaken to pay Bergers creditors, including S, the amounts of their respective accounts against B, P requested them to send in their statements of account. S sent in a statement showing the sum of 490 to be owing to him, and P without raising any objection to this amount, confirmed the undertaking previously given. HELD, although P had previously agreed to the undertaking having been led by an examination of Bs books to believe that 345 was owing by B to S, and may really have undertaken to pay S the amount which by its course of dealing with him it had led him reasonably to believe would be paid. Said the court, when a man makes an offer in plain and unambiguous language which is understood in its ordinary sense by the person to whom it is addressed, and accepted by him bona fide in that sense, then there is a concluded contract. Any unexpressed reservations hidden in the mind of the promisor are in such circumstances irrelevant. He cannot be heard to say that he meant his promise to be subject to a condition which he omitted to mention and of which the other party was unaware . . . In the main, the quote captures the spirit of our law in terms of the courts approach to the doctrine of quasi-mutual assent. However the rule will not be applied where there was a mutual mistake, the parties honestly attaching different meanings to words in a contract which are not self-explanatory.

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Contracts with minors

It is common cause that at 17 years of age Solomon is a minor and therefore he has limited contractual capacity. In our law, a contract involving an unassisted minor is voidable at the option of the minor. The option of treating the contract as void or valid rests with the minor. If the minor elects to treat the contract as valid he can compel the other party to perform. On the other hand if the minor prefers to treat the contract as void the other party cannot compel him to perform his part of the agreement. In Edelstein v Edelstein (1952) the court made the following observation:

From the principles of the law it is clear that a minor who contracts without the assistance of his guardian can render others under an obligation to himself, but does not himself become obliged to them . . .
There are a number of common law and statutory exceptions under which an unassisted minor can be contractually bound. One of the exceptions (which happens to be the most applicable here) relates to tacit emancipation. Where a minor is tacitly emancipated he can incur a binding contractual obligation within the field of his emancipation. Tacit emancipation occurs when he is allowed by his guardian to carry on business or other occupation on his own behalf. In Dickens v Daley 1956 Daley a minor aged 20 (age of majority then was 21) gave a cheque as rent for Dickens house which Daleys mother and stepfather had agreed to hire at the time and for the previous twelve years Daley had been living with his mother and stepfather, he was contributing a sum to his mother for board and lodging, he had been in employment as a clerk for four years, he had nothing to do with his father, his guardian, who exercised no control over him. Two and a half years earlier he had opened up a bank account without his fathers assistance which he operated unassisted.

The court held that inspite of his minority Daley was liable on the dishonoured cheque drawn by him because he was tacitly emancipated. In this case the following evidence points in the direction of tacit emancipation. (1) That Solomon is only one year short of majority status (2) He is gainfully employed as a mechanic (3) He lives in an apartment in town not with his parents or relatives but with a girlfriend who is also employed. In view of these considerations the court is likely to find Solomon liable on the contract on account of tacit emancipation.

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Right of first refusal

An option is a legal concept which comprises a contract between two parties, the option grantor and the option holder, to keep open an offer to contract (the substantive offer) made by the grantor to the holder. Venter v Birchholtz (1972). The view that the option is already a substantive contract, qualified by a suspensive condition has been rejected. See Ficksburg

Transport (Edms) Bpk v Rautenbach (1986).

Case law authorities do not always distinguish between an option and a right of first refusal. See

Boyd v Nel (1922). The distinction is not always apparent to those who make contracts but the
concepts are not the same. This position is confirmed by Oglivie Thompson JA in the case of

Owsianick v African Consolidated Theatres (Pty) Ltd 1967 when he said:


A right of pre-emption is well known in our law (See Cohen v Behr (1946) and it is to be distinguished from an option to purchase. Upon exercise of the latter, by the holder of the option, the grantor of the option is obliged to sell. The grantor of a right of pre-emption cannot be compelled to sell the subject of the right. Should he decide to do so, however, he is obliged, before executing his decision to sell, to offer the property to the grantee of the right of pre-emption upon the terms reflected in the contract creating the right.

In the case of Sawyer v Chioza & Ors (1999) the court was seized with the distinction between an option, right of first refusal and pre-emption. The honourable judge, Justice Gwaunza, quoted with approval, Coppers Landlord and Tenant 3rd Edition, where the author states that the right of first refusal is synonymous with the right of pre-emption. The right of pre-emption entitles the holder of the first right of purchase should the grantor wish to sell the property. The court ruled that an agreement of pre-emption contains both a negative and a positive element. The negative element is that the grantor is restrained from selling to a third party, the positive element is once he is prepared to sell he is under a positive obligation to sell to the grantee. On the other hand an option contract creates at least one obligation in terms of which the holder of the option has the right to claim from the option grantor that the latter shall keep the substantive offer open for acceptance. Generally, therefore, the grantor of the option has a duty not to do anything which may prevent the option holder from creating an enforceable contract by exercising the option. Bradt v Spies (1960). Coopers (supra) notes that, whereas an option to purchase is an irrevocable offer to sell, and if accepted, gives the option holder the right to conclude a sale by exercising the option which he has accepted, an agreement of pre-emption

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does not compel the grantor to sell, it only compels him to give the grantee the right to purchase if the grantor proposes to sell.

It should be noted, however, that although there is a fundamental difference between an option to purchase and an agreement of pre-emption, the word option is frequently used in granting a right of pre-emption, conversely, phraseology usually associated with a pre-emption agreement may be used in granting an option. See Sawyer v Chioza (1999).

Negotiations
One of the characteristics of our common law is that, in general, no special formalities are required for the making of an enforceable contract, Goldblatt v Fremantle 1920. This means that an oral or even a tacit contract, once its in existence and terms have been satisfactorily proved, is every bit as legally valid as a written contract.

A decision by the parties to make their contract in writing is not always clear-cut. It may sometimes become necessary to interpret phrases used in the course of negotiations or in informal contracts. The issue is to discover the intention of the parties. It could be that Edison and Bota intended not to be bound until the formal contract is signed. It could also be that they intended to be bound by the formal contract and that the formal contract is contemplated only for the proof.

The position stated in Woods v Walters 1921 is that, where the parties are shown to have been

ad idem (in consensus) as to the material conditions of the contract, the onus of proving an
agreement that legal validity should be postponed until due execution of a written document lies upon the party who alleges it. It appears that Bota, by stating in his letter that he had instructed his lawyers to prepare the agreement, intended to be bound by what was stated in the letter until a proper and formal document was drawn up by the lawyers. This was the decision which was reached in Mocke v Reuenback 1936 where the circumstances were almost the same.

However, if the court is of the view that the informal arrangement is binding but contains an obligation to execute the contemplated formal contract, such an obligation can be enforced by the court by an order for specific performance.

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2007

Corporate and Business Law- F4 (Zimbabwe)


Casebook

Constructive delivery and the transfer of moveable property.


One of the sellers paramount obligations is to deliver the property sold to the buyer. He is obliged to deliver the actual property sold i.e. that which matches with the contract description. The time, method and place of delivery are governed by the contract between the parties. A distinction is drawn between the delivery of movable and immovable property. In the case of immovable property (land and buildings) registration constitutes delivery while actual or constructive delivery are applicable in the case of movable property. When movables are delivered use may be made of actual or constructive delivery. Actual delivery or traditio is the delivery of the thing from one hand to the other for example, a book, a pen, a plate etc. Where actual delivery is difficult or impossible constructive delivery is used in order to transfer ownership to the purchaser. Thus constructive delivery has the same legal significance as actual delivery. Examples of constructive are: 1. Symbolical Delivery This takes place where the thing itself is not delivered but something else which places the purchaser in a position where he may exercise control over the thing bought. For example where the goods bought by the purchaser are in storage and the seller hands him the key enabling the purchaser to have unimpeded access to the merx (item that has been bought). Equally where goods are being shipped and delivered (in import and export contracts) symbolic delivery takes place by the handing over of the bill of lading to the buyer.

2. Traditio Longa Manu (delivery with the long hand) This form of delivery is used when the goods are very bulky or huge. Delivery takes place by the

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pointing out of the thing sold to the purchaser so that he may exercise control over it. In Xapa v

Ntsoko (1919) in which lobola cattle were pointed


out to the in-laws by their daughters husband. The court said that valid delivery had taken place through the process of pointing the cattle out.

3. Traditio brevi manu (delivery with the short hand) Delivery takes place by agreement. The purchaser is already in possession through an earlier arrangement (for example a book that has been loaned) and now that the same item has been sold to the buyer, it is not necessary for the purchaser to surrender it first to the seller to enable the latter to hand it over to him. The parties merely agree that the purchaser will retain the item, but now as owner and not possessor.

4. Constitutum possessorum This is the opposite of traditio brevi manu. The seller remains in possession of the thing sold after the sale has been concluded (e.g. a watch or pair of trousers that must be rectified or redone). The intention of the parties is that ownership passes to the purchaser and that the seller is now only in possession of the thing as an agent of the buyer.

5. Attornment This occurs where a third party is holding the item for the seller and the latter instructs the third party to retain the item (until collection) for and on behalf of the buyer. Attornment involves the mental concurrence of the three parties at the same time.

Guarantee the purchaser against eviction


One of the primary obligations of the seller towards the purchaser is the duty to guarantee him against eviction. Thus the buyer has to be granted vaccuo possessio or undisturbed possession. This is known as the tacit warranty against eviction and it forms an inherent part of the contract of sale. The parties do not have to expressly add this warranty to their contract. It is an implied term of the contract. The warranty against eviction ensures that the purchaser will not be disturbed in his possession of the thing i.e. that he will not be evicted. The seller therefore undertakes that no-one with a better right shall deny the purchaser possession of the whole or part of the thing sold. This duty was explained by the court in York and Company v Jones (1961) as

. . . a duty to guarantee the purchaser against eviction i.e. subsequent dispossession, total or partial by third parties claiming a title superior to that which the purchaser has obtained from the seller.
Where eviction is threatened it is the duty of the seller to come to the assistance of the

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purchaser even before he has been evicted by process of law. If the purchaser surrenders the thing over to a third party without notifying the seller of the impending eviction, the seller remains liable provided that the purchaser can prove that the third party had an indisputable right to the thing sold. In the case of Olivier v Van der Bergh (1956) the court noted that the mere receipt by a purchaser for a demand from a third party claiming the article sold does not by itself entitle the purchaser to sue his vendor (seller) upon the warranty against eviction. Where however in such an action, the purchaser in addition proves both that the third partys title is legally unassailable and that he the purchaser has duly admitted the demand and legally bound himself to comply with it, the purchaser is entitled to succeed even though he has not yet actually complied with the demand made upon him by the third party. Even where the seller does not assist the purchaser, the purchaser is expected to defend his position with all the means at his disposal and should he be deprived of possession he will have to prove that the sellers title was deficient. (Dickinson Motors v Oberholzer 1952). When the purchaser has been evicted, the warranty which is an implied term of the contract will have been violated and he will have at his disposal the remedies which are normally available in cases of breach of contract. (General Finance Company (Pvt) Ltd v Robertson (1980). Should the purchaser be fully evicted, he may resile from the contract and claim repayment of the purchase price, as well as damages. Alternatively he may enforce the contract and claim damages. (Alpha Trust v Van der Watt (1975). However as an exception to the general rule, in three instances the tacit warranty against eviction does not protect the purchaser. (i) where the parties expressly agreed when concluding the contract that the warranty would not form part of the contract. (provided the seller acts in good faith). (ii) where the purchaser is aware that a third party is the owner of the thing sold, he may not hold the seller liable should he be evicted. (iii) where the purchaser lost possession through the unlawful act of a third party (like a thief) the seller will not be liable because the purchaser bears the risk.

Risk
In our law, the purchaser carries the risk from the moment that the contract of sale is perfecta. The contract of sale is perfecta or concluded when the price is fixed or ascertainable, the thing sold has been specified and the contract is unconditional.

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The risk therefore passes to the purchaser before delivery has taken place. Should the thing be damaged or destroyed due to circumstances beyond the control of the parties, the purchaser will bear the risk. In short, the purchaser remains liable to pay the price even if the seller can no longer deliver the merx (merchandise) in the state originally agreed upon. In Horne v Hutt (1956), one farmer sold maize mealies which were meant for stock feed to a neighbouring farmer. The required maize was set aside and appropriated for the exclusive use and benefit of the purchaser. Before delivery of the mealies could be effected the whole consignment was stolen and the thieves and the court ruled that risk had already been transferred to the purchaser. On the other hand in Jacobs v Petersen and Another (1914) Petersen bought a horse and a cart from Jacobs and undertook to pay the purchase price in weekly instalments. The contract contained a suspensive condition namely that the seller would remain the owner of the horse and cart until the last instalment was paid. After payment of the first instalment, the horse died. The court held that the risk was with the seller and therefore he could not claim payment of the balance of the price from the purchaser. There is no doubt that at the time the car was reduced to ashes, the contract was perfecta and risk had already passed to the purchaser

Ownership
Under Roman-Dutch Law, no matter what arrangements the buyer and the seller can make, ownership of the property does not pass from one to the other by their mere agreement. There has to be delivery. On the other hand, risk of destruction of or damage to the property normally passes to the buyer when the sale is perfected. This means that if it is an unconditional sale of specific goods the risk passes on the conclusion of the contract unless agreed to the contrary,

Horne v Hutt 1915. Thus damage or destruction which occurs after the risk has passed will
relieve the seller from any duty, for example, of delivery but will not relieve the buyer from his duty of paying the full price. Increased duties, taxes and other burdens imposed by law are risks, Snyman v Fowlds 1950.

Where a person sells his property subject to a suspensive condition, the sale is not perfected until the condition is fulfilled. Thus the risk of total loss does not pass until then. However, if the property is partly damaged or destroyed then the loss falls on the seller if the condition is subsequently not fulfilled, and on the buyer if it is fulfilled. Where specific property is sold, but the price cannot be ascertained until it is weighed, measured or counted, the sale is not perfected and therefore the risk of destruction does not pass until this has been done. This is because the price the buyer is obliged to pay cannot be ascertained, Page v Blieden and

Kaplan 1916. The weighing and measuring or


counting must have taken place in the presence of a buyer.

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If the property sold is unascertained then the sale is not perfect and therefore the risk does not pass until property conforming to the contract description has been set aside or appropriated to the contract by the seller. In this case the presence of the buyer is not necessary, Taylor & Co v

Macke Dunn & Co 1879. It was said in Fitwell Clothing v Quorn Hotel 1966 that a breach of
contract by the seller which obliges him to resume possession of the property he has delivered to the buyer renders the contract imperfect and casts the risk on the seller.

Price in a contract of sale

A sale in Roman-Dutch law has been defined as a contract in which one person promises to deliver a thing (merx) to another, who on his part promises to pay a certain price (pretium). According to MacKeurton for a valid contract of sale to come into existencethe following essential elements must be satisfied, that is, agreement on the thing sold and a price thereon. If these exist, there is a sale. If the above stated elements do not exist, there is no contract of sale. Therefore no matter how the parties describe their contract, if the aforementioned elements are not satisfied, the courts will not enforce the contract in question as a contract of sale but another contract.

In relation to the aspect of price in a contract of sale the Roman-Dutch law position is that, for it to qualify as a contract of sale, the price must be either fixed by the parties or ascertainable from the contract. The price may be ascertainable from the previous course of dealing between the parties even if not expressly so agreed or from an express reference to market rates and values.

There must be an intention as to the real price between the parties to the contract of sale. In some other cases, the courts have ruled that if there is no mention of the price the circumstances may justify the conclusion that the parties impliedly agreed to be bound by the sellers usual price as stated in the case of Calamas v R (1949). From a number of case law authorities, the price should be ascertainable as further illustrated by the case of Maceys Consolidated Ltd v Chesebrough Ponds Pvt Ltd (1967), where a sale at the ruling price was held enforceable as the prices were readily ascertainable. In a different case of Baxter v Maxwell (1923), a contract to sell milk at current wholesale rates was held void because the evidence showed that it was impossible to calculate the current wholesale rates in that trade at the time. The above discussion reaffirmed the position that the court will always ascertain the real nature of the transaction and there can be no sale without a genuine

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intention on the one hand to buy and on the other hand to sell at a genuine price.

The question as to what extent Roman-Dutch law recognizes a sale at a reasonable price is still open and a moot point. There is however authority to the fact that even though the parties did not agree on a price, but on the circumstances, something had to be paid, the courts had not struck down those contracts, but have ruled that in the circumstances a reasonable price had to be paid. This is illustrated by the case of Mechanick v Simon (1920) were it was held that there is in such a case an implied term to pay a fair and reasonable price. It should be noted that out of justice and fairness between the parties to a contract of sale the Roman-Dutch law recognizes a sale at a reasonable price. This same position of recognizing payment of a reasonable price was also held in the case of Elite Electrical Contractors v Covered Wagon

Restaurant (1972), where it was held that in the circumstances, there was a need to pay a
reasonable price for the work done or service provided.

The position in Zimbabwean law as regards the upholding of a contract based on a reasonable price where the price is not fixed or the price is not ascertainable was settled in the case of

Chikoma v Mukweza (1998) where it was held that there can be no valid sale unless the parties
have agreed on the price. If it is not stated clearly it must be stated implicitly and there must be an agreed method by which the agreement can be achieved provided the sale will be valid.

The law is now clear in Zimbabwe, if the price is not fixed or ascertainable no matter what contract the parties have entered into, it is not a contract of sale. The court will always ascertain the real nature of the transaction and there can be no sale without a genuine intention on the one hand to buy and on the other hand to sell at a genuine price. The Chikoma case (supra) reaffirmed, the general Roman-Dutch law position that a contract of sale is only found if the price is fixed or ascertained.

It is therefore clear that, Elite Electrical case (supra) is no longer applicable in Zimbabwe. The issue of reasonable price is now settled in the Chikoma case (supra). All in all, the Zimbabwean position, following the decision in the Chikoma case no longer recognizes a sale based on a reasonable price. It should be noted that, the common law freedom to fix a price has for many years been subject to price control legislation, for which the enabling Act is currently The Control of Goods Act Chapter [14:05]. A sale at a price in excess of the controlled price is void. Even when the parties have agreed on a price and have intention to be bound, the courts will always ascertain the price and see to it that it complies with the law.

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Reasonable Price
A sale in Roman Dutch law has been defined as a contract in which one person promises to deliver a thing (merx) to another, who on his part promises to pay a certain price (pretium). According to MacKeurton for a valid contract of sale to exist, certain essential elements must be satisfied, that is, agreement on the thing sold and a price thereon. If these exist, there is a sale. If the above stated elements do not exist, there is no contract of sale. Therefore no matter how the parties describe their contract, if the aforementioned elements are not satisfied, the courts will not enforce the contract in question as a contract of sale but as another contract.

If these requirements are not fulfilled, there is no sale. If an enforceable agreement remains, it will be some other transaction to which the special rules of contract of sale do not apply. Whether the merx is corporeal (tangible) or incorporeal (intangible), it must be defined with sufficient certainty. It must be clear that the parties are in agreement on what is to be bought or sold; this was stated in the case of Munro v Johnson and Fletcher (1916). An insufficiently precise description of the property to be sold will make the contract unenforcable for it will be void for vagueness.

However, it should be noted that a general description of the property to be sold may be sufficient to satisfy the requirement of merx. In Clapham v Struckel (1979), the court enforced a description of the subject matter, which merely stated, . . . up to two hundred head of breeding stock. The court held that this was sufficiently clear to satisfy the general rule that the description of the property must be sufficiently clear and certain. Further, it is possible to sell property, which is not yet in existence but expected to come into existence in future. In

Rhodesia Wire Industries (Pvt) Ltd v A & J Constructions (1964), Fieldsend J accepted this type
of contract of sale into our law of sale.

If it is unknown to the parties that the merx or property was not in existence or had ceased to exist at the time of the contract, the contract of sale is void for initial impossibility, Scrutton v

Ehrlich (1908). In this case, the parties contracted for a sale of prospecting rights, which had
ceased to exist. The court concluded that the contract was void of initial impossibility.

It should be noted, however, that the above general rule will not apply, and the sale will be binding, if the non-existence of the property is the fault of the other party or because the seller had made representations and promised that the merx existed. This position at law was emphasised in the case of Inhambane Oil and Mineral Development Syndicate Ltd v Mears and

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Ford (1906).

In relation to the aspect of price in a contract of sale the Roman Dutch law position is that, for a contract of sale to come into being, the price must be either fixed by the parties or ascertainable from the contract. The price may be ascertainable from the previous course of dealing between the parties even if not expressly agreed or from an express reference to market rates and values. In some cases, the courts have ruled that if there is no mention of the price the circumstances may justify the conclusion that the parties impliedly agreed to be bound by the sellers usual price as stated in the case of Calamas v R. (1949).

From a number of case law authorities, the price should be ascertainable as further illustrated by the case of Maceys Consolidated Ltd v Chesebrough Ponds Pvt Ltd (1967), where a sale at the ruling price was held enforceable as the prices were readily ascertainable. In a different case Baxter v Maxwell (1923), a contract to sell milk at current wholesale rates was held void because the evidence showed that it was impossible to calculate the current wholesale rates in that trade at the time. The above discussion reaffirmed the position that the court will always ascertain the real nature of the transaction and there can be no sale without a genuine intention on the one hand to buy and on the other hand to sell at a genuine price. The question as to what extent Roman Dutch law recognises a sale at a reasonable price is still a moot point. There is, however, authority to the effect that, when parties have not agreed on a price but based on the surrounding circumstances, something has to be paid, the contract will not be struck down. Instead, a ruling will be made that a reasonable price be paid.

This is illustrated in the case of Mechanick v Simon (1920) where it was held that in a situation similar to the one outlined above, there exists an implied term to pay a fair and reasonable price. It should be noted that out of justice and fairness between the parties to a contract of sale, Roman Dutch law recognises a sale at a reasonable price. This same position of recognising payment of a reasonable price was also held in the case of Elite Electrical

Contractors v Covered Wagon Restaurant (1972), where it was held that in the circumstances, it
was necessary to pay a reasonable price for the work done or service rendered.

The Zimbabwean law position on the upholding of a contract involving a reasonable price where the price is not fixed or the price is not ascertainable was settled in the case of Chikoma v

Mukweza (1998) where it was held that there can be no valid sale unless the parties have
agreed on the price. If it is not stated clearly it must be stated implicitly and there must be an agreed method by which the agreement can be achieved provided the sale is a valid one. The law is now clear in Zimbabwe. If the price is not fixed or ascertainable no matter what contract the parties have entered into, it is not a contract of sale. The court will always ascertain

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the real nature of the transaction and there can be no sale without a genuine intention on the one hand to buy and on the other hand to sell at a genuine price. The Chikoma case (supra) reaffirmed the general Roman Dutch law position that a contract of sale is only found if the price is fixed or ascertained.

It is therefore clear that, the Elite Electrical case (supra) no longer applies to Zimbabwe. The issue of reasonable price is now settled in the Chikoma case (supra). All in all, the Zimbabwean position, following the decision in the Chikoma case no longer recognises a sale at a reasonable price. It should be noted that, the common law freedom to fix a price has for many years been subject to price control legislation, for which the enabling Act is currently The Control of Goods Act Chapter [14:05]. A sale at a price in excess of the controlled price is void. Even when the parties have agreed on a price and have intention to be bound, the courts will always ascertain the price and see to it that it complies with the law.

Restraint of trade agreement


From a historical perspective a restraint of trade agreement was generally regarded as being contrary to public policy and therefore unenforceable on the basis of unreasonableness. However as an exception to the broad rule, where the restraint is justifiably and reasonably necessary for the protection of the business or proprietary interests of the covenantee and with reasonable qualification as to time, space and distance, it may be enforceable. Lord Macnaughten stated the rule in the Maxim-Nordenfeld (1894) landmark case as follows:

all interference with individual liberty of action in trading and all restraints of trade in themselves if there is nothing more are contrary to public policy and therefore void . . . It is a sufficient justification and indeed is the only justification if the restriction is reasonable . . .
In the aforementioned case N sold his business which manufactured guns and ammunition to the Maxim-Nodenfeld company and he undertook that he would not for 25 years engage either directly or indirectly. (i) in the trade of business of manufacturing of guns, gun mounting or carriages, gunpowder, explosives or ammunition or (ii) in any business competing or liable to compete in any way with that for the time being carried on by the company. The court held that the second part of the restraint was unreasonable being wider than necessary to protect the business as it was when bought. It was severable from the first part which was reasonable between the parties.

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Where the object of the agreement is merely to forestall or restrict competition and not to regulate trade per se the agreement would be void on the ground that it is contrary to public policy and therefore uneasonable. In Morris v Saxelby (1916) S was employed as a tailors assistant by Morris in terms of a contract in which he covenanted that, on termination of his employment, he would not practice his trade within 10 miles of his employers place. The court held that his was merely a restraint of competition and therefore void. With a trade regulating agreement such as this one the court made a very pertinent remark in

Esso Petroleum Co Ltd v Harpers Garage (1968) . . . if however, the contract ties the trading activities of either party after its determination it is a restraint of trade, and the question of unreasonableness arises. So, too if during the contract one of the parties is too unliterally fettered, so that the contract loses its character of a contract for the regulation and promotion of trade and acquires the predominant character of a contract in restraint of trade . . .

In Spa Food Products Ltd v Sarif (1952), an application was made to compel S to comply with the terms of a trade regulation agreement, covering the whole of Southern Rhodesia (now Zimbabwe) and unlimited as to time between water manufacturers. The agreement fixed minimum prices which could be varied only by an association consisting of six members, three being the applicants and the other three being other competitors who were not parties to the agreement and could reduce their prices at will. S had ceased to be a member of the association.

It was held by the court that the restrictions in this agreement were very onerous indeed and the applicants claiming to bind S forever and throughout the width and breadth of the country to an agreement, the terms of which might well act to his disadvantage; the fact that a restriction was too wide in space or time was a good ground for holding that the restraint was unreasonable. In a relatively recent case, Munyaradzi Mangwana v Brianb Mparadzi and Company Legal

Practitioners (1989) a young lawyer who had recently graduated from the University of
Zimbabwe covenanted not to practice as a lawyer either on his own or in association with others for five years anywhere in Zimbabwe upon leaving his employer. The High Court said that in its current format the agreement was too wide in terms of time and space and in order to effect simple justice between man and man the agreement was modified, to cover only Chinhoyi (the town where he was based about 120 kilometres away from the capital where the firms main offices were) and the period of the restraint was also reduced from five years to three years.

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Types of restraint
Contracts in restraint of trade are contracts which impose an unreasonable restriction on a persons right to carry on his trade or profession. However, if it merely regulates and promotes trade by absorbing production or services, the restraint of trade doctrine will not apply to it and therefore its reasonableness will not be investigated, Shacklock Phillips-Page (Pvt) Ltd v

Johnson 1977 (2) R.L.R 161.

A complete prohibition against trading is called a general restraint while a prohibition limited in time or place is known as a partial restraint. The present law on restraint of trade seems to be summarised by the Supreme Court in Commercial and Industrial Holdings (Pvt) Ltd v Leigh-

Smith 1982 (1) ZLR 247 as follows:

(i) all restraints, whether general or partial, are prima facie contrary to public policy and therefore illegal. (ii) a restraint will be held valid if it is shown to be reasonable as regards the public interest as well as the interests of both parties. (iii) in considering the question of reasonableness the court must be satisfied that the agreement as a whole is reasonable in the sense that the factors of area covered, period of time, and the scope of the restraint are all properly balanced against another. The court is likely to allow a wider area, where, for instance, the time factor is shorter. (iv) the court must be satisfied that some interest of the promisee requires protection. There are four types of contracts in restraint of trade: these are as follows: (i) contracts for the sale of the goodwill of a business containing an agreement by the vendor not to compete with the purchaser. (ii) contracts between traders and businessmen by which prices, output, or methods are regulated. (iii) contracts in which an employee undertakes not to compete with his employer when he leaves him, by working on his own or for another employer. (iv) contracts in which a person agrees to limit his mode of trade by accepting orders from one person only or by agreeing to make only one type of machine. The reasonableness of the restraint is determined as at the time when it was entered into, Commercial and Industrial

Holdings (Pvt) Ltd (supra).

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Voetstoots provision

A voetstoots provision in a contract is a provision which exonerates the seller from liability in respect of all defects of which he/she was genuinely ignorant up to the time of sale. In other words the article or property being sold voetstoots is sold as it stands together with all defects and deficiencies thereon. Aedilitian remedies are remedies afforded to a party who has suffered loss emanating from a representation by a seller of an article. The remedies are actio quanti

minoris and actio rhedibitoria (redhibitoria). The interface or the relationship between aedilitian
remedies and a voetstoots contract starts from the concept of latent defects. Aedilitian remedies are remedies available to the purchaser of a latently defective product.

Aedilitian Remedies Aedilitian remedies are basically categorised into two sections. Firstly the actio quanti minoris and secondly actio redhibitoria also known as redhibitoria.

Actio Quanti Minoris In the case of Hall v Milner 1959, the court held that an innocent representation that qualifies as a dictum et promissume, i.e. a material statement made by the seller to the buyer during the negotiations bearing on the quality of the res vendita (thing sold) and going beyond mere praise and commendation, gives rise to an actio quanti minoris. The actio quanti minoris action is an action for the reduction of the price because the res vendita would be defective. In

Labuschagne Bros v Spring Farm (Pty) Ltd (1976) the court spelt out that the reduction of the
purchase price is calculated as the difference between the price objectively ascertained to the best evidence available. This scenario is also clearly seen in the case of Grosvenor Motors

(Border) Ltd v Visser (1971). V had purchased a 1969 model car from G. He found however,
that the car delivered to him and accepted by him was a 1968 model and when sued for the balance of the purchase price of R200, he pleaded by way of exception quanti minoris that the value of the car was less than the purchase price and accordingly G was not entitled to the amount claimed. A magistrates court found in Vs favour. On appeal it was held that what V had to prove was that the actual or true value of the car was R200 less than the purchase price.

See also SA Oil & Fat Industries Ltd v Park Rynie Whaling Co Ltd (1916) at pp 400. The court gave judgment in favour of P since the parties could not be restored to their original positions no restorative decree could be granted but S was entitled to a relief under the actio quanti minoris. From the authorities cited above it can be seen that the relief of actio quanti minoris is awarded

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in a situation where the defects complained of are of less serious degree or alternatively, the defect could still be serious in nature but the purchaser deliberately opts to keep the merx at a reduced purchase price.

Actio Redhibitoria (Redhibition) If the defects on the res vendita are many and go to the root of the contract, the aggrieved party is entitled to rescind the contract and claim restitution in integrum. By rescinding, the innocent party is seeking restoration to the status quo ante. If there has been no performance on either side nothing further needs to be done, but an innocent party who has already paid money or delivered goods under the contract will wish to claim their return. The philosophy or legal rationale underpinning the actio redhibitoria is that the defect is so serious that if the buyer had known of the defect in advance he would not have bought the article when he did.

Restitution or tender does not have to be an integral part of the act of rescission, rather it is a consequence that must necessarily follow from it. See Extel Industries (Pty) Ltd v Crown Mills (Pty) Ltd (1999). If restitution or tender follows in due course the contract is terminated with effect from the act of rescission. In the case of Elston NO v Dicker (1995), the respondent bought a house from the late mother of the appellant. Before the sale a crack in the building was observed by the buyer, but the seller described it as minor and mentioned no others. Her son, the appellant, had lived in the house for several years and had noticed several cracks, which he said were progressive. They had been filled in as they appeared but not professionally.

When the sale took place, the agreement included a condition that the property was sold as it stood (voetstoots) and it was also recorded that where cracks had appeared they had been temporarily repaired. After the buyer moved in, however, major cracks started appearing at the end of the rainy season. All were old cracks, which had been previously patched up and plastered over. Experts were called in to assess the damage and as a result major repair work to the foundations of the house was carried out. The buyer sued the sellers estate for the expenses and succeeded in the High Court and on appeal the Supreme Court upheld the High Court decision. It further held that to establish the sellers liability for the defect complained of the purchaser must show directly or by inference that the seller actually knew of the defect. It further stated that it is clear from the evidence that the seller must have known of the defects at the time of the sale and deliberately refrained from disclosing them. The Supreme Court emphasised that the duty of the seller of the property notwithstanding legal consequences which flow from the fact that the sale was voetstoots, was to disclose to the purchaser the existence of all defects of which the seller was aware of. As such the duty embraced the full disclosure of the progressive and recurring nature of the defects of which the seller was aware

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of, regardless of the voetstoots provision. In Harper v Webster (1956) Clayden F J said . . .

cases in regard to action for rescission of a contract on the grounds of fraudulent misrepresentation, establish then that there is a general principle that the person seeking relief must tender to restore what he has obtained under the contract . . .
All in all it should always be borne in mind that the aedilitian remedies (action redhibitoria or action quanti minoris) are available if the res vendita suffered from a latent defect at the time of the sale. Also, aedilitian remedies are available if the seller made a dictum et promissume to the buyer, upon the faith of which the buyer entered into the contract or agreed to the price in question, and it turned out to be unfounded.

Further cases of restraint


Contracts in restraint of trade are one of the most important categories of void contracts at common law. Broadly, agreements in restraint of trade are agreements in which one or both parties limit the freedom to work or carry on their profession or business in some way, such as by agreeing not to compete with each other in certain places or activities. Commonly such agreements may be attacked because they conflict with public interest and because they are unfair in unduly restricting personal freedom.

In todays business it sometimes seems to be in the public interest and sometimes the question of fairness between the parties, which is the most important factor in agreements involving restraints of trade. Contracts in restraint of trade are one aspect of a very large and complex problem with important economic and social implications. Essentially, the question is to what extent the law should interfere with the freedom of citizens to do business in such a way as to limit or restrain competition in the market and thus to harm the public interest as a whole.

Broadly speaking, the traditional attitude of the courts was to leave businessmen to use their own methods of conducting business even if this was likely to lead to the creation of monopolies, or unfair competition, or the enforcement of restrictive practices of various kinds. Surely, as a general rule it is not the courts business to improve on the contract the parties have made, even if they have made an unreasonable or prejudicial contract, they must live with it. As an exception to this general rule, the courts will not enforce a contract in an unreasonable restraint of trade. In the case of Rhodesia Milling Company (Pvt) Ltd v Super Bakery (Pvt) Ltd (1973) Goldin J said:

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most contracts result in a restraint of trade but that by itself does not justify the application of the doctrine of restraint of trade so as to entitle the court to relieve a party from contractual obligations freely assumed. The learned judge held that a contract is in restraint of trade if it sterilises or stifles production of services, but if it merely regulates and promotes trade by encouraging production of services the restraint of trade doctrine cannot apply to it. Its reasonableness will not be investigated. This test was laid down by the English House of Lords in Esso Petroleum Co Ltd v Harpers Garage

Stowport Ltd (1967). The approach was confirmed as part of Zimbabwean law in the case of Shacklock Phillips-Page (Pvt) Ltd v Johnson (1978).
As indicated earlier, covenants in restraint of trade are prima facie contrary to public policy and for them to be justified they must protect a legitimate interest. In deciding whether a restraint of trade is reasonable, the courts have long taken the view that regard must be had to the interests which the restraint is designed to protect. When the contract has been classified as in restraint of trade it will nevertheless be upheld if the restraint is reasonable in the interests of the public and of the parties. The onus is on the promisor/affected person to prove that the restraint is not binding on him because enforcement of it would be contrary to public policy. This was decided in Book v Davison (1988) and was confirmed in Mangwana v Muparadzi (1989) settling the question of onus. In the case of Book v Davison (1988) the Zimbabwean Supreme Court held that the question is whether enforcement of restraint would be contrary to public policy. To answer this question the court must have regard to the circumstances prevailing at the time it is asked to enforce the restraint.

Although unreasonable restraint may be unenforceable, they can be saved by severing what is too wide and enforcing as reasonable what remains, provided the two parts are separately identified in the contract. This was demonstrated in Gabriel v Fox and Carney

(Pvt) Ltd (1977) in which the parties had made a laudable attempt to confine a restraint on an
ex-employee to a reasonable area by making it apply within the area of Rhodesia (now Zimbabwe) in which the company is carrying on its business. The attempt failed because although the companys business was concentrated in Salisbury (now Harare) it had put through transactions in a number of other parts of the country. It would have been unreasonable to restrain the ex-employee from operating in all these places, but they could not be severed because that would have been the act of the court and not the parties. To cure this problem Zimbabwean courts have adopted the doctrine of restriction, permitting them to restrict an unreasonable restraint to what is reasonable even if the division is not made in the contract itself. Mangwana v Muparadzi (1989) and Direct Response Marketing (Pvt) Ltd v Shephered (1993).

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In assessing the reasonableness of the restraint, the position of the contracting parties should be taken into account. In the case of Bopgrafoc Pvt Ltd v Wilson (1974), Davies J said whilst the onus is always on the stipulator to show that a restraint clause is reasonable inter

partes and goes no further than is reasonably necessary to protect the interests of the parties,
this onus is easier to discharge where the parties contracted on an equal footing (as is normally the case between vendor and a vendee) than it is where the parties bargain from an unequal footing (as is often the case in contracts of employment) It has been argued that a restraint may be unreasonable because it prohibits an unnecessarily wide range of activities. A trading or price fixing agreement must obviously be considered in relation to the interests of the public. The restraint may not be enforceable if it creates a pernicious monopoly. In Spa Foods Products v Sarif (1951) it was illustrated that the restraint may even be unreasonable in relation to the parties interests as well. However in Commercial

and Industrial Holdings v Leigh Smith (1982) it was accepted that a restraint against competition per se is not objectionable if it is reasonably necessary for the protection of goodwill.

All in all it is now quite clear that for a restraint of trade agreement to be deemed reasonable by our courts and therefore enforceable, the time and area covered by the agreement are critical considerations. For example, Mangwana v Muparadzi (1989), a young lawyer who had covenanted not to work as a lawyer for five years either on his own or in association with others, anywhere in Zimbabwe, upon leaving his employer had the restraint agreement modified by the court to operate for three years in Chinhoyi town (about 120 kilometres from Harare), where he had been based.

Exemption clauses
The aspect of exemption clauses interfaces with the caveat subscripto doctrine. It is common or trite knowledge that a person who signs a contractual document thereby signifies his assent to the contents of the document, and if these subsequently turn out not to be to his liking, he has no one to blame but himself. However, this rule has sometimes been expressed as a rebuttable presumption that a person who puts his signature to a document knows what the document contains. See Glen Comerah (Pty) Ltd v Colbin (Pty) Ltd (1979). The caveat subscripto rule in this instance complements the parole evidence rule. This rule serves a vitally important purpose ensuring that where the parties have decided that a contract should be recorded in writing, their decision will be respected and the resulting documents will be accepted as the sole evidence of the terms of the contract. See Johnston v Leal (1980).

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The courts normally limit abuse of exemption clauses by setting limits to the exemption clauses through a narrow and conservative approach in interpreting exemption clauses. In the case of

Tubb Ltd v Mwamuka (1996), the respondent entered into a contract with the appellant garage.
The garage agreed to collect the respondents vehicle and carry out repairs. He later visited the garage to find out what progress had been made in repairing his vehicle. Eventually, he decided to retrieve his vehicle but found that a lot of engine parts were missing from the vehicle. The respondent sought to recover the value of the missing parts in an action against the garage. The garage raised the defence that the contract was subject to an exemption clause that exempted it from liability for any loss or damage however caused. The High Court ruled that the exemption clause could not exempt the garage from liability. The garage appealed and the Supreme Court ruled that the words of the exclusionary clause must be read as part of the contract as a whole and they must be sufficiently clear and comprehensive to require the court to give effect to them.

It was further held that any ambiguity as to the meaning and scope of the exemption must be interpreted against the party who inserted the clause and the latter must prove that the words used clearly and aptly embraced the contingency that arises. It was also emphasised by the appeal court that a party cannot exempt itself from liability for the willful misconduct, criminal or dishonest activity of himself, his servants or his agents or perhaps even from the loss of or damage to the subject of the contract resulting from gross negligence on his part or the part of its servants or agents.

See also Cotton Marketing Board of Zimbabwe v National Railways of Zimbabwe (1988) where the appellant successfully claimed damages from the respondent for the value of 95 bales of cotton belonging to the appellant, which were destroyed by fire while being transported by the respondent under a contract of carriage entered into between the parties despite an exemption clause asserted by the respondents. The above authorities support the view that Pollony may elect to sue either in contract or delict. If he sues in contract the result is that the onus of proving that there is no exemption clauses is on him, see Stocks and Stocks (Pty) Ltd v TJ Daly and Sons (Pty) Ltd (1979). If he sues in delict the onus of proving the clause will be on the supplier, see Durbans Water Wonderland (Pty) Ltd v Botha (1999), Cotton Marketing Board of Zimbabwe v NRZ (supra).

Mistakes in contracts
Error or mistake is one of the greatest defects that can occur in a contract for agreements which

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can only be formed by the consent of the parties and there can be no consent where the parties are in error in relation to the object of their agreement. Mistake can be described as a misunderstanding or misapprehension by one or both of the parties regarding facts, events or circumstances in the contract. The consequence of mistake (error) is that the parties do not reach consensus (agreement) and therefore there is no contract between them. In our law a contract is void for mistake if the parties are not ad idem (of the same mind) as to the terms of their agreement provided: (1) The mistake is one of fact (2) It concerns an essential fact (3) It is a reasonable mistake (4) The party is not estopped from doing so. Each of the four requirements is discussed in greater detail below:

(1) The Mistake is one of Fact The mistake must be as to a fact, not as to the law which is applicable to the facts on which the agreement is based. The applicable maxim of the law is ignorantia juris neminem non excusat

lex (ignorance of the law excuses no one).


Wessels JA in Sampson v Union and Rhodesia Wholesale (Pvt) Ltd (1929) said

The general proposition of law is that if you think the meaning of a clause is such and such, you cannot get rid of your liability when you discover that the true legal meaning is different from what you thought, for you cannot be heard to say that you did not know the law
In Benning v Union Government (1914), B paid 500 customs duty on a certain floor surfacing machine imported by him, believing the machine was of the class domestic machine on which duty was payable. B subsequently claimed the 500 back as the machine was exempt from duty. The court held that B could not recover as the payment was made in mistake of law. On the other hand in Maritz v Pratley (1894) items were displayed for auction, each bearing a number for identification. Prospective purchasers were requested to inspect the goods which were to be put up for auction. A mirror was displayed on a marble table and Pratley made a bid on the table thinking that the mirror formed part of the table. He refused to pay separately for the mirror and was sued by the auctioneer for the purchase price. The court ruled that there had been a mistake (error) regarding a fact material to the contract and consequently no consensus had been reached. The contract was therefore void.

(2) The Mistake must be Essential The mistake must be as to a material or an essential fact, that is, if the party mistaken had known what the real state of affairs was he would never have made the contract. Examples of

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mistakes concerning a material fact are given below: (a) Mistake as to the Nature of the Agreement

Dobb v Verran (1923) EDL 177. D had been conveyed at his request 300 miles in Vs private
motor-car, nothing having been said about payment. When later D sued V for 30 for medical fees, V admitted owing the amount but counterclaimed for 15 for the transport of D. The magistrate found there was a tacit contract to pay for transport. It was held, on appeal, that there was no contract. Graham JP said

Even if Verran had been under the honest impression that he was to be paid for his services, if Dr Dobbs honestly believed he was travelling as a guest, no charge could be made against him for the parties were never ad idem, the one party understanding one thing and the other, on reasonable grounds, understanding another . . .
(b) Mistake as to the Identity of a Party

Beyers v McKenzie (1880). One Holmes fraudulently represented himself to B as being


commissioned to buy horses on behalf of the Cape Government. He purported to buy nine of Bs horses for the Government and having obtained possession of them sold and delivered two of them to M, an innocent third party. B sued M for the return of the horses. It was held that there was no contract because B meant to contract with the Cape Government and not with H. (c) Mistake as to the Identity of the Subject-Matter Maritz v Pratley (supra). A mistake which is merely incidental to the contract in that it relates only to the reasoning or motivation of one of the parties does not render a contract void. In Orban v Stead (1978), King AJ observed that:

an error in motive cannot result in the cancellation of an agreement. If this were not so, the sanctity of a contract would be imperilled by the motivation of the parties to the contract.

(3) It must be a Reasonable Mistake Even if the mistake is material the courts will not come to the assistance of the mistaken party unless his mistake is reasonable or justifiable (justus error). This means that the mistake must not be due to the negligence of the party who relies on mistake (error) in order to avoid liability. If the reasonable person (the normal careful person) under similar circumstances would have misunderstood the same fact, the mistake (error) is regarded as being reasonable and sufficient to nullify consensus. In Merrington v Davidson (1905), at a sale of certain lots of ground, D bought lots nos. 128

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Block CC. A plan was available on which the various blocks and lots were marked. D contended that he had intended to buy lots in Block C and not in Block CC and that his mistake rendered the contract void. The court held that the contract still stood because the mistake by the buyer was not a justus

error as D ought to have inquired what lots he was buying.


Equally in the case of George v Fairmead (1958) a guest at a hotel signed the register without acquainting himself with a clause which indemnified the hotel from claims arising from theft. George maintained that his action was a case of mistake (error) but the court decided that it was not a reasonable mistake and therefore had no effect on the contract. The other legal basis upon which the contract was binding was the caveat subscripto rule (let he who signs beware). Finally, the party setting up the mistake must not be estopped from doing so. Where one person by his words or conduct represents to another that a certain state of things exists and induces him to act on that belief to his prejudice, the former is prevented from denying as against the latter the existence of that state of things. The estopped person cannot succeed if he sets up the defence that he entered into the contract while labouring under a material mistake.

Material disclosure
In the law of contract, silence does not in general amount to misrepresentation. But there is one class of contract in which disclosure of material facts must be made. Agreements falling within this class are known as contracts uberrimae fidei (of the utmost good faith). Failure to disclose material facts, whether they are asked for or not, renders the contract voidable at the option of the party prejudiced, that is, the party to whom disclosure ought to have been made.

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2007

Corporate and Business Law- F4 (Zimbabwe)


Casebook

Doctrine of fundamental breach


The doctrine of fundamental breach has unleashed numerous legal and judicial headaches. No proper definition can be given to it but it has been generally regarded as a breach that goes to the root of the contract or renders the contract inoperative. Charles Worth describes the doctrine as a failure to undertake a certain obligation that concludes an obligation. The fundamental breach doctrine is of English origin and our courts have flirted with it. Thus Professor R.H. Christie submitted that: Our courts have flirted with the English doctrine of fundamental breach but the romance has not blossomed, and it is probably even better that it should not as the doctrine is pregnant with difficulties. The application of this doctrine in the Roman-Dutch Law is traced in a number of cases of which the case of Harsales Ltd v Wallis (1956) bears testimony where it was held that an exemption clause will not avail a guilty party to a breach that goes to the root of the contract.

However, complexities of this doctrine, which lead our legal writers into disliking this doctrine is the question of whether it is a rule of law or merely a rule of construction. According to Cheshire and Fifoot, a rule of law is to be applied whether or not it defeats the intention of the parties. A rule of construction exists to give effect to that intention. Our courts, even English courts themselves are not consistent as to whether the doctrine is a rule of law or construction. Thus in the case of Minor Shipping (Pty) Didcott J expressed doubt about the concept of fundamental breach and treated it as a matter of construction.

Following the acceptance of the fundamental breach doctrine in Roman-Dutch law, and since our common law is the Roman-Dutch law, the doctrine could be applied in Zimbabwean cases. This is illustrated by the case of Transport Crane Hire (Pvt) Ltd v Hurbert Davies and Co (Pvt)

Financial Training Company

Ltd (1991). The facts of the case are as follows. The Appellant purchased a Foden truck which
the respondent had assembled. After travelling 43,730 km, the steering column of the truck was found to have been improperly assembled by the respondent, causing it to fall apart and to veer off the road and overturn. The Appellant sued for damages based on negligence. The High Court ruled that the respondent had acted negligently but because of the existence of an exemption clause he was not liable.

The exemption clause read as follows: The company hereby guarantees within a period of nine months or 75,000 km of delivery at its option either to repair or replace any part which may prove to be defective through material or workmanship Liability for direct or consequential loss of whatsoever nature or however arising is expressly excluded. On Appeal, Korsah JA held that the breach of contract was a fundamental breach, and the exemption clause could not exempt the respondent from liability for such fundamental breach. McNally JA also held that the negligent assembly of the steering column was not an act intended to be covered by the exemption clause, properly construed, based on a policy approach to interpretation of such clauses in a contract.

This case clearly shows us that the fundamental breach doctrine was part of our law in contractual cases. However, that was the law as it was, the position has now changed with the coming of the Consumer Contracts Act [Chapter 8:03] which came into effect in 1994. It is therefore submitted that the statute overrides the common law. Where there is a clear statute law to regulate any matter that statutory provision should be applied. What the courts were trying to achieve by applying the fundamental breach doctrine is now regulated by a statute. In terms of s.5 (1)(d) of the Act read with s.4: A court may find a consumer contract to be unfair for the purpose of this Act if the consumer contract imposes obligations or liabilities which are not reasonably necessary to protect the interests of or if the consumer contract is contrary to commonly accepted standards of fair dealing. In terms of s.4(1)(c)(i) the court was empowered to cancel the whole or any part of the consumer contract, if it imposes obligations or liabilities which are not reasonable or if the contract is contrary to commonly accepted standards of dealing.

In so far as the Consumer Contracts Act is concerned there is nothing called fundamental breach but the Act empowers the court to set aside contracts presumed to be unreasonably unfair. It can therefore be said that the fundamental breach doctrine is no longer part of our law. It was indeed part of our law before 1994 but now the Act takes precedence over the common law principle.

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Remedies
There are five remedies available for breach of contract or a threatened breach of contract. The remedies include specific performance interdict, declaration of rights, cancellation and damages. The first three may be regarded as methods of enforcement and the last two as recompense for non performance. It should be noted that, the choice between these remedies rests solely and primarily with the injured party, who may elect more than one of them either in the alternative or together of course subject to the overriding principles that he must not claim inconsistent remedies and that he must not be overcompensated.

Specific Performance Specific performance can be defined by any of the following; (i) An order to perform a specified act in pursuance of a contractual or any other obligation (ad

factum praestandum).
(ii) An order to perform a specified act or pay money (ad percunian solvendum). (iii) An order to perform a specified act in pursuance of a contractual obligation. A plaintiff is entitled to specific performance. Zimbabwean law is clear that a plaintiff is always entitled to claim specific performance and assuming he makes out a case his claim will be granted subject only to the courts discretion. In the case of Farmers Co-op Society (Leg) v

Berry (1912) Innes J said, Prima facie every party to a binding agreement who is ready to carry out his own obligation under it has a right to demand from the other party so far as it is possible ...
Specific performance will not be granted where it is impossible to comply with the order, where it causes undue hardships on the defendant and generally in contracts for personal services like contracts of employment or where the item that is being claimed by the plaintiff is readily available on the market. It is true that courts will exercise a discretion in determining whether or not decrees of specific performance should be made. In the case of Haynes v Kingwilliamstown Municipality (1951) De Villiers AJA said,

The discretion which a court enjoys although it must be exercised judicially is not confined to specific types of cases, nor is it circumscribed by rigid rules. Each case must be judged in the light of its own circumstances
In the case of Shakinovsky v Lawson and Smulowitz (1904), the purchaser, Shakinovsky, sued for the specific performance of a contract of sale of a shop and business with no alternative for

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damages. It appeared from the evidence that the seller, Lawson, could not give specific performance as the subject matter to the sale had subsequently been sold to Smulowitz, a bona

fide purchaser. The court emphasised that it will certainly not decree specific performance
where the subject matter of a contract has been disposed to a bona fide purchaser or where it is impossible for specific performance to be effected.

Where the thing claimed can readily be bought anywhere a decree of specific performance cannot be ordered. De Villiers AJA said in the case of Haynes v Kingwilliamstown Municipality (1951)

In our law a grant of specific performance does not rest upon any special jurisdiction, it is an ordinary remedy to which, in a proper case the Plaintiff is entitled so in contracts for the sale of shares which are daily dealt with in the market can be obtained without difficulty specific performance will not ordinarily be granted . . .
It should however be noted that the decree of specific performance would not be granted where damages would adequately compensate the injured party. Due to that possibility, the injured party usually adds to his prayer for specific performance an alternative prayer for damages. See the case of Woods v Walters (1921) wherein Innes C J said:

It is common practice . . . to add to a prayer for specific performance an alternative prayer for damages.
Interdict This is a remedy to prevent breach or threatened breach of contract. It takes the form of a court prohibiting the defendant from doing whatever is specified in the order.

Declaration of Rights This is remedy whereby parties approach the court for an order declaring the position of their rights. This remedy was underscored in the South African case of Government of Self-Governing Territory of KwaZulu v

Mahlanga (1994) where Eloff J pointed out that, . . . the court is limited to a question of right. The nature and scope of the right might be inquired into, but in the absence of proof of such a right, or at least a contention that there is such a right, the court has no jurisdiction.
It should also be borne in mind that courts are not there to rule on abstract concepts or any dispute and as far as declaratory orders are concerned, only legally recognisable and enforceable rights are determinable.

Cancellation The act of cancellation, which is also sometimes described as acceptance of the repudiation,

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rescission and repudiation may be performed by the innocent party himself, without the assistance of the court. In essence, the court order would confirm the act which has already been done. The object of cancellation unlike rescission, is intended to terminate the primary obligations of the contract there and then but not retrospectively. Restitution by either party or both parties should therefore be ordered only to the extent necessary to avoid unjust enrichment. See Feinstein v Niggoli (1981) in Segal v Mazziv (1920) Watermeyer AJ said, Now,

when an event occurs which entitles one party to a contract to refuse to carry out his part of the contract, that party has a choice of two courses. He can elect to take advantage of the event or he can elect not do so. He is entitled to take reasonable time to make up his mind, but once he has made his mind, he is bound by that election . . .

Damages Damages for breach of certain special types of contracts, such as sales, leases and contracts of employment are frequently assessed according to principles that have evolved to meet the special requirements of the particular contract. Unlike damages for delict, damages for breach of contract are not intended to recompense the innocent party for his loss, but to put him in the position he would have been in if the contract had been properly performed. See Victoria Falls

and Transvaal Powerco Ltd v Consolidated Langlaagte Mines Ltd (1915) AD1. In this case C
ordered a supply of electric power from V on 25 February 1911. V was informed that the power was required by 1 July 1912 and was for a new reduction plant. V replied we have duly noted these requirements and will make the necessary arrangements. The power was not actually supplied until 29 September 1912. C sued V for damages for loss in extraction, for deferred profits, for loss on development and for loss on shaft-sinking. In considering the principles to be applied Innes C J said;

we must apply the general principles which govern the investigation of the most difficult question of fact the assessment of compensation for breach of contract. The sufferer by such a breach should be placed in the position he would have occupied had the contract been performed . . . and without undue hardship to the defaulting party. The reinstatement cannot invariably be complete, for it would be inequitable and unfair to make the defaulter liable for special consequences which could not have been in his contemplation when he entered into the contract . . .
The law relating to awarding of damages ensures that undue hardship is not imposed on the defaulting party by obliging the sufferer to take reasonable steps to mitigate his loss or damage. Additionally, the defaulting partys liability is limited in terms of the broad principles of causation and remoteness. The latter gives rise to damages that flow naturally and generally from the kind

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of breach of the contract and which the law presumes the parties contemplated as a probable result of the breach and damages that although caused by the breach of contract, ordinarily regarded in law as being too remote to be recoverable unless special circumstances are established attending the conclusion of the contract. To that end two types of damages exist i.e general damages and special damages. That contemplation is a prerequisite for special damages is a common trite principle enunciated in various case law. See also the case of

Shartz Investments (Pty) Ltd v Kolovyrnas (1976).


As regards mitigation, the principle was exhausted in the case of Hazis v Transvaal and

Delagoa Bay Investment Ltd (1939).


Tindall JA stated:

It was of course the duty of the company to take all reasonable steps to mitigate the loss consequent to the breach of the lease, but the duty did not impose on the plaintiff an obligation to take any steps which a reasonable and prudent man would not ordinarily take in the course of his business.
All in all the principles have been re-stated by Corbett JA in Holmdene Brickworks (Pty) Ltd v

Roberts Construction Co. Ltd (1977) wherein it was stated that: the fundamental rule in regard to the award of damages for breach of contract is that the sufferer should be placed in a position he would have occupied had the contract been properly performed so far as that can be done by the payment of money and without undue hardship on the defaulting party . . .

Glossary terms
(a) Set-Off Where two parties to a contract are reciprocally indebted to each other, the debts are automatically extinguished if they are of the same amount or, if one is larger than the other, the smaller is extinguished and the larger reduced by the amount of the smaller debt. Lester

Investment (Pvt) Ltd v Narshi (1951)

(b) Novation Novation takes place where the parties to a contract agree to replace it completely with a new contract. A new obligation is introduced, replacing the existing obligation e.g. a contract of sale being converted into a donation or one of exchange. Such agreement may be express or

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inferred from all the circumstances of the case. The court will not lightly infer a novation. It will do so only if the circumstances raise such a necessary inference.

(c) Locus standi in judicio A party desiring to enter into a contract must have the capacity to sue or be sued, (locus standi

in judicio) according to the Legal Age of Majority Act (1982). Natural persons who have attained
majority status (18 years) have locus standi in judicio. Mhondoro Muchabaiwa v Katekwe (1984) Certain categories of persons such as unassisted infants, mentally ill persons, inebriates, insolvent persons and enemy aliens lack locus standi in judicio. On the other hand a company that is registered in terms of the law acquires contractual capacity upon its registration (section 9 of the Companies Act).

(d) Quasi-Mutual Assent This is also known as the Smith v Hughes doctrine and essentially the position is that in deciding whether there was an intention to (where a dispute has arisen) the test is objective rather than subjective. This intention is determined or inferred from the manner in which the person concerned conducts himself. As was said by the court in Pieters and Co. v Salomon (1991), .When a man makes an offer in plain and unambiguous language which is understood in its ordinary sense by the person to whom it is addressed, and accepted by him bona fide in that sense, then there is a concluded contract.

Any unexpressed reservations hidden in the mind of the promisor are in such circumstances irrelevant. He cannot be heard to say that he meant his promise to be subject to a condition which he omitted to mention, and of which the other party was unaware.. The rule will not be applied where there was a mutual mistake, the parties honestly attaching different meanings to words in a contract which are not self-explanatory.

Void and voidable contracts


A valid contract gives rise to rights, obligations and powers that are vested in one or both of the parties to the contract. These rights always include a personal right to claim performance from the other party. If the latter does not perform in terms of the contract, he may face a claim based on breach of contract. The parties however must achieve consensus ad idem (meeting of minds) before a contract can come about. Where a party understood something incorrectly it is said that he acted as a result of mistake and in cases of mistake one cannot be said to have consented to that which the other party has in mind. There is therefore no consensus between

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the parties and likewise no contract. In cases involving duress, undue influence and misrepresentation, consensus will have been obtained improperly and therefore it would be defective. Such a contract would be voidable at the instance of the weaker party.

From the foregoing it is clear that there are factors which may influence consensus between the parties to the extent that the contract may be rendered void and voidable. These factors which will be discussed in detail below are the following: 1. Mistake (error) 2. Misrepresentation 3. Duress 4. Undue Influence

1. Mistake Error or mistake is one of the greatest defects that can occur in a contract, for agreements can only be formed by the consent of the parties and there can be no consent where the parties are in error in relation to the object of their agreement. Mistake can be described as a misunderstanding or misapprehension by one or both of the parties regarding facts, events or circumstances in the contract. The rule is that a mistake renders the contract void if it is: (a) one of fact rather than law (b) essential (material) (c) reasonable (justus error) This mistake (error) must concern only the facts of the contract and in particular the essential facts of the agreement in order to have any influence on the consensus between the parties. In Maritz v Pratley (1894) items were displayed for auction each bearing a number for identification. Prospective purchasers were requested to inspect the goods which were to be put up for auction. A mirror was displayed on a marble table and Pratley made a bid on the table thinking that the mirror formed part of the table. He refused to pay separately for the mirror and was sued by the auctioneer for the purchase price. The court ruled that there had been a mistake (error) regarding a fact material to the contract and consequently that no consensus had been reached and the contract was therefore void. The fact that the error is essential and therefore that there is dissensus between the parties is not sufficient on its own to render the contract void. In addition the mistake must be a justus

error (reasonable mistake). An error is justus when it is reasonable or excusable in all the
circumstances of a particular case. This means that the mistake (error) must not be due to the negligence of the party who relies on mistake in order to avoid liability. In George v Fairmead (1958). A guest at an hotel signed the register without acquainting himself with a clause which

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indemnified the hotel from claims arising from theft. George maintained that his action was a case of mistake but the court decided that it was not a reasonable mistake and therefore had no effect on the contract.

2. Misrepresentation A contract can be set aside by the aggrieved party on the ground of misrepresentation where: (a) A representation was made by one party or his agent to the other in order to induce him to enter into the contract. (b) The representation was material (c) It was false in fact (d) The other party entered into the contract on the faith of the representation. A party cannot claim misrepresentation unless he has been induced thereby to conclude the contract. He must therefore prove that he accepted the represented facts as being true and that they constituted a reason for him to conclude the contract before he will be able to contest the contract. The test which is applied is whether the innocent party would have concluded the contract if the misrepresentation had not been made. In Poole and McLennan v Nourse (1918) a misrepresentation was made concerning the qualities of a farm. However before the purchaser bought the farm they were acquainted with the true facts and they nevertheless decided to go ahead and purchase the farm. The court decided that they had not been induced to purchase the farm by the misrepresentation and therefore the contract could not be rescinded. The choice between the enforcement and setting aside of the contract must be made by the innocent party within a reasonable time after knowledge of the deception. He has a choice between enforcing or rescinding the contract and once he has chosen, he is bound by his choice and he loses the alternative option. (Bowditch v Peel and Magill (1921). In our law a distinction is drawn between fraudulent/intentional, innocent and negligent misrepresentation. The party alleging that a misrepresentation is fraudulent has to prove the absence of honest belief by showing in the words of Lord Herschell in Derry v Peek (1889) that a false representation has been made. (1) knowingly or (2) without belief in its true or (3) recklessly careless whether it be true or false. The person to whom the fraudulent misrepresentation was made has the choice of the following remedies. (a) He may ignore the contract and if sued on it use the fraud as a defence. (b) He may rescind the contract and claim restitution Dibley v Furter (1951) (c) He may claim rescission of the contract, restitution and damages Gous v De Kock (1887) (d) He may treat the contract as binding and claim damages for any loss he has suffered.

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Coomers Motor Spares (Pvt) Ltd v Albania (1979)

3. Simple/Innocent Misrepresentation A misrepresentation made without fraud and without negligence is a simple misrepresentation. The party making the misrepresentation genuinely believes the facts to be true while they are actually false. The only remedy available in circumstances involving innocent misrepresentation is rescission and damages are not available. The remedy of rescission is available to all the three forms of misrepresentation. Rescission means that the parties have to be restored to the status quo ante. The innocent party is entitled to claim back whatever he has parted with as a result of the contract but he is also obliged to return what he has taken from the other party.

Harper v Webster (1956)


Negligent misrepresentation occurs where the maker of a misrepresentation fails to display that degree of care which a reasonable man in his position would display. He is negligent if he should have verified the truth of the facts before conveying them to the other contracting party. Whilst the remedy of rescission is available for negligent misrepresentation for many years it was a debatable point as to whether damages were available for negligent misrepresentation in Zimbabwean law. It is now settled law that in appropriate cases damages are available for negligent misrepresentation. Autorama (Pvt) Ltd v Farm Equipment Auctions (1984).

4. Duress Duress may be described as a threat or intimidation which engenders fear in a person, causing him to conclude a contract as a result of this fear. In order to succeed voiding the contract the fear to which the threat gives rise must be reasonable fear, in other words it must be clear that a reasonable person would also have been fearful in the given circumstances. The innocent party must have been threatened by the other contracting party and not by an outsider. In our law the leading case on this subject is Broodryk v Smuts (1942) where Broodryk was threatened with internment or arrest if he were to refuse to enlist with the defence force. The requirements for duress were set out in this case and are the following: (a) the fear must be reasonable (b) the fear must be caused by a threat of considerable evil and directed at the contracting party or his family or property (c) it must be a threat of immediate danger which cannot be averted (d) the threat or intimidation must be contra bones mores (contrary to good morals) (e) the moral pressure which is exerted must cause damage. Duress renders the contract voidable at the option of the threatened person and he has the choice between enforcing and setting aside the contract, as well as the right to claim damages.

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5. Undue Influence Undue influence and the consequences thereof were described by Fagan JA in Preller and

Others v Jordaan (1956).


As the influence which one person has over another which weakens the latters resistance and renders his resolve pliable so that the other person may exercise his influence in an unconscionable manner to persuade the victim to conclude a prejudicial contract which he would normally not have concluded. Once again because the weaker partys consent has been improperly obtained the contract is consequently voidable at the instance of the person who has suffered. The requirements for undue influence are as follows: (a) one party obtains influence over the other party (b) this influence weakens the other partys resistence and renders his resolve malleable (c) the party exerting the influence uses this influence in an unscrupulous manner (d) this influence leads to the conclusion of a contract which is to the detriment of the other party. Patel v Grobbelaar (1974)

Void ab initio
One of the essential requirements for the validity of a contract is that performance must be possible. As a general rule it can be stated that if performance of the envisaged contract is impossible from the initial instance the contact will be void ab initio (invalid from the beginning). With commercial contracts performance is impossible if the thing which has to be delivered no longer exists or never existed; is incapable of being traded or already belonged to the purchaser when the contract of sale was concluded.

Another form of impossibility usually involves physical impossibility for example the house which was to be surrendered for occupation has been razed to the ground. A distinction can be drawn between initial impossibility and supervening impossibility of performance. Initial impossibility of performance exists where performance was impossible at the time of the conclusion of the contact whereas supervening impossibility of performance refers to the case where performance was possible at the inception of the contract but subsequently became impossible. The impossibility must be objectively beyond the control of the parties. In other words, it must be caused by vis major (an act of God) or casus fortuitous (an inevitable accident). Between the two phenomena we are looking at events which cannot be foreseen with reasonable foresight in

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as much as they cannot be prevented with reasonable care. In the case of Peters, Flamman and Co Ltd v Kokstad Municipality (1919), the municipality had concluded a contract with the appellants in terms of which the latter were to supply electricity to the town for a number of years. During the currency of the agreement, the second World War broke out and the appellants who were German nationals were interned as enemy aliens and their business was wound up under the relevant wartime legislation. Upon their release from prison they were sued for breach of contract by the Municipality and the court decided that supervening impossibility had terminated the contract. Solomon A.C.J said:

By the civil law a contract is void if at the time of its inception its performance is impossible. So also where a contract has become impossible of performance after it had been entered into the general rule was that the position is then the same as if it had been impossible from the beginning. The authorities are clear that if a person is prevented from performing his contract by vis major or
casus fortuitous, under which could be included such an act of state as we are concerned with

in this appeal, he is discharged from liability.


The concept of supervening impossibility as we know it in Roman-Dutch law more or less equates with the doctrine of frustration in English law. Some terse examples drawn from English law will probably suffice. In Taylor v Caldwell (1866) the contract was deemed to have been frustrated after a music hall which had been hired for a series of concerts was burnt down.

In Condor v Barron Knights (1966) the drummer of a pop group became ill and was forbidden by his doctor from performing for more than four nights each week thereby frustrating his contract which extended for seven nights. Apart from subsequent physical impossibility there may be a change in the law after the contract was made which renders it illegal to perform the contract. For example, an outbreak of war will frustrate a contract, as would illegally trading with the enemy (Avery v Bowden (1855).

Equally the basis of the contract may be negated as when an agreement is dependent upon some future event which does not take place. In Chandler v Webster (1904) the coronation of King Edward (VII) was postponed because of the sudden illness of the king and contacts for the hire of rooms along the route of the procession were as a result frustrated. From these cases, it is clear what effect supervening impossibility of performance has on a contract. As soon as performance has become impossible in its entirety the contract is terminated and the parties are freed of their obligations. This rule applies to all contracts where the passing of the risk rule does not form part of the contract.

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In cases where the passing of the risk rule forms part of the contract, for example the contract of sale, where the purchaser bears the risk for incidental damage, the contract is not terminated by supervening impossibility. The purchaser is still obliged to perform although performance has become impossible for the seller Pahad v Director of Food Supplies (1949).

However under Roman-Dutch law a contract is not terminated by supervening impossibility of performance in the following situations: (a) where performance has become impossible as a direct result of the debtors own wrongful act. In Benjamin v Myers (1946) M let a garage to B. B undertook that at all times he would be available for the sale of sufficient supplies of such brands of petrol and oils as he was permitted to stock and sell on the premises in terms of the lease. On breach of this undertaking M was entitled to cancel the lease. B ceased to hold and sell petrol and M cancelled the lease and sued for Bs ejectment. B pleaded that he had been prevented from selling petrol by the Controller of Petrol. M replied that this was a result of Bs wrongful act. It was held that finding the Controller had in fact prevented B from selling petrol but had done so because B has been found guilty of a breach of the relevant regulations, the magistrates judgment granting an order of ejectment should be upheld and Bs appeal dismissed. Herbstein AJ said:

A defendant cannot rely on a self-created impossibility . . . In my opinion the magistrate was correct in holding that the performance of the contract was made impossible as a direct result of the defendants own wrongful act.

(b) When the debtor has taken it upon himself the risk of performance becoming impossible. In

Yodaiker v Angerhrn and Piel (1914), Y by contract agreed to supply A with a certain quantity of
coal two trucks of forty tons each per week for a period of twelve months. Owing to a railway strike which might have continued for an indefinite period, Y, although called upon to fulfil the contract, was unable to supply the coal required between 7 and 15 January 1914 and notified A to that effect. A thereupon cancelled the contract. When Y sued for damages, the magistrate found that A and P were justified in cancelling the contract and Y could not receive damages. Y appealed. It was held that the appeal should be dismissed. Curlewis J said:

The fact that the plaintiff was prevented by the strike from carrying out his obligations is no answer to the respondents. That is a risk which he took upon himself when he entered into the contract, and he had to bear the burden of that risk.
(c) When performance is more difficult or costly but not impossible to undertake (Herman v

Shapiro and Company (1926) supra).


(d) Where the impossibility is partial, in which case the obligation remains in existence in so far as the part that is still possible is concerned (Stansfeld v Kuhn 1940).

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(e) Where the debtor is only temporarily disabled from fulfilling his obligation, Baretta v

Rhodesia Railways (1914).


Tredgold J said:

The law is clear that when a contract becomes finally and completely impossible of performance by reason of an act of state, it is discharged. But this does not cover the situation in which one party is temporarily disabled from fulfilling his undertaking. Upon a temporary disability preventing one party from fulfilling his obligation the contract continues. If the disability persists for a period which judged on the circumstances of the particular case renders it unreasonable that the other party should continue bound whilst receiving no benefit from the contract such party is entitled to terminate the contract.

Void for vagueness


Those agreements where the language used is so vague and uncertain that it cannot be decided what was in fact agreed upon by the parties. South African Reserve Bank v Photocraft

(Pvt) Ltd 1969 in which a written lease agreement provided that the lessor hereby grants to the
lessee an option to renew this lease for a further period of three years at a rental to be mutually agreed upon under the same terms and conditions as herein contained. P, the lessee exercised the option but the bank which had purchased the building replied that it was unable to negotiate in regard to any extension of the lease as the buildings would be demolished. Held; The clause was of no force or effect in the absence of any agreement as to rental and further that the agreement to negotiate was so vague as to its import, significance or consequence as to be unenforceable. And in Baretta v Baretta (1924) a contract between the parties by which a debt was acknowledged and certain property pledged, provided that the debtor hereby undertakes to pay off a substantial sum every year. Held; This stipulation was too vague to be enforceable in law.

Those where the agreement is not final and there are still terms to be negotiated the contents of which cannot be determined. Schneier and London Ltd v Bennet (1927) B was employed as manager of S and Ls timber department at a monthly salary of forty pounds plus a small commission to be agreed at a later date between the parties. He was dismissed

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before any agreement had been reached as to commission. He sued S and L for commission at the rate of one-fifth per cent on turnover, which rate he contended was reasonable. Held; It seems impossible to say what is the meaning of the words small commission on the turnover. The agreement is too vague to enforce. From the foregoing it is quite clear that if an agreement is perceived by the courts as too vague it becomes void for vagueness and of no force or effect.

Contract made void due to age of consent


The Legal Age of Majority Act, 1982 conferred majority status on all Zimbabweans above the age of eighteen years. African women who were hitherto perpetual minors acquired majority status at the age of eighteen years. As a result all African women older than eighteen years of age are emancipated from the authority of guardians (like their male counterparts). In Katekwe v

Muchabaiwa (1984) the Supreme Court ruled that as a result of the Legal Age of Majority Act
upon attaining eighteen years of age an African woman acquires locus standi in judicio (contractual capacity).

In our law an agreement which is so vague that its meaning cannot be ascertained by a court is void ab initio (from the initial instance). In Baretta v Baretta (1924) a contract between parties by which a debt was acknowledged and certain property pledged, provided that the debtor thereby undertakes to pay off a substantial sum every year. The court said that this stipulation was too vague to be enforced in law. On the other hand the mere fact that a contract appears to be incomplete or uncertain does not render it void for vagueness if its meaning can in fact, be determined by a court on the evidence before it. In Anegate v Muckulals Estate (1954) A was employed by his uncle who agreed to pay him something, sometime for his services. The court held that the language of the contract was not so much vague as silent and the amount of remuneration could easily be determined by having recourse to the ordinary rules governing implication of terms into a contract. There was therefore in this case an implied term requiring the uncle to pay a reasonable remuneration.

Undue influence
A contract can be set aside by the aggrieved party on the ground of undue influence where as was said by Fagan J A in the case of Preller and Others v Jordaan (1956).

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(a) One person obtains an influence over another which weakens the latters powers of resistance and renders his will pliable. (b) Such a person then uses his influence in an unconscionable manner to persuade the other to agree to a prejudicial transaction which he would not have entered into with normal freedom of will. The burden of proof lies with the party who wants to ask the court to set aside a contract on the ground of undue influence and he must prove the following: (i) The other party exercised an influence over him (ii) This influence weakened his powers of resistance and made his will pliable. (iii) The other party exercised this influence in an unscrupulous manner in order to induce him to consent to a transaction (a) which is to his detriment and (b) which he with normal free will, would not have concluded. In Patel v Grobbellaar (1974) G claimed the cancellation of a Mortgage Bond registered against property owned by him in favour of P for $40 00000, ostensibly the balance due in respect of money lent by P to G. This was done under a power of attorney which P has persuaded G to sign. At all relevant times, G believed P possessed supernatural powers and as a result of this belief P acquired an influence over G. G would not have signed the power of attorney with normal freedom of volition as he had not borrowed any money from P. A lower court ordered cancellation of the contract and on appeal against that decision by P the Appeal Court ruled that he had satisfied the onus of proof and that the appeal should be dismissed.

Influence may be exerted by anyone but it is more likely to exist where there is a special relationship between the parties such as that of parent and child, teacher and pupil, attorney and client, doctor and patient. In the case of Preller and Others v Jordaan (1956) J, an elderly farmer, claimed re-transfer of four farms that he had donated and transferred to P, who at that time was his doctor. J alleged that the transaction had taken place when he was old, spiritually, mentally weak and exhausted through P.s influencing him in an improper and unlawful manner to give and transfer the farms to P, to be administered by P for the benefit of J.s wife and farm labourers. J further argued that he would not have done so had he not been so weak and exhausted and under P.s influence. In the meanwhile P had in turn donated and transferred ownership of three of the farms to his son and daughter. In a judgment which underlines the fundamental distinction between void ab initio and voidable agreement the appeal court ruled that as the transaction which was induced by undue influence was voidable and not void and as transfer ad been passed to the two children J could not claim back the three farms from them. However he could still claim the one farm which remained in the hands of the defendant (P) at the time of the action. On the other hand if the contract had been void ab initio J would have been able to recover all the four farms.

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Illegal contracts
One of the primary essentials of a valid contract is that for it to be enforceable the agreement must be lawful. A valid contract cannot come into existence if the agreement is unlawful because (i) it is prohibited by statute, the prohibition referring to either the form of the contract or the performance to be made. (ii) it is prohibited by common law, being regarded as contrary to public policy or contra bonos

mores (contrary to accepted standards of morality).


The ex turpi causa rule (from a base cause, no action arises) is rigorously applied by our courts and even if the parties are unaware of the illegal nature of the agreement, the courts will not enforce it. It is often said that an agreement which violates statute law or the common law is void ab initio (from the initial instance). It is a well established if not universal rule that the court is bound to refuse to enforce a contract which is illegal even though no objection to the legality of the contract is raised by the parties. In Cape Dairy v General Livestock Auctioneers (1924), a firm of auctioneers in breach of a Transvaal statute, sold to S certain cattle on Sunday. The firm successfully sued in the Magistrates Court for the balance of the price. On appeal to the Transvaal Provincial Division, the court of its own motion raised the point that the sale was illegal and refused to enforce it. Innes CJ said:

when a court is asked to enforce a contract which the law expressly forbids, it is not only justified but bound to take cognisance of the prohibition and the consequent illegality . . .
In Lion Match Co Ltd v Wessels (1946) W sued for the price of wood sold and delivered by him to LM. The requisite governmental permit had not been obtained. The court held that the sale was illegal and therefore unenforecable. It is clear that the video cassette was smuggled into Zimbabwe in contravention of the Customs and Excise Act and because the agreement between Harry and Michael is tainted by statutory illegality it is unenforceable. Equally, the agreement between the two parties is void ab initio (from the initial instance) on the basis of common law illegality. Certain types of contract are forbidden at common law and therefore prima facie illegal. Some of the more common examples are the following:

(i) agreements in restraint of trade (ii) agreements in interfering with justice

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(iii) agreements to stifle the prosecution for a crime (iv) agreements allowing the parties to avoid judicial remedies and to take the law into their own hands (v) agreements derogating from marriage (vi) agreements encouraging immorality. In this case the agreement pertains to pornography and it would be viewed with disapproval by the courts.

As a general rule, a party who has fulfilled his obligations under an unlawful agreement is not permitted to reclaim what he has performed. In other words the consequences of an agreement containing an illegality is that the agreement does not constitute a contract. It is void of the legal effect intended by the parties. (York Estates v Wareham 1949)

The maxim in pari delicto pitio est conditio

possedentis
Kerr notes that although consent of the party against whom the right is held is not necessary, there are certain exceptions to this principle. The exception to this rule is that where there is a conditional clause in a contract, cession will not prevail. This exception to the general principles of cession was applied by Ludorf J in the Seegrey Bag Man case where it was held that the presence of a conditional clause tips the scale in favour of the view that the contract is not capable of cession.

The maxim in pari delicto pitio est conditio possedentis applies where the parties are equally in the wrong. The position that he who is in possession will prevail would be relaxed for considerations of justice between the parties. Chanetsa is entitled, to the relaxation of the in pari

delicto rule, to retain possession of the property in question, if justice is to prevail. This verdict
would be in reliance on the judgment of Schreiner J in the case of Petersen v Jajbhay. The learned judge notes that, the lease though invalid, public policy seems to me to point prima

facie to his removal from the property otherwise in case of this there would be unjust
enrichment

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Latent defects
One of the primary obligations of the seller is to guarantee the purchaser against the existence of latent defects in the merx (merchandise). The seller is obliged to deliver the thing sold to the purchaser without defects. If the merx is latently defective, the tacit warranty against latent defects comes into operation. This warranty is inherent to the contract of sale and in terms thereof the seller guarantees that the thing sold is free of latent defects or other abnormalities. The seller is therefore liable for any latent defects in the thing sold irrespective of whether he was unaware of such defect at the time of the conclusion of the contract or not. A latent defect is a hidden defect, one which would not be apparent upon reasonable inspection by the average diligent person. Before the purchaser can hold the seller liable for latent defects he will have to prove: (i) that the defect existed at the time of conclusion of the contract (ii) that the defect is in fact latent i.e it could not readily have been noticed (iii) that the purchaser was unaware of the defect at the conclusion of the contract and that the defect is material in that it renders the merx useless or less useful for the purposes for which it was bought. It is abundantly clear that the new Bashem hockey sticks which Sue, Jane and the other team members bought are latently defective. When there is a latent defect in the thing sold the purchaser has special remedies against the seller. The purchaser is entitled to the aedilitian remedies which are the actio redhibitoria (rescission of contract) and the actio quanti minoris (reduction of the purchase price). Actio redhibitoria In this case, the defect is so serious that the hockey sticks cannot be used for their normal purpose or for the purpose for which they were bought and accordingly the buyers are entitled to cancel the contract. The underlying rationale is that the purchasers would not have bought the hockey sticks had they known of the defect beforehand. Since redhibitoria involves cancellation of the contract, the purchasers must return the merx (hockey sticks). On the other hand, if the article has been destroyed, through no fault of the buyer, he is of course unable to return the article, but that does not prevent the buyer from instituting the actio redhibitoria.

In Dodd v Spitaleri (1946) the purchaser bought a horse which was suffering from a debilitating disease. There was conclusive veterinary evidence that the disease was incurable although the purchaser had the horse shot, he was still able to recover his purchase price.

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And in African Organic Fertilizers v Sieling (1949) the buyer sought to rescind the sale of kraal manure which proved unfit for the purpose for which the seller knew the buyer intended it. However the manure having already been used could not be returned. The court held that the purchaser could still recover his purchase price. If the latent defect is of such a nature that it simply affects the value of the thing, the actio quanti

minoris in terms of which a reduction in price is claimed is instituted. The reduction amounts to
the difference between the purchase price and the actual value of the thing sold.

Warranty against latent defects


One of the fundamental obligations of the seller is the duty to deliver property which is free from latent defects. This duty only relates to defects which are material and an objective test is used to determine materiality. (Dibley v Furter 1951). A latent defect is one which would not be apparent upon a reasonable inspection by a prudent man even though it might not escape the notice of an expert. In RomanDutch law, a buyer who inspects the property cannot be heard to complain of the patent defects which the inspection should have revealed. A seller who sells property voetstoots (as it stands) is protected from liability in the event that the merchandise turns out to be latently defective. However a voetstoots clause does not protect the seller from fraudulent nondisclosure of latent defects. Thus in the Zimbabwean case of Matambo v Chakauya (1992) the plaintiff purchased a house voetstoots from the defendant. When the rainy season arrived it was discovered that there were bad leaks of water through the roof. The court ruled that the defect was a latent one and the defendant had deliberately not disclosed it at the time of the conclusion of the agreement of sale. As a result of the fraud the court ruled that the seller was not absolved of liability, notwithstanding the voetstoots clause.

Where the sale is not voetstoots and the buyer discovers that the merchandise is latently defective he is entitled to claim one of the Aedilition remedies, namely the Actio Redhibitoria (action for rescission of the contract) and the Actio quanti minoris (reduction of purchase price). The Actio Redhibitoria is an action for cancellation of the contract because the defect is so serious as to make the property unfit for the purposes intended by the contract. The rationale underlying this remedy is that if the purchaser had known of the defect prior to the conclusion of the agreement of sale he would not have bought the article when he did. The defect is so fundamental that it makes the merchandise unsuitable for the purpose for which it

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was bought. By instituting this action, he cancels the contract. He thus claims the return of the purchase price, interest, repayment of all expenses with regards to the delivery and preservation of the article and reimbursement of improvements effected by him.

The purchaser must however return the article together with anything that has accrued to it. Before the purchaser can hold the seller liable for latent defects he will have to prove that: (1) the defect existed at the time of the conclusion of the contract (2) the defect is in fact latent i.e it could not readily have been noticed (3) the purchaser was unaware of the defect at the conclusion of the contract and that (4) the defect is material in that it renders the merx useless or less useful for the purpose for which it was bought.

Some examples of latent defects in the merchandise are: (a) lung sickness in cattle (Haviside v Jordan (1903) (b) heartwater disease in sheep (Ackermann v Komfass (1904) (c) a welded crankshaft in a motor vehicle (Goldblatt v Sweeney (1918) (d) a leaking roof (Matambo v Chakauya (1992) Under the Actio Redhibitoria, it is a condition precedent that the purchaser should restore the article plus any fruits and accessories to the seller if he wants to recover the purchase price and his interest back. The purchaser forfeits the right to the remedy of redhibitoria in the following situations: (a) if the article is not capable of redelivery to the seller; (b) if the article has been materially damaged because of the purchasers negligence or by a person for whom he is responsible; (c) where the purchaser by exercising unequivocal acts of ownership over the article has delayed to such an extent as to amount to a waiver; (d) where the defect is of a trivial nature. On the other hand, if the merx has perished due to the very defect complained of and in the absence of fault on the part of the purchaser he will still be entitled to recover the purchase price despite the fact that the merchandise would be incapable of redelivery to the seller. In Dodd v Spitaleri (1949) the purchaser bought a horse which was suffering from a severe bone disease. There was conclusive veterinary evidence that the disease was incurable and to save it from any further pain the purchaser had the horse shot. The court ruled that the purchaser could recover his purchase price despite the fact that he was unable to return the horse.

And in the case of Marks v Laughton (1932) the buyer sought to rescind the sale of eggs which had been condemned as unfit for human consumption and as a consequence had already been

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destroyed by the local authority. The seller argued that the buyers inability to restore the eggs was fatal to his right to rescind the contract. The court said, despite the basic prerequisite that latently defective goods must be returned, the Actio Redhibitoria may nevertheless apply even where goods cannot be returned if this is because they have been destroyed due to the latent defects and without fault on the part of the purchaser . . . The Actio quanti minoris (action for reduction of the purchase price) is instituted when the latent defect is not so material as to render the article completely useless. Alternatively, the purchaser might opt not to rescind the contract and have the purchase price reduced in circumstances in which if he had so desired he could have cancelled the agreement on account of the gravity or seriousness of the defect. Under Actio quanti minoris, the defect however affects the value of the article. The purchaser keeps the article but claims a price reduction which is the difference between the purchase price and the actual value of the article.

Aedilitian remedies are available to the seller only in cases where the thing sold has latent defects. Depending on the circumstances they offer him only cancellations or a price reduction. However ordinary damages cannot be claimed in the case of latent defects except in three cases (and where ordinary damages are awarded for latent defects, they are given in addition to the Aedilitian remedies) which are as follows: (a) where the seller acted fraudulently by not disclosing to the purchaser the existence of a latent defect of which he was aware. This is not simply withholding information, the intention of the seller is to defraud the purchaser. (b) where the seller is the manufacturer of the thing sold or a dealer who publicises his expert knowledge and skills regarding the article he may also be held liable ex empto for damages. In Odendaal v Bethlehem Romery (1954) the purchaser bought livestock feed form a dealer. The dealer dealt almost exclusively in stock feeds. The feed was infested with a particular germ, but both parties were unaware of this. After the purchaser had fed the feed to his stock, thirteen head of cattle died. The seller was held liable for damages because he was a dealer with expert knowledge regarding that which was sold. (c) where the seller gives an express warranty against latent defects, he will be liable for damages if there should be a defect in the thing purchased.

Failure to deliver in a sale agreement


The general principle is that a seller who fails to deliver may be ordered to do so by an order of specific performance. Damages caused by the delay in delivery may be awarded in addition,

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Rhodesia Cold Storage and Trading Company Ltd v Liquidatior Beira Cold Storage Ltd 1905. If
the buyer claims damages instead of or as an alternative to specific performance, the normal measure of damages is the difference between the price and the value (that is, the prevailing market price) on the date delivery ought to have been made, Novik v Benjamin 1972.

Where there is no available market, the damages must be calculated from the best evidence available. The buyers loss of profit resulting from non-delivery of the property may be recovered if the seller knew at the time of contracting that the buyer required the property for resale or for use in manufacturing for sale, Plywood Products Ltd v Tropical (Commercial and Industrial) Ltd 1955. It should be noted that when the scope of an exemption clause is in issue, neither an exemption from liability for representations nor for warranties will relieve the seller from liability for delivering property of a different kind from that promised, Melfort Motors (Pvt) Ltd v Finance

Corp of Rhodesia Ltd 1975.

Damages
The problem area predominantly revolves around the issue of damages for breach of contract and the approach which the Supreme Court is likely to adopt. The general approach of our courts is that the injured party is entitled to be put in the position he would have been in had the contract been properly performed, so far as this can be done by the payment of money and without undue hardship to the defaulting party. In order to ensure simple justice between man and man, the defaulting partys liability is limited in terms of the broad principle of causation and remoteness to: (a) those damages that flow naturally and generally from the kind of breach of contract in question and which the law presumes the parties contemplated as a probable result of the breach and (b) those damages that although caused by the breach of contact are ordinarily regarded in law as being too remote to be recoverable unless, in the special circumstances attending the conclusion of the contract, the parties actually or presumptively contemplated that they would probably result from its breach. (Shatz Investments v Kalovyrnas 1976) As was noted by the court in the famous English case of Hadley v Baxendale,

where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally or such as may reasonably be supposed to have been in the contemplation of

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both parties at the time they made the contract . . .


There are a number of cases drawn from the Roman-Dutch law jurisdictions which define the concept of causation and remoteness of damages in breach of contract situations in a very neat way. In Holmdene Brickworks v Roberts Construction Co 1977) R bought bricks from H for the erection of factory building. After R had used all the bricks, it discovered that a substantial number were defective, in as much as they manifested efflorescence which made them crumble and decompose. To remedy the position R demolished the walls containing defective bricks and rebuilt them with bricks obtained from another source. The cost of doing so amounted to a sum of R27 000 which R now claimed from H on the basis that it represented consequential loss suffered by reason of a latent defect in the goods sold.The Transvaal Provincial Division gave judgment for R and H appealed. Held; Hs appeal should be dismissed. Corbett JA said: It seems to me that respondents loss was one flowing naturally and generally from appellants breach of contract and one which the law should presume to have been contemplated by the parties as a probable result of the breach. It, therefore, falls fairly and squarely within the category of loss for which general damages are available. Also in the case of Victoria Falls and Transvaal Power

Company v Consolidated Mines (1915) the court ruled that the sufferer by such a breach should
be placed in the position he would have occupied had the contract been performed, so far as that can be done by the payment of money and without undue hardship to the defaulting party. The reinstatement cannot invariably be complete, for it would be inequitable and unfair to make the defaulter liable for special consequences which could not have been in his contemplation when he entered into the contract.

In light of cases applicable to our jurisdiction it would appear that the High Courts approach in awarding $20 000 000.00 damages as per item (i) and declining to award $5 000 000.00 damages as per item (ii) is correct. Damages under item (i) flow naturally from the breach and should be deemed to have been within the contemplation of the parties whereas those falling under (ii) are remote. Likewise, the Supreme Court would be

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expected to adopt the same approach.

Damages for sentimental loss in breach of contract


The general approach of our courts in the case of breach of contract is that we are not concerned with the mental or bodily sufferings of the creditor. The action for damages in such a case is intended to place the creditor as much as possible in the same position as regards his property as he would have been in if the contract had been performed. Hence the damages must have been in satisfaction of some pecuniary loss. This principle has been restated in a number of cases; Corbett J A in Holmdene Brickworks v

Roberts Construction (1977) made the following observation, The fundamental rule in regard to the award of damages for breach of contract is that the sufferer should be placed in the position he would have occupied had the contract been properly performed, so far as this can be done by the payment of money and without undue hardship to the defaulting party . . .
To ensure that undue hardship is not imposed on the defaulting party the sufferer is obliged to take reasonable steps to mitigate his loss or damage. In addition the defaulting partys liability is limited in terms of the broad principle of contractual causation and remoteness of damages to: (a) those damages that flow naturally and generally from the kind of breach of contract in question and which the law presumes the parties contemplated as a probable result of the breach; (b) those damages that although caused by breach of contract are ordinarily regarded in law as being too remote to be recoverable unless in the special circumstances attending the conclusion of the contract the parties actually or presumptively contemplated that they would probably result from its breach Shartz Investments Ltd v

Kalovyrnas (1976).
The general approach of our courts would appear to be that in an ordinary commercial contract damages may not be claimed for sentimental loss or injured feelings unlike in an action founded in the law of delict or tort. In Jockie v Meyer (1945) J, a Chinese and second officer on a British ship having reserved a room at Ms hotel in Port Elizabeth was allotted the key to room 309 and took occupation. A few minutes later M sent for J, told him that there was a mistake as to the room number and asked him to return the key. J did so and was then told that the hotel was full and there was no room

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for him. The real reason for the breach of contract was Js race. J sued M in the Magistrates court for two hundred pounds damages and was awarded fifty pounds damages, forty pounds of which was in respect of the humiliation and annoyance felt by J. The appeal court set aside the portion of the damages relating to Js humiliation and annoyance. Tindall, Judge of Appeal said:-

I have come to the conclusion that the ..... Magistrate was not entitled to award damages for the injury to the Plaintiffs feelings which he suffered as a result of the refusal of accommodation by the defendant
As an exception to the general rule it can be said that where the pleasure to be obtained from the proper performance is an important aspect of the contract, as it is when a travel agent makes specific representations about the facilities and entertainment available at a hotel, or a photographer undertakes to take wedding photographs the courts may take mental distress into account in awarding damages. The argument then would be that emotional and mental satisfaction is an important plank of the contract. In Jarvis v Swans Tours Ltd (1973) J, a solicitor aged about 35 years booked a 15 day Christmas winter sports holiday. He did so on the faith of Ss sales brochure which described the holiday in very attractive terms. In the event the holiday was a great disappointment and most of the things that had been advertised in the brochure like a house party, skiing etc were not provided. Allowing damages for sentimental loss Lord Denning MR said: In a proper case damages for mental distress can be recovered in contract . . . One such case

is for a holiday or any other contract to provide entertainment and enjoyment. If the contracting party breaks his contract, damages can be given for the disappointment, the distress, the upset and the frustration caused by the breach.
In Diesen v Samson (1971), Mrs D engaged S, a professional photographer to take photographs for her wedding. She paid a deposit for which she was given a receipt. S failed in breach of his contract to appear at the wedding or at the reception. As a result Mrs D had no photographs of her wedding and claimed damages for the resulting injury to her feelings. The court ruled that damages could competently be awarded.

If the contract is not primarily a commercial one in the sense that it affects not the plaintiffs business interests but his personal, social and family interests, the door is not closed to awarding damages for

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mental suffering should the court think that in the particular circumstances the parties to the contract had such damages in their contemplation . . .
In summation, it can be noted that although the general rule is that our courts will award damages for patrimonial or material loss in breach of contract cases, in appropriate and limited cases an exception is made to award damages for sentimental loss as well.

Specific and general damages


It is an established principle of contract that, where there is a material breach, the injured party may claim from the other party damages such as he can prove he has suffered as a result of the breach. The injured party is entitled to be put in the hypothetical position he would have been in had the contract been properly performed, in so far as that can be done by the payment of money and without undue hardship to the other party. To ensure the other party does not suffer undue hardship, the injured party must take reasonable steps to mitigate his loss. In addition, in assessing damages, the court only awards such damages as naturally flow from the breach (general damages) or as may reasonably be supposed to have been in the contemplation of the contracting parties as likely to result from the breach (special damages).

These principles have been re-stated by Corbett JA in Holmdence Brickworks (Pvt) Ltd v

Roberts Construction Co Ltd (1977) where he aptly underscores the following the fundamental
role in regard to the award of damages for breach of contract is that the victim should be placed in the position he would have occupied had the contract been properly performed, so far as this can be done by payment of money and without undue hardship on the defaulting party.

Be that as it may, the approach to the court in this case will depend on whether or not there was a breach by Virgin Airlines. It is contended inter alia on behalf of Virgin Airlines that they are exempted from liability through the operation of the alleged exemption clause in the contract. The law relating to exemption clauses is very trite. At common law, for a party to be exempted the exemption clause must be reasonable and it must not go to the root of the contract as was enunciated in the celebrated case of Hubert Davies v Crane Hire (1995). This position was codified and classified in the Consumer Contracts Protection Act. Essentially the piece of legislation seeks to protect vulnerable consumers from unreasonable and vague contractual provisions to the extent that the court was given the power to strike down any unfair clauses in consumer contracts. It is likely that in view of this piece of legislation, the High Court of Zimbabwe is likely to strike out the exemption clause in question and as such, the question which shall remain unanswered is that of damages.

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In Victoria Falls and Transvaal Power Company Ltd v Consolidated Langlaagte (1915) the court had occasion to explain the issue of damages where it stated that the defaulting partys liability is limited to the broad principle of causation and remoteness. This essentially points to those damages that flow naturally and generally from the kind of breach of contract in question and which the law presumes the parties contemplated as a probable result of the breach and those damages that, although caused by the breach of contract are ordinarily regarded in law as being too remote to be recoverable. This is so unless in the special circumstances attending the conclusion of the contract, the parties actually or presumptively contemplated that they would probably result from its breach.

As regards claims (a) to (c) clearly these are general damages. However, on claim (a), the court is likely to take into consideration the aspect of supervening impossibility in the form of vis major caused by adverse weather conditions. At most the court is likely to grant damages for one night, as the damages for the other night were due to no-ones fault but an act of God. As regards special damages, contemplation is pre-requisite if one is to succeed. The South African position was put forward in Lavery and Co Ltd v Jungheinrich (1931) and upheld in Shatz

Investments (Pty) Ltd v Kalovyrnas (1976) that the defaulting partys knowledge of special facts
must have been imparted to him in circumstances amounting to a tacit contract that he would undertake liability for special damages should a breach occur. The Zimbabwean position here, however, remains unclear.

Specific performance of the contract


An offer is an unconditional declaration by the offeror of his intention to conclude a contract while all the terms on which he is prepared to contract are set out in this declaration. The primary requirements of a valid offer are as follows: (a) the offer must be clear and unambiguous. If any of the material terms of the offer are vague and obscure or ambiguous, the offeree will not be able to form an idea of what the offeror has in mind. (b) the offer must be complete (c) the offer must be communicated to the offeree. An offer is usually addressed to a specific person but it can be made to the world at large (the general public). If an offer is addressed to a specific person it cannot be accepted by a third party. (Baker v Crowrie (1962) (d) The offer must be made with the intention that is shall serve as an offer so that it may be accepted and result in a contract coming into existence.

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In Hyde v Wrench (1840) the defendant offered to sell land to the plaintiff for 100000. Plaintiff then agreed to pay 95000. The defendant rejected this. Plaintiff then agreed to pay 100000 after all. But by now the defendant no longer wished to sell. The plaintiff then sued for breach of contract and the court ruled that the plaintiff had made a counter offer which rejected the offer previously made by the defendant. Thus he could not afterwards revive the proposal of the defendant by tendering an acceptance of it and therefore there existed no obligation of any sort between the parties. The fundamental principle here is that a counter offer revokes the original offer to which the counter offeror may therefore not return unless the original offeror agrees. Also in the case of

Watermeyer v Murray (1911) Murray sought to buy Watermeyers farm for 170000.
Watermeyer offered to sell at that price provided Murray paid all expenses plus 1000 immediately the agreement was signed. Murray agreed, but then through his attorneys unilaterally drew up and signed an agreement stipulating that the 100000 was to be paid only after the current lease on the farm had expired. Watermeyer rejected this new arrangement, Murray then tried to revert to the original offer but Watermeyer now refused to sell. Murray sued for specific performance or alternatively 1000 in damages for breach of contract. The court ruled that there was no contract and therefore no breach, because as soon as the defendants offer to sell on certain terms was rejected by the plaintiff making a counter offer to buy on different terms, it follows that the defendants offer was no longer open for acceptance. The principle underpinned by the two cases is that where an offer has been revoked by a counter-offer and the original offerer has in turn rejected such counter offer, he cannot be bound by any subsequent acceptance of his original offer unless he so wishes.

Specific performance as a remedy


Specific performance is a remedy aimed at the fulfilment of the contract because when it is claimed by the innocent party, he is trying to achieve the result envisaged at the conclusion of the contract by the parties. In general, the injured party has a right to claim specific performance (an order compelling a party to a contract who is in breach, to perform his obligation in the manner required by the terms of the contract) if ready to carry out his obligations under it. However the courts will exercise a discretion in determining whether or not decrees of specific performance should be made. In Farmers Co-op Society v Berry (1921) B who was a member of F and as such obliged to send in his whole crop to F, notified it that he had a crop of 1200 bags of mealies but later refused to deliver any to F. F then sued B asking for specific performance of a contract to deliver 1200 bags and in the alternative, damages and addressing the question of specific performance the court ruled that:

Prima facie every party to a binding agreement who is ready to carry out his own obligation

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under it has a right to demand from the other party, so far as it is possible a performance of his undertaking in terms of the contract. It is true that the courts will exercise a discretion in determining whether or not decrees of specific performance should be made.
The discretion which the court enjoys in awarding (or declining to award) must be exercised judicially and is not confined to specific types of cases, nor is it circumscribed by rigid rules. Each case must be judged in light of its own specific and peculiar circumstances. The injured party usually adds to his prayer for specific performance an alternative prayer for damages. As was noted by the court in Woods v Walters (1921)

It is common practice to add to a prayer for specific performance an alternative prayer for damages . . .
Examples of the grounds on which the courts have exercised their discretion in refusing to order specific performance although performance was not impossible, may be mentioned (a) where damages would adequately compensate the injured party, for example, if the subject matter of the contract can easily be bought on the open market as is the case with items like cars, bicycles, shares etc. (b) where it is impossible to effect In Shakinovsky v Lawson and Smulowitz (1904) where the plaintiff purchaser sued for the specific performance of a contract of sale of a shop and business with no alternative claim for damages. L could not give specific performance as he had subsequently sold the same business to Smulowitz who had no notice of the previous sale. The court said that it was not practicable to award specific performance and the purchaser had to contend with damages.

Now a plaintiff has always the right to claim specific performance of a contract which the defendant has refused to carry out but it is in the discretion of the court either to grant such an order or not. It will certainly not decree specific performance where the subject matter of a contract has been disposed of to a bona fide purchaser or where it is impossible for specific performance to be effected, in such cases it will allow an alternative of damages.
(c) where the subject matter of the contract involves the rendering of services of a personal nature Since it is undesirable and indeed in some cases impossible to compel an unwilling party to maintain continuous personal relations with another it is well established that a contract for personal services is not specifically enforceable at the suit of either party. The courts, said Jessel, MR have never dreamt of enforcing agreements strictly personal in

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their nature, whether they are agreements of hiring and service, being the common relationship of master and servant, or whether they are agreements for the purpose of pleasure or for the purpose of scientific pursuits, or for the purpose of charity or philanthropy. (Rigby v Cannol 1880). (d) where the order would work great hardship on the defaulting party or the public at large If the effect of a decree of specific performance is to cause undue and great hardship to the defendant and members of the public alike the courts are unlikely to award it. In Haynes v

Kingwilliamstown Municipality (1951) the defendant contracted to supply the plaintiff with 250
000 gallons of water per day for a number of years. After some time the defendant was unable to honour the agreement because of a crippling drought. An action for specific performance by the plaintiff was dismissed by the court because full compliance with the agreement would have resulted in a positive danger to the health of the Municipalitys citizens. In breach of contract cases it is quite clear that the courts award specific performance on a discretionary basis rather than as a matter of course.

Undue hardship
The general approach of the Zimbabwean courts in the case of breach of contract is that they are not concerned with the mental or bodily sufferings of the creditor. The action for damages in such a case is intended to place the creditor as much as possible in the same position as regards his property as he would have been in if the contract had been performed. Hence the damages must have been in satisfaction of some pecuniary loss.

This principle has been restated in a number of cases. Corbett J A in Holmdene Brickworks v

Roberts Construction (1977) made the following observation, The fundamental rule in regard to
the award of damages of breach of contract is that the sufferer should be placed in the position he would have occupied had the contract been properly performed, so far as this can be done by the payment of money and without undue hardship to the defaulting party . . .

To ensure that undue hardship is not imposed on the defaulting party the sufferer is obliged to make reasonable steps to mitigate his loss or damage. In addition the defaulting partys liability is limited in terms of the broad principle of contractual causation and remoteness of damages to:

(a) those damages that flow naturally and generally from the kind of breach of contract in question and which the law presumes the parties contemplated as a probable result of the breach;

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(b) those damages that although caused by breach of contract are ordinarily regarded in law as being too remote to be recoverable unless in the special circumstances attending the conclusion of the contract the parties actually or presumptively contemplated that they would probably result from its breach Shartz Investments Ltd v Kalovyrnas (1976).

The general approach of our courts would appear to be that in an ordinary commercial contract damages may not be claimed for sentimental loss or injured feelings unlike in action founded in the law of delict or tort. In Jockie v Meyer (1945) J, a Chinese and second officer on a British ship having reserved a room at Ms hotel in Port Elizabeth was allotted the key to room 309 and took occupation. A few minutes later M sent for J, told him that there was a mistake as to the room number and asked him to return the key. J did so and was then told that the hotel was full and there was no room for him. The real reason for the breach of contract was Js race. J sued M in the Magistrates Court for 200 damages and was awarded 50 damages 40 of which was in respect of the humiliation and annoyance felt by J. The appeal court set aside the portion of the damages relating to Js humiliation and annoyance.

Tindall, Judge of Appeal said: I have come to the conclusion that the . . . Magistrate was not entitled to award damages for the injury to the Plaintiffs feelings which he suffered as a result of the refusal of accommodation by the defendant As an exception to the general rule it can be said that where the pleasure to be obtained from the proper performance is an important aspect of the contract, as it is when a travel agent makes specific representations about the facilities and entertainment available at a hotel, or a photographer undertakes to take wedding photographs the courts may take mental distress into account in awarding damages. The argument then would be that emotional and mental satisfaction is an important plank of the contract.

In Jarvis v Swans Tours Ltd (1973) J, a solicitor aged about 35 years booked a 15 day Christmas winter sports holiday. He did soon the faith of Ss sales brochure, which described the holiday in very attractive terms. In the event the holiday was a great disappointment and most of the things that had been advertised in the brochure like a house party, skiing etc were not provided.

Allowing damages for sentimental loss Lord Denning MR said: In a proper case damages for mental distress can be recovered in contract . . . One such case is for a holiday or any other contract to provide entertainment and enjoyment. If the contracting party breaks his contract, damages can be given for the disappointment, the distress, the upset

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and the frustration caused by the breach. In Diesen v Samson (1971), Mrs D engaged S, a professional photographer to take photographs for her wedding. She paid a deposit for which she was given a receipt. S failed in breach of his contract to appear at the wedding or at the reception. As a result Mrs D had no photographs of her wedding and claimed damages for the resulting injury to her feelings. The court ruled that damages could competently be awarded.

if a contract is not primarily a commercial one in the sense that it affects not the plaintiffs business interests but his personal, social and family interests, the door is not closed to awarding damages for mental suffering should the court think that in the particular circumstances the parties to the contract had such damages in their contemplation . . . In summation, it can be noted that although the general rule is that our courts will award damages for patrimonial or material loss in breach of contract cases, in appropriate and limited cases an exception is made to award damages for sentimental loss as well.

Supervening impossibility

Performance of a contract is the most common method of discharge of contracts. Cancellation resulting from repudiation or breach is probably the next most common. It was said in Strachan v Lloyd Levy (1923) that because contracts are made by agreement so may they be unmade by agreement but they cannot be unilaterally varied or discharged. Thus variation and discharge of contracts are all as a result of the act of the parties to the contract.

However, variation or discharge of contracts can also take place as a result of the operation of law. This will happen if it is interrupted by irresistible force of inevitable accident of a contract requiring continuity of performance. However, if this happens in a contract of employment, it will not be treated as a supervening impossibility because it would obviously be unfair to treat the contract as discharged when the interruption might turn out to be of short duration.

Beretta v Rhodesia Railways (Ltd) 1947 shows how in such a case the contract is not
discharged by operation of law but may be cancelled by the party to whom the performance is due if the interruption continues for an unreasonably long time.

Irresistible force includes legislation or act of state making performance illegal, such as a declaration of war ; but in William Maine & Son (Pvt) Ltd v Rhodesia Railways 1976 a ministerial

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directive given without statutory authority was held not to be irresistible force, so obedience to it did not excuse non-performance. It will not be a case of supervening impossibility if the parties did foresee and made provision for or accepted the risk of the very event that has happened.

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2007

Corporate and Business Law- F4 (Zimbabwe)


Casebook

Contract of employment
The problem involves issues governed by employment law. In labour law, the employment contract is the starting point for the entire web of labour rules, as it links the employer and the employee in an employment relationship. Of course, the employmentcontrol is merely one of the sources of legal rules governing the relationship between the employer and the employee. Some of the other sources especially legislation in particular, the Labour Act [Chapter 28:01] and the decisions of the courts have increased in importance in recent years.

A contract of employment is like any other contract save that it is further governed by the Labour Act [Chapter 28:01]. A contract of employment should measure up to the requirements of the statutes. If it fails to comply with the Act that particular provision shall be of no force or effect.

In terms of s.14(7) of the Labour Act during the period when a female employee is on maternity leave in accordance with this section her normal benefits and entitlement, including her rights to seniority or advancement and the accumulation of pension rights, shall continue uninterrupted in the manner in which they would have continued had she not gone on such leave and her period of service shall not be considered as having been interrupted, reduced or broken by the exercise of her right to maternity leave in terms of this section This provision protects female employees from employers who may want to discriminate against women on the basis that they are on maternity leave. Therefore Tendai is also protected in terms of this provision. Protection against discrimination is a fundamental right in terms of Part II s.5 of the Labour Act [Chapter 28:01]. Section 5(1) of the said Act reads:

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No employer shall discriminate against any employee or prospective employee on the grounds of race, tribesex in relation to (c) creation, classification or abolition of jobs or posts or (e) the choice of persons for jobs or posts, training, advancement, apprenticeship, transfer or promotion. (g) any matter related to employment.

Contracts by Young Persons


The Labour Relations Act stipulates that no contract of employment shall be enforceable against any person under the age of 16 years, whether or not such person was assisted by his guardian, married or otherwise tacitly or expressly emancipated, but such person may enforce any rights that have accrued to him by or under such contract. Under the ordinary laws of contract if a minor is assisted by his guardian, emancipated or married then he is bound by his contract. In terms of section 11 of the Labour Relations Act, a contract of apprenticeship duly entered into and registered in terms of the law relating to apprentices shall, notwithstanding the age of the apprentice concerned, be enforceable against the apprentice.

Obligations of the employer to his employee


Providing the employee with work,
From our court cases it would appear that the employer is not legally bound to provide work for the employee. Provided that he pays the employee the agreed remuneration the employer therefore does not commit breach of contract if he fails to provide work for the employee to do. An employer is however obliged to provide work under certain circumstances. In the following situations the employer has a duty to provide work and should he fail to discharge it he would be committing breach of contract: (i) where the amount of the remuneration is based on the amount of the work done in the case of someone doing piece work or a salesman who gets a commission for the work done. (ii) where the failure to provide work brings about a reduction in the status of the employee (Stewart Wrightson (Pvt) Ltd v Thorpe 1974). (iii) where the employer has undertaken to train the employee in a certain profession or trade. For example the case of an apprentice jockey who is professionally being trained to ride horses. (iv) where a persons earning capacity is linked to the publicity which he receives from the work

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he does, for example an actor. This persons employer must provide him with work in order to ensure his professional success. (v) where an employees career path or professional development is directly dependent upon his constant exposure to work (Muzondo v University of Zimbabwe 1982).

By and large, Zimbabwean law does not impose an obligation on an employer to provide his employee with work, provided that the employee is getting his full remuneration, benefits and other entitlements in terms of the contract of employment. Clearly, the position at law is that no employer is obliged to provide employees with work to keep them busy. While it may seem unlikely that an employer would pay employees and give them no work, the cases show that this does sometimes happen. The employer may, for example, decide that a sinecure is less costly than dismissing the employee or to suspend an employee pending a disciplinary hearing. Employees in this position can, of course, always resign, if they do not, their compensation for enforced idleness is their remuneration. The cases of Turner v Sawdon (1901), Toenen v Stellenbosch University (1996) bear testimony. However the general rule that an employer need not provide his employees with work is subject to some exceptions for example where the remuneration is based on the volume of work done, as in the case of pieceworkers or salespersons working for a commission. The cases of Marble v George Edwards (Dalys Theatres) Ltd (1928), Stewart Wrightson (Pvt) Ltd v Thorpe (1974) clearly highlight this fact. In the case of Muzondo v University of Zimbabwe (1981), the court held that the employer was obliged to give the employee work to do taking into consideration the character and nature of his work as a lecturer and a writer. A duty to provide work may also arise where the employer has contracted to train the employee in a particular profession or trade, for example, in the case of articled clerks and apprentices. In conclusion, the position in Zimbabwe is that whilst by and large an employer is not legally obliged to provide work to his employee there are certain exceptions recognised by the law in which this rule is departed from.

Payment of wages.
It is the employers most important obligation to pay the employee the agreed remuneration when the wages are due. Where there is no agreement regarding the time of payment the common law prescribes that payment will take place at the end of the period of service. When the employee is working for an indeterminate period it is important that he be paid on a regular basis for example on a weekly, fortnightly or monthly basis. However reference will be made to trade usage in the particular industry and area in order to determine the time for payment. It is trite that an employee will first render his services before receiving payment. Once the payment is overdue the employee has

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a right of action to recover the unpaid wages. (Brismas v Dardagan 1950) At common law the employee is entitled to full pay during suspension and if misconduct charges are confirmed and he is dismissed the dismissal cannot operate retrospectively. On the death of the employer the employee is paid up to the end of his period of service, or where he was employed for an unspecified period, up to the date when the contract may validly be terminated. If the services are of a personal nature the contract will be terminated by the death of the employer. The death of the employee terminates the contract of service.

The insolvency of the employer terminates the contract of service but the employee may institute a claim for damages sustained as a result of the termination.

Rights of employees
Vacational Leave Vacational leave is provided for in terms of s.14A of the Labour Act. This provision was introduced by the Labour Act Amendment No 17 of 2002. In the old Act, vacation leave was provided for but not as elaborately as in the new s.14A. This section introduces one months leave per annum, 30 days in Public Service. In terms of the Act, it is a right to accrue leave days up to 90.

Constructive Dismissal Provision is made in s.12B (3)(a) to protect an employee against constructive dismissal i.e. where the employer deliberately makes continued employment intolerable for the employee. Constructive dismissal is a form of unfair dismissal and an unfair labour practice.

Right to be heard (audi alteram partem principle) This is called the audi alteram partem principle (the right to be heard). Literally translated the phrase means hear the other party. It is an elementary notion of fairness and justice that a decision should not be made against a person without allowing the person concerned to give his side of the story. The audi principle requires that a decision affecting a persons rights or his legitimate expectations of receiving a benefit, advantage or privilege should only be made after hearing first from that person and taking into account what he/she said. See FSI Holdings Ltd,

Rio Tinto Zimbabwe Ltd v Ano (1996). In the case of Taylor v Minister of Higher Education & Anor (1996), a senior lecturer at the Bulawayo Polytechnic College had been laterally
transferred from his post to a similar post at the Harare Polytechnic College. The lecturer was

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not given an opportunity to make representations about the transfer before it was effected. The court held that it was not in every instance that a person must be granted a hearing first before being transferred. See Kanonhuwa v Cotton Company of Zimbabwe (1997). In this case the court held that it was mandatory and prerequisite for a fair dispensation of justice through hearing the affected party first.

Sick leave payments


The common law rule is that an employee is not entitled to wages for periods during which he is off work through illness, except that a domestic worker is entitled to be paid during short periods of illness, Boyd v Stuttaford and Co. (supra). This common law exception in favour of domestic workers is not displaced by the Employment (Domestic Workers) Regulations of 1981. Section 10 of it gives the additional benefit of two months unpaid sick leave after a year of continuous service.

The rigour of common law has now been mitigated by the very fact that most contracts and regulations make provision for sick leave, paid or unpaid. This is usually done on production of a medical practitioners certificate to prevent leave being taken under the guise of sick leave. The employer has no obligation to pay for medical treatment for the employee, Fuss v Mollentze (1896) 13 SC 369, although contracts usually require the employer and the employee to contribute to medical aid society. In the circumstances, the employers contribution is deducted for income tax purposes and not taxable as a benefit to the employee. Generally the employees illness does not automatically terminate the contract although it can be terminated by the employer if the illness is protracted. How protracted the illness must be before the employer is entitled to terminate depends on the circumstances of each case, Myers v Sieradzki 1910 TPD 869

Unfair labour practice


The concept of unfair labour practice has a broad meaning and definition within the context of the relevant legislation namely the Labour Act [Chapter 28:01]. The underpinning rationale is to protect the worker from acts of commission or omission on the part of the employer, which have a tendency to undermine and negate the interests of the worker. The spirit of the legislation is to promote as far as possible a harmonious and conducive working environment. Section 8 of the Labour Act [Chapter 28:01] gives a broad meaning to the notion of unfair labour

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practices by the employer.

An employer who obstructs or prevents an employee from a trade union or workers committee commits an unfair labour practice. Discrimination by the employer against an employee on the grounds of race, tribe, place of origin, political opinion, colour, creed or sex constitutes an unfair labour practice. Equally it is an unfair labour practice if an employer refuses to negotiate in good faith with a recognised workers committee or employment council representing his workers or if he fails to comply with or to implement a collective bargaining agreement.

The new s.2 of the Labour Act will go a long way in advocating for social justice at the workplace, which also means that unfair labour practices against employees will be adequately catered for as well.

Termination of employment

In terms of s.12B(I) of the Labour Act [Chapter 28:03], in dismissing an employee where there is no code of conduct the procedure to be followed is in terms of the Act. This therefore means the Statutory Instruments incidental to the Act will be applicable. The Statutory Instrument applicable is SI 130 of 2003. In terms of s.3(1) of SI 130/2003 where an employer has good cause to believe that an employee is guilty of any of the conduct mentioned in paragraph (b) of subsection 2 of s.12B of the Act, the employer may suspend the employee without pay and other benefits and shall forthwith serve the employee with the letter of suspension with reasons and grounds for the suspension.

This provision has the effect of suspending the employee without pay or benefits before a hearing has been effected. The use of the phrase forthwith was interpreted by the courts during the SI 371/85 regime which is akin to SI 130/2003 in this particular respect, as meaning service of the suspension letter should be dealt within a reasonable period of time. See Standard Chartered Bank v

Matsika (1996).

(b) Termination of employment may be in the form of mutual agreement between the employer and the employee or may be through repudiation of the employment contract by either party.

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Where, however, there is some undue pressure, it may be deemed as constructive dismissal and not mutual agreement. The contract would also terminate upon the completion of a specified task; where the employment contract is for the performance of a specified task. A contract of employment is also terminated where there is supervening impossibility of performance. This is the situation where performance has become impossible due to a vis-

major or casus fortuitous, see Born Accord Irrigation Board v Braine, (1923).

It should be noted, however, that although illness is part of casus fortuitous, it does not automatically lead to termination of employment Boyd v Stuttaford (1910), Beretta v Rhodesia

Railways Limited (1947). However, if the absence becomes unreasonably long, the employer is
entitled to terminate the contract by merely electing to cancel it and treating it as terminated. Here, there is no notice required except that the employee should be informed of the election;

Beretta case supra; Mohwa v Beverly Building Society (1998) held that absence from work
without reasonable excuse is not the same thing as without a lawful excuse.

An employees death automatically terminates the contract of employment. Insolvency of an employer is regarded as breach of contract entitling the employee to cancel/terminate and claim for damages. Per Clark v Denny (1884). Repudiation is another way a contract of employment may be terminated, where an employee does an act which is inconsistent with the contract of employment; an employer may without notice to the employee terminate/repudiate the employment contract. This position at law was discussed in the following case; Stranchan v Prinsloo (1925).

An employer can terminate the employment contract with or without reason and has no obligation either to reveal the reasons for dismissal; an employer is entitled to pay costs in lieu of notice. This notice is unilateral and does not require agreement:

Rustenburg Town Council v Minister of Labour (1942).


Termination may also take the form of retrenchment otherwise referred to as economic dismissal. This form of ending the employment contract is done in compliance with

Retrenchment Regulations 1990 (SI 404/90).


Where the employee is in wilful disobedience of authority, the employer can lawfully dismiss him, see per National Foods v Masukusa and Chironda v Swift Transport (1996). The Supreme Court emphasised that the disobedience must be wilful in the sense that there must be a requisite mens rea/intention to hold authority at defiance. The order must be lawful;

Muchakata v Netherbank Mine (1996).


State action such as arrest and imprisonment may be a form of casus fortuitous leading to

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impossibility of performance. The law appears to be that such impossibility does not lead to automatic termination of employment. The period of absence must be unreasonable and the employer must elect to terminate the contract: see Gijack Services v Mudzingwa (1991).

In terms of statute, s.12B(2)(b) where the employer has reasonable belief that the employee is guilty of breach of the above mentioned provision, he can terminate the employment subject to the provision of the Act.

Vicarious liability

The principle of vicarious liability entails that a master is liable for the actions of his servant. The doctrine entails that an employer/master is variously liable for all delicts committed by his employee within the scope and course of his employment with the employer. For vicarious liability to attach to the Master, the delict committed by the employee should have been committed when the servant was within the scope and course of his employment with the Master. However, it should be noted that it is not sufficient that the employee committed an act during his ordinary working hours. If he does something entirely for his own purposes or benefit which does not form part of his duties as a servant then the master would not be held liable. In other words the Master could repudiate liability where the agent is on a frolic of his own. Consequently, tests have been applied by the courts in trying to define what the meaning of the phrase course and scope of employment is.

However, it has been held in some cases that the fact that the employee deviates from the course of employment will not necessarily mean that there is no vicarious liability. Sometimes considerations of social justice have led courts to adopt the approach that the degree of deviation from employment has to be a major extent before they will decide that the servant was not acting within the course of his employment. The question that would be asked is was the deviation of such a degree in terms of time and distance that it cannot be reasonably said he was still exercising the functions he was employed for? It is the degree of the servants deviation that lies at the heart of the question of the Masters liability for the delictual acts of the servant. This is highlighted in the case of Nott v ZANU (PF) (1984). In the present case Robert Moyos main duty was to deliver goods with a van to various customers in Harare and then to return the vehicle to his place of work in Graniteside. Although Robert drove to Mabvuku, 25 km away from his place of work and spent two hours, Nelion Dube is still liable vicariously for the accident caused by his employee. The facts of this case are at

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par with those in the Zimbabwean case of National Social Security Authority v Dobropoulos &

Sons (Private) Limited (2002) where the Supreme Court held the employer to be liable for the
delicts committed by the employees. There are similarities between the facts given and this case. Both the drivers were employed to effect deliveries. Both were in the process of returning their respective vehicles to the employers premises when they were involved in collisions. Both deviated from their routes. In the National Social Security case the accident occurred some five and half to six hours late but nonetheless the court found the employer liable. It should be noted that the given facts bear very striking resemblance to the facts of the National Social Security

Authority (supra) and Feldman (Pvt) Ltd v Mall (1945). In both cases the court held the
employer vicariously liable.

Delicts Employment delicts and employers responsibilities


In our law, an employer is as a rule liable to third parties for delicts committed by the employee within the scope of his employment. In order to hold the employer liable for the delicts of his employee the following requirements must be present: (a) the agent should be a servant and not an independent contractor. He should be subject to the employers control and direction as to what to do and the manner in which he carries out his work. If the employer has a right to issue commands to the employee and to exercise control over him it will serve as a prima facie proof of the existence of a contract in which the agent is a servant rather than an independent contractor. (b) the acts should have been committed when the servant was within the scope of his employment. It is not sufficient that the employee committed an act during his ordinary working hours. If he does something entirely for his own purposes or benefit which doesnt form part of his duties as a servant, then the master would not be held liable. In other words the master could easily repudiate liability where the agent is on a frolic of his own. Whether an action falls in the course of the employees service or not is a question of fact and depends on the particular circumstances of each case. If the employee is acting within the scope of his employment whether during or after working hours the employer will be liable for any delict committed.

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In Hendricks v Cutting (1947), the employee was a lorry driver. While he was doing his work he stopped at a filling station for fuel. He lit a cigarette, causing a fire in which the pump attendant was injured and the employer was held liable. And in Minister of Justice v Khoza (1966) two police constables were going about their work. They were, inter alia, guarding prisoners, one of the constables aimed a pistol at the other in jest, the pistol went off and the second constable was injured. The employer was held liable.

Sometimes, considerations of social justice have led courts to adopt the approach that the degree of deviation from the masters instructions has to be to a major extent before they will decide that the servant was not acting in the course of his employment. For example, where the employee is partially promoting the interests of the employer and partially his own, the employer will also be liable. In Feldman v Mall (1945) the employee had to deliver goods and return immediately to his place of work. On the way back he deviated from the route to partake of a drink with his friends. Later on his way back to his place of work, he knocked down and killed someone. The court decided that he had left his work only partially to promote his interests. He was, however, still promoting the interests of the employer because he retained control of the vehicle and took it back to work later. The employer was liable.

Delicts committed by an agent who is an independent contractor.


In our law an employer is not liable for the delicts of an independent contractor. Rather he is only liable for the delicts of an agent who is his own employee provided that the following requirements are present: (i) there must be an employer/employee relationship (ii) the delict must have been committed by the employee in the course of his duties (Rossouw v Central News Agency 1948) With cases involving an independent contractor, there are instances where the employer has been held liable, but only on the basis of his delict. In order to determine the liability of the employer in this case, his neglect to take preventive action is borne in mind. The following are cases where the employer is held liable for delicts caused by his own acts and those of the independent contractor. Where the employer has given incomplete instructions to the independent contractor. Where the employer gives instructions to the independent contractor to do something which he himself is not authorised to do.

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Where the employer gives an unlawful instruction to the independent contractor or ratifies the unlawful act of the contractor. Where the acts which the employer instructs the contractor to perform are potentially dangerous and the employer neglects to take precautionary measures.

Further cases of delict

The general rule is that a person is not liable for the unlawful action of others. An important exception to the rule is that in terms of the principle of vicarious liability an employer can be held liable for a delict committed by his employee if the employee has acted in the exercise of his duties in terms of the contract and towards the promotion of the interests of the employer.

The requirements for liability of an employer in respect of delicts committed by his employee are the following: (i) Employer/Employee Relationship A precondition for holding the employer liable is the existence of a contract of service. It is therefore important to distinguish clearly between an employee and an acceptor of a task or independent contractor. The reason is that the employer is not liable for the delicts of the independent contractor acting under his authority but not under their control. In other words, the employer who at the time the employee committed the delict had the right to issue instructions to the employee and under whose control and supervision he operated will be the one incurring liability. The person who pays another his salary, issues instructions on how the work is to be done and who also has the power to dismiss the employee is prima facie the employer. (ii) The delict should have been committed by the employee in the course of the performance of his duties within the scope of his employment and towards the promotion of the interests of the employer. The acts should have been committed when the servant was within the scope of his employment. It is not sufficient that the employee committed an act during his ordinary working hours. If he does something entirely for his own purpose or benefit which does not form part of his duties as a servant then the master would not be held liable. In other words the master could easily repudiate liability where the agent is on a frolic of his

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own. Tests have been applied by the courts in trying to define what is course of employment. In Van de Byl v Swanepoel (1946) a question was asked whether the servant was doing an act reasonably necessary to carry out his masters business and in Wright v Stuttaford (1966) it was asked whether the servant was about the business of his master. However it has been held in some cases that the fact that the employee/servant deviates from the course of employment will not necessarily mean that there is no vicarious liability. Sometimes considerations of social justice have led courts to adopt the approach that the degree of deviation from employment has to be to a major extent before they can decide that the servant was not acting in the course of his employment. The question that would be asked is, was the deviation of such a degree in terms of time and distance that it cannot be reasonably said he was still exercising the functions he was employed for? In the case of Estate Van Der Byl v Swanepoel (1946), the appellant was the owner of several taxi motor cars and had several drivers in his employ. The taxis plied for hire principally between G and S railway station but the appellant could send the drivers, who were engaged as taxi drivers, wherever he wished. The drivers were expressly forbidden by the appellant to take passengers anywhere within S municipality as they were not licenced within the municipality. One of the drivers did not observe this instruction and conveyed a passenger from S railway station to a place within S Municipality and on his way back to the station he negligently drove his taxi into a cart driven by the respondent, who was injured. A magistrate awarded damages against the respondent and this decision was upheld on appeal. The appeal court dismissed the appeal and stated that as the driver at the time of collision was acting not for his purpose but for the benefit of the appellant.

The appeal court also highlighted the following principles: (1) The master is liable according to the law, for damage caused to a third party by negligence of his servant when the servant is clearly acting wholly within the scope of his authority. (2) He is also liable to third parties for damages caused by the negligence of his servant when the latter does something which is reasonably necessary to carry out his masters orders Mkize v Martens (1914). In the well known case of Nott v Zanu (PF) (1984) the court stated that the doctrine of vicarious liability of a master for such delictual acts of his servant as are committed in the course of employment is a part of the law of Zimbabwe. It is the degree of the servants deviation that lies at the heart of the question of the masters liability for the delictual acts of the servant.

Whether an act falls in or outside the scope of employment of an employee is a question of fact

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to be judged in light of circumstances of each particular case. In Sawer v Dwursema (1951) a postman drove a post office vehicle without authority and negligently damaged another vehicle. The employer was held liable because although the trip was unauthorized, it was in connection with the delivery of mail for which the postman was appointed. At the end of the day the question is whether the action of the employee was such that it could be said that he completely severed himself from his employers interests or whether he deviated his attention partially to his own interests and partially to the interests of his employer. In the latter case, the employer will be liable if the damages are attributable to performance by the employee of the work of the employer.

In Feldman (Pvt) Ltd v Mall (1945) Tindall J A summarised the principle as follows:

In my view the test to be applied is whether the circumstances of the particular case show that the servants digression is so great in respect of space and time that it cannot reasonably be held that he is still exercising the functions to which he was appointed.
On the other hand an employer generally cannot incur vicarious liability for the delicts of an independent contractor. There are cases however where he can be held liable but only on the grounds of his own delicts. Legal commentators note the following situations where the employer is liable for damage jointly caused with the independent contractor and the basis of the employers liability is his own acts of commission or omission in bringing about the delict.

(a) Where the employer instructs the independent contractor to perform an unlawful act or where he subsequently ratifies it. (b) Where the employer gives incomplete instructions to the independent contractor and in consequence, damage is caused to a third party. (c) Where the employer issues instructions to the independent contractor when he himself does not have the authority to perform such acts. (d) Where the performed action is of such a nature that it is potentially dangerous in the sense that it can give rise to the harm being caused and the employer fails to take the necessary precautionary measures.

In the case of Frank v Van Rooy (1927) an employer had holes dug in his pavement but had failed to take the necessary precautions. A pedestrian fell into one of these holes and was injured. The judge declared that:

In these and similar cases the underlying idea is that in such circumstances it is negligence on the part of an employer not to take care to see that adequate precautions are adopted by the contractors for the protection of the public and that for such failure it is only reasonable that he

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should be personally liable . . .


It is generally true to say that there is a distinction in the approach our courts take on the question of vicarious liability of the employer for delicts committed by an employee as opposed to delicts/wrongs committed by an independent contractor.

Situations where an employer is entitled to summarily dismiss an employee


Summary dismissal is the termination of an employees services without giving the prescribed notice and it therefore amounts to cancellation. In terms of the common law, the employer is entitled to dismiss the employee summarily when the latter has committed a material breach of contract, for example, where the employees behaviour amounts to repudiation or positive malperformance. (Strachan v Prinsloo 1925). Under the common law the following grounds for the summary dismissal of an employee have crystalized: incompetence to do particular work serious negligence when performing duties refusal to work unreasonable absence from work without reason or consent(Myers v Sieradzki 1910) disobedience of reasonable commands within the purview of the employees work. This includes persistent late arrival for work despite various previous warnings (Negro v Continental

Spinning and Knitting Mills 1954)


rude behaviour to the employer (Jamieson v Elsworth 1915) secret profits or commissions made at the expense of the employer or competing with the employer and thereby violating the relationship of trust (Robinson v Randfontein Gold Mining

Company 1952)
disclosure of trade secrets or the misuse of information obtained through his employment (Premier Medical Society v Winkler 1971) dishonesty in the scope of his duties, for example fraud and theft putting the employers property to private use misconduct, for example drunkenness or assaulting co-workers or customers insubordination, rebelliousness and conduct to the detriment of discipline It must be mentioned that whilst this list is fairly comprehensive it is not by any means

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exhaustive.

Misconduct
The dismissal of an employee who has committed misconduct is governed by statute as well as subsidiary legislation. Originally common law rules governed the dismissal of an employee on grounds of misconduct. The acts which constituted misconduct inside the employment were too numerous to categorise. However it suffices to mention a few, that is, fighting, swearing, trading insults, lateness, drunkenness, betting, incompetence, theft, neglect, dangerous or obstructive conduct, refusal to obey lawful orders, and so on. Breaches of such offences automatically entitled the employer to dismiss the employee summarily. The Labour Relations Act (Chap. 28:01) and Statutory Instrument 371 of 1985 changed all that. All dismissals are now governed by the said statutory instrument unless there is a code of conduct which regulates dismissal agreed to by the employer and the employees. In terms of the Statutory Instrument an employer is entitled to suspend an employee without pay but must immediately report to the Ministry of Labour for permission to dismiss the employee concerned. Thereafter a notice of the hearing of the matter will be issued by the Labour Relations Officer who will either approve or refuse to grant the application. Either party is entitled to appeal to the Senior Labour Relations Officer or Labour Tribunal against the decision of the Labour Relations Officer within a month from the date of the hearing. Where there is a code of conduct, the position is then governed by the Labour Relations Employment (Code of Conduct) Regulations, Statutory Instrument 379 of 1990. In terms of this Statutory Instrument the procedures set out in the code of conduct must be followed. For example, any breach of the code must be investigated before any proceedings are commenced against an employee. The person who is alleged to have breached any of the rules or procedures must be notified before any proceedings commence.

Employee protests
The right to strike entails the withdrawal of labour by workers on the one hand and the ability of management to lockout workers. The right ensures equilibrium in industrial relations, as the famous authors, Davies and Freidman note. In protecting this right, the law protects the legitimate expectation of workers that they can make use of their collective power.

Although the right is fundamental, the Zimbabwean Constitution does not guarantee the right to strike either in the public sector or in the private sector, (section 3 of the Labour Act). However,

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the right can be derived from the freedoms conferred in the Constitution, for instance, section 21 of the Constitution provides as follows: . . . except with his own consent or by way of parental discipline no person shall be hindered in his freedom and association . . . the right to assemble freely and associate with other persons and in particular to form or belong to other associations for the protection of his rights . . . It is still very arguable to assert that this section guarantees the right to strike. Some authorities assert that the right (section 21) necessarily includes the right to strike if viewed from the International Labour Organisations Conventions perspective. For without the right to strike the freedom to associate is empty and meaningless. Zimbabwe has signed and ratified several conventions on labour law, for instance ILO Convention on the Right to Organise and Collectively Bargain No. 87 (1948), African Charter on Human and Peoples Rights, Article 10. The right to strike is universally accepted. Zimbabwe is duty bound through its obligations under these Conventions to guarantee the right to strike. It is argued that the right to strike is an intrinsic corollary to the right to organise protected by Convention No. 87. As such the right can be derived from International Law. From the Labour Act, the right to strike can be derived from section 104(1). It reads: subject to this Act, all employees, workers committees and trade unions shall have the right to resort to collective job action to resolve disputes of interest.

As regards essential services, Labour (Declaration of Essential Services) Notice 2003 (SI 137/2003) is in point. The Statutory Instrument declares various services to be essential services for the purposes of the Labour Act. The services so declared are broadly, services provided by the fire brigade, supply and distribution of water, electricity, veterinary services, services by Zimbabwe Revenue Authority, health services, transport and communication services and services by a public broadcaster.

However, s.104 (4) allows the right to strike if the action is intended to avoid an occupational hazard which is reasonably feared to pose an immediate threat to health or safety. (Section 104(a)). Section 104(b) allows the right to strike if there is an immediate threat to the existence of a workers committee or registered trade union. Section 108 and 109 of the Labour Act provide for delictual liability if employees engage in unlawful collective job actions.

This all in all strengthens the argument that the law of Zimbabwe does not recognise the right to strike. This provision means that workers can only resort to collective job action when there is a

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dispute of interest and not a dispute of law, (s.104(3)(ii)). Section 104(1) appears to be authorising with the right hand the right to strike while s.104(3) takes that right with the left hand. It is clearly stated that no job action is recommended or engaged in if the workers concerned are in an essential service, if dispute is of right or if parties have agreed for the matter to be referred to arbitration.

Although this section purports to sanction the right to strike, this is not the case. In the case of

Rutunga & Ors v Chiredzi Town Council & Ano (2002), employees of the town withheld their
labour for a couple of hours, in order to persuade the council to dismiss a senior employee. Employees argued that their conduct amounted to a constitutionally permitted demonstration while council argued otherwise. Justice Gwaunza with Sandura J, Cheda J concurring ruled that the employees action was an unlawful collective job action. See also Design Incorporated (Pvt)

Ltd v Chapangura & Ors (2003) where employees were dismissed on the ground that they
participated in an illegal strike.

Prerequisites of a legal industrial protest


In order for workers to be in a position to engage in a lawful collective job action several requirements need to be fulfilled first lest their action is declared an unlawful job action. See

Rutunga & Ors v Chiredzi Town Council & Anor (2002).


The requirements, in general, are a qualification to the right as is provided for under section 104 of the Labour Act. Employees should provide a 14 day written notice with reasons to the employer and other parties stated below. In other words the notice has to clearly specify the grounds for the cause of action. (Section 104(2)(a)). The notice needs to be delivered to the following parties: (i) the party against whom the action is to be taken. (See s.104(2)(a)(i)). (ii) appropriate employment council, s.104(2)(ii). (iii) to appropriate Trade Union or organisation where such organisation is not itself resorting to such action, s.104(2)(iii). The case of Cole

Chandler Agencies (Pvt) Ltd v 25 Named Employees (1998) aptly underscores that these
requirements need to be complied with lest the strike is illegal. The court further held that the validity of a notice, where a strike was intermittent but the cause of a strike was the same, fresh notice is not important because the previous notice is still valid. However in C Moyo & Ors v

Central Batteries (Pvt) Ltd (2002) the court rejected the old notice as valid although it was a few
months old.

Employees should have attempted to make a conciliatory agreement before engaging in a collective job action. Should the agreement fail, a certificate of non-settlement is issued to the

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parties, s.104(2)(b) of the Labour Act. This certificate is issued by the Labour Officer in terms of section 93.

Section 104(3) (e) provides for the procedure of casting a ballot to see whether the majority is in agreement with the action or not. It should be noted that the voting procedure is not by secret ballot. This provision is similar to the Industrial Concilliation Act No. 29 of 1959, s.47(i). Employees are also required to exhaust all remedies or avenues available before engaging in the action. (s.104(3)(h) of the Labour Act.) This provision prohibits trade unions from engaging in strikes if there are any employment regulations or a collective bargaining agreement, which has not expired.

Registration of an Employment Agency


The Labour Relations Act (section 114) provides that no person shall; (i) conduct an employment agency (ii) charge or recover any payment or reward for or in connection with the procurement of employment through an employment agency unless that employment agency is registered under the Act.

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2007

Corporate and Business Law- F4 (Zimbabwe)


Casebook

Creation of a partnership

A partnership is a contractual association involving a minimum of two persons and not exceeding twenty in number in which the persons concerned agree to contribute money, labour or skill to a common project and to carry on business with the object of making a profit for their joint benefit. In our law no formalities are required for the creation of a partnership and although writing or registration is not necessary the partners may agree to writing as a requirement for the validity of their contract (condition precedent). In Jourbert v Tarry and Co (1915) the essentials of a partnership were stated as follows: (a) contribution (whether goods, money or labour) (b) objective must be the making of profit (c) for the joint benefit of the parties (d) the partnership agreement must be lawful and it is essential that the parties must intend to create a partnership. It is quite clear from the facts of this case that Mr Shumba has breached the partnership agreement in a significant number of ways. Some of the obligations of a partnership which Shumba has breached are as follows:

1. Sharing of Management Every partner is entitled to participate in the management of the partnership business and may not be excluded therefrom. In addition a partner may not transact any partnership business without the consent of all his co-partners.

Muller v Pienaar (1968)

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2. A partner may not use partnership property contrary to the terms of the agreement. It has been stated that one partner cannot use the property of the partnership so as to exclude the other partner entirely from the control of the partnership property. Munro v Ekerold (1949) A partner may not sell, donate or alienate partnership property without the consent of his co-partners. Furthermore a partner who has forcibly or fraudulently been dispossessed by a co-partner of partnership assets may obtain a mandament van spolie (spoliation order) restoring him to possession. Shapiro v Roth (1962) 3. Duty of Good Faith Partners stand in a fiduciary relation to one another and are obliged to observe uberrimae fides, the highest degree of good faith. Not only must a partner avoid a conflict of interest situation but also he must refrain from securing for himself a secret benefit or profit at the expense of the partnership. 4. Access to Books In the absence of an express agreement to the contrary, every partner has a right without permission of his co-partners to inspect, examine and make extracts from all the books of the firm. This right may be exercised at all reasonable times. A partner is entitled to insist that all partnership records be kept at the principal place of business of the partnership at least in situations where constant reference is essential to the day to day conduct of the business. 5. Duty to account and to share profits A partner is obliged to account for and deliver to the partnership whatever he has obtained as a partner on behalf of the partnership or within the scope of the partnership business or in continuance of partnership transactions. Each partner must allow his co-partner the latters share of the profits. In De Jager v Olifants Tin B Syndicate (1912) A syndicate formed to prospect for tin directed a member X to prospect a farm on its behalf. He discovered tin on a neighbouring farm to the right of which he then claimed he was solely entitled. He was held bound to account to the syndicate since he had acquired the rights in the course of operations conducted on behalf of the partnership.

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Partnerships vs Companies

A partnership is different from a company in the following respects: A partnership cannot consist of more than twenty people unless the members belong to a designated calling or profession in terms of Section 6 of the Companies Act [Chapter 24:03]. A company on the other hand may have an unlimited number and the number is limited to fifty in the case of a private company. A company is required by law to have at least two directors, other than alternate directors, at least one of them shall be ordinarily resident in Zimbabwe. In terms of s.169(1) of the Companies Act [Chapter 24:03]. No such requirements pertaining to directors exists for a partnership. A company may only commence its business after incorporation in terms of the Companies Act. Due to the feature of its incorporation such a business association is said to have a corporate personality or legal personality or juristic personality per Dadoo Ltd v Krugersdorp Municipal Council 1920 A.D. 530, Salomom v

Salomon and Co Ltd 1897


A.C. 22. This sharply contrasts with a partnership which may commence its business before incorporation, see Tourbert v Tarry. A partnership is not required by law to hold regular meetings whereas a company is required by law to hold meetings such as the Annual General Meetings in terms of s.125 of the Companies Act [Chapter 24:03]. A partner cannot transfer his shares without the consent of the other partners whereas company shares are freely transferable save for private companies, which are bound to limit the transferability of their shares. The total amount of capital and each partners contribution can be altered by agreement whereas the capital of a company is governed by the memorandum and Companies Act. A partnership has no perpetual existence. The insolvency or death of a partner dissolves the partnership unless provision is made to the contrary in the partnership document, whereas the

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death or insolvency of a member does not dissolve a company. Each partner is liable for the debts of a partnership. Their liability is joint and several whereas the liability of a member of a company is limited to the amount unpaid on his shares, see

Chingadia Brothers v Shingadia, Olivans v Dejurger.


Each partner is an agent of the partnership whereas a member of a company is not its agent. A partnership can do anything that the parties agree to do whereas the activities of a company are confined to its memorandum of association.

Co-ownership and partnership


There is an ill-defined line between co-ownership and partnership. This is so even if the signatories to the agreement describe themselves as co-owners, R v

Bowen and Others 1967 RLR 96. However, partners may be co-owners but the converse does
not apply in the absence of evidence clearly establishing this, Oblowitz v Oblowitz (1953) 4 S.A. 426. The principal differences which have emerged from case law, Oblowitzs case (above),

Runciman v Schultz 1923 TPD 45 and also Sauerman & Another v Schultz (1950) 4 S.A. 455,
between partnership and co-ownership can be summarised as follows: (i) co-ownership does not necessarily involve community of profit and loss, while partnership does. (ii) one co-owner can, without the consent of the others, alienate his interest in the property jointly owned, whereas a partner cannot. (iii) one co-owner is not as such the agent of the others, whereas a partner is. (iv) co-ownership need not exist for the sake of gain or profit, whereas that element is fundamental to the legal conception of a partnership. (v) one co-owner may use the property (within certain limits) for his own purpose, and without reference to, or the consent of, the other co-owners, whereas a partner may, unless specifically authorised, use partnership property only for the purpose of the partnership.

Partnership unlimited liability


A partnership is defined as a legal relationship arising from a contract between two or more persons in terms of which they agree to carry on an enterprise with the object of making a profit to be divided among them. Each agrees to contribute property and/or labour for the purposes of that enterprise.

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It is important at this point to note the legal nature or status of a partnership. A partnership is not a legal entity having an existence separate from the individual person constituting it. During the existence of the partnership, partners are joint co-creditors and joint co-debtors of the rights and obligations of the partnership Shingadia Brothers v Shingadia. A partnership is a contract and as such all essentials of a contract must be present. The essentials of the special contract of partnership were stated in the frequently cited case of

Joubert v Tarry and Co (1915) which states as follows:

now what constitutes a partnership between persons is not always an easy matter to determine the definitions differ to some extent we are safe if we adopt the essentials which have been laid down in Pothier on Partnership These essentials are fourfold. First that, each of the parties brings something into the partnership, or binds himself to bring something into it, whether it may be money, or his labour or skill. The second is that, the business should be carried on for the benefit of the partners. The third is that the object should be to make profit. Finally, the contract between the parties should be a legitimate contract.

It is clear from the facts that the fourfold test stated in Joubert (supra) is fulfilled. The object of the partnership is to make profit through the garage enterprise. Fadzai contributed capital, while Farai works full time at the garage (labour and skill). Therefore all the essentials for the existence of a valid contract between the parties are present and as such the partnership is valid. This is emphasised in the case of Oblowitz v Oblowitz (1953). The term partnership is used in two senses. It may refer either to the contract between the parties or to the relationship brought about by the contract. The essential feature, however, is the contract, for the rights and obligations of the partners flow from the terms, express or implied, of their agreement Ex parte Butner Brothers (1930). In the carrying out of the partnership objectives parties should scrupulously comply with the terms and conditions of their agreement. It should also be borne in mind that to a large extent the principles of agency apply in a partnership. For the benefit of the partnership, partners should comply with the terms of the partnership agreement. In the case of Divine Gates & Co v African Clothing Factory (1930) the court emphasised that parties are very often styled agents of each other. Whether they are actually agents or not they certainly have the power of agents and the broad principles of the law applicable to agents apply to an extent to partners. However, although partners may have the powers of agents, they are much more than agents. The character sustained by a partner is much more complex than merely that of agent Not only is the partner an agent, but sustains the double character of agent and principal in one and the same transaction. See also

Potchefstroom Daines and Industries Co Pvt Ltd v Standard Fresh Milk Supply Co (1913).
As has been mentioned earlier on, a partnership is not a legal entity. Any liability of one partner attaches to the other partner as well. The fact that Farai has pledged the partnership account in

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the amount of $200 million without the consent of Fadzai does not exempt Fadzai from liability. A partner is an agent of the other partners. The result of this relationship is that partners must display the highest degree of good faith in their dealings with one another. The principle of

uberrammae fides (utmost good faith) applies to partnerships among other contractual
relationships such as agency and suretyship. Not only are partners enjoined by the law to avoid a situation of conflict of interest but partners must avoid making a secret profit or deriving a secret benefit (be it monetary or otherwise) at the expense of the partnership business. The common interest of the partners in the carrying on of partnership business leads to the general rule that each partner is the agent of the other. However, there is implied authority of a partner to act as agent for other partners and bind them in the scope of the partnership business.

Blismal v Dardagen (1951).


Therefore, Fadzai and Farai have two options namely dissolving the partnership, or restructure the agreement and give Farai a salary on top of the profit he gets as a partner.

Partnerships and contracts


Generally speaking, a partner is in the full sense of the term an agent of his co-partners and to be rendered liable for a partnership obligation, a person must have been a member of the partnership at the time the obligation was contracted. The onus lies upon the third party to show that the contracting party had authority to bind the partnership and this authority may arise in a number of ways. Firstly it may arise by express provision in the partnership agreement. Secondly it may be implied from the partnership agreement or from the customary dealing of the partnership since each partner has authority to do all acts incidental to the proper conduct of the business

(Braker and Company v Deiner, (1934)). Thirdly, partners may be bound by their having held out, one of their number having authority. Fourthly, there may be ratification, express or implied of an authorized act. Whatever the authority of the partner who has contracted an obligation it is necessary to render his co-partners or the partnership liable, that the obligation should have been contracted in the name or on behalf of the partnership. (Lamb Brothers v Brenner and Co (1886)). In buying two tonnes of assorted rock from Germiston Quarries, Brian was ostensibly acting for and on behalf of Shingai Sculptors, the partnership at a time when he was the Chairman of the partnership. If notice was not brought by the partnership to the attention of Germiston Quarries that rock should only be purchased from

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Flintrock Quarry and that, if purchased from any other supplier (like Germiston Quarries) the prior consent of all members was necessary then the partnership can be estopped from denying the fact that Brian had authority to bind the partnership in his dealings with Germiston Quarries.

In Whiteside and Flanagan v Shakinowsky and Kaplan (1924) X gave a cheque in his partnerships name to the creditor. His partner, Y, disapproved, but neither informed the creditor of Xs want of authority nor instructed X to inform him. Y was held to have acquiesced in the transaction. Finally, for the partnership to be able to rescind the contract on the basis that the rock delivered by Germiston Quarries was only suitable for general sculpture work and not for the particular style of sculpture carried out at Shingai Sculptors they would have to prove that Brian had given Germiston Quarries exact specifications on the type of product the partnership required. Such knowledge on the part of the supplier will not be presumed. In the circumstances of the case the partnership faces formidable legal obstacles in its attempts to avoid the rock contract with Germiston Quarries.

Partnerships and third parties


The basic principle is that in a partnership each partner is the agent of the others. This was the position emphasized in Bain v Barclays Bank Ltd 1937. This is indeed the basis of a partners relationship with third parties. It must be understood, however, that the acts of a partner are binding not only on his fellow partners but also on himself.

The third party will only be able to establish liabilities on the partners if he can discharge the triple burden of proving that; (i) a partnership existed between all the par ties he seeks to hold liable. The facts reveal that there was a partnership; (ii) the partner on whose act he relies acted within the scope of his authority; and (iii) he acted in his capacity as a partner. There is no doubt, on the facts, that Tutu will be able to discharge the triple burden. This is so because the existence of a partnership may be proved by evidence, that one in fact exists, and it is immaterial that the third party may not have known of its existence at the time, Spark v

Palte Ltd 1956.

Partners are jointly and severally liable to third parties for the obligations of the partnership,

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Spark v Palte Ltd (supra), but while the partnership is still in existence Tutu is entitled to sue the
partnership as a whole and not the individual partners, Vulcan Trading Co (1958) (Pvt) Ltf v

Auyliffe & Others 1969.

However, if he sued the partnership and obtains judgment against the partnership, then he can execute against the partnership property. If that is insufficient, he may execute against the property of the individual partners, High Court Rules 1971 rule 342 and Magistrate Court (Civil) Rules 1980 Order 26 Rule 4.

Good faith
A partnership is a legal relationship between two or more persons (up to a maximum of 20), who carry on a lawful business or undertaking to which each contributes something with the object of making a profit and of sharing it between them.

A partnership is essentially a contract founded on the agreement of the parties. The agreement comprises the following essentials. (1) that each partner is to contribute something whether capital (such as money, property, materials or goodwill) or labour (such as work, industry or skill) (2) to a lawful business (3) which is to be carried on for their joint benefit (4) with the object of making a profit and sharing the same. The sharing of profit is such an essential feature of a partnership that an agreement that one of the partners is to have no share in the profit is void. (Bester v Van Niekerk (1960)) One of the fundamental obligations of a partner is that partners stand in a fiduciary relationship to one another and are obliged to observe uberrimae fides, the highest degree of good faith. A partner must not allow himself to be placed in a situation where his personal interests and the interests of the partnership conflict or may possibly conflict. Partners are accountable to the partnership for any profits, benefits or advantages that they obtain in the performance of their duties and may not appropriate to themselves assets, advantages and opportunities which belong to the partnership. This duty embraces any act prejudicial to the partnership or potentially so for example the opening of a competitive business.

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In the famous case of Robinson v Randfontein Estates (1921) the court made the following observation, where one man stands to another in a position of confidence, involving a duty to protect the interests of that other he is not allowed to make a secret profit at the others expense or place himself in a position where his interests conflict with his duty . Also in the case of Olifants Tin B Syndicate v De Jagel (1912) the court said, It is a general principle of our law that the contract of partnership is based on the utmost good faith, all the decided cases flow from that one great principle .

Partnership dissolution
A commercial partnership is a legal relationship between two or more persons, not exceeding twenty, who carry on a lawful business or undertaking to which each contributes something, with the object of making a profit and sharing it between them.

A partnership is formed where two or more persons make an agreement which comprises the following essentials: (1) that each is to contribute something, whether capital (such as money, property, materials or goodwill) or labour (such as work, industry or skills) (2) to a lawful business (3) which is to be carried on for their joint benefit (4) with the object of making a profit or sharing the same (5) the parties must have intended to create a partnership and if such intention is lacking the agreement cannot constitute a partnership.

However no formalities are prescribed by law for the creation of the partnership agreement which may thus be concluded in writing, orally or even tacitly by the conduct of the parties. Each partner is bound to perform his share of the duties as agreed upon or as implied by law. A partnership may be dissolved by agreement or by operation of law or by renunciation and the details pertaining to dissolution are as follows: 1. Agreement Where a partnership is being dissolved by agreement, all the partners must consent. There will be dissolution on the fulfillment of a condition expressly or impliedly agreed upon by all the partners at the time of the formation of the partnership or subsequently as dissolving the partnership . for example the completion of the partnership business. Thus a partnership to promote a prize fight may be dissolved when the fight has taken place:

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Dube v City Promotions (1964). A partnership will ordinarily be dissolved by the expiry of the
time agreed upon for its duration. There will also be dissolution where a partner retires in terms of the partnership or a subsequent agreement and if the remaining partners want to continue with the partnership, in law a new partnership is reconstituted.

2. Operation of Law A partnership is dissolved by operation of law on frustration of the partnership business or on the death of a partner or on the insolvency of the partnership or of a partner individually or where a partner by reason of the outbreak of war becomes an alien enemy or where a court order is made on the insanity of a partner. (a) Frustration A partnership is dissolved if its business purpose can no longer be achieved on account of supervening impossibility. For example, X and Y agree on a partnership for a certain period. The mine which the partnership is formed to work proves valueless and there is no reasonable likelihood of profit for the rest of the unexpired period.

Curtis v Beart (1909)


(b) Death of a partner Unless there is an agreement to the contrary, a partnership dissolves on the death of a partner. The executor of the deceased partner.s estate is entitled to the deceased.s share of the partnership assets and liable to the extent of the assets in his hands, for the deceased.s share of the partnership debts. The death of a partner will not however dissolve a partnership when the agreement clearly provides for its continuance for the benefit of the estate of the deceased and the deceased partner by his will has authorised such a continuation. (c) Insolvency A partnership is dissolved where a partner or the partnership is declared insolvent. (d) Partner becoming an alien enemy A partnership existing between persons domiciled in different countries is dissolved by a declaration of war and perhaps also a de facto state of war between those countries and the partnership is automatically dissolved. In Stern v De Wahl (1915) the court said that:

.a partnership with an alien partner comes to an end as soon as it is clear that one of the other partners takes on what the law considers to be an enemy character . . . .

3. Renunciation A partner may at any time effectively renounce and so dissolve the partnership and he may be

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liable in damages unless he renounces: (a) in certain cases by due notice of dissolution and (b) for lawful cause. Where a partnership is for an indefinite period it may be dissolved at will by a partner provided that the notice is given in terms of the agreement of partnership or if this is silent, must be reasonably given. Alternatively a partner may renounce the partnership on the following lawful grounds: (i) fulfilment of a condition allowing a partner to give notice of dissolution. In Holshausen v

Cumming (1909) the agreement provided that if either partner became addicted to drink the
other could dissolve the partnership on notice; (ii) breach of an essential term of the partnership, for example failure to contribute what one has agreed to contribute towards the partnership; (ii) conduct causing loss of confidence. A partner is entitled to renounce on the ground of circumstances, arising otherwise than through his own fault which cause him to lose confidence in his co-partner, for example carelessness in the conduct of a business by a managing partner.

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2007

Corporate and Business Law- F4 (Zimbabwe)


Casebook

Differences between a private limited liability company and a public company.

Section 33 of the Companies Act, Chapter 24:03 summarizes the major differences between a private limited liability company and a public company. Some of the major differences are as follows: (i) Membership Whilst the minimum membership for both private and public companies is one (s.7 of the Act) the maximum number of members for private companies is 50 persons. As for public companies there is no maximum it is infinite. (ii) Transfer of Shares A private company restricts the right to transfer its shares whereas a public company (particularly a listed one) has its shares being freely tradeable and transferable. (iii) Share/debenture Invitation A private company prohibits any invitation to the public to subscribe for any shares or debentures of the company. On the other hand with a public company the issuance of shares and/or debentures is probably the most obvious and popular way of raising capital for the company. (iv) Commencement of Business With a private company business may commence as soon as the company is registered and receives its certificate of incorporation. On the other hand with a public company apart from the registration formalities there is an additional requirement that the company shall not commence any business or exercise any borrowing powers unless the Registrar has certified that the

Financial Training Company

company is entitled to commence the business in terms of s.114 of the Act. (v) Statutory Meetings Statutory meetings are not necessary for private companies whereas with public companies the Act specifically enjoins the holding of a statutory meeting for members of the company within a period of not less than one month nor more than three months from the date at which the company is entitled to commence business (s.124). (vi) Appointment of Auditors In many instances, a private company may be exempted from appointing an auditor as per s.150(7) of the Act whereas no such special dispensation is given to a public company.

Changes from private to public status


To convert to a public company a private company would have to alter its articles of association in such a manner that they no longer include the restrictive provisions which are required to be included in the articles of a private company as per s.33 of the Act (e.g. restricting the right to transfer its shares, limiting the number of its members to fifty and prohibiting any invitation to the public to subscribe for any shares or debentures of the company). In order to convert from a private to a public company it must: (i) Lodge a Form C.R. 11 (Special Resolution) within one month after it was passed; (ii) Remove the term Private from its name within one month of the passing of a special resolution; (iii) Submit to the Registrar its Certificate of Incorporation for endorsement as to the deletion of the term (Private) (iv) If a prospectus is not issued within one month after the date of the alteration of the articles, a statement in lieu of the prospectus accompanied with the prescribed fee containing the particulars set out in Part 1 of the Third Schedule of the Act and in the cases mentioned in Part II thereof, setting out the reports specified therein, must be lodged with the Registrar within one month after the registration of, or simultaneously with the special resolution on Form C.R. 11 (s.34). It must be noted that the removal of the term (Private) from the name of the company in terms of s.35 of the Act shall not be regarded as a change of name for purposes of s.25 of the Act.

Changes from public to private status

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(i) With the sanction of a special resolution and subject to confirmation by the Court, a public company may convert itself into a private company (s.33(3)). (ii) The special resolution on Form C.R. 11 (and an endorsement as to short notice of meeting, if necessary) must be lodged with the Registrar within one month from the passing thereof and the original or a printed certified copy of the Order of Court should be lodged as soon as it has been issued by the Court. (iii) In order that the Registrar may report favourably upon the application of the court, the company should ensure that its articles of association fully comply with the provisions of s.33(I) (a), (b) and (c) i.e.: (a) the right to transfer shares is restricted (b) the number of members is limited to fifty and (c) any invitations to the public to subscribe for any shares or debentures of the company is prohibited. (iv) Traditionally it has been the practice of our courts to order that a rule nisi shall be issued on petitions of this nature but the current practice is to dispense with the issue of a rule nisi and grant a final order on the application if: the company has only current trading liabilities and the consent of all creditors is filed with the application and the unanimous consent of all shareholders is also filed and there is a favourable report from the Registrar of Companies. (v) On conversion, the term (PVT) must be included in the name of the company which should forthwith submit its Certificate of Registration to the Registrar for endorsement to this effect.

Prospectus

A prospectus means any memorandum, notice, circular, advertisement or other printed invitation offering to the public for subscription or purchase of any shares or debentures of a company. The purpose of issuing the prospectus is to raise capital and the promoters must take great care not to make any untrue or misleading statements. A person who has been induced to subscribe for shares or debentures on the faith of the prospectus which contains an untrue statement may rescind his contract to take shares and claim return of the amount paid for them irrespective of whether the false statement was made innocently, negligently or fraudulently. (Alexander v Africa Investment and Credit Company, 1917)

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Apart from civil liability the Act also establishes criminal liability for those responsible for the issue of false statements in a prospectus (s.59). It is illegal for any offer of shares or debentures to be made to the public unless accompanied by a prospectus, which complies with s.54 of the Companies Act. Briefly some of the more important information which is required to be specified according to the Fourth Schedule is as follows: details of the company and its business; names and addresses of the companys auditors, bankers, lawyers, stockbrokers and underwriters; details of the names, occupation and addresses of the directors or proposed directors; details of the shares or debentures on offer and the purpose of the offer; minimum subscription levels and the underwriting arrangements; particulars of the share capital of the company; the financial status of the company and its future prospectus; particulars of any material loans, major contract significant liabilities; reports by auditors, accountants and directors with respect to profits and losses, assets and liabilities

Purpose and contents of a prospectus


A prospectus means any memorandum, notice, circular, advertisement or other printed invitation offering to the public for subscription or purchase of any shares or debentures of a company. The purpose of issuing the prospectus is to raise capital and the promoters must take great care not to make any untrue or misleading statements. A person who has been induced to subscribe for shares or debentures on the faith of a prospectus which contains an untrue statement may rescind his contract to take shares and claim return of the amount paid for them irrespective of whether the false statement was made innocently, negligently or fraudulently. (Alexander v Africa Investment and Credit Company, 1917) Apart from civil liability the Act also establishes criminal liability for those responsible for the issue of false statements in a prospectus (s.59). It is illegal for any offer of shares or debentures to be made to the public unless accompanied by a prospectus which complies with s.54 of the Companies Act. Briefly some of the more important information which is required to be specified according to the

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Fourth Schedule is as follows: details of the company and its business; names and addresses of the companys auditors, bankers, lawyers, stockbrokers and underwriters; details of the names, occupations and addresses of the directors or proposed directors; details of the shares or debentures on offer and the purpose of the offer; minimum subscription levels and the underwriting arrangements; particulars of the share capital of the company; the financial status of the company and its future prospects; particulars of any material loans, major contracts and significant liabilities; reports by auditors, accountants and directors with respect to profits and losses, assets and liabilities.

Misstatements contained in a prospectus


The relevant area of the law in question relates to the liability of the promoters for mistatements contained in a prospectus enticing potential investors to buy shares. A prospectus is defined under s.2 of the Companies Act [Chapter 24:03] as any prospectus, notice, circular, advertisement or other printed invitation offering to the public for subscription or purchase any shares or debentures of a company. It is clear that the document which was circulated to Harare Business people in the hair care industry meets the definition of a prospectus.

In terms of common law a promoter is liable for all forms of mistatements which are contained in a prospectus be they innocent, negligent or fraudulent. In this case the statement that herbs used in the production of Ego are in plentiful supply in the Eastern Highlands when they are not, constitutes a fraudulent misrepresentation. Fraudulent Misrepresentation It is based on an action for deceit. The representation is made with knowledge of falsity, or deceitfully. For one to succeed on an action of fraudulent misrepresentation, fraud has to be proved and nothing short of that will do. The plaintiff has to prove that the defendant knew that the statement contained in the prospectus was false or that he did not honestly believe it to be true and that he made it recklessly not caring whether it be

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true or false. It has to be proved that the defendant had a fraudulent state of mind.

This is clearly highlighted in the case of Benjamin v Minter (1896). The facts of the matter were that there was an allegation against the promoters that they stated in the prospectus that gold bearing reefs extended for miles on the property owned by the company. This was false. The court held that in such an action based on fraudulent misrepresentation, the intention to deceive must be established.

Recklessness alone is not enough. The same principle was reiterated in the case of Canada

Railway Company v Maggeridge (1860), where the court held that those who issue out a
prospectus holding out to the public the great advantages which will accrue to persons who will take shares on the faith of representations therein contained are bound to state everything with strict and scrupulous accuracy and to abstain from stating as a fact that which is not so, but to omit no one fact within their knowledge the existence of which in any degree affects the nature or extent or quality of the privileges and advantages which the prospectus holds out as inducements to take shares.

Remedies Under fraudulent misrepresentation, the plaintiff, in order to succeed must show that misrepresentation was material and that he acted upon it. The basic remedy available to all forms of misrepresentation is rescission. Therefore Tulani can rescind the contract and be restored to the position which he occupied prior to the conclusion of the contract (status quo ante). Rescission is a remedy whereby a party to a contract is allowed to abrogate or revoke that contract. However, he must make up his mind whether to stay by the contract or abrogate it within a reasonable time of knowledge of the deception.

Rescission involves restitution in-integrum the parties restoring each other to the positions that they occupied prior to the conclusion of the contract. In addition to rescission, Tulani is also entitled to damages for fraudulent misrepresentation because in our law, fraud is a delict and the remedies are always available for fraudulent misrepresentation. The measure of damages which the injured party is entitled to is the difference between what he bought the shares for at the time of the conclusion of the contract and the value of the shares now. In this case, the shares were costing $1,500 a share and he paid $15 million for 1 million shares. So Tulani is entitled to damages in the sum of $10 million plus costs.

It should be noted that apart from common law remedies the Act itself also provides for statutory remedies for misstatements contained in a prospectus. Section 59 of the Act imposes criminal

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liability for mistatements in the prospectus. Under common law, misrepresentation is a civil offence but under the Act it is a criminal offence. So the Act affords double protection to aggrieved members of the public, like the shareholders, who have bought shares in a company and the contract has been induced by misrepresentation. Also s.58 imposes civil liability on any person or officer who was knowingly part of the misrepresentation. This provision defines who is likely to be liable for non-compliance with this section and who is likely to be liable for issuing a false prospectus particularly s.58(a)(d). The remedies available to Tulani for misrepresentation involve not only rescission of the contract, if he so desires but also damages.

Rescission of the contract and restitution in integrum or alternatively damages are the remedies available to him. In either case he is entitled to recover his costs of suit as well.

Statement in lieu of a prospectus


Section 35(1) of the Companies Act [Chapter 24:03] provides that if a company, being a private company, alters its articles in such a manner that they no longer include the provisions required under s.33 (relating to private companies) the company ceases to be a private company as from the date of alteration. The company is required within one month after the date of alteration to remove the term (Private) from its name. It is also required to deliver to the Registrar for registering a statement in lieu of prospectus in the form and containing the particulars set out in Part I of the Third Schedule of the Companies Act [Chapter 24:03].

However, a statement in lieu of a prospectus need not be delivered if within a month as indicated earlier, a prospectus relating to the company which complies with the fourth schedule of the Act, is submitted. Section 35(2) provides that every statement in lieu of a prospectus submitted shall be endorsed or attached to it a written statement signed by the persons setting out the adjustments and giving reasons therefore. It is emphasised under s.35 that the removal of the term private shall not be regarded as a change of name for the purposes of s.33(1). If an officer of the company concerned fails to comply with the provisions of s.35 they would be guilty of an offence and liable to a fine. Before a public company may offer shares to the public as one of the ways through which capital is raised, it is enjoined under the law either to issue a prospectus or alternatively a statement in lieu of a prospectus.

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The procedure required to form the company

The formation of a private company is dealt with under s.7 of the Companies Act, Chapter 24:03 as follows:

any one or more persons associated for any lawful purpose may by subscribing their names to a Memorandum of Association and otherwise complying with the requirements of this Act in respect of registration form an incorporated company . . .
The former must first decide the amount of the capital that the company will require. He will assess the requirements of the company for the foreseeable future including the preliminary expenses involved in incorporating the company and the amount of working capital needed to provide for stocks, debtors and periodic expenditures, having assessed the amount of the issued share capital which the company will need in order to be in a position to commence business. In addition it would be prudent to provide for future capital needs resulting from the growth of the business and the figure so determined will constitute the amount of authorized capital.

Name It will be necessary to decide upon the name under which the new company will be registered and an application on the prescribed form must be made to the Registrar of Companies together with the prescribed fee. It is conventional (although not mandatory) to submit at least three names in order of preference; after checking against the names of existing companies, the Registrar may reserve one of those names in terms of s.24 of the Act. Once a name is accepted it is then reserved for three weeks in order to allow the promoters to file the appropriate documents. Section 8(1)(a)(I) requires that a private company include the words private and limited as the last two words of its name. Memorandum and Articles of Association At this stage, The former would seek advice (in terms of the law) from a lawyer, Chartered Secretary or Chartered Accountant in drawing up the Memorandum and Articles of Association. The Memorandum gives the company its identity through its constitution and determines what the company may or may not do. The Memorandum must be completed in the prescribed form. The duties of subscribers to the memorandum are to pay for the shares which they undertake to take, to sign the Articles of Association and to appoint the first directors unless these are nominated in the articles. Until directors are appointed the subscribers are deemed to be the

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directors of the company up to the time of the Annual General Meeting. Pre-incorporation contracts can only bind the company when the company after incorporation ratifies them in terms of s.47 of the Act. The Memorandum of Association must provide for the adoption of any such contracts. The Articles of Association are the internal regulations of the company and usually embrace such matters as shares, meetings, directors, dividends and accounts. The former must decide whether it is appropriate to adopt Table A as it stands or whether it needs to be modified in any way. Registered Office Once the Memorandum and Articles of Association are approved by the Registrar, the promoters must submit a notice by filling in a CR6 form of the situation and postal address of the registered office of the company. Summons, official correspondence and other legal documents may be served at the companys registered office.

To sum up it can be said that before registration of the company can be effected, the following documents must be lodged with the Registrar of Companies: the Memorandum and Articles of Association, any pre-incorporation contracts, the reservation of the name, formal notice of the situation of the registered office and payment of the company registration fee. The date on which the Registrar issues the Certificate of Incorporation is the moment that the company comes into existence.

Legal Problems which the former is likely to face Section 169(1) of the Companies Act requires that every company have not less than two directors, so the proposed company cannot have one director only. At any rate, The former himself is ineligible to serve as a director without the leave of the Court as provided by s.173(1)(d) of the Companies Act due to the criminal conviction. (Oliver Tengende v Registrar of Companies (1984) Unless The former gets a special dispensation from the High Court he cannot be one of the two directors which the company must have. However his position as sole shareholder of the company is not affected by the criminal conviction.

Refusal by the Registrar to register a company

The Registrar may refuse to register a company in any of the following circumstances:

(i) where the objects of the company are unlawful, s.7 of the Companies Act and R v Registrar

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of Joint Stock Companies, Ex parte More (1931) 2 KB 197.


(ii) where the objects of the company are in conflict with public policy although not prevented by law, Ex parte Executors Trustees Co. (1856) 20 J.P. 36. (iii) where it is seen that the signatures of the subscribers are not genuine. (iv) where there is non-compliance with statute, Cotman v Brougham 1918 AC 514. (v) where a company proposes to be registered with a name which includes the word President or State or any other word which imports or suggests that it enjoys the patronage of the President, or Government, without first getting the Ministers consent in writing, s.9 of the

Companies Regulations 1984, S.I. 178 of 1984.


(vi) where the name of the company to be registered nearly resembles or is identical to any other companys name, s.24 (2) of the Companies Act, Pockets (Holdings) Ltd v Oak Holdings

Ltd 1953 S.R. 21 and Builma (Cape) (Pvt) Ltd v Registrar of Companies 1956 (3) S.A. 690.
With regards to the last two mentioned, the Registrar usually asks the company to change its name instead of refusing to register it.

Duties of promoters
Company promoters have certain duties towards the company and these are dictated by both common law and statute law. Here is an outline of the duties.

Equitable Duty of Disclosure This duty requires that a promoter should disclose any interest he may have in any contract or any profit he may make during the promotion of a company. This duty arises since promoters undoubtedly stand in a fiduciary position to the company in so far as they are called to define how, when, in what shape and with what supervision a company should come into existence. See Elanger v New Sombrero Phosphate Company (1878).

A fiduciary duty has been defined as a duty of utmost good faith. This duty requires promoters to make full disclosure of any interests they might have in the company either to potential members by making a declaration in the prospectus or disclosing the same to an entirely independent board of directors or through some other effective method. See Salomon v

Salomon and Co Ltd (1898). The rationale behind this duty is to guard against the dangers of
promoters defrauding a newly formed company. Often, promoters become the directors of the company and hence the need to guard against abuse.

Duty not to make Secret Profits What is prohibited here is not the making of profits per se, but the making of secret profits for example in the case of Leeds and Henley Theatres of Variety a promoter purchased property

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for 24,000 and then converted it to his nominee. Through the nominee and after the formation of the company the same property was sold to the company for 75,000 without disclosing that the promoter was the real vendor. It was held that the promoter was liable to pay the undisclosed profit to the company as damages.

Similarly in Whaley Bridge Calico Printing Company v Green and Smith (1880), Green had purchased Calico printing works and premises for 15,000 shortly before Smith promoted the plaintiffs company to take over at a cost of 20,000; Green entered into a sham contract whereby he transferred the printing works and premises to Smith so that he would re-sell it to the company at a cost of 20,000; Smith, as a promoter of the company, was prevented from making a secret profit because the said agreement (i.e. where Green was to pay 3,000 out of the purchase money to Smith); was not communicated to the directors of the company when the sale to the company was effected and it thus amounted to the making of a secret profit on the part of Smith: (the companys promoter). See also Erlanger v New Sombrero Phosphate Co

(supra) and Gluckstein v Barnes (1900).

Duty of Care A promoter also has a common law duty to exercise reasonable skill and care in the promotion of the company. In Jacobus Marler Estate Ltd v Marlen (1913) it was held that, a promoter who negligently allows the company to purchase property, including his own, for more than it is worth is liable to the company for the loss it suffers. In Re Jubilee Mills Ltd (1924), the defendant was in breach of a fiduciary duty, the court found him liable at common law when he sold his own property to the company he was promoting at a price in excess of its real value and took shares as payment of the property.

This duty is often linked to a promoters duty to refrain from making wilful false statements and also his duty to actively disclose the whole truth. The primary common law remedy of breach of promoters duties to the company is rescission of any contract made and the recovery of any secret profits which were made. It should be noted, however, that the right to rescind is exercisable in accordance with the normal principles of contract i.e.

The company should have shown nothing which could be deemed as intention to ratify the agreement after finding out about the disclosure or misrepresentation. Restitution in integrum must still be possible i.e. the company must be able to restore to the promoter what he gave to the company in essentially the same condition it was given. However, it should be noted that in the decision of Erlander v New Sombrero Phosphate Co and

Spence v Crawford (1939), it is doubtful whether the court would strictly enforce this rule

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whenever the promoter has been fraudulent or when he himself is responsible for making restitution impossible.

It should be noted that rescission will extinguish the secret profit complained of. In terms of the Companies Act, the statutory duty of the promoter relates to wrongful statements which may be contained in a companys prospectus.

It is one of the fundamental duties of a promoter to issue a prospectus in terms of s.54 of the Companies Act.

Damages A company may sue for damages as was done in re Leeds and Hanley Theatres of Varieties

Ltd (supra1); the promoters had failed to disclose in the prospectus the fact that they were
vendors of music halls that they had bought for the company which they were promoting and the profit of 12,000 they had made from that transaction. It was held that the company was entitled to damages assessed at the profit made by the promoters of the basis that the breach of duty involved also amounted to breach of promoters common law duty of care.

Rendering of an account, where there has been non-disclosure by a promoter and there have been secret profits made or where the promoter has profited from auxiliary transactions, which cannot be affected by rescission of the primary contract then the proper remedy for the company would be to require the promoter to be accountable for that profit; per Glukstein v

Barnes (1900).

One of the remedies in terms of statute which a company may have against wrongful statements in the prospectus by the promoter is to institute criminal proceedings in terms of s.58 of the Companies Act [Chapter 24:03], civil liability also attaches upon certain categories for persons, including the promoter for wrongful statements contained in the prospectus of a company they promote.

The registered office of a company


A company must have a registered office in Zimbabwe, to which all communications and notices may be addressed and at which all court processes such as summons may be served. The insistence upon the company having a registered office is explained by the fact that although the company is a juristic or legal persona it has no physical existence, so it is necessary for it to

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have a physical place where communications can be sent and collected.

In terms of s.112 of the Companies Act [Chapter 24:03] every company shall have a registered office in Zimbabwe. Upon the incorporation of a company notice of the situation and postal address of the registered office shall be given to the Registrar and notice of any change in such situation or postal address shall be given to the Registrar before such change is made.

In terms of s.113 of the Companies Act [Chapter 24:03] every company shall continuously display its name on the outside of every office or place in which its business is carried on, in a conspicuous position, in letters easily legible.

Companys name

It is stated objective of the Companies Act [Chapter 24:03] that every company registered by the Registrars Office has a distinct name that is different from the names of other companies already registered. The idea is to minimise the risk and possibility of members of the public confusing the two buinesses. Section 24(2) gives the Registrar of Companies absolute discretion in the approval or rejection of proposed names for registration. When carrying out the name search the usual procedure is to furnish the Registrar with at least three names in order of preference. If the preferred name is for whatever reason either unavailable or anacceptable the Registrar would still have other options to choose from. The reservation lasts a period of one month after which upon good cause being shown the period can be extended by no more than a month.

Section 24(2) reads as follows:

no names shall be reserved and no company shall be registered by a name which is identical with that for which a reservation is current or with that of a registered company or a registered foreign company or a private business corporation registered under the Private Business Corporation Act, Chapter 24:01 or which so nearly resembles any such name as to be likely to deceive unless the registered company or registered foreign company or private business corporation as the case may be is in liquidation and signifies its consent to the registration in such manner as the Registrar may require.

The legal position in relation to the registration of names which potentially could confuse,

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deceive or mislead members of the public is very clear. The Registrar may unless otherwise ordered by the Minister (the Minister of Justice is responsible for administering the Companies Act) refuse to register a company by a name which in his opinion is likely to mislead the public or to cause offence to any person or class of persons or is suggestive of blasphemy or indecency or which he considers to be undersirable for any other reason.

The statutory provisions which have alluded to merely consolidate the common law position as reference to a couple of cases will amply demonstrate. Although the general legal proposition is that it is the desire of the law to ensure that every company on the register has a name that is distinguishable from the names of other companies for purposes of accurate identification, mere coincidence of names if there is nothing more may not be enough. For example in Zimbabwe there are companies such as Beverley Building Society and Beverley Motors, O.K. Zimbabwe Ltd and O.K. Jobbing Services (Pvt) Ltd whose product lines are different.

On the other hand where the names are not only identical but the product line as well its highly unlikely that the Registrar of Companies would register the second company as well after a diligent name search. Case law in Zimbabwe suggests that the use of another persons business name must be a deliberate attempt by the other businessman to take advantage of the goodwill attached to the established business name. In determining whether there has been any deliberate use of the name all circumstances of the case have to be considered including such factors as the newcomers reasons for adopting the name and his knowledge of any prestige attaching to the name.

This approach was in fact approved by the Zimbabwean Supreme Court in Bon Marche (Pvt)

Ltd v Bon Marche and Others (1984) in which the then Chief Justice Dumbutshena C.J. said: It is patently clear from the evidence that was before the court a quo that the respondents adopted the business name Le Bon Marche with no intention to deceive or to confuse or to divert the appellants customers to their own business.

By the very nature of the differences in the extent of business operations the possibility of occasioning confusion between Le Bon Marche in Bulawayo and Bon Marche in Harare is nil The wrong or tort known
as passing off consists in the making of a repesentation by one or more people that their business is that of another or other people. In light of the above discussion it is likely that the Registrar of Companies can be persuaded to decline registering the Bulawayo company for the following reasons:

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(1) the names (Touchline Taxis (Pvt) Ltd are identical. (2) The product line that would be offered by the second company is the same as what is offered by the first company (carrying of fare-paying passengers). (3) There are reasonable prospects that the Harare firm would want to extend its business to Bulawayo in the not too distant future. The former already has established a solid reputation and goodwill amongst the travelling public.

In Dynamos Football Club v Dynamos United (1989) it was felt by the court that the two names were so identical that ordinary members of the public could be misled into thinking that the one business was the other and vice-versa. It is conceivable that the Registrar will probably adopt the attitude that the name proposed by the Bulawayo firm contravenes s.24(2) of the Companies Act and this would be a good and sufficient reason to decline to register that name.

Articles of Association
The Companies Act [Chapter 24:03], s.17, provides for the registration of the Articles of Association signed by subscribers, together with the memorandum of association. The articles of association are regarded as the internal constitution of the company, which governs the interrelations of the members of the company. Section 27 of the Companies Act [Chapter 24:03] provides that: subject to this Act, the memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by each member and contained undertakings on the part of each member to observe all the provisions of the memorandum and of the articles.

There is division amongst the authorities as to the interpretation of this provision. Some authorities argue that the articles bind members inter se while others say it binds the members and the company. Some have argued that this section (s.27) should be construed to create a contract only in respect of regulating mutual rights and duties of members. Thus one member may without the company being a party to the action, enforce a right given to him by the articles in his capacity as a member against another member. This was the position in Rayfield v Hands (1958) where the companys articles contained a clause requiring every member who intended to transfer shares in the company to inform the directors, and the directors were then required to take shares equally between them at a fair value. The plaintiff shareholder notified the directors of his intention to transfer his shares, but the directors denied that the articles imposed any liability

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on them to take the shares. The directors, who were also shareholders in the company were described, by Vaisey J, as working members of the company, and said that the relationship contemplated by the relevant article was between the plaintiff as a member and the defendants, not as directors but as members. The plaintiffs claim was therefore enforced.

The same conclusion was reached in the case of Salomon v Quinn and Axtens Ltd (1909) where the learned Judge Farwell, L J expressed some doubts as to the meaning of the words equivalent of our s.27 when he said: the articles are made equivalent to a deed of covenant signed by all the shareholders. The Act does not say with whom that covenant is entered into, and there have no doubt been varying statements by learned judges, some of them saying it is with the company, some of them saying it is both with the company and with the shareholders. However, a contrasting view was held by Ashbury J in the case of Hickman v Kent and Romney

Marsh Sheepbreeders Association (1915) where he stated that each member is under an
obligation to the company to act in accordance with the articles. Ashbury J in Hickman (supra) declared that: An outsider to whom rights purport to be given by the articles in his capacity as such outsider, whether he is or subsequently becomes a member, cannot sue on those articles treating them as contract between himself and the company to enforce those rights. These rights are not part of the general regulations of the company, applicable alike to all shareholders and can only exist by virtue of some contract between such person and the company, and the subsequent allotment of shares to an outsider in whose favour such an article is inserted does not enable him to sue the company on such an article

It is made clear from this quotation that s.27 can create a contract but can only do so between the company and its members in their capacity as members. This position is further affirmed in the cases of Elly v Positive Government Security Life Assurance (1896) and Beatie v E F Beatie (1938). In conclusion it is submitted that the Articles of Association should bind both members inter se and the company. This seems to be the preponderant view, not only in Zimbabwe but also amongst other Roman-Dutch jurisdictions in our sub-region.

Alteration of articles of association

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A company may, by special resolution alter its articles and any alteration or addition so made in the articles shall be as valid as if originally contained therein and be subject in like manner to alteration by special resolution. It should be noted that the alterations to be effected must be consistent with the companys memorandum. If there is a conflict between any part of the altered articles and a provision in the memorandum, the articles are to that extent void. See Asbury v Watson (1985).

It was once believed that articles could be altered only if they relate to the companys management and that fundamental provisions, which formed part of the companys constitution, such as the right of its shareholders, were unalterable. See Atutton v Scarborough Cliff Hotel Co

B (1865). The division of articles into fundamental and alterable has long been held to be
baseless. See Andrews v Gas Meter Co (1887). In terms of the Companies Act there is no such distinction. As a result, companies have been held entitled to alter their articles to facilitate the issue of preference shares having priority for both dividend and repayment of capital in a winding up over existing shares, to impose a lien or equitable charge in favour of the company on its existing partly paid shares for debts owed to it by its shareholders.

A company can alter its articles in a way to alter the voting and other rights given by the articles to a particular class of shareholders. This is subject to the provision of s.91 of the Companies Act, requiring the consent of the shareholders concerned.

In the case of Allen Gold Leef of West Africa Ltd (1900), Lindley MR said that the statutory power given to shareholders to amend their companys articles must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole. In the case of Shattleworth v Cox Bros Ltd 1927, a company altered its articles to provide that any director ceases to hold office if requested to resign by all the other directors. The original articles did not enable a director to be dismissed for misconduct and the admitted purpose of the alteration was to facilitate the dismissal of the plaintiff, who was suspected of misconduct by his fellow directors. The court upheld the alteration of the articles of association.

Articles of private and public companies

There is a fundamental difference in the Articles of Association between a private company limited by shares and a

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public company limited by shares. The articles of a private company must necessarily restrict the right to transfer shares and limit membership in the company to 50 at the same time the articles prohibit invitation to members of the public to subscribe for the companys shares or debentures (s.33). Any other company registered in terms of Chapter 24:03 not meeting these requirements or without these restrictions is a public company.

Registration of a foreign company in Zimbabwe

A foreign company is one which is incorporated outside Zimbabwe with a place of business in Zimbabwe in terms of s.329 of the Companies Act, Chapter 24:03. A place of business has been defined as permanent physical presence and not the carrying on of business through an agent. In terms of s.330 of the Companies Act, every foreign company which intends to establish a place of business in this country must submit to the Minister of Justice (he is responsible for administering the Companies Act) the following documents: (i) a certified copy of the instrument defining the Constitution of the Company and if not in English, a certified translation. It must be certified by a director who is ordinarily resident in this country. (ii) a list of directors and secretary, with their particulars as required by s.187 (for example, their full names, full residential or business address, their nationality and particulars of any other directorships held by them). The directors must be those who are resident or will upon the establishment of the place of business, be resident in this country. (iii) if the foreign company is the subsidiary of another company or companies, the names of such holding company or companies as the case may be. Once the above conditions are met the Minister will issue a certificate, subject to such conditions as he sees fit, authorizing the foreign company to establish a place of business in Zimbabwe. He will not issue the certificate if he is convinced that it is not in the public interest to do so.

However in terms of s.330(14) the above documents are not required if the foreign company submits an application for investment licence or intends to provide services as a bank or an insurer or intends to develop an area into an export processing zone area. Section 330(3) states that no foreign company can establish a place of business in Zimbabwe unless it is registered for such purpose, it must lodge with the Registrar of Companies (i) the documents referred to above in paragraphs (i) and (ii)

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(ii) notice with the name and residential address of the person responsible for the management of its business in this country (iii) the address of its principal place of business in this country. An alteration in the above particulars must be filed with the Registrar within one month of the alteration and the company must also file annually the same accounts as a registered company. In addition every foreign company is required to lodge with the Registrar particulars of every director of the company who is not resident in this country.

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2007

Corporate and Business Law- F4 (Zimbabwe)


Casebook

Corporate personality
Generally, the universal principle of corporate personality which applied to companies the world over also applies to the law in Zimbabwe in that as soon as the company is registered it acquires corporate personality which is separate from the natural persons or promoters behind the company. This rule of law is generally acclaimed as the principle of law in Salomon v

Salomon and Company (1897) and the apposite pertinent decision of the court reads:

The company is at law a different person altogether from the subscribers to the memorandum and though, it may be that after incorporation the business is precisely the same as it was before and the same persons are managers and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee of them In our jurisdiction, this decision has been reiterated in a number of cases for example in the case of Dadoo v Krugersdorp (1937) in which the issue was whether or not a company could acquire the race or nationality of the majority shareholders. Taking its cue or lead the South African Appellate Division emphatically pronounced that once incorporated, a company is at law a different person from the shareholders or natural persons who would have assisted in its promotion or creation.

From the point of view of the Companies Act, s.9 of the Act states that a company shall have the capacity and powers of a natural person of full capacity. This clearly emphasises the fact that once incorporated the company attains a personality akin to that of a natural human being of full capacity. Notwithstanding the rule of the separateness of a company or its juristic personality, Zimbabwean law recognises a number of instances when the veil (corporate personality) may have to be lifted thereby effectively discarding the principle of separate existence of a company.

Financial Training Company

Some of the notable exceptions are for instance, where corporate personality is being used for fraud or some other illegal purpose. This fact was clearly outlined by Lord Helsbury in Salomon v Salomon and Company (1897) when he explicitly admitted three sets of exceptional circumstances where the corporate veil could be ignored which he pronounced as namely, where fraud was present, the company was used as an agent of the incorporator and where the company was not a real one but a fiction or a myth. Generally it should be noted that, under common law courts are very willing to uplift the corporate veil where trust relationships are involved and where the interests of third parties are at stake. It should be noted that whenever determination of matters such as residence of a company are concerned the acts of agents have been sufficiently recognised.

Apart from the common law or judicial exceptions to the rule of corporate status separateness or personality, the Act itself provides that examples where the law refused to give full recognition to the idea of a separate legal personality. Hence reference should be made to Chapter 24:03 in s.32 and s.318. Section 32 of the Act clearly imposes personal liability of a member where business came on with no members. In terms of the said section, if a company has no members and the company continues to trade for more than six months while it has no members, any person who knowingly causes it do so will be liable, jointly and severally with the company for all debts incurred by it after the six months have lapsed.

Section 318 is also very important. It tends to summarise the whole spirit of common law principle on fraud or any form of business form or transaction knowingly or intentionally carried out detrimental or prejudicial to third parties. In terms of s.318 (1) if at any time it appears that any business of a company was being carried on recklessly, with gross negligence or with intent to defraud any person or for any fraudulent purpose the court may uplift the corporate status of a company, upon application by the Master of the High Court or judicial manager or any creditor. This is the civil liability which can be attached to any person, even if he is neither a member nor a director, nor for that matter, an official of the company, so long as he is found to have been knowingly a party to the fraudulent carrying on of the companys business.

The statutory exceptions have not been confined to the statutory uplifting of the corporate veil to the Companies Act alone, there are other Acts with provisions designed to achieve the same goal. The best example is the Criminal Procedure and Evidence Act [Chapter 9:06] which provides that when an offence has been committed for which any corporate body is or was liable to prosecution, any person who was, at the time of the commission of the offence, a director or servant of the corporate body is deemed to be guilty of the said offence, unless it can be proved that he did not take part in the commission of the offence. The same provision goes

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on to say that such person will be liable for prosecution either jointly with the corporate body or separately.

Active control
Once a company is registered in terms of the Companies Act, Chapter 24:03, it acquires juristic personality with the capacity to acquire rights and incur duties and obligations appropriate to itself. The notion of legal personality of companies is based on the principle that there is a clear distinction between the company and its members. As long as the essential requirements of incorporation have been complied with, the company is perceived as a real entity and not a fiction or myth. Neither is the company used as an agent of the incorporator, regardless of the fact that it may be a .oneman company..

The fact that one or two persons are in full control of a company does not by itself deprive that company of its juristic persona separate from the person or persons who control the company. One or two cases can easily illustrate the point. In Lee v Lee Air Farming Ltd (1960) the appellants husband formed a company of which he was the controlling shareholder, director and chief pilot. In line with statutory requirements, the company insured itself against liability to pay compensation in case of accident to its employees. The appellants husband was killed while working for the company. The question that arose for determination by the court was whether he could be regarded as having been the companys worker for the purpose of the New Zealand Workers Compensation Act. The Privy Council held that he was a worker notwithstanding that he virtually .owned. the company and was its Managing Director.

Also in the case of Dadoo Ltd v Krugersdorp Municipal Council (1920) under the legislation relating to non-whites as it stood in 1915 (in South Africa) Asiatics were prohibited from owning immovable property in the Transvaal but nothing was said as to Asiatic companies. In 1915 the company of Dadoo Ltd was registered in the Transvaal, with a share capital of 150 shares of which Mr Mahomed Dadoo held 149 and Mr Dindar held the other one share. Both Messrs Dadoo and Dindar were Asiatics. The court ruled that the statutory prohibition did not apply to companies even though their shares were held by Asiatics because ownership of the immovable property by the company was not the same thing as ownership of that property by the company.s Asiatic shareholders.

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As Innes C.J observed, .a registered company is a legal persona distinct from the members who compose it... Nor is the position affected by the circumstance that a controlling interest in the concern may be held by a single member. This conception of the existence of a company as a separate entity distinct from its shareholders is no mere artificial and technical thing. It is a matter of substance; property vested in the company is not, and cannot be regarded as vested in all or any of its members ...

However in appropriate circumstances, as an exception to the rule, the courts have disregarded the notion of corporate personality by piercing/lifting the .veil of corporate personality. in order to identify the natural persons behind the artificial persona. Both the common law and statutory law have a number of exceptions to this time honoured principle of law.

Statutory obligations of a registered company

The following are the main statutory obligations of a registered company. (1) Establish and maintain a registered office in Zimbabwe (s.112). (2) Continuously display its name in a conspicuous position in legible characters outside its registered office and also outside every other place where it conducts its business (s.113). (3) Have its name set out in legible characters on all business letters, notices, cheques, invoices, receipts etc (s.113). (4) State in legible characters the names of every director of the company on all trade catalogues, trade circulars, business letters on or in which the companys name appears (s.188). (5) Appoint auditors (s.150). The first auditors of a public company must be appointed within one month of the date of the certificate to commence business and other companies must appoint an auditor within one month of the issue of the Certificate of Incorporation. A private company may dispense with an auditor in certain situations as stipulated under s.150(7) of the Act. (6) Public companies must prepare the Statutory Report and hold the Statutory Meeting. This meeting must be held between one and three months from the date of the certificate to commence business (s.124). (7) Hold an Annual General Meeting and submit an annual return (s.125). (8) Keep a minute book (s.138). Minutes of all proceedings of all general meetings and all meetings of directors must be entered in this book.

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(9) Keep proper books of accounts (s.140). Every company must observe this requirement and the advice of its auditors should be sought as to what books and records should be kept. (10) Lodge all prescribed returns punctually. (11) The following records must be kept at the registered office of every company: (a) register of share allotments (s.74) (b) register of mortgages, debentures and debenture holders (s.115) (c) register of members (s.115) (d) minute book (s.139) (e) books of account (s.140(1)) (f) register of directors shareholdings (s.182) (g) register of directors and secretary.

Registration of members
It is a mandatory requirement for every company to keep a register of its members and punctually enter the following details: (i) the names and addresses of the members (ii) a statement of the shares held by each member (iii) the date at which each person was entered in the register as a member (iv) the date at which any person ceased to be a member.

Objects clause
The rationale behind the ultra vires doctrine was two-fold. Firstly, to protect investors in the company so that they might know the objects for which their money was to be used or employed. Secondly, to protect creditors of the company by ensuring that funds, to which alone they could look for payment in the case of a limited company, were not dissipated or eroded in un-authorised activities. See Ashbury Carriage Company v Riche (1875).

Management is usually in the hands of the board of directors, which is charged with the overall day to day running of the company. Section 10(2)(b) offers legal remedy to a member or creditor of a company where, the company alters its objects or engages in a transaction which exceeds its objects resulting in a loss suffered by the company.

In terms of s.16(1)(b) of the Companies Act, [Chapter 24:03] a company may by special

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resolution alter the objects clause of its memorandum of association. The requirements of a special resolution are stipulated under s.133 namely that: It should be passed by a majority of not less than three-quarters of such members entitled to vote as are present in person or by proxy at a general meeting of which not less than 21 days notice has been given, specifying the intention to propose the resolution as a special resolution and the terms of the resolution and at which members holding in aggregate not less than one-quarter of the total votes of the company are present in person or by proxy. The initial decision to change the main objects clause of Nhapitapi (Pvt) Ltd will have been made at a duly convened board meeting, notice of the general meeting of the company will be issued, setting out the terms of the resolution to be passed as a special resolution together with a circular explaining the reasons and effect of the proposed alteration in the objects clause.

At the general meeting which in all probability will be an Extraordinary General Meeting (although it is possible for such business to be transacted at an Annual General Meeting), the proposed special resolution will be passed with or without modification by the requisite threequarters majority. Finally, within one month of the meeting a copy of the special resolution must be lodged with the Registrar together with a copy of the notice convening the meeting.

Reasons for altering the objects clause


In terms of s.16 of the Companies Act, a company is entitled to alter its objects clause. However, before it alters the clause, it is required, by the same section, to pass a special resolution. A company can alter its objects clause for various reasons and the following are some of them: (i) to carry on its business more economically and efficiently; or (ii) to enlarge or change the local area of operation; or (iii) to restrict or abandon any of its objects; or (iv) to amalgamate with another company; or (v) to carry on some business which may be conveniently combined with its own; or (vi) to increase or decrease the share capital of the company; or (vii) to alter the name of the company, in terms of s.25 of the Companies Act.

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Ultra vires doctrine

The case of F P Holdings v PTC Pension Fund (1988). According to Tett and Chadwick on Zimbabwe Company law: the result of the ultra vires rule ... is that if a contract is made, which is ultra vires the object clause, it is void and cannot be ratified even if all the members agree thereto. Hence the fact that Eldorado Enterprises (Pvt) Ltd (EE)s directors would not have sanctioned such purchase if they had been aware of it, is legally irrelevant according to the case of Ashbury

Railway Company v Richie (1875).


In the Ashbury case, the objects clause gave the company power to carry on business as mechanical engineers and general contractors. The directors entered into a contract for the financing of a certain railway in Belgium and it was argued that the words general contractors embraced such activity. It was held that the contract was ultra vires the memorandum and even if every member had agreed or endorsed it, was void and unenforceable. However the doctrine of ultra vires has largely been abolished in Zimbabwean company law through s.10 of the Companies Act [Chapter 24:03] i.e. (effect of a statement of objects) which essentially provides that the effect of a statement of the objects of the company in its memorandum or elsewhere, shall not be to invalidate any transaction which exceeds those objects and which was made by the company or entered into by the company with any other person.

It should also be noted, however, that a distinction exists between those actions which are ultra

vires the companys powers and those ultra vires the powers of a director, but within the powers
of a company as the situation in the case of Royal British Bank v Turquand (1856). Note should also be taken to the fact that ss.11 and 12 of the Companies Act are quite relevant to the given set of facts.

Section 11 clearly crystalizes the position at common law. This section clearly does away with the issue of constructive notice of all company documents to the public and even some of the company officials and employees. Section 12 constitutes a presumption that any person having dealings with a company or with someone deriving from a company shall be entitled to assume among other things, that every person described in the companys register of directors and secretaries, or in any return delivered to the Registrar by the company has authority to exercise the functions customarily exercised by a director, manager or secretary of a company carrying on business of the kind

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carried on by the company (presumption of regularity).

Adherence to the Ultra vires rule


Prior to the amendment of the Company.s Act in 1993 the courts adopted a fairly strict approach in interpreting the objects clause. The company could not do anything outside the powers given in the memorandum . anything so done was ultra vires.

Any act done by the directors which was ultra vires (beyond the powers) of the company, would be void and the company could not make it valid, even if every member assented to it.

Ashbury Railway Carriage Company v Riche (1875)


The position is somewhat different now and this is captured by section 10(1) of the Act (incorporating amendment act No. 6 of 1993) which reads as follows: .The effect of a statement of the objects of a company, whether in its memorandum or elsewhere, shall not be to invalidate any transaction which exceeds those objects and which was made by the company or entered into by the company with any other person, notwithstanding that the other person was aware of the statement of the objects ..

Although the position of the courts towards agreements which exceed the objects clause has now considerably softened in the light of section 10(1) of the Act, the remedy which Messrs Toughtalk and Roughlife, the two aggrieved shareholders, desire to get (interdict) is provided for under section 10(2)(a) which reads: .without derogation from any remedy that may be available to the person concerned. (a) any member or debenture holder of a company may, prior to the event, apply to court and may obtain an interdict restraining the company from making or entering into any transaction which exceeds its objects, whether stated in its memorandum or elsewhere .. Although the ultra vires doctrine has been abolished some of its residual effects are still being felt.

Books of accounts
Companies Act, Chapter 24:03. Section 140 requires every company to keep proper books of account which give a true and fair view of the state of the companys affairs. Section 140(1) reads, every company shall cause to be kept in the English language proper books of account with respect to:

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(a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place. (b) all sales and purchases of goods by the company. (c) the assets and liabilities of the company. Although s.140 refers only to books of account, supporting vouchers will also be necessary to give the required true and fair view. The books of account shall be kept at the registered office of the company or at such other place as the directors think fit and shall at all times be open to inspection by the directors. Furthermore s.141 requires the directors to lay before each Annual General Meeting a balance sheet and profit and loss account in respect of the previous financial year, the balance sheet being signed on behalf of the board by two directors (s.146(3)). As they have not kept any records James and Joseph are not in a position to comply with these provisions. Detailed rules as to the form and content which the accounts must take are laid down in s.142 and the paramount consideration as per s.142(1) is that every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of its financial year and every profit and loss account of a company shall give a true and fair view of the profit and loss for the financial year. The responsibility for the preparation and presentation of accounts falls on the directors and the general duty of the auditor is to examine these accounts and report on them to the members. Although s.150(2) says that every company shall at each Annual General Meeting appoint an auditor to hold office from the conclusion of that meeting until the conclusion of the next Annual General Meeting. Section 150(7) permits a private company to dispense with the appointment of an auditor when it is of such a size and type that its members do not feel the necessity for an independent check on the work of their directors. The relevant s.(150(7)) reads:

A private company shall not be required to appoint an auditor if: (a) the number of members in such company does not exceed ten and (b) .......................................... and (c) such company is not a subsidiary of a holding company which has itself appointed auditors and all the members in such company agree that an auditor shall not be appointed. In reporting to members on the accounts, the auditor must frame his report strictly in accordance with s.153 of the Act which provides for either an unqualified report, a qualified report or an explanation for being unable to make a report. In order to enable the auditor to discharge his duties efficiently, the Act gives him a right of access at all times to the books, accounts, vouchers and securities of the company, together with the right to call for information from the officers of the company, its subsidiaries and the right to speak at general meetings.

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A director of any company shall cease to hold office if he is convicted, whether in Zimbabwe or elsewhere of theft, fraud, forgery or uttering a forged document or perjury and has been sentenced therefore to serve a term of imprisonment without the option of a fine or to a fine exceeding one hundred dollars, or . . . If any person who is disqualified under this section from being or continuing to be a director of any company directly or indirectly takes part in or is concerned in the management of any company he shall be guilty of an offence and liable to a fine not exceeding one thousand dollars or to imprisonment for a period not exceeding two years or to both such fine and such imprisonment.

As was noted by Manyarara J. A. in Oliver John Tengende v The Registrar of Companies (1988)

the object of s.173 of Chapter 24:03 is that management of companies should not be in the hands of unscrupulous or disreputable men and a conviction within the terms of that subsection is to be regarded as at least prima facie evidence that the person concerned is of such a nature . . .
Smart Alecks position on the Board is now legally untenable because of the conviction that hangs over his head. Whilst he can remain as a member or shareholder of Slack Enterprises (Pvt) Ltd he has to relinguish his position as a board member.

Listed companies

In terms of s.3.3 of the ZSE Listing Requirements, listed companies are obliged to publish a press announcement giving details of: (a) circumstances or events that have or are likely to have a material effect on the financial results, the financial position or cash flow of the company and/or information necessary to enable holders of the issuers listed securities and the public to avoid the creation of a false market in its listed securities; and (b) any new developments in its sphere of activity which are not public knowledge and which may by virtue of the effect of those developments on its assets and liabilities or financial position

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or on the general course of its business, lead to material movements in the ruling price of its listed securities. Information that is required to be published according to paragraph 3.3 must not be given to a third party before it has been published, although such information may be given in strict confidence to certain people, such as the companys advisers, potential financiers, Government departments and the Reserve Bank. The decision by Hombarume Company Limited to sell off its spinning division is a new development which might have a significant effect on the price of its shares. Accordingly, the company is bound to publish a press announcement in terms of this section. This announcement is commonly referred to as a cautionary statement.

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Casebook

Appointment and resignation of Directors


The procedure for appointing and removing directors is invariably governed by the companys articles of association. If Table A has been adopted, articles 90-98 specify the formalities for electing directors and in terms of article 96 the directors shall have power at any time and from time to time to appoint any person to be a director, either to fill a casual vacancy or as an addition to the existing directors. At a Board meeting the outgoing director would tender his resignation and, the Company Secretary, would note the resignation in the minutes. At the same time the directors would decide at a Board meeting to invite the incoming director to fill the seat vacated by the outgoing director and this decision would be recorded in the minutes. The Secretary would delete the outgoing directors name and details from the Register of Directors and Secretaries and insert the incoming directors particulars in terms of s.187 of the Companies Act. The Secretary would be obliged to complete a CR14 form advising the Registrar of Companies within one month of the change. At the same time the companys letterheads and other printed stationery should reflect the new changes. The Secretary should send a letter to the incoming director, the new board member congratulating him upon his appointment and enclosing a copy of the companys memorandum and articles of association. The new director should also be reminded that he is required to give notice of interest that he may have in contracts involving the company as per s.186 of the Act. If the new director is to be signatory on one or more of the companys bank accounts, his details and specimen signatures should be sent to the bank.

The fiduciary duty of directors

Financial Training Company

A director owes the company a number of common law and statutory obligations. The duties of a director can conveniently and usefully be broken down into the following categories. (1) fiduciary duties (2) the duty to exercise powers bona fide in the companys interest (3) the duty not to make secret profits (4) the duty not to have personal interest conflicting with those of the company (5) the duty to disclose (6) the duty of care and skill (7) the duty to act intra vires the companys statutes (memorandum and articles of association) At common law a director is subject to certain fiduciary duties which require him to exercise his powers bona fide and for the benefit of the company. A person possesses fiduciary duties when he is in a position of trust or occupying a position of power and confidence with respect to another person such that he is obliged by law to act solely in the interest of that other persons rights which he is to protect. It cannot be doubted that directors occupy a position of trust or as is usually stated, a fiduciary position towards the company similar in some respects to that of an agent entrusted with the control and management of the money or effects of another person. The fiduciary duties are owed to the company and to the company alone and not necessarily to individual shareholders (Pergamon Press Ltd v Maxwell).

The fiduciary duty of directors in respect of the shareholders is akin to the duty owed by the trustees to their beneficiaries and thus the fiduciary duty can conveniently be broken down into two parts: (1) the directors must act bona fide for the benefit of the company and not for an ulterior motive and (2) the director must refrain from embarking upon an act which will lead to a conflict of his interests with those of the company. Roodpoort Limited Main Rep v Du Toit (1928) An important consequence of the relationship between a director and his company is the directors duty to exhibit utmost good faith in his dealings with the company. He must refrain from placing himself in a position where his own interests clash with those of the company and he must never take an improper advantage of his position by acquiring for himself assets or opportunities that rightly belong to the company. In Robinson v Randfontein Estates Gold

Mining Company Ltd (1921).


The Managing Director of a company using information he acquired in the course of his official duties bought immovable property worth 60 000, which the company was interested in

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acquiring and using a front immediately resold it to the company for 275 000.000. The court held that the plaintiff company was entitled to claim from the defendant the profit of 215 000.00 made by him on this transaction. Innes CJ said where one man stands to another in a position of confidence involving a duty to protect the interests of that other he is not allowed to make a secret profit at the others expense or place himself in a position where his interests conflict with his duty In Magnus Diamond Mining Syndicate v Macdonald and Hawthorne (1909), the defendant while directors and managers of a company acquired information as to the value of certain diamondiferous property. They thereupon purchased the property in competition with the company without disclosing their intention to the company. The court decided that the defendants were obliged to transfer the property to the company and to account to it for profits already received. The court made the following observation that it is the duty of all agents including directors of companies to conduct the affairs of their principal in the interests of the principal and not for their own benefit.

One of the major statutory duties of the directors is the duty to disclose his interest in contracts (where he has either a beneficial direct or indirect interest) between a director and his company. Section 186(1) of the Companies Act Chapter 24:03 says that it shall be the duty of a director of a company who is in any way whether directly or indirectly interested in a contract or proposed contract with the company to declare the nature and full extent of his interest at a meeting of the directors of the company.

In the case of Aberdeen Railway Company v Blaikie Bros (1854) the defendant company entered into a contract to purchase a quantity of chairs from the plaintiff partnership. At the time that the contract was concluded, a director of the company was a member of the partnership. The court held that the company was entitled to avoid the contract.

Persons prohibited from being directors

The Companies Act disqualifies certain parties from holding the position of either director or auditor of the company. Directors Section 173 specifies who may not be a director and any of the following persons shall be disqualified from being appointed a director of a company

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(a) a body corporate, for the reason that the work of a company director requires the personal involvement of the director. (b) a minor or any other person under legal disability (c) save with the leave of the court an unrehabilitated insolvent (d) save with the leave of the court any person who has at any time been convicted, whether in Zimbabwe or elsewhere, of theft, fraud, forgery or uttering a forged document or perjury and has been sentenced therefore to serve a term of imprisonment without the option of a fine or to a fine exceeding one hundred dollars. In the case of Oliver John Tengende v the Registrar of

Companies (1988) Manyarara JA of the Supreme Court of Zimbabwe cited with approval the
case of Ex parte Boland (1967), the headnote to which says: .The object of section 150(1)(d) (now section 173(1)(d)) is that the management of companies should not be in the hands of unscrupulous or disreputable men ... A director.s position involves trust and section 173 (1)(d) is meant to weed out persons who from their past conduct are likely to breach that trust.

Trading of shares

The fiduciary duties of directors are:

(i) fide for the benefit of the company as a whole; and (ii) personal interests may conflict: Hindle v John Cotton Ltd 1919. At common law the directors of a company were always freely permitted to hold and deal in the shares of their company. The only sanction which the common law imposed was to make actionable the use of certain confidential information belonging to the company (such as trade secrets). The reason why the common law imposed no clear prohibition on the use of inside information in share dealings stemmed largely from the decision in Percival v Wright 1902 which has been followed consistently by our courts, Pretorious v Natal South Sea Investments Trust Ltd 1965. (ii) not to put themselves in a position in which their duties to the company and

to exercise their powers for the purposes for which they were conferred and bona

In Percival v Wright the court held that there was no duty on the part of a director, who was

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invited by a member to buy shares, to disclose to the member the fact that negotiations were in progress for the sale of the companys undertaking at a price representing more per share than that asked by the member. The basis of this conclusion is that while a director owes a fiduciary duty to the company, he owes no such duty to individual members.

Subsequently in the case of Allen v Hyatt 1914 the courts did recognise special but very limited circumstances in which a duty might be owed by directors to individual shareholders. In this case the directors had profited through share purchase from members. The directors were held accountable to them because they had purported to act as agents for the members by inducing the latter to give them purchase options over each members shares, supposedly to facilitate a proposed amalgamation.

Membership
One facet of a company is that it has its own legal personality and an existence apart from its members, while another is that it is an association of its members. In the case of a company limited by shares, a member is a person whose legal relationship with the company arises by virtue of his shareholding in the company. The terms member and shareholder accordingly refer to the same person. The concept of membership refers in particular to the right of the shareholder to participate in the exercise of control by the general meeting. The concept of shareholding refers in particular to the right to dividends after they have been declared and participation in the distribution on liquidation. This concept refers, also, to the obligation to pay the unpaid portion of his shares when the call is made.

It should be emphasised that on the registration of the memorandum and articles of association the corporate body, comes into existence, and is composed of the subscribers to the memorandum and all other persons who may from time to time become members. Section 7 of the Companies Act [Chapter 24:03], refers. L J Bowen in Nicols case (1885) stated that: A person becomes a member of a company (a) by subscribing to the memorandum of association or (b) by allotment of shares (c) by transfer of shares A subscriber of the memorandum becomes a member as soon as the company is incorporated, see Brown v Nanco Pty Ltd (1977 s.30(1). Subscribers of the memorandum, that is, those who sign their names in the memorandum, are deemed to have agreed to become members in

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terms of s.7 of the Act. There is no need for allotment of shares in this regard, but the subscription imposes liability to take up and pay for the shares agreed in the memorandum. In terms of s.8(2) every subscriber is duty-bound to take more than one share.

It is one of the duties of the subscribers of a company limited by shares to state in their own handwriting in words opposite to his name the number of shares they take (s.8(3)).

Once the subscription process is completed, it is now the duty of the directors to enter the subscribers name in the register. If the subscribers name is not entered into the register, this entitles him to escape liability for calls on the shares for which he has subscribed in terms of s.8(1)(b)(iv) of the Act. Membership can arise through express or implied consent when a members name is entered in the register of members but the member concerned does not object. (Section 30(2) of the Act.) Agreement to be registered in the members register occurs through application and allotment (s.65), or by taking transfer of shares from an existing member (ss.99 and 104 of the Act), by transmission on the death or insolvency of an existing member. (Section 102). As was emphasised in the case of Brown v Nanco (Pty) Ltd (1977), an allottee or transferee becomes a member when his name is entered on the register, as confirmed in terms of s.30(2) of the Companies Act [Chapter 24:03].

It is also vital for the purposes of this discussion to note that for the rights and duties to be lawfully asserted one needs to have the capacity to become a member. The aspect of capacity of a person is canvassed under the law of contract. This is, however, subject to the articles of association of that particular company in question. The articles may make provision for any person, for instance, minors to be excluded. Note should be taken that a company cannot become a member of itself nor of its subsidiary. Trevor v Whitworth (1887). Membership may also arise through estoppel. If a person knowingly allows his name to be added to or to remain on the register of members, he/she is estopped from denying his/her membership in the company concerned. Section 30(2) seems to be raising the aspect of estoppel. Shareholding in a company establishes the relationship between a company and the shareholder. The case of Eley v Positive Assurance Company (1922) is instructive on the point. A member of a company has an interest in the company entitling him subject to the articles to (a) share in the profits of the company (b) attend and vote at meetings (c) a share in surplus assets if any when the company is being wound up. (d) a limited right to sue for a wrong done to the company where the company itself is unable to do so due to the wrongful act of the controlling majority.

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(e) to resist oppression and case law has defined this to mean conduct which is harsh, burdensome, illegal and unreasonable.

Appointment of an auditor
A number of statutory provisions deal with the appointment of an auditor by two categories of a company: public companies and other companies. In terms of s.150(1) of the Companies Act [Chapter 24:03] the first auditor of a public company shall be appointed within one month of the issue of the certificate of incorporation. The appointment of the first auditor is made by directors of the company; if they fail to do so, the company in a general meeting may appoint the first auditor. If neither the board of directors nor the company appoints the auditor, the Minister may on the application of a member do so. This may happen when a shareholder with a sufficient voting strength vetoes such appointment. In terms of s.150(2) of the Companies Act subsequent auditors shall be appointed by the company at the conclusion of each annual general meeting to hold office until the conclusion of the next annual general meeting.

As regards private companies, the first auditor shall be appointed within 30 days of the issue of a certificate of incorporation. This is in terms of s.151. However, s.150(7) of the Act provides that a private company shall not be required to appoint an auditor in the following situations, if: (i) the number of members does not exceed ten and; (ii) none of the members is a company and (iii) all the members agree that an auditor shall not be appointed.

This is dealt with in section 150 of the Companies Act (Chap. 24:03). This section is long and worded in a complicated manner but in essence it makes it compulsory for every company to appoint an auditor. The first appointment must be done by the directors. In the case of a public company, it must be done within a month of the issue of a certificate entitling it to commence business. In the case of other companies, it must be done within a month of the issue of a certificate of incorporation.

Once the first auditor is appointed he is required to hold office until the conclusion of the first Annual General Meeting of the company. Thereafter the appointment is made by the company at each of its Annual General Meetings. Where, at an Annual General Meeting, an auditor is not appointed or re-appointed the Minister may appoint a person to fill the vacancy. The company, however, is required to give the Minister a weeks notice of the fact that an auditor was not appointed or re-appointed at its Annual General Meeting.

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If the directors fail to appoint the first auditor the company, in a general meeting, may appoint him/her: and if neither the directors nor the company appoint an auditor, the Minister may do so on the application of any member of that company. A special notice is required for a resolution at the companys Annual General Meeting to appoint, as auditor, any person other than a retiring auditor. Note that a private company is not required to appoint an auditor if, inter alia, membership does not exceed ten or if all members agree that an auditor is not necessary. The Companies Act does not specifically deal with the issue of qualifications of an auditor but it does disqualify, in terms of s.152, certain persons from being appointed as auditors of a company. The examples are: an officer or servant of the company, a body corporate, or a person who is an employer or employee of an officer or servant of the company.

Removal of an auditor
An auditor may be removed at a general meeting and a substitute appointed in his place. This is provided for in terms of s.150(1) of the Companies Act [Chapter 24:03] which states that a company may at a general meeting remove an auditor and appoint in his place any person. The nomination of the substitute auditor shall be made by a special notice by a member of the company to the other members not less than fourteen days before the date of the meeting. In terms of s.150(2), a company in the course of ordinary proceedings in a general meeting is not permitted to dismiss or remove an auditor from office without following the statutorily laid down procedures. If during the course of the year, an auditor tenders his resignation to the company or is otherwise disqualified by death or other cause as provided for in s.152 of the Act, it is not necessary to call a general meeting for the purpose of appointing a substitute, as such a resignation or disability creates casual vacancy in office of auditor which the directors are authorised to fill in terms of s.150(5) of the Act. When the next annual general meeting is held the provision of s.150(2) will apply.

The duties of an auditor


The duties of an auditor under the Companies Act
The statutory duties of an auditor are set out in ss.153 and 154 of the Companies Act. These include the duty (i) to make a report to members on the accounts examined by him; (ii) to state in his report that the accounts of the company and the group accounts are properly drawn up in accordance with the Companies Act so as to give a true and fair view of the

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companys affairs; (iii) to include in his report statements which in his opinion are necessary if he has not obtained all the information and explanations which to the best of his knowledge were necessary for the purposes of his audit; (iv) to attend any general meeting of the company.

The common law duties of an auditor include the duty (i) to act honestly and with reasonable skill, diligence, care and caution. In re Kingston Cotton

Mill Company (1896) the court made the following observation: It is the duty of an auditor to bring to bear on the work he has to perform that skill, care and caution which a reasonably competent, careful and cautious auditor would use . . . .
(ii) to show the companys true financial position as shown by the books (Tonkwane Sawmill

Company Ltd v Filmalter, 1975)


(iii) to make sure that the amount of stock stated to exist is a reasonable probable figure but the auditor has no duty to take stock unless there are suspicious circumstances (iv) to act as a watchdog but not a bloodhound. In re Kingston Cotton Mills (1896), the court made the observation that an auditor is not bound to be a detective or to approach his work with suspicion or with a foregone conclusion that there is something wrong. Lord Dennings remarks (Fomento v Selsdon Fountain and Others, 1958) are equally instructive. He remarked that an auditor is not to be confined to the mechanics of checking vouchers and making arithmetical computations. His vital task is to take care to see that errors are not made, be they errors of computation or errors of omission or commission of downright untruths. To perform this task properly he must come to it with an enquiring mind not suspicious of dishonesty but suspecting that someone may have made a mistake somewhere and that a check must be made to ensure that there has been none.

Persons prohibited from being auditors

As far as the appointment of auditors is concerned section 152 of the Companies Act places emphasis on impartiality, objectivity and the independence of the auditor. As such none of the following persons shall be qualified for appointment as auditors of a company. (a) an officer or servant of the company (b) a person who is a partner of an officer or servant of the company (c) a person who is an employer or an employee or an officer or servant of the company. (d) a body corporate

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(e) a person who is an officer or servant of a body corporate which is an officer of the company. (f) A person who by himself or his partner or his employee regularly performs the duties of secretary or bookkeeper to the company.

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Casebook

Members meetings
The Companies Act mentions three types of meetings namely: (a) a statutory meeting (s.124) (b) the Annual General Meeting (s.125) (c) an Extraordinary General Meeting (s.126) The first two types of meetings (statutory and AGM) MUST be held whereas an Extraordinary General Meeting may be held on requisition if and when the need arises. A public company must hold a statutory meeting within a period of not less than one month nor more than three months from the date at which it is entitled to commence business. This is a report back meeting at which the companys statutory report which must be certified by not less than two directors of the company is tabled. Among other issues the statutory report must state: (a) the total number of shares allotted, distinguishing them as fully or partly paid up; (b) the total amount of cash received by the company in respect of all the shares; (c) the names, addresses and description of the directors, auditors, managers, if any, and secretary of the company. The Annual General Meeting The Companies Act, s.125, decrees that every company must hold an Annual General Meeting within the following times: (a) in the case of incorporation, within a period of 18 months after the date of incorporation. (b) thereafter within not more than six months after the end of every ensuing financial year of that company; and (c) within not more than fifteen months after the date of the last preceding such meeting of that company. The business which is transacted at an AGM usually includes, inter alia, consideration of the accounts and balance sheets of the just ended financial year, declaration of a dividend, reports

Financial Training Company

of the directors and auditors, the election of directors in the place of those retiring and the appointment of and the fixing of the remuneration of the auditors.

Extra-Ordinary General Meetings

The Companies Act (Chapter 24:03) makes provision for the convening of both Statutory meetings (s.124) and Extra-Ordinary General Meetings (s.126). A statutory meeting is mandatory (it must be held within the time frame provided for under s.124). Whereas an ExtraOrdinary General Meeting may be held on requisition (if and when the need arises (s.126)), upon incorporation a public company must hold a statutory meeting within a period of not less than one month and not more than three months from the date at which it is entitled to commence business. This is a report back meeting at which the companys statutory report which must be certified by no less than two directors of the company is tabled. The major items to be stated in a statutory report are:

(a) the total numbers of shares allotted, distinguishing shares allotted as fully or partly paid up otherwise paid for than in cash. (b) the total amount of cash received by the company in respect of all the shares allotted. (c) Abstracts of the receipts of the company and of the payments made up to a date within seven days of the due date of report. (d) The names, addresses and descriptions of the directors, auditors, if any, managers, if any and secretary of the company. Extra-Ordinary General Meeting On the requisition of members of a company holding at the date of the deposit of the requisition not less than one twentieth of such of the paid up capital of the company as at the date of the deposit carries the right of voting at general meetings of the company, the directors of the company, notwithstanding anything in its articles shall within twenty one days of the deposit of the requisition issue a notice to members convening an Extra-Ordinary General Meeting of the Company for a date not less than fourteen days nor more than 28 days from the date of the notice. The requisition shall state the objects of the meeting and shall be signed by the requisitionists and deposited at the registered office of the company. An Extra-Ordinary General Meeting is usually convened to discuss matters (normally rather urgent) that cannot wait till the next

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Annual General Meeting. Alternatively, the matters to be discussed at an Extra-Ordinary General Meeting may fall outside the general tone or scope of Annual General Meetings. The issues at stake might range from change of name, change of the objects clause, alteration of the Memorandum and Articles of Association, alteration of the capital stucture of the company, conversion of a private to a public company or alternatively, conversion of a public to a private company and voluntary winding up of companies. The list of business that can be transacted at an Extra-Ordinary Meeting can never be exhaustive. It is important to note that Extra-Ordinary General Meetings are ad hoc meetings, which are convened if and when the need arises. The matters to be discussed at an Extra-Ordinary General Meeting are normally determined either by the articles of the company or the Companies Act [Chapter 24:03] itself. For example, matters calling for the passing of a special resolution almost invariably require the convening of an Extra-Ordinary General Meeting.

Statutory meetings
Section 10(1) of the Companies Act (Chap. 24:03) provides that every public company (not private company) must hold a general meeting of its members. The meeting must be held not less than one month and not more than three months after it is entitled to commence business. Such a meeting is called a statutory meeting. The effect of the statutory meeting is to afford members of a new company an opportunity of discussing its affairs as soon as possible. The business of the meeting is to discuss any matter relating to the companys formation or arising out of the statutory report. This is a report, a copy of which the directors must forward to every member before the meeting in form CR 10 of the Companys Regulations. It must be certified by at least two directors and cover issues relating to allotments, particulars of the companys officers, receipts and payments, payment of shares and so on.

Annual General Meetings


An Annual General Meeting, in terms of s.102 of the Companies Act (Chap. 24:03), is a meeting which must be held by every company (private or public). It must be held within eighteen (18) months of the companys incorporation and thereafter within six (6) months of the end of each financial year but not more than fifteen (15) months after the previous annual general meeting. The Registrar of Companies, however, is empowered to extend these periods on good cause shown.

Members must be given twenty one (21) days notice in writing of the meeting, although in terms

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of s.104 of the said Act shorter notice may be accepted by all members entitled to attend and vote. The business of the meeting must include the laying, before the meeting, of a profit and loss account and balance sheet as at the end of the previous financial year and such other matters as are provided for in the articles. For example, the articles of a company normally provide for declaring a dividend, the consideration of accounts, election of directors in the place of those retiring and so on.

Voting rights

(1) a special resolution is passed by a majority of not less than three fourths of such members entitled to vote as are present in person or by proxy at a general meeting of which not less than 21 days. notice has been given, specifying the intention to propose the resolution as a special resolution and at which members holding in the aggregate not less than one fourth of the total votes of the company are present in person or by proxy. On the other hand a special notice (in terms of s.135) is a notice to the company of intention to move a resolution at the next meeting and this notice must be given whether it is the management or opposition which intends to move that resolution. A special notice must be given not less than 28 days before the meeting at which it is to be moved.

Examples of a special resolution include change of name, change of the objects clause, alteration of capital and alteration of the articles of association. Special notices are usually required where the resolution is to remove a director before the expiry of his term of office and in cases involving the appointment as auditor of a person other than a retiring auditor or express prohibition against re-appointment of a retiring auditor.

(2) an original vote is the chairman of a meeting.s first vote by virtue of his membership of the meeting and a casting vote is a second vote for the chairman in order to break deadlock where there has been an equality of votes.

Circumstances where one person constitutes a meeting


One person may constitute a meeting in a company in the following circumstances:

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(i) where there is a default in holding the annual general meeting under s.125, of the Companies Act; the Registrar, under s.125(5), may (upon payment of the prescribed fee and upon application made to him by any member), call or direct the calling of a general meeting, and may give directions as he thinks expedient, including a direction that one member present in person or by proxy shall be deemed to constitute a meeting. (ii) where, under s.128(5), it is impracticable to call or conduct a meeting, the court may, either of its own motion or on the application of any director or any member who would be entitled to vote, order a meeting to be called, held and conducted in such a manner as the court thinks fit, and may give such directions as it thinks expedient, including a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting. (iii) where, under article 100 of Table A, the directors fixed the quorum for a board meeting at one. (iv) where, under s.219, a creditor has submitted a proof of claims against the company in a winding up. (v) where, under article 54, a quorum at the adjourned meeting is not present within half an hour from the time appointed for the meeting, the member present can be a quorum. (vi) finally, where a company has one member (following the recent amendment to s.7 of the Companies Act).

Minutes of meetings
A company at a general meeting is usually concerned with internal management. Hence it is a good housekeeping practice for every company to keep a record of all its proceedings at a general meeting. This is why the Companies Act requires every company to record in the minutes the proceedings at a general meeting. Section 115(1) of the Companies Act (Chap. 24:03) requires every company to keep minutes of all proceedings at any general meeting or any board meeting of companies in books kept for that purpose. Section 115(2) goes on to say that minutes kept in accordance with s.115 (1), if purported to be signed by the chairman of the succeeding meeting, shall be the evidence of the proceedings. If the articles provide that the minutes are conclusive evidence of the business transacted (as is contained in article 58 of Table A) at the meeting, then, in the absence of fraud, a member cannot challenge their accuracy or completeness.

Books or copies containing the minutes of proceedings must be kept at the registered office of the company and members may inspect them without charge, in terms of s.116. Failure by the company to allow such inspection allows a member to apply to court which may, by order,

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compel an immediate inspection of the books required, subject to the payment of the appropriate fee.

Section 300(1) requires every company to keep a bound minute book and if it is not a bound one, then, in terms of s.300(2) precaution must be taken against falsification. Section 300(3) further provides that the minute book must be written in English language.

Creditors and members meetings


The information which must be sent out with the notice of the meeting is contained in s.192 of the Companies Act. This section requires a company to send with the notice of the meeting called under s.191 a statement explaining the effect of the scheme and stating in particular the material interests of the directors and the effect of the scheme on them.

If the notice is given by advertisement, such a statement must be included, or a place notified where creditors or members may obtain copies of one. Where the scheme affects the rights of debenture-holders, the statement must give a similar explanation with regards to the trustees of any deed for securing the issue as is required with regard to directors.

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2007

Corporate and Business Law- F4 (Zimbabwe)


Casebook

Insolvency declaration

The essence of the concept of insolvency consists in a debtors ultimate inability to meet his financial commitments, with liabilities exceeding assets, with the consequence that it is impossible for all the liabilities to be discharged in full at the time of falling due. This factual inability to pay debts must be distinguished from a mere refusal or omission by a debtor, who otherwise has the material means to do so, to pay one or more of his debts at their due time. In common parlance, a person may be said to be insolvent when he is unable to pay his debts. But the legal test of insolvency is whether the debtors liabilities, fairly estimated exceed his assets, fairly valued. See Venter v Volkas Ltd (1973). Inability to pay debts is at most, merely evidence of insolvency.

A person who has insufficient assets to discharge his liabilities, although satisfying the test of insolvency, is not treated as insolvent for legal purposes and does not suffer the legal consequences of insolvency until his estate has been sequestrated by an order of the court. A sequestration order is a formal declaration that a debtor is insolvent. The order is granted either at the instance of the debtor himself (voluntary sequestration) s.3 of the Insolvency Act [Chapter 6:04] or at the instance of one or more of the debtors creditors (compulsory sequestration) s.11 of the Act. A person is deemed to have committed an act of insolvency if he leaves Zimbabwe or if being out of Zimbabwe remains absent or departs from his dwelling or otherwise absents himself with intent to evade or delay payment of his debts [s.11(a) of the Act].

If a court has given judgment against a person and he fails upon demand or execution of the judgment, to satisfy it or indicate to that officer disposable property sufficient to satisfy the

Financial Training Company

judgment or a nulla bona (no sufficient assets) return has been exhibited, the person concerned shall be deemed to be insolvent in terms of s.11(b) of the Act. Also a person is deemed to have committed an act of insolvency, if he makes or attempts to dispose of any of his property, which has, or would have, the effect of prejudicing his creditors or of preferring one creditor over others (s.11(c) ). Similarly if a person removes or attempts to remove any of his property with the intent to prejudice his creditors or to prefer one creditor above another, that amounts to an act of insolvency (s.11(d)). However the test of determining whether the debtor had requisite intention is a subjective one. See De Villiers NO v Maursen

Properties (Pty) Ltd (1983). The intention may be inferred from the circumstances surrounding
the removal. If a person makes or offers to make, any arrangement with any of his creditors for releasing him wholly or in part of his debts, he in terms of s.11(e), commits an act of insolvency. An arrangement or an offer only qualifies as an act of insolvency in terms of this subsection if it is indicative of the debtors inability to pay his debts. See Leeveldse Kroersadie Bpk v Jourbert (1980). This criterion was clearly stated in Joosab v Soomar (1930), where the debtor offered to pay his creditors 50 cents in the rand and intimated that if the offer was not accepted, he would consider surrendering his estate.

Giving notice of inability to pay is an act of insolvency in terms of s.11(f) of the Act and the notice must be in writing. The debtor does not commit this act of insolvency by informing the creditor orally that he cannot pay his debts, with evidence of actual insolvency. See Patel v

Sunday (1936).
If being a trader, he gives notice in the Gazette in terms of s.47 and is unable to pay his debts that also amounts to an act of insolvency. However evidence that the debtor was unwilling or has refused to pay a particular debt may not be enough to establish an act of insolvency. DSA

Spice Works (Pty) Ltd v Spies (1957). This is so because the debtor may very well have a
legitimate reason to resist paying, for example, a counter-claim.

Types of insolvency

There are two modes of winding up a company. These are provided for in terms of s.199(1)(a) and (b) of the Companies Act [Chapter 24:03]. Section 199(1)(a) provides for compulsory winding up. All winding up by court order is compulsory. These include those where the company applies for its own winding up.

The second method is that of voluntary liquidation which is provided for under s.199(1)(b).

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There are two forms of voluntary winding up which are members voluntary and creditors voluntary. Members voluntary occur when the members of the company pass a resolution to wind up the company and appoint a liquidator. Creditors voluntary occur when the companys creditors pass a resolution for the winding up of the company. The circumstances under which the winding up of a company is done compulsorily are outlined under s.206 (a) to (g). The winding up is done by the court upon petition in terms of s.207 by the company either in pursuit of a special resolution resolving that the company be wound up or by the court. The other circumstances are, where default is made in lodging the statutory report or in holding a statutory meeting, where the company does not commence its business within a year from its incorporation or suspends its business for a whole year, where the company ceases to have any members or where seventy-five per-cent of the paid up share capital of the company has been lost or has become useless for the business of the company, if the company is unable to pay its debts. This is the most common cause of compulsory winding up. The court may also wind up a company if the court is of the opinion that it is just and equitable that the company should be wound up.

A company may be wound up voluntarily in terms of s.242(a) and (b). This happens when the period, if any, fixed for the duration of the company by the articles expires or the event, if any, occurs or the occurrence of which the articles provide that the company is to be dissolved and the company in a general meeting has passed a resolution requiring the company to be wound up voluntarily.

The other instance when a company may be wound up voluntarily is when the company resolves by special resolution that the company should be wound up voluntarily. In terms of s.243(1)(a) a notice of resolution to wind up voluntarily must be given by advertisement in the Gazettee and such notice must be served on the Master of the High Court and Registrar of Companies in terms of s.243(1)(b). Section 244 provides that a voluntary winding up shall be deemed to commence at the time of passing of the resolution for voluntary winding up. The effect of voluntary winding up is that the company will cease to carry on its business from the commencement of the winding up except in so far as may be required for the beneficial winding up thereof. The corporate state and powers will continue until it is dissolved. The directors of a company are required to furnish security to the satisfaction of the Master of the High Court for payment of debts of a company within a period less than 12 months from the commencement of the winding up. This must be done prior to the date of the notice of the meeting at which the resolution for the winding up of the company is to be proposed. Further effects of voluntary winding up are provided for under s.256(a) to (e).

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It does not necessarily follow under compulsory winding up that an application to court for winding up will be granted. Section 208(l) to 3(b) gives the court a wide discretion to grant or refuse to grant an order for winding up after considering circumstances of the matter. The commencement of winding up by the court are governed by ss.210(1) and (2).

Subrule (2) provides that in any other case, the winding up of a company by the court shall be deemed to commence at the time of the presentation of the petition for the winding up. There must be a bond of security by the petitioning attorneys stating that they bind themselves to pay all costs of proceedings until the appointment of a liquidator. The petition should name the person to be appointed provisional liquidator and state the powers to be given by him as those contained in s.221(2)(a) to (g).

Another notable aspect on compulsory winding up as provided by s.212 is that an order for winding up a company shall operate in favour of all the creditors and of all the contributories of the company as if the petition had been presented by all creditors and contributories jointly. The voluntary winding up of a company may adopt proceedings of voluntary winding up if the court decides that it is necessary to do so. This is done in terms of s.211. Similarly, s.210(1) provides that where, before the presentation of a petition for the winding up of a company by the court, a resolution has been passed by the company for voluntary winding up, the winding up of the company shall be deemed to have commenced at the time of the passing of the resolution. It may therefore be difficult at the initial stages of winding up to confirm with absolute certainty whether the final winding up will be voluntary or compulsory. The main issue, however, to be noted is that compulsory winding up is done at the instance of a court order only while voluntary winding up is at the instance of members or creditors resolution for the winding up of the company. In the case of the members resolution a liquidator is also appointed.

Voluntary winding up
This is provided for in s.24 of the Companies Act. This section states that a company may be wound up voluntarily: (i) when the period, if any, fixed for its duration by the articles expires; (ii) when an event, occurs, on the occurrence of which the articles provide that it is to be dissolved, but the company must pass an ordinary resolution to be wound up voluntarily in the circumstances; (iii) if the company passes a special resolution to be wound up voluntarily; (iv) Although it is not provided for in s.242, there is no reason why a company cannot be wound

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up if it passes an ordinary resolution to the effect that it cannot continue its business by reason of its liabilities and that it is advisable to wind up. The consequences of winding up are as follows: (i) under s.245 the company ceases to carry on business except so far as it is required for its beneficial winding up; (ii) under s.245 the companys corporate state and powers continue until dissolution; (iii) under s.248(2) the powers of directors cease on the appointment of a liquidator who takes over responsibility of running the company.

Application for compulsory winding up


The modes of winding up a company are provided under s.199(1)(a) and (b) of the Companies Act [Chapter 24:03]. These are winding up through court orders and voluntary winding up respectively. A winding up by application is compulsory and it is in terms of s.199(1) (a) while a members winding up is voluntarily and it is in terms of s.199(1)(b).

In terms of s.207 (1) creditors may by way of an application to the court apply for a companys liquidation. This is termed compulsory or forced liquidation. The application is accompanied by a bond of security by the petitioning attorneys stating that they bind themselves to pay all costs of proceedings until the appointment of a liquidator (not provisional liquidator) or if the liquidator is appointed all the proceeds necessary for discharge of the company from liquidation. The draft order should name the person to be appointed provisional liquidator and state the powers to be given to him as those contained in s.221 (1) to (4) of the Companies Act.

Circumstances under which a creditor may apply for the compulsory winding up of a company are listed under s.205 of the Companies Act as read with s.206 (f) and (g) thereof. This occurs when the company fails to pay a debt within three weeks from the date of demand in terms of s.205(a), which also stipulates that the debt must be exceeding one hundred dollars. Subsection (b) entitles the creditor to apply for liquidation if he or she receives a nulla bona return from the sheriff or messenger f court confirming that the company has no assets to attach or that the assets are insufficient to satisfy the debt. Subsection (c) states that the creditor may apply for compulsory liquidation if it can prove that the company is unable to pay its debts. This is similar to s.206(f) while (g) thereof gives the court the final decision to order the liquidation of the company after considering the justice and equities of a particular case. Compulsory liquidation is therefore dependant on the courts ruling unlike members voluntary winding up.

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Voluntary winding up is by comparison with compulsory winding up relatively simple. A company may be wound up voluntarily in terms of s.242 under two circumstances. It occurs when the members of a company pass a resolution to wind up the company and appoint a liquidator. The difference between application for winding up and voluntary winding up is that the former is compulsory. This includes where the company petitioned for its own liquidation. In terms of s.210 of the Companies Act, the winding up of a company shall be deemed to have commenced at the time of the passing of the resolution for voluntary winding up while with the creditors winding up or any other case, it is deemed to commence at the time of presentation of the application for winding up. The effect of voluntary winding up is that the company shall cease to carry on its business from the date of commencement of the winding up except in so far as may be required for the beneficial winding up thereof. The companys corporate powers continue until the company is dissolved.

The circumstances under which a company may be voluntarily wound up are provided under s.242. It can be wound up when the period, if any, fixed for the duration of the company by the articles expires or the event, if any, occurs on the occurrence of which the articles provide that the company is to be dissolved, and the company in general meeting has passed a resolution requiring the company to be wound up voluntarily. This is in terms of s.242 (a). Section 242 (b) provides that the company can be wound up if the company resolves by special resolution that it be wound up voluntarily. A notice must be given within one month after the passing of the resolution by advertising in the Government Gazette. The notice of the resolution must be given to the Master of the High Court, to the Registrar and to every officer charged with registration of title to any immovable property or interest in minerals within Zimbabwe in terms of s.243 (1)(a) and (b)

Judicial management
In terms of s.300 of the Zimbabwean Companies Act [Chapter 24:03] herein after called the Act, the court may grant a judicial management order when by reason of mismanagement or for any other cause a company is unable to meet its obligations but it has not become or is prevented from becoming a successful concern and there is reasonable probability that if it is placed under judicial management it will recover. The rationale is to provide the company with efficient management to necessitate sound economic recovery.

The question calls for an assessment of how the courts exercise their discretion in deciding whether or not to grant a judicial management order. The basis of such discretion and limits, if

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any, must be discussed. The primary aim of judicial management is to avoid the drastic remedy of winding-up when a company is in financial difficulties due to mismanagement or some other cause. There must be, however, reasonable probability that under more carefully controlled management it will surmount its difficulties. The issue of reasonable probability therefore demands that the court must assume an active role when weighing out the facts of a particular matter. This entails making a proper sound decision accompanied by a proper exercise of discretion in a simultaneous manner. The court may refuse to rely on the submissions made by the applicant even where there is no opposition to an order of judicial management. This was what the court did in Ex parte Mayhew (1959).

In Zimbabwe, the circumstances under which a company may be placed under judicial management are provided for under s.299(I)(a) and (b) of the Act. These provisions are, however, subject to s.300 (a)(I)(ii)(iii) and (b)(I)(ii) of the Act. The basis of the courts wider discretion is s.300 and especially sub-section (b)(ii) thereof, which says that a judicial management order may be granted by the court if it appears that: it would be just and equitable to do so.

This provision is incapable of a precise definition. It calls for a consideration of various relevant factors to a case with a holistic approach. This entails a very wide discretion which must, however, be exercised in a reasonable manner and within the four corners of the Act. The discretion enjoyed by the courts in matters relating to judicial management has been shown and reaffirmed in a long line of cases in Zimbabwe. The cases of Ex parte National Overseas and

Grindlays Bank Ltd (1958), Ex parte Mayhew, (1959), Tobacco Auctions Ltd v Hamilton (Pvt)
Ltd (1966) and Argee and Sons (Pvt) Ltd v Lever Brothers Ltd (1981) bear testimony to the wider discretion enjoyed by the courts in matters relating to judicial management in Zimbabwe.

An application for judicial management can be done in two ways. The first is by direct application for judicial management in terms of 299 (1)(a) of the Act. A company cannot by itself use this procedure but a member or creditor can do so. The second procedure is an indirect approach, in terms of s.299(1)(b) of the Act, where an application for winding up has been made. The company or the managing director and major shareholders or any interested party including the Master of the High Court may raise the issue of judicial management as the appropriate remedy in their opposition to an application for winding-up. The applicant himself may also reconsider his position and abandon his request of judicial management. In Ex parte

National Overseas and Grindlays Bank Ltd (supra), the applicant, which had obtained a rule nisi
to show cause why the Respondent should not be placed in liquidation, subsequently agreed with a cross-petitioner that the rule nisi should be discharged on the return day, and the

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Respondent should be placed under judicial management. In exercising its wider discretion the court even went further to give a final order of judicial management after considering that the overwhelming majority in value of the creditors knew of the application to place the company under judicial management and had not objected to such an order. It was held that there was no good purpose to issue a rule nisi after considering the justice and equities of the matter. The proper thing would have been to issue a rule nisi first before issuing a final order. This again confirms the wider discretion enjoyed by the courts in judicial management matters.

A comparison of the ruling in National Overseas, (supra), with the ruling in Ex parte Mayhew, (supra), reveals the extent to which exercise of wide discretion by the courts in judicial management matters has long been accepted as trite law in Zimbabwe. In the later case a final order for judicial management was refused despite there having been no objections from interested parties. The court stated that it must be prima facie satisfied that the requirements of the Act (s.300) were fulfilled. The Applicant failed to satisfy the court that the company would, under judicial management, extricate itself from its difficulties and pay its creditors in full within a reasonable time. The matter was accordingly postponed to enable the petitioner to supplement the petition. The ruling in this case shows that the discretion of the court, though wide, is depended on the facts of the matter. It further shows that courts will not rely on facts presented far too casually by applicants. The applicant still has the burden to prove that judicial management is the best option. The court can even allow costs for gathering all relevant or expert opinions on the necessity of judicial management as was in the case of Ex parte Mitchell (1964).

The courts final decision will not only rest on the discretion of the judge but it will also depend on both the discretion and properly presented facts. The court may still proceed to refuse an application for judicial management even in the absence of opposition should the applicant fail to provide reliable information. This was affirmed in Ex parte Mayhew, (supra). The effect of a judicial management order is either to place the company under a provisional judicial manager or final judicial manager. In exercising its discretion to grant either a provisional or final order the test to be satisfied is more stringent in the final order than the provisional order. The court must therefore be guided by this requirement. On the return day the court is in a better position to judge the companys prospects of becoming a successful concern than the court granting the provisional order. This requirement is affirmed by Ex Parte Mayhew, (supra).

In the exercise of its discretion in terms of s.300 of the Act the court is empowered to look into several factors without restrictions provided this is done for the good of the company and all interested parties. In Tobacco Auctions Ltd v A.W. Hamilton, (supra) the court considered the extent and scope of the business activities of a company, its assets and liabilities, and the

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nature of its difficulties as relevant factors in deciding whether judicial management proceedings apply to small companies. The fact that the company has few members was also taken into account but the judicial management order was refused on the basis that creditors would have waited an unusually long time for the repayment of sums due to them. The two shareholders positions were also considered. They were put in a worse position by winding-up but the fact that they only wished to derive a financial benefit, which can only accrue from keeping creditors waiting for settlement of the companys debts weighed negatively against an order of judicial management. This shows how equitable results can be achieved by giving courts a wider discretion in resolving judicial management disputes. It should be noted that this a good approach.

The exercise of the wide discretion in relation to time limit causes problems. It should be noted that the Act must give a clear guideline on what constitutes reasonable time. Leaving the position as it stands gives judges unnecessarily too wide a discretion which is difficult to prove to be unreasonable in litigation involving time limits. In the case of Clarke v Protein Foods (Pvt)

Ltd (supra), it would appear expecting a creditor to wait for more than a year before being paid
is highly prejudicial financially. This will be worse if it were to happen in an economy characterized by a high and ever increasing inflation rate. This is a factor which courts must seriously consider in the exercise of their discretion. In Agree and Sons (Pvt) Ltd v Lever

Bothers Ltd, (supra), the court stated that one remedy for the creditors is to apply for
cancellation of a judicial management order on the ground that the creditor will not be paid within a reasonable time was again left wide open. It is submitted that this is retrogressive as the creditor is not properly guided to enable him to determine the reasonableness or unreasonableness of time in a particular situation.

The Zimbabwean approach of allowing wide discretion to judges in matters relating to judicial management is progressive as it allows judges to decide cases on the basis of facts available. Unfair and unjust decisions will be made if the courts discretion is removed as they will be forced to strictly follow the provisions of the Act regardless of the needs of a particular case. There is, however, need to give guidelines without necessarily limiting the courts discretion in issues relating to what constitutes a reasonable time in judicial management disputes.

Provisional liquidator
A provisional liquidator referred to as a provisional judicial manager is appointed by the Master

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of the High Court in terms of s.302 of the Companies Act [Chapter 24:03]. In terms of s.303, a provisional judicial manager shall assume the management of the company as he is obliged in terms of s.303(b), within seven days of his appointment to lodge with the Registrar, under cover of the prescribed form a copy of his letter of appointment to that office. Under s.303 (c), the provisional judicial manager should prepare and lay before separate meetings of creditors, the members, and debenture holders an account of the general state of affairs of the company. He is also obliged to prepare a statement of the reasons why the company is unable to pay its debts or meet its obligations. He should prepare a statement of the assets and liabilities of the company. Moreover, a complete list of creditors of the company including contingent and prospective creditors and the amount and nature of the claim of each creditor, is prepared by him.

He is also obliged to state particulars as to any source from which money has or is to be raised for the purposes of carrying on the business of the company. All in all, it is a mixture of common law and statutory duties and obligations. His role is partly of the nature of trustee, partly of an agent of the company and partly of an officer of the company. As Trustee A liquidator is clearly not a trustee in the strict sense, because the property of the company does not automatically vest in him as does trust property to trustees, although the court can make an order so vesting it. It should be noted that he takes over the powers of directors, who equally, without being trustees, owe fiduciary duties to the company. His duties, like that of the directors is owed to the company as a whole and not to individual contributories. Also like a trustee he cannot, by reason of the Companies Act buy the companys property without the leave of the court or make a profit out of sales to the company. In Re Home & Colonial Insurance Co (1929), it was held that he is in a more vulnerable position than a lay trustee because he is always paid to assume his responsibility. The court emphasised that he has a high standard of care and diligence required of him. His only refuge is to apply to the court for guidance in every case of serious doubt or difficulty . As Agent A liquidator can be described as an agent for the company in that he can make contracts on behalf of the company for winding up purposes. He has, of course, the paid agents obligation to bring reasonable skill to his duties. It should be noted that he is not a true agent in that he controls the actions of his so-called principal, the company. As Officer A liquidator is not specifically named as an officer of a company in the definition of s.2 of the Companies Act. However, some

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authorities prefer to refer him as a company officer.

Insolvency Act: undue preference and collusive dealings

Undue preference
The Insolvency Act prohibits both undue preferences and collusive dealings. Section 143 of the Insolvency Act provides that every disposition of property made by an insolvent (that is, the company), at a time when liabilities exceeded the assets with the intention of preferring one creditor above another, may be set aside by the court. Such a disposition is called an undue preference.

Collusive dealings.

The issue of collusive dealings is dealt with in s.44 of the Insolvency Act. Generally, the section provides that every transaction entered into by a debtor before the sequestration may be set aside by a court if the estate of the debtor is thereafter sequestrated. This is particularly so if the disposition had the effect of prejudicing the debtors creditors or of preferring one creditor above another. Any person who was a party to a collusive transaction is liable to make good any loss caused, as a result, to the insolvent estate in question. He is also required to pay, for the benefit of the estate by way of penalty, such sum as the court may fix. Note that both undue preferences and collusive dealings are examples of impeachable transactions where an element of fraud is present in the transaction. However, the court, in certain circumstances, can set aside some transactions made prior to winding up even where there has been no dishonest behaviour in terms of s.40 of the Insolvency Act.

Judicial declaration
This ground is by far the most popular reason for winding up a company by the court. This is so because the ground covers a wide range of situations. Its operation generally is based on the partnership principle of good faith, Ebrahimi v Westbourne Galleries and Others 1972 (2) All ER 492. Attempts have been made to restrict the application of the phrase just and equitable to

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certain categories or headings under which cases must be brought, if the ground is to apply, but a restriction was rejected in the Ebrahimis case (above). Section 206 is intended to confer a very wide discretionary power upon the court in order to mete out, for example, fairness and achieve justice and equity between and amongst competing interests of all parties concerned. Any restriction, therefore, will negate this principle behind the provision.

Cases which may lead the court to grant a winding up order on the ground that it is just and equitable to do so may, for the purpose of convenience, be grouped under five different situations. These situations are: (i) where the substratum of the company had disappeared, Re Market Hall Bioscope

Syndicate, Ltd, 1912 S.R. 183 and its main object has become impossible of
achievement. (ii) where there is illegality of objects or fraud, Re International Securities Corporation (1908) 25 T.L.R 31. (iii) where grounds analogous to dissolution of partnerships exist, for example, a deadlock or mutual loss of confidence in the management, Re Yenidge Tobacco Co.

Ltd (1916) 2 Ch. 426 and Ebrahims case (above).


(iv) where there is minority oppression, Braid v Lees 1924 S.C. 83. This ground is designed to protect the minority. (v) where there is a lack of probity in the companys affairs, Woomack v Commercial

Vehicle Spares (Pvt) Ltd 1968 RLR 10, Lawrence v Lawrick Motors (Pvt) Ltd 1948 (2)
S.A. 1029 where the applicants fellow director had committed adultery with the applicants wife

A company being wound-up by the Court


The Companies Act lays down seven instances when a company may be wound-up by the Court. These instances are set out in s.206 andthese are: (i) if the company has, by a special resolution, resolved that the company be wound-up by the court. In cases like this, however, it will be better to proceed by way of voluntary winding-up which is both cheaper and quicker. (ii) if default is made in lodging the statutory repor t or in holding a statutory meeting. This is a result of s.124 of the Companies Act which requires a public company to hold a statutory meeting within a period of not less than one month and not more than three months from the

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date at which it was entitled to commence business. (iii) if the company does not commence its business within a year from the date of incorporation. This is consistent with s.320 of the Companies Act which requires a company to be declared defunct if it has not commenced business within a year from the date of registration. (iv) where a company has ceased to have any members. S.7 of the Companies Act provides that a limited company must consist of at least one member. This means if that member dies the company must be wound-up. (v) where a company has lost 75 per cent of its paid-up capital. This ground is rarely evoked; however Fox and South African Trade Protection and Trust Co Ltd 1903 illustrates its application. (vi) where a company is unable to pay its debts. A company is unable to pay its debts, as defined in s.205, if there is a judgment debt and there are no assets which could be found to satisfy that debt; or if the company is indebted in a sum exceeding $100 and has failed or neglected to pay, demand having been made by the creditor to pay it. (vii) when it is just and equitable to wind-up a company. This is by far the most popular reason for winding up a company. Ebrahimi v Westbourne Galleries and others 1972; Re: Market Hall

Bioscope (Salisbury) Syndicate, Ltd 1912; Lawrence v Lawrick Motors (Pvt) Ltd 1948.

Rehabilitation
The insolvency of a debtor comes to an end when he is rehabilitated. Rehabilitation may take place by lapse of a prescribed period of time, but the debtor often asks the court to rehabilitate him before expiry of the prescribed period of time. Although he still enjoys his personal freedom a declaration of insolvency imposes severe legal restrictions on the debtor. In terms of the Insolvency Act, Chapter 6:04 the administration of the insolvents estate is placed in the hands of a trustee and the insolvent is deprived of the power to enter into significant contracts. He is disqualified from holding certain positions in terms of the Companies Act, Chapter 24:03. For example he may not be appointed as a director or liquidator of a company. Subject to such conditions as the High Court may have imposed in granting a rehabilitation the rehabilitation of the insolvent person shall have the following legal effects: (i) of putting an end to sequestration (ii) of discharging all debts of the insolvent which were due or the cause of which had arisen,

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before the sequestration and which did not arise out of any fraud on his part and (iii) of relieving the insolvent of every disability resulting from the sequestration

The circumstances in which an insolvent person can be rehabilitated


Application to the court for rehabilitation of the insolvent person may be made in the following circumstances: (i) an insolvent may immediately seek an order of rehabilitation if he has obtained a certificate from the Master of the High Court that creditors have accepted an offer of composition in which payment has been made, or security has been given for payment in terms of s.141 of the Insolvency Act. (ii) If the insolvent has been convicted of a fraudulent act in relation to his existing or any previous insolvency and five years have elapsed from the date of his conviction in terms of s.141 (2)(c) of the Act. (iii) If the insolvent has been sequestrated on a previous occasion and three years have elapsed from the confirmation of the trustees first account in terms of s.141(2)(b) of the Insolvency Act. (iv) If twelve months have elapsed since the confirmation of the trustees first account or two years from the final sequestration order whichever is the earlier. The insolvent must provide security for the payment of the costs of any opposition to the application for rehabilitation. The purpose of this provision is to encourage creditors and others to place before the court facts relevant to the application. (Ex parte Schoeman (1943). The security must be furnished to the Registrar of the court not less than three weeks before the hearing of the application. The costs are paid to any person who may oppose the rehabilitation and is entitled to an award of costs by the High Court. The rehabilitation of the insolvent is a matter which rests within the discretion of the court. The court has to decide whether the insolvent is a fit person to be rehabilitated i.e. whether he should be allowed to trade with the public on the same basis as any other honest man. (Ex parte Hittersay 1974) Whilst the rehabilitation of an insolvent is a matter which lies solely within the discretion of the court, this discretion must be exercised judicially and not arbitrarily.

Provisional management

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Section 205 as read with s.206 (f) of the Companies Act, Chapter 24:03 defines the concept of inability to pay debts. A company shall be deemed to be unable to pay its debts if a creditor by cession or otherwise to whom the company is indebted in a sum exceeding one hundred dollars then due has served on the company a demand requiring it to pay the sum so due by leaving the demand at its registered office and if the company has for three weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor. Alternatively a company may be deemed to be unable to pay its debts if it is proved to the satisfaction of the court that the company is unable to pay its debts and in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company.

By way of alternative action the court may grant a provisional management order in respect of the company in terms of s.300 of the Act On the return day fixed in the provisional judicial management order (which shall not be less than sixty days from the date of the grant of the provisional judicial management order) and after considering the opinions and wishes of the creditors, members and other relevant stakeholders, the report of the provisional judicial manager, the report of the Master and Registrar, the court may grant a final judicial management order. A final judicial manager shall subject to the memorandum and articles of the company take over from the provisional judicial manager and assume management of the company. He would manage the company subject to any order of the court in such manner as he may consider most economic and most likely to promote the interests of the members and creditors of the company.

Arbitration
The settlement of disputes by arbitration is comparable to that by litigation. In arbitration, an arbitrator presides and the parties present their respective cases to the arbitrator, who then decides in favour of one party. The Arbitration Act [Chapter 7:02] does not define arbitration, instead, it defines an arbitration agreement. Article 7 of the Act defines an arbitration agreement as an agreement by the parties to submit to arbitration all or certain disputes, which have arisen or which may arise between them. The agreement must relate to a legally defined relationship which can either be a contract or not.

An arbitration agreement may be in the form of an arbitration clause in a contract or in the form

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of a separate agreement. In Zimbabwe, arbitration is governed by the Arbitration Act [Chapter 7:02)[Act 4 of 1996]. The Arbitration Act is comprised of the Act and an addendum of the United Nations Commission on International Trade Law (UNICTRAL) Model Law. The UNICTRAL Model Law in its original form applies only to international commercial arbitrations. However, by virtue of ss.3 and 4 of the Arbitration Act, the model law, as adopted for Zimbabwe will apply to all arbitrations, whether commercial or not and whether international or not. Due to this development in Zimbabwe the original wording of the UNICTRAL Model law has had to be modified in Article 1 to cover this.

Arbitration is a voluntary process where parties submit their dispute to a third party (arbitrator) for determination. However, in labour cases, a labour officer can refer a matter for arbitration if there is a certificate of no agreement in terms of the Labour Act. Some argue that this is compulsory arbitration. This position is emphasised and aptly underscored in the case of

Catering Employers Association of Zimbabwe v Zimbabwe Hotel and Catering Workers Union & Anor (2001). In this case the appeal judge, Justice Sandura, held that when the Labour
Relations Tribunal makes an order on a matter and refers it for compulsory arbitration under the Labour Relations Act [Chapter 28:01] now the Labour Act, the tribunal in this case will act as arbitrator in terms of the Arbitration Act. As such the provisions of the Arbitration Act will apply,

in toto.

In terms of s.4(2) of the Act, save for criminal matters, or without the special leave of the court, matters relating to status, matrimonial causes, most matters in which minors or persons under a legal disability are involved, all disputes may be referred to arbitration.

The process of arbitration is governed by the UNICTRAL Model law where the parties would not have agreed otherwise.

Arbitration has several advantages over conventional litigation. It is much speedier than a trial and has the advantage of finality (except that either party may review the decision of the arbitrator on recognised reviewable grounds) See Article 34(2) of the UNICTRAL Model law incorporated in the Arbitration Act. In other words an arbitral award is as good as a judgment. However, an arbitral award cannot be appealed. The binding nature and finality of an arbitral award was stated by Goldstone JA in the case of Amalgamated Clothing and Textiles Workers

Union of South Africa v Veldspan (Pty) Ltd, 1994, where he said:


When parties agree to refer a matter to arbitration, unless the submission provides otherwise, they implicitly, if not explicitly . . . abandon their right to litigate in courts of law and accept that they will be finally bound by the decision

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of the arbitrator

This was also emphasised in the case of Zimbabwe Electricity Supply Authority v Maposa (1999). Arbitration is a procedure which is usually more informal than that of a trial and the relationships between the parties may be maintained on amicable basis. This is particularly important in the business world where parties may have to contribute to deal with each other and the combativeness of a trial may destroy a good relationship. Arbitrations have an advantage of being private and the parties are to choose their own arbitrator. In disputes of a technical nature, this is most important as the parties can ensure that the arbitrator has some knowledge of the field, knowledge which a judge is unlikely to have.

Arbitrators are also common in international agreements as they avoid the need to decide in which courts the agreement will be enforced. In other words, the technical problems of jurisdictions are avoided. In terms of Article 35 of the UNICTRAL Model law, an arbitral award can be enforced in Zimbabwe even though the arbitral process would have taken place in a foreign country. However, the foreign country needs to be part of the New York Convention on Arbitration to which Zimbabwe is a signatory. This Convention was signed and ratified by over 200 countries.

Moreover, its enforceability in Zimbabwe is as good as that of a court judgment. What only needs to be done is to register the award, either, in terms of Article 34 or 36, in the High Court. Afterwards, its enforceability is equally good to that of a judgment passed by a court of competent jurisdiction. It should be noted that in this growing world of commerce and international trade, arbitration has become one of the most recognised and favoured forms of dispute resolution. In summary, it is simpler, faster, less expensive, a more amicable and less antagonistic way of resolving disputes.

Recovery of liquidation funds


In terms of the common law, the liquidators have a claim against Svotwai for misfeasance (misapplication and or fraudulent application of company assets). The holiday home, the small private aeroplane and any other assets he may have can be judicially attached in order to satisfy the companys claim against him. By way of statutory remedy, in terms of s.318 of the Companies Act, Chapter 24:03 the law has provided relief as follows:

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(1) If at any time it appears that any business of a company was being carried on: (a) recklessly or (b) with gross negligence or (c) with intent to defraud any person or for any fraudulent purpose, the court may, on the application of the master or liquidator or judicial manager or any creditor of or contributory to the company, if it thinks it proper to do so declare that any of the past or present directors of the company or any other persons who were knowingly parties to the carrying on of the business in the manner or circumstances aforesaid shall be personally responsible without limitation of liability for all or any of the debts or other liabilities of the company as the court may direct.

The claim must be proved by affidavit in the prescribed form and the affidavit shall specify the nature and particular of the claim. The affidavit and any supporting documents are lodged at the Masters office at least 48 hours before the advertised time of the meeting. The presiding officer examines the documents and either admits or rejects the claim. If the claim is confirmed creditors will usually be entitled to some payment (unless there are insufficient funds available). Secured and preferent creditors receive payment before concurrent creditors who would usually receive a pro rata share of the free residue.

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2007

Corporate and Business Law- F4 (Zimbabwe)


Casebook

Authorized share capital


The critical issue here is that the authorized share capital of the company is already fully issued and therefore no new shares can be issued in the company unless the authorized share capital is increased. Section 87 of the Act allows a company to increase its share capital by special resolution and s.89 requires the company to give notice to the Registrar of any increase in the share capital of the company within one month after the passing of the special resolution.

Section 133 provides that a special resolution requires a majority of not less than 75% of such members entitled to vote as are present in person or by proxy at a general meeting of which not less than 21 days notice has been given, specifying the intention to propose the resolution as a special resolution and at which members holding an aggregate of not less than 25% of the total votes of the company are present in person or by proxy. A shorter notice period is permitted provided that this is agreed by a majority of members entitled to attend and vote at the meeting and holding not less than 95% of the total votes of all the members or by all the members.

Chronologically the steps to be taken are as follows: A general meeting will be convened to pass a special resolution authorizing the increase in the company share capital. At this meeting the members will also pass an ordinary resolution giving the directors their approval to the issue of the new shares. The Secretary will draw up a timetable for the work to be done. A Board meeting will be convened to approve a draft circular to shareholders advising them of the rights offer. A rights issue is an issue of new shares to existing shareholders in proportion to

Financial Training Company

the number of shares they already hold. Once the authorized share capital of the company has been increased, existing shareholders will be advised of the proposed rights issue and given a certain period within which to exercise their option to take up new shares. Since Green Valley Enterprises is a public company, the Stock Exchange will have to be notified. The offer documents, comprising letters of allocation and forms of acceptance and renunciation will be sent out. After the offer closes, a board meeting will be called to make a formal allotment of shares. The share certificates will then be prepared and sent to shareholders. A return of allotments in form CR2 will be lodged with the Registrar of Companies within one month by the Boards formal allotment resolution. The register of allotments must be updated in terms of s.71. Finally the nominal value of the share is $800 each but they are being issued to members at $1000 each. In other words, the shares are being issued at a premium and the provisions relating to the share premium account (sec. 74) apply.

Section 74(1) reads as follows:

If a company issues shares at a premium whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account called the share premium account and provisions of this Act relating to the reduction of a companys share capital shall apply except as provided in this section as if the share premium account were part of its paid-up capital.

Types of share capital

Shares are basically divided into four different classes, namely ordinary shares, preference shares, redeemable preference shares and deferred shares. Ordinary shares, as the name implies, constitute the residuary class in which everything is vested after the special rights of other classes, if any, have been satisfied. They confer a right to the equity in the company. As a form of company security, ordinary shares are the riskiest and it is for this reason that they are referred to as equities or risk capital. Ordinary shareholders bear the risk that payment is postponed until a dividend is declared and after the payment of preference shareholders. This remains the same even when

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regarding the repayment of capital.

Ordinary shares are not fixed and where the company is doing well they may be paid the residuary distributable profit, divided proportionally by ordinary shareholders dividend percentage. This is the same with the repayment of capital or where the company is distributing the remaining capital or assets.

However, this is only possible where preference shareholders do not have a right to participate in the surplus assets. Ordinary shareholders normally comprise the bulk of companys shares. In most cases they are the majority and participate in most of the decision making within the company and are better placed in exercising their right to vote. They overally have control over the running of the company.

It is usually spelt out in the Companys Articles of Association that whenever a fresh issue of shares is made, these should be offered to ordinary shareholders, usually at a lower price than outsiders.

Preference Shares: These confer on holders, preference over other classes of shareholders in respect of either dividends, repayment of capital or both. Preference shares include a right to receive dividends of specified, or of a fixed, rate of dividend. An example would be 10% of their nominal value of profits each year before any dividend may be paid out to holders of ordinary shares.

Preference shares are cumulative unless the articles or terms of issue state otherwise. This means that if the company cannot pay a dividend in one year the arrears must be carried forward to future years. If preference shares are non-cumulative and the company cannot pay the dividend, the arrears are not carried forward and so the preference shareholder will not receive a dividend for that year.

Preference shareholders have a right to sue, for payment of dividend from the available profits where the Articles of Association specifically confer this right and thus would be contractually binding. Unless the articles provide to the contrary, preference shares carry the same voting rights as other shares. However, preference shareholders voting rights are usually restricted to specified circumstances which directly affect them for example when the right of preference shareholders are being varied.

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In Liquidation, preference shareholders do not automatically have a right to prior return of their capital. If the articles are silent preference shareholders and ordinary shareholders rank equally.

Redeemable Preference Shares Section 76(1) of the Companies Act [Chapter 24:03] gives the company powers to issue redeemable shares of any class provided that the articles so allow and also provided that the shares are fully paid for.

Redemption of shares must be effected out of profits of the company which would otherwise be available for dividend or out of proceeds of the fresh issue of shares made for the purposes of redemption. In most cases, the terms of redemption of redeemable shares must be prescribed by the articles or to be determined as provided in those articles i.e. how the company would buy back its own shares.

Where the company is being wound up, the redemption or purchase may be enforced against the company unless the redemption or purchase was for a date later than that of commencement of winding up or the company could not, before the winding up is completed, have lawfully paid a dividend to shareholders of an amount equal to that of the costs of the redemption or purchase.

In a case where the company is being wound-up, all other creditors must be paid first and then shareholders who hold preferential shares before payment of amounts which are liable to be paid out for a redemption or purchase of shares; per s.110 of the Insolvency Act [Chapter 6:04]. Deferred Shares/Founders Shares: These are shares which the holder rights are deferred until the claims of other classes of shares are satisfied. Sometimes this class of shares is accepted by the sellers or vendors of business as part considerations for the sale. Deferred/founders shares have the same relationship with ordinary shares that ordinary shares have with preference shares. A significant amount of risk is attached to these shares given that they rank below ordinary shares. However, this risk investment is often rewarded by a large share of surplus profits assets after the ordinary shareholders have been paid their minimum dividend or repaid their capital on a winding-up or a reduction of share capital. Such shareholders often enjoy disproportionally large voting rights as compared to ordinary shareholders. It should be noted, however, that the rights which may be enjoyed by these shareholders is a matter to be determined from the document under which the shares are issued.

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Capital maintenance
The Companies Act [Chapter 24:03] contains a number of provisions which are meant to preserve the share capital structure of the company. The general principle is that a company must maintain its capital, it cannot give money which has been contributed by the shareholders back to those same people and there are a number of strict rules which seek to maintain adherence to that principle. If such money is returned to shareholders, except in a few specific and clearly defined situations, then it becomes an unlawful reduction of share capital. Some of the rules which are designed to preserve the share capital structure of a company are the following:

(a) Prohibition of financial assistance by the company for the purchase of its own or its holding companys shares (s.73) It is unlawful for the company to give whether directly or indirectly, whether by means of a loan, guarantee, the provision of security or otherwise any financial assistance for the purpose of buying shares in the company or where the company is a subsidiary company in its holding company unless: (i) such assistance is given in accordance with a special resolution of the company; (ii) the companys assets exceed its liabilities and it is able to pay its debts as they become due in the ordinary course of its business.

(b) The Share Premium Account (s.74) If a company issues shares at a premium whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account called the share premium account. The share premium account cannot be used anyhow and in terms of the Act, its use is restricted to the following (among others): (i) in paying up unissued shares to be allotted to the companys members, directors, employees or to a trustee for such persons, as fully paid bonus shares or (ii) in writing off the companys preliminary expenses or the expenses of or the commission paid or discount allowed on any issue of shares or debentures of the company.

(c) Power to Issue Shares at a Discount Whilst it is permissible for a company to issue shares at a discount of a class already issued, this has to be done in accordance with strictly laid down criteria which is as follows: (i) the issue of the shares at a discount must be authorised by special resolution of the company and must be sanctioned by the court and

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(ii) the special resolution must specify the maximum rates of discount at which the shares are to be issued.

(d) Prohibition of Loans to Directors (s.177) It shall not be lawful for a company to make a loan to any person who is its director or a director of its holding company unless: (i) the companys ordinary business includes the lending of money or the giving of guarantees in connection with loans made by other persons to anything done by the company in the ordinary course of that business or (ii) where the company is a non-subsidiary company and the consent of members holding at least nine-tenths of the issued share capital has been secured. (e) Payment of Dividends As a way of preserving the share capital structure the Companies Act makes it clear (Article 16) that No dividend shall be paid otherwise than out of profits Even if a company makes profits, shareholders are not automatically entitled to a dividend until and unless the directors have declared one. Members in general meeting cannot outride or veto a decision of the Board of Directors over matters pertaining to a declaration of a dividend. Ultimately the provisions cited above are meant to ensure that as far as possible, the share capital structure of the company, is not unlawfully interfered with.

Increase share capital


(i) The initial decision to increase the share capital of the company will have been taken at a Board Meeting by the Board of Directors. The matter is then referred to members in a general meeting of the company. If it is agreed that the share capital of the company be increased, the notice of increase in share capital is then submitted to the Registrar of Companies. The meeting which preceded the submission of the notice to the Registrar was probably an Extraordinary General Meeting at which all the registered members of the company were eligible to attend. (ii) The meeting would have been held in terms of s.126 of the Companies Act. Theoretically the meeting could have been an Annual General Meeting convened in terms of s.125 of the Act although this is highly unlikely. (iii) A special resolution to increase the share capital was passed in terms of s.89 as read with s.133 of the Companies Act, Chapter 24:03. (iv) The resolution should be passed by a majority of not less than 75% of such members entitled to vote as are present in person or by proxy at a general meeting of which not less than 21 days notice has been given. Members holding not less than 25% of the total votes of the

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company are required to be present in person or by proxy

New share certificates and the documents required


The manner in which shares are transferred is laid down in the Articles of the company. The general rule is that shares are freely transferable in the manner prescribed by the Articles, and the Board of Directors accordingly has no discretion to refuse to register a bona fide transfer. In brief, the procedure is that a written instrument of transfer must be delivered to the company (s.99). The transfer form contains the names and addresses of the transferor and transferee and their signatures, the number of shares to be transferred and the price payable (if any). The first thing that is required is the original share certificate bearing the name of the deceased. This must be accompanied by a transfer form signed by Mr Brown in his capacity as executor of the estate. Before allowing an executor to deal with the shares of a deceased member, the transfer secretary must satisfy himself that the person claiming the right is properly entitled to do so. Thus, unless Mr Brown has obtained the consent of the Master of the High Court and has been issued with Letters of Administration, he does not have authority to act in this matter. In terms of s.102 of the Companies Act, transfer of the shares of a deceased person by the executor is as valid as if he himself had been a member. In terms of articles 30 and 31 of Table A, the heirs must elect whether they personally wish to be registered as the holders of the shares or whether to nominate some other person. If they elect to be registered themselves, they must send to the company written notice of their decision.

Once all the relevant documents have been presented to the company secretary, the old share certificates will be cancelled and new certificates will be issued in the names of the heirs. The company is obliged to issue new share certificates within two months after the transfer document has been completed (s.103). Each share is distinguished by its appropriate number (s.98). The share certificate must be signed by either two directors or by one director and the secretary (s.104). The register of members must be updated accordingly.

Posting share certificates


An offer is an unconditional declaration by the offeror of his intention to conclude a contract and the offer must comply with the following requirements. It must be: (a) clear and unambiguous (b) complete (c) communicated to the offeree (d) made with the intention that it will serve as an offer that it may be accepted and that a valid contract will result

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there from. From our case law it is clear that an advertisement (as in this case) is merely an invitation to do business (to treat) and not a firm offer.

In Crawley v R (1909) Smith J ruled as follows: the mere fact that a tradesman advertises the price at which he sells goods, does not appear to me to be an offer to any member of the public to enter the shop and purchase goods nor do I think that a contract is constituted when any member of the public comes in and tenders the price mentioned in the advertisement. It seems to me to amount simply to an announcement of his intention to sell at the price he advertises . . .. It is clear from the facts of the case that Adolf is the offeror and Egoli Mines Limited is the offeree who is at liberty either to accept or reject the offer. If an offer is made by post and acceptance also takes place postally a contract comes into being at the place where and at the time when the letter of acceptance is posted. In the case of Cape Explosives Works Ltd v SA Oil and Fat Industries Ltd (1921) the court ruled that the expedition theory is to be applied in the case of postal contracts where in the ordinary course the post office is used as the channel of communication, and a written offer is made, the offer becomes a contract on the posting of the letter of acceptance. Kotze J based his judgment on practical considerations because the applications of the expedition theory gives rise to fewer problems. Where an effective postal system exists, there is a reasonable level of certainty that a letter which is properly posted will reach its destination. The decision that the expedition theory applies to postal contracts was ratified by the appeal court in Kergeulen Sealing and Whaling Company Ltd v CIR (1939) and is now generally accepted as the ruling principle in our law. It is now clear that with postal contracts, the expedition theory applies and the contract comes into existence where and when the letter of acceptance is posted unless the offeror expressly states that he required notice of the acceptance. It is also settled law that the offer may therefore not be withdrawn after the letter of acceptance has been posted even if the offeror has no knowledge of the posting (A to Z Bazaars v Minister

of Agriculture (1942).

Principles governing the payment of dividends in a

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company.

A dividend is a share in the profits of a company. The manner in which profits are to be divided is determined by the articles of the company. The articles may provide for the declaration of dividends by the company in a general meeting with the right of directors to pay such interim dividends as are justified by the profits of the company or they may authorise the directors to declare dividends without reference to a general meeting. Usually the articles prescribe that no dividend may be paid otherwise than out of profits. It is now settled law both in terms of the common law and statutory law that dividends may not be paid out of capital even if the memorandum or articles purport to authorise payment because such payment would constitute an illegal or unauthorised reduction of capital. Article 116 of Table A of the Companies Act Chapter 23.04 says no dividend shall be paid, otherwise than out of profits . . . . Whilst the company in general meeting may declare dividends, no dividend shall exceed the amount recommended by the directors (Article 114, Table A). Thus, while the shareholders can vote to reduce the amount of the dividend, they cannot vote to increase it.

The directors may before recommending any dividend set aside out of the profits of the company such sums as they think proper as a reserve or reserves which shall, at the discretion of the directors be applicable for any purpose to which the profits of the company may be properly applied and pending such application, may, at their discretion either be employed in the business of the company or be invested in such investments, other than shares of the company as the directors may from time to time think fit.

In the case of Buenos Aires Great Southern Railway Company Ltd v Preston after incurring heavy losses on its trading account for several years, a company made profits in one year sufficient to pay the full dividends on preference shares. The directors however considered that it would be unwise to pay such dividends and decided to transfer the profits to reserve. The court held that they had power to do so and that the preference sharesholders were not entitled to claim their dividends.

Romer J made the following observation: having regard to the articles it is clear that the dividends on the ordinary capital were payable only out of the net profit of the company in the sense that the powers of the company or the board to carry profits to reserve override the rights of the shareholders to dividend. The procedure would be that the board would consider the profits of the company on the one hand

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and its requirements as to maintenance and so on, on the other. Having decided the amount of profit, if any, which was available the directors would make the necessary recommendation to the company and the company would consider the matter . . . .

Whilst it is true to say that dividends are declared at the sole discretion of the directors and that shareholders cannot insist on the company declaring a dividend, once a dividend is declared a company becomes indebted to its shareholders in the amounts of their dividends. However such dividends are debts which bear no interest against the company. This is as a result of article 122 of Table A which states that no dividend shall bear interest against the company. Whilst the legal position is that dividends may only be paid out of profits it is also clear that if the directors have, without negligence, formed the bona fide belief that the company has earned sufficient profits to pay a dividend when in fact it has not, no liability will accrue to them. On the other hand, if they were negligent in declaring a dividend, they can be held liable.

Finally, the directors may deduct from any dividend payable to any member all sums of money, if any, presently payable by him to the company on account of calls or otherwise in relation to the shares of the company.

Dividends declaration
Dividend is paid to a member of a company as opposed to interest which is paid to its debenture-holder. Thus there are two fundamental distinctions between interest and dividend. In the first place they are payable out of different funds, interest being payable out of any of the companys monies, while dividend is payable only out of profits. On the other hand interest is a debt while a dividend is not a debt until it is declared. There are a number of propositions which together will tell us what, in law, constitutes profits and these are: (i) provided trading profits have been made, a dividend may be declared out of them without making good losses of fixed capital; Verner v General and Commercial Investment Co Ltd (1894) 2 Ch. 239. (ii) losses of circulating capital, however, must first be made good before a dividend is declared,

Verners case (above).


(iii) provided that the dividend can be declared out of the trading profit for that particular year, or out of other distributable funds, trading losses incurred in previous years can be disregarded. (iv) revenue reserves, that is, profits which have not been distributed but retained by the company, possibly to maintain the dividend over a difficult trading period, may lawfully be used for dividends.

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(v) a dividend may be declared out of a realised profit on a fixed asset because, although this is not a trading profit, it is still profit. It is not, however, lawful to use a realised profit on a single asset for dividend purposes unless the companys whole financial position is sound, Foster v

New Trinidad Lake Asphalt Co. Ltd (1901) 1 Ch. 209.

The above rules apply subject to the companys articles which often restrict the payment of dividends further. Thus they may stipulate that dividends may only be paid out of trading profits or the profits of the business. Under the articles of most companies, it is the company which declares the dividend, but the directors recommend its amount. The articles usually provide that the dividend shall not exceed the amount recommended by the directors and article 114 of Table A does this, so that while the shareholders can reduce the amount of the dividend, they cannot increase it. Unless the company takes advantage of s.85 (c) of the Companies Act and inserts a clause similar to Table A, article 118, in its articles, dividends are declared either as a percentage based on the nominal value of the shares, or, less frequently, as a specific sum per share.

Once declared by the company, the dividend becomes a speciality debt due to the members but the period of limitation is twelve years. Sometimes the articles authorise the directors to pay interim dividends to the members, that is, dividends which are paid in between two annual general meetings, usually six months after the final dividend.

Transfer of shares in a private company to someone outside the company.

Generally shares are personal property and are transferable subject to any restrictions contained in them. Although it is not clear from the facts of the case whether Nhapitapi Investments (Pvt) Ltd has such restrictions in its articles of association in practice, most private companies (if not all) invariably restrict transfer of shares. Indeed s.33 of the Companies Act which defines the term private company says that (1) The expression private company means a company other than a co-operative company, which by its articles restricts the right to transfer its shares. In this case it is safe to assume that the articles of Nhapitapi Investments restrict the right to transfer shares. Where the articles of a company restrict transfers, then a transfer must be submitted to an approved person by the board of directors.

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Thus any decision to sanction a transfer must be made by the directors. Article 24 of Table A of the Companies Act, Chapter 24:03 says that the directors may decline to register the transfer of a share, not being a fully paid share, to a person of whom they do not approve and they may also decline to register the transfer of a share on which the company has a lien.

The power to refuse to register a transfer can be challenged only on the ground that it was exercised in bad faith. (Re Coalport China Company (1895). If a company refuses to register a transfer of any shares or debentures the company shall, within two months after the date on which the transfer was lodged with the company, send to the transferor and the transferee notice of the refusal. If default is made in complying with this particular requirement, the company and every officer of the company who is in default shall be guilty of an offence and liable to a default fine. The directors may also refuse to sanction a transfer if there is a pre-emption clause in the articles of the company as is normally the case. A pre-emption clause or the right of first refusal entails that when a member of a private company wishes to sell his shares, he must, under the provision in the articles first offer them to the members of the company before he offers them to an outsider.

Share certificates

In terms of s.104 of the Companies Act a share certificate under common seal is only prima facie evidence of title to the security. This means four things: (i) that other evidence may be brought forward to show that it is incorrect or has become invalid by reason of subsequent events; (ii) that a share certificate is not a negotiable instrument because its transfer from one person to another does not affect the ownership of the shares. That can only be done by effecting an

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instrument of transfer which must be completed and lodged with the company and approved by the directors; (iii) the share certificate is just a statement by the company that, at the moment when it was issued, the person named on it was the legal owner of the shares specified in it and that those shares are paid up to the extent stated; (iv) that estopped is not a principle of substantive law but that it is a rule of evidence which prevents a person from denying the legal implication of his conduct. When we say a company is estopped, this means that it is prohibited from denying (as against a person who has innocently relied on a share certificate), that the certificate is a correct copy of the relevant particulars in its register, in terms of s.104 of the Companies Act. However, this principle does not apply in the following situations: (i) when the certificate is a forgery; (ii) when it has been issued without authority; and (iii) when the person claiming on it has not relied upon it (as in the case of a transferee who fails to obtain the certificate or other evidence at the time of transfer).

Private Business Corporation Act (Chap. 24:11)

It is true to say that the Private Business Corporation Act (Chap. 24:11) was introduced four years ago because it was thought that the Companies Act (Chap. 24:03) was too detailed and complicated and therefore not suitable for less sophisticated organisations which operate in the form of partnership.

The Private Business Corporation Act, in an attempt to achieve the above object, makes a private business corporation, on registration, a juristic person distinct from its members. In other words, it acquires a corporate status, but there is no need to appoint directors or draw up the founding documents like the memorandum and articles of association. These documents are replaced by a statement called incorporation statement and as such it abolishes the ultra vires doctrine. This is because, on registration, the business becomes a corporate body with all the powers of a natural person without limitations as normally set out in the companys founding documents. In such cases, unlike the registration of a company, there is no need to specify in the incorporation statement the objects of the business (corporation).

A private business corporation is not allowed to issue shares and instead each member is to hold an interest in the corporation which will be recorded as a percentage in the incorporation

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statement. In the event of the winding up of the corporation, a member will be entitled to a share in the assets of the corporation in proportion to his percentage. His liabilities will be measured likewise.

There is no requirement in the Private Business Corporation Act that the corporation must publish or submit accounts to the Registrar of Companies. This is so although each corporation is required to appoint, in terms of s.85, an accounting officer (not an auditor) in order to maintain accounting records. An ordinary book-keeper will qualify as an accounting officer.

There is also no requirement in the said Act that every corporation, once registered, must hold annual general meetings. It was felt by the Law Development Commission that this was an unnecessary formality. It should be noted, however, that the Private Business Corporation Act did not completely achieve its objective. The complicated provisions, in terms of s.56 of the Companies Act in respect of winding up a company, judicial management and the removal of defunct companies from the register, still apply to corporations. No doubt, the complicated company law doctrines, for example, the rule in Foss v Harbottle 1883 will still also apply to corporations.

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2007

Corporate and Business Law- F4 (Zimbabwe)


Casebook

Supremacy of the majority rule principle


The majority rule position in relation to a companys governance is as captured by the Foss v

Harbottle principle. The rule of law known as the Foss v Harbottle rule has resulted from the
refusal of the court to interfere with the management of the company at the instance of minority shareholders who for one reason or the other are dissatisfied with the conduct of the companys affairs by the majority or by the board of directors. The Foss v Harbottle principle was first clearly articulated in 1843 in the case from which it takes its name and it has since spawned an immense volume of case law and legal literature. In practical business terms it is generally the directors who run the company and make business decisions but the general meeting of the company is the ultimate authority of the company. Major decisions regarding the structure and fate of the company such as alterations in the memorandum or articles, increase and reductions of capital, change of name, variations of shareholders rights, disposal of the undertaking or major assets of the company, compromises, amalgamation and reconstructions and the voluntary winding up of the company have to be taken or approved by the majority in many instances by way of special resolution.

The majority rule concept applies also where a wrong is done to the company. The rule is that where a wrong is done to the company, for example by its directors failing to fulfill their duties it is the company alone, through its majority that can sue for the injury inflicted. The proper plaintiff is thus the company itself. Individual members cannot sue even though their shares have fallen in value because of the wrong done to the company. The power to decide whether to use in the companys name is usually delegated to the directors by the articles but should they decline to sue a general meeting of the company may resolve that an action shall be instituted. In Foss v Harbottle (1943) an action was brought by two shareholders in a company on behalf

Financial Training Company

of themselves and all other shareholders except the defendants who were the directors and promoters of the company to which they had sold the company at an undisclosed profit. The action was dismissed because the shareholders were not the proper plaintiffs. The company itself was the proper plaintiff unless the act complained of was ultra vires. In the case of Edwards v Halliwell Jenkins L.J summarised the position in a very lucid manner and two of the propositions that he underlined bear repeating. These are:

1. The proper plaintiff in an action in respect of a wrong alleged to be done to a company is

prima facie the company itself.


2. Where the alleged wrong is a transaction which might be made binding on the company and on all its members by a simple majority of the members, no individual member of the company is allowed to maintain an action in respect of that matter because if the majority confirms the transaction, the question falls away or if the majority challenges the transaction, there is no valid reason why the company should not sue. In terms of the current law there are limitations which exist on the majority rule principle. In appropriate cases (where justice so demands) the courts will depart from the majority rule principle. There is no room for the operation of the rule if the alleged wrong is ultra vires the memorandum or articles of association of the company. This clearly seems to be the intention of the legislature despite the existence of section 10 of the Companies Act which modifies the operation of the ultra vires rule in Zimbabwean law. Section 10(2)(a) entitles a member to bring proceedings to restrain the company from making or entering into any transaction which exceeds its objects.

There is also no room for the operation of the rule if the transactions complained of could be validly done or sanctioned only by a special resolution or the like because a simple majority cannot confirm a transaction which requires the concurrence of a greater majority. There are many sections of the Act that require prescribed majorities, not a mere simple majority (For example s. 20, 25, 75, 78, 242 etc). In certain cases, the authority of the courts is required. For example s.91 which relates to variation of rights attaching to shares and s.92 which makes reduction of share capital subject to both confirmation by the court and a special resolution. One of the most important common law exceptions to the majority rule principle applies where what has been done amounts to fraud and the wrongdoers themselves are the controlling majority. In that case the rule is relaxed in favour of the aggrieved minority who are allowed to bring a minority shareholders action on behalf of themselves and all others. The practical reason for this is that if they were denied that right, their grievance would never reach the courts because the wrongdoers themselves, being in control, would not allow the company to sue.

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In Burland v Earle (1902) the court made the following observation (in part) . . . where the persons against whom the relief is sought themselves hold and control the majority of the shares in the company and will not permit an action to be brought in the name of the company. In that case the courts allow the shareholders complaining to bring an action in their own names . . . .

The principle of majority rule in corporate governance.


The majority rule principle in relation to a companys governance is that captured by the Foss v

Harbottle principle. The rule of law known as the Foss v Harbottle rule has resulted from the
refusal of the court to interfere with the management of the company at the instance of minority shareholders who for one reason or the other are dissatisfied with the conduct of the companys affairs by the majority or by the board of Directors. The Foss v Harbottle principle was first clearly articulated in 1843 in the case from which it takes its name and it has since spawned an immense volume of case law and legal literature.

In practical business terms it is generally the directors who run the company and make business decisions but the general meeting of the company is the ultimate authority of the company. Major decisions regarding the structure and fate of the company such as alterations in the memorandum or articles, increase and reductions of capital, change of name, variations of shareholderss rights, disposal of the undertaking or major assets of the company, compromises, amalgamation and reconstructions and the voluntary winding up of the company have to be taken or approved by the majority in many instances by way of a special resolution.

The majority rule concept applies also where a wrong is done to the company. The rule is that where a wrong is done to the company, for example by its directors failing to fulfil their duties, it is the company alone, through its majority that can sue for the injury inflicted. The proper plaintiff is thus the company itself. Individual members cannot sue even though their shares have fallen in value because of the wrong done to the company. The power to decide whether to sue in the companys name is usually delegated to the directors by the articles but should they decline to sue, a general meeting of the company may resolve that an action shall be instituted. In Foss v Harbottle (1843) an action was brought by two shareholders in a company on behalf

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of themselves and all other shareholders except the defendants who were the directors and promoters of the company to which they had sold the company at an undisclosed profit. The action was dismissed because the shareholders were not the proper plaintiffs. The company itself was the proper plaintiff unless the act complained of was ultra vires. In the case of Edwards v Halliwell (1950) Jenkins L. J summarised the position in a very lucid manner and two of the propositions that he underlined bear repeating. These are:

1. The proper plaintiff in an action in respect of a wrong alleged to be done to the company is

prima facie the company itself.


2. Where the alleged wrong is a transaction which might be made binding on the company and on all its members by a simple majority of the members, no individual member of the company is allowed to maintain an action in respect of that matter because if the majority confirms the transaction, the question falls away or if the majority challenges the transaction, there is no valid reason why the company should not sue. In terms of the current law there are limitations which exist on the majority rule principle. In appropriate cases (where justice so demands) the courts will depart from the majority rule principle. There is no room for the operation of the rule if the alleged wrong is ultra vires the memorandum or articles of association of the company. This clearly seems to be the intention of the legislature despite the existence of s.10 of the Companies Act which modifies the operation of the ultra vires rule in Zimbabwe. Section 10(2)(a) entitles a member to bring proceedings to restrain the company from making or entering into any transaction which exceeds its objects.

There is also no room for the operation of the rule if the transactions complained of could be validly done or sanctioned only by a special resolution or the like because a simple majority cannot confirm a transaction which requires the concurrence of a greater majority. There are many sections of the Act that require prescribed majorities, not a mere simple majority (For example ss.20, 25, 75, 78, 242 etc). In certain cases, the authority of the courts is also required. For example s.91 which relates to variation of rights attaching to shares and s.92 which makes reduction of share capital subject to both confirmation by the court and a special resolution. One of the most important common law exceptions to the majority rule principle applies where what has been done amounts to fraud and the wrongdoers themselves are the controlling majority. In that case the rule is relaxed in favour of the aggrieved minority who are allowed to bring a minority shareholders action on behalf of themselves and all others. The practical reason for this is that if they were denied that right, their grievance would never reach the courts because the wrongoers themselves, being in control, would not allow the company to sue. In Burland v Earle (1902) the court made the following observation (in part)

. . . where the persons against whom the relief is sought themselves hold and control the

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majority of the shares in the company and will not permit an action to be brought in the name of the company, in that case the courts will allow the shareholders complaining to bring an action in their own names . . .

One of the principal exceptions to the rule in Foss v Harbottle is that the principle of majority control does not apply when there is fraud by a controlling majority. The most common type of this case involves members of the company who are in a majority depriving the company of its own property for their personal gain and then using their votes to prevent the company from taking any action against them. In such a situation the minority of the company who are not involved in the fraud are allowed to bring proceedings on behalf of the company. To succeed in an action that is based on the fraud of a controlling majority the aggrieved minority would have to establish

the following points: (i) that the property that belongs to the company had been taken away from it by the defendants (ii) that the defendants are the controlling majority. In Cooks v Deeks (1916) the defendants were the controlling shareholders and directors of the company. They had negotiated the contact on behalf of the company and then made it for themselves and passed a resolution to the effect that it belonged to them. It was held by the court that in law the contract belonged to the company and that in the circumstances of the case the minority could sue on behalf of the company.

Overtraining a majority resolution


In cases like this, the law was clearly stated in Cooks v Deeks 1916 by the Privy Council. This is a case where the plaintiff, on behalf of himself and other minority shareholders, sued the directors of the company. The plaintiff claimed a declaration that the respondents were trustees of the company of the benefit of a contract made between the respondents and another company for construction work. It appeared that the respondents, while acting on behalf of the company in negotiating the contract, actually made it for themselves and not for the company. By their votes as holders of three quarters of the issued share capital, they subsequently passed a resolution at a general

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meeting declaring that the company had no interest in the contract. The court held that the contract belonged, in equity, to the company, and the directors could not validly use their voting powers to vest the contract in themselves, in fraud of the minority. The court went on to say that in cases of breach of duty of this sort, the rule in Foss v Harbottle (supra) did not bar the plaintiff s claim.

Capacity of members
The debate surrounding the effect of s.27 of the Companies Act. This section states that the memorandum and articles shall, when registered, bind the company and the members as though signed by each member and contained undertakings on the part of each member to observe all the provisions of the memorandum and the articles.

The effects of this provision, it has been suggested, are as follows: (i) the company is bound to the members in their capacity as members; (ii) the members in their capacity as members are bound to the company; (iii) the members are contractually bound to each other.

Nevertheless, the principle which was established in Eley v Positive Life Ass. Co. Ltd 1875 and followed by our courts in Miller v Miller 1963 is that the articles are not a contract between the company and any other person in a capacity other than that of a member. In this case the articles provided that Eley should be the company solicitor for life. He was employed by the company but later the company dismissed him from his employment. He sued the company for breach of contract.

His action failed because the court said that the articles on which he relied were not a contract between the company and any other person, except in respect of their membership rights and Eley had not sued as a member.

Take- off bids


The offer, in a take-over bid, is generally treated as prima facie a fair one. The burden of showing otherwise is on the dissentient who seeks relief. In discharging it he must show unfairness to the shareholders as a body, so that while the market price of the shares is a relevant factor, the personal circumstances of the dissentient are not: Re F Grierson Oldham

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and Adams 1968 Ch. 17 and Sammel v President Brand Gold Mining Co Ltd 1969.

Where, however, the offer is in reality being made by the same majority shareholders who have accepted it, the burden of proof is reversed and it is up to the offeror to show that the scheme is fair. This is a perfect example of what is meant by lifting the veil of incorporation and the facts of Re Bugle Press, Ltd 1961 and Sammels case above are interesting in this connection.

Majority status
A minority shareholder is one who controls 25% of the issued share capital of the company whereas majority shareholders among them control 75% of the shares. As a shareholder Jeremiah enjoys a numbers of rights and privileges and some of them are: (i) the right to be included on the register of members; (ii) the right to receive notices of meetings, to attend meetings and to be represented by proxy if the articles so permit; (iii) the right to vote at meetings; (iv) the right to receive a dividend if one is declared; (v) the limited right to sue for a wrong done to the company and finally (vi) the right to resist oppression.

It is the last two rights which fall under the ambit of the rule in Foss v Harbottle. The general principle of majority control as espoused in Foss v Harbottle is that where a wrong is done to the company, for example by its directors failing to fulfil their duties, it is the company alone through its majority that can sue for the injury inflicted. Thus the proper plaintiff is the company itself and individual members cannot sue. The court will not interfere with the internal machinery of the company which is under majority control and the internal affairs or management of the company are for the majority to decide.

Among the many exceptions of the rule, where there is fraud on a minority and the wrongdoers are themselves in control of the company the Foss v Harbottle rule is relaxed in favour of the aggrieved minority who are allowed to bring what is known as a minority shareholder.s action on behalf of themselves and all the others in their situation. It is a matter of justice and equity in that if they were denied that right, their grievance could never reach the court because the wrongdoers themselves being in control would not allow the company to sue. As was said by the court in Burland v Earle (1902)

.It is an elementary principle of law to . . . companies that the court will not interfere with the

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internal management of the companies acting within their powers . . . But an exception is made where the persons against whom the relief is sought themselves hold and control the majority of the shares in the company and will not permit an action to be brought in the name of the company. In that case the courts allow the shareholders complaining to bring an action in their names..

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2007

Corporate and Business Law- F4 (Zimbabwe)


Casebook

Agents
(a) Broker A broker is an agent appointed by either the buyer or the seller to negotiate a contract of sale on his/her behalf. His ordinary function is to negotiate the terms of the contract until the parties thereto reach consensus. The true contract is concluded by the buyer and the seller. Duties It was said in Benoni Produce and Coal Co v Gundelfinger 1918 that a broker is a middleman or intermediary whose office it is to negotiate between two parties until they are ad idem as regards the terms upon which they are prepared to buy and sell. Generally a person who is described in the contract as a broker is normally taken to be the agent of both parties, Glass v

Hendrie & Co (Pvt) Ltd 1957. This means a deposit against the purchase price paid to him by
the buyer does not immediately vest in the seller and cannot be set off by the broker against a debt owed to him by the seller. Of course, his capacity as an agent of both parties cannot be pushed to extremes, as it cannot be presumed that he has the power to bind both parties to the contract. Section 17 of the Stamp Duties Act (Chap. 23:09) requires every broker or agent for sale or purchase to transmit to his principal (or principals), within twenty-four (24) hours of effecting a sale or purchase, a brokers note specifying the property bought or sold and the price. Unless it is duly stamped no claim for brokerage, commission or agency can be legally made.

(b) Auctioneer Is an agent whose business it is to sell by public auction property entrusted to him (by the seller) be it movable or immovable. Duties An auctioneer is an agent of a seller with implied authority to fix the terms of sale according to

Financial Training Company

the usage of the place where he sells. His duty is to sell for cash unless he is specifically authorised to sell on credit or to accept cheques in payments. He must be licensed under the Shop Licenses Act (Chap. 14:17) in respect of any fixed place of business although no licence is required for an auction on premises which are not owned or leased by the auctioneer

(c) Del credere agents A del credere agent is an agent authorised to sell goods on behalf of a principal and who guarantees the payment of the purchase price by the purchaser. In return for this guarantee, the agent receives additional commission known as a del credere commission.

Duties An estate agent is sometimes said not to be an agent at all as he does not conclude a contract on behalf of his principal and does not undertake a mandate. He is, however, treated as an agent for some purposes. His duties are to receive instructions from a prospective seller of immovable property and then find a prospective buyer, whom he introduces to the seller. If the buyer and seller reach agreement the sale will not have been effected by the estate agent within the meaning of the Stamp Duties Act. Thus no brokers note needs to be issued and stamp duty need not be paid in the circumstances.

Once an estate agent has received instructions he is not obliged, in the absence of some special agreement, to do any more. However, if he does act he is under the same fiduciary duty as any other agent to promote only his principals interests, Fox and Carney (Pvt) Ltd v Dilworth 1974. An estate agents instructions frequently authorise him to accept from the buyer a deposit against the purchase price.

In the ordinary way, this deposit comes into the estate agents hands in his capacity as the sellers agent and therefore immediately vests in the seller, Zuvaradoka v Frank 1980. If the estate agent is acting as an intermediary or channel of communication between buyer and seller, the communication of the acceptance of an offer to him does not conclude the contract. The Estate Agents Act (Chap. 27:05) regulates the practice of estate agency in order to maintain a high standard of integrity for the protection of the public. For example, s.50 of it forbids any one to practice or describe himself as an estate agent unless he is registered as such.

(d) Negotiorum gestor Our law recognizes the existence of a negotiorum gestor who undertakes the business of another person without the express or implied authority of that person but at the same time,

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without their prohibition either. He is an agent of necessity. For example, As neighbour B is away on holiday and Bs house is flooded by heavy rains, A then takes it upon himself to drain the water from the house in order to save Bs furniture. A is regarded as a negotiorum gestor and the law gives him the right to recover from the principal all the necessary and useful expenses incurred provided his actions are reasonable. However, the negotiorum gestor is not entitled to a commission or remuneration for his services. (Khug and Khug v Penkin 1932). Notwithstanding that a negotiorum gestor is a voluntary agent, he is still delictually liable for any loss arising from his negligence. He must act in good faith and solely to protect the property of the principal. (Lawrie v Union Government 1930).

Contents of the contract of agency


Agency involves a contract whereby one person (the agent) is authorized and usually required by another (the principal) to contract or to negotiate a contract on the latters behalf with a third person. The essential characteristics inherent to the contract of agency are the following: (i) one person acts on behalf of another (ii) this act on behalf of the other is a juristic act (iii) the act is authorized (iv) the action results in a legal tie between the two parties, one of which was not involved in the original action. The major duties of an agent are to (i) perform his mandate according to the instructions of the principal (ii) act honestly and in good faith (iii) display care, skill and diligence and (iv) account to his principal. Agency being a form of service it is clear that agents are bound to do what they have been instructed to do and one of the primary obligations of an agent is to act in terms of the mandate given by the principal. An agent who does not do what he has undertaken to do is not entitled to claim remuneration. (National Screenprint (Pvt) Ltd v Campbell (1979)) and Esse Financial Services v Cramer (1973).

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In a well-known Zimbabwean case, Umtali Farmers Co-op v Sunnyside Coffee Estates (1971) the court reiterated the point that when performing the principals mandate, the agent is enjoined to act within the scope of the instructions. The principal has the right to sue the agent for breach of contract if the agent fails to perform his mandate. When performing his mandate an agent must exercise care and diligence. As a result of the nature of representation it is quite clear that it is an agents duty to perform his mandate fully. Should he fail to do so he forfeits his commission and becomes liable in delict (Le Clus (Pvt) Ltd v Kearney 1946). Thus in the case of S v Heller (1971) the court made the interesting observation that the principal bargains . . . for the exercise of disinterested skill, diligence and zeal of the agent . . . Concerning the standard of care required, the basic rule is stated by Milne J in Blooms

Woollens (Pvt) Ltd v Taylor (1961). In the course of time the law has implied into every contract
of agency an undertaking by the agent that he will act with the care and diligence of the ordinary prudent man when he engages upon his principals business.

Duties of an agent

In terms of Roman-Dutch common law the agent owes the principal a number of obligations and duties. He is obliged to fulfil all obligations which he expressly or impliedly undertook to fulfil. In the main, the primary obligations of an agent are the following:

(a) to execute the mandate. Agency being a form of service it is trite that agents are bound to do what they have been instructed to do, should he fail to perform the mandate, he would be in breach of contract and the principal enjoys the normal remedies for breach of contract. In addition, an agent who does not do what he has undertaken to do is not entitled to claim remuneration. However, it must be noted that if the principal claims damages, these must be proved in the ordinary way. It is not sufficient merely to prove the terms of the mandate and the amount received but also to prove the value of the goods sold (that is if the service is improperly rendered) (Umtali Farmers Co-op v

Sunnyside Coffee Estates (Pvt) Ltd (1972)). When executing the mandate, the agent must
confine himself to the parameters given by the Principal in his instructions. If for example, the

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agent exceeds the principals instructions the latter may disavow and repudiate the contract.

(b) To exercise due care, skill, attention and diligence According to ancient legal luminaries, such as Van Leeuwen, a mandatory (agent) was bound to prosecute the mandate which he had undertaken with diligence and in good faith. Equally, Pothier has this to say:

the mandator has the right to demand of the mandatory not only his good faith, but also all the care and skill required in the execution of the mandate . . .
In contemporary times the law is still more or less the same as it used to be in the olden days referred to by Van Leeuwen and Pothier. In S v Heller (1971) the court observed that the principal bargains for the exercise of the disinterested skill, diligence and zeal of the agent . . . An agent will act with the necessary care and diligence if he exercises his duties with reasonable caution. The degree of care, skill and diligence required of him will depend on the nature of the transactions in which the agent is involved. If the transaction requires a high degree of care and skill, the test to determine whether he acted with the necessary care and skill would be more stringent as was observed by Milne J in Bloom Wollen (Pvt) Ltd v Taylor (1961).

In the course of time the law has implied into every contract of agency an undertaking by the agent that he will act with the care and diligence of the ordinary prudent man when he engages upon his principals business . . .
An agent who fails to exercise the degree of care and diligence required of him by his contract is in breach of contract. His principal has the normal remedies for breach which in appropriate circumstances include forfeiture of remuneration, Esse Financial Services v Cramar (1973). It is not the law that a person is required to have skills that he does not possess, but that if he does not have the requisite skill he should not, in the absence of agreement exculpating him undertake a task which requires that skill. (Mead v Clarke (1992)).

(c) To impart information An agent is bound to give the Principal all the information which a reasonable man in his (the agents) position would be expected to give. (Town Council of Barberton v Ocean Accident and Guarantee Corporation Ltd (1945)). The second American Restatement of the law on agency very much reflects the Roman-Dutch position on the subject and it reads as follows:

An agent who is appointed to sell property at a fixed price to a particular person may learn that another person is willing to pay a higher price. Unless he has reason to believe that his employer desires to sell at a fixed price to the particular person . . . it is his duty to inform the principal of the facts if this can be done without violating a confidence . . .

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If a principal employs a skilled agent particularly one who has skills which the principal lacks the agent is bound to advise the principal of the probable consequences of a course of action which he, the principal proposes to follow: (Union Government v Chappel (1918)). (d) The Duty to Account An agent is liable to account for all his activities falling within the ambit of the mandate to the principal. The agent must at all times give his principal full and accurate information of what he has done in the execution of his mandate. This involves the agent in keeping the principals property separate, in keeping up-todate and allowing the inspection of his books in giving information when necessary and when the transaction is complete, in rendering an account and handing over any balance in his hands plus anything to which the principal is entitled. As per observation of the court in Pretorios v Van Beeck (1926) it is the duty of the agent where the business in which he is employed admits of it or requires it, to keep regular accounts of all his transactions on behalf of his principal, not only of his payments and disbursements but also of his receipts and to render such accounts to his principal at all reasonable times without any suppression, concealment or overcharge.

Equally in the case of Mead v Clarke (1922) the court made the apt observation that it was the plain duty of the agent once he accepted the mandate to perform his work in connection with the principals affairs in such a manner that the plaintiff at any time he demanded, could obtain a full and accurate statement that would enable him to ascertain with precision the exact dealings of the defendant with his affairs. On termination of the relationship of principal and agent, the latter is obliged to account, to pay over any balance remaining in his hands, and to hand over any property which he acquired either from the Principal or from third persons for the purposes of or in pursuance of the agency. Documents which belong to the Principal are also covered by this rule.

(e) The duty to Act in Good Faith The duty to exhibit utmost good faith is arguably one of the most important and exacting duties owed by an agent towards his principal. Agency creates a fiduciary relationship between agent and principal and he is enjoined by the law to conduct the affairs of his principal in the best interest of the principals and not for his own benefit. An agent holds a position of trust and confidence and the nature of fiduciary obligations has a number of ramifications. In a nutshell, an agent breaches the fiduciary relationship if he makes secret profits, if there is conflict of interest, if he abuses confidential information and if he

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delegates the authority granted to him without authorization. Secret Profits One of the major implications of an agents fiduciary obligations towards the principal is that he should avoid receiving secret benefits/rewards at the expense of the principal. In Levin v Levy (1917) the court said that:

the mere fact of an agent receiving and retaining a secret profit or commission arising out of and in connection with the performance of his duty constitutes unfaithfulness and dishonesty towards his principal . . .
In Gerry Bouwer Motors Ltd v Preller (1940), the Respondent was employed as a Salesman by the appellant company. His duty was to sell used cars and if a sale was on hire-purchase terms for over a certain sum the car was to be insured by the purchaser. On several occasions the respondent arranged the insurance with a certain company and received small money payments for which he did not account to the Principal. After reviewing the evidence the trial Judge said:

I do not think there is any doubt that the respondent was not entitled to receive the gift from Mordant, the Dominion Companys representative and that it was the acceptance of a secret profit or commission arising out of and in connection with the performance of his duty . . .
In Roman-Dutch law as is the case with several other jurisdictions, a director must never place himself in a position where his own interests clash with those of the company and he must never take an improper advantage of his position by acquiring for himself assets or opportunities that rightly belong to his company. In the well known case of Robinson v Randfontein Estates Gold Mining Company (1921) Chief Justice Innes stated that:

where one man stands to another in a position of confidence involving a duty to protect the interest of the other, he is not allowed to make a secret profit at the others expense or place himself in a position where his interests conflict with his duty . . .
Whenever an agent has arranged to make or has made a secret profit the principal has a number of remedies available. He may terminate the relationship of principal and agent. He may also claim the profit which the agent arranged to make or made. At the same time he forfeits any commission on the transaction in connection with which he acted improperly. Equally, no agent may place himself in any position where his interest and his duty may conflict. By way of practical examples an agent employed to sell cannot legally purchase the property entrusted to him for sale and his principal, on discovery of the fact is entitled to repudiate the sale. (Transvaal Cold Storage Co v Palmer (1904)).

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Duties of the principal


On his part, the Principal owes the agent the following legal obligations: 1. The Principal must pay the agent his proper remuneration or commission. The agent is entitled to remuneration as a rule if he has completed the whole mandate or where the agent has substantially performed the mandate.

Levy v Phillips (1915)


2. The Principal must refund to the agent all the expenses reasonably and properly incurred by the agent in carrying out the mandate. 3. To idemnify the agent for all losses he has suffered as a result of performing the mandate. However an agent has no right to indemnity if the losses have been incurred improperly or outside the scope of the mandate. With respect to the relief that is available in the event of breach of contract, either party has a right to sue for the usual remedies for breach of contract such as specific performance, damages, cancellation and interdict. In appropriate cases the aggrieved party, he the Principal or the agent can bring an action against the other party based in delict.

The authority given to the agent

In commercial law an agent is a person who is appointed by his principal in entering into contractual relationships which are binding between the principal and the third party. The law of agency is basically concerned with the relationship between the principal and the agent and that between the principal and the third party. The main objective in appointing an agent is the performance of a service for the benefit of a principal in circumstances where the principal finds it impossible, difficult, inconvenient or fascinating to do the service himself. The relationship between the principal and the agent defines the duties and obligations of the parties. The agents authority is also found in the principalagent relationship between the parties. The authority given to the agent by the principal to represent him is the essence of commercial agency. This authority may be express or implied by law on the facts or may be by estoppel or necessity. Agency of Necessity This type of agency is discerned from the nature of circumstances or situation. An example of this type of agency is Negotiorum Gestio. A Negotiorum Gestor is a person who takes the business of another without the authority of the latter and in the latters absence. Strictly

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speaking, a Negotiorum Gestor has no authority express or implied to represent the principal and can therefore not create obligations between the principal and a third party. Surely, in this scenario there is no proper agentprincipal relationship. The Negotiorum Gestor uses his own resources for the benefit of the principal without his sanction. However he retains a right of action to recover the necessary and useful expenses incurred by him in running the business of the principal. The onus is on him to show that the expenses so incurred were reasonable in the circumstances i.e. were utiliser coeptum. Unlike, a proper agent, a Negotiorum Gestor is not entitled to any remuneration for his services save his necessary and useful expenses. But though not entitled to remuneration, he is still delictually liable, if he causes loss to the principal by negligence in his voluntary administration. Therefore it is true that in this form of agency, clearly, there will be no proper agentprincipal relationship. Agency by Estoppel Apparent or Ostensible Authority This type of agency exists where a third party holds the principal liable on contracts entered into by a third party and the ostensible agent of the principal if the principals conduct is such that it amounts to a representation that the ostensible agent had authority from the principal, and that the third party has been induced to contract with the ostensible agent on the strength of such conduct. Under this particular situation there is no actual authority conferred on the ostensible agent by the Principal. The Principal is simply estopped from denying that the ostensible agent has no authority. This is called agency by estoppel.

The principle of agency by estoppel was clearly enunciated in the celebrated South African case of Monsali v Smith (1929). In that case it was held that a person who seeks to set up agency by estoppel must establish that: (i) There was a representation by the principal. (ii) The representation was of such a nature that it could reasonably have been expected to mislead him. (iii) He acted on the faith of the representation. (iv) He was prejudiced by relying on the representation. It is very clear from the decision of Mansali v Smith (supra) that apparent or ostensible authority only becomes relevant where there is no express authority. This same principle of law was adopted with approval by the Zimbabwean Supreme Court in the case of Gwafa v SEDCO (1999).

Therefore the argument that in agency by way of apparent authority or estoppel there is no proper relationship of agency and principal is quite sustainable. Surely, there is no proper authority given on the ostensible agent. Unless the third party fully satisfies the conditions (i)

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(iv) listed in the case of Monsali v Smith (supra), an agentprincipal relationship cannot be established and sustained. This appears a protection afforded as a remedy to third parties who entered into a contractual relationship under the representation of an ostensible agent.

Ratification This occurs where the principal affirms or ratifies acts of an agent performed professedly for the principal. The net effect of ratification is to legitimise or clothe the act with authority so that the position is the same as if the act had been originally authorised. The case of Flood v Taylor (1978) clearly bears testimony. However for ratification to be possible the following conditions have to be satisfied. (i) The agent making the contract must profess at the time of making it to be acting on behalf of the principal. (ii) The professed principal must be named and ascertained and the act must have been done in his name. (iii) The act itself must be legal. (iv) The principal must have been in existence at the time of the transaction. However item (iv) seems to be directly in conflict and contrary to the principle of preincorporation contracts before the incorporation of companies. This discrepancy was solved by s.47 of the Companies Act [Chapter 24:03], which makes ratification of pre-incorporation contracts which were entered by an agent or trustee of a company not yet incorporated or registered to be possible. Ratification may be express or implied. It would be implied if the principal so conducts himself that a reasonable man would believe that he was ratifying the acts of the professed agency. See the case of Dreyer v Sonop (1951). Ratification must take place within a reasonable time of the unauthorised act, otherwise it ceases to have effect and force. The effect of ratification is to give a legal basis which hitherto had not been available. This amounts to conferring ex-post

facto authority on the agent. While under English Law the principal must be in existence for
ratification to be valid, under Roman-Dutch Law, it is possible for a person to contract for the benefit of a third party not in existence. Thus a person may validly contract on behalf of a company to be formed in as much as a parent can open a bank account for an unborn child.

Ostensible authority and negotiorum gestor

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Ostensible Authority Apparent or ostensible authority applies where no authority in fact exists but the conduct of one person prevents or .estops. him from denying that some other person is his agent. Where one person by words or conduct which could reasonably be expected to mislead another person does in fact mislead him into believing that a third person has authority to act for him, then if the second person enters to his prejudice into a transaction with the third, the first person is bound by the transaction. Pleading ostensible authority is merely to prevent (through estoppel) the principal from denying that there was an agency relationship. For example, if A on a number of occasions allows B to receive money for him from C, then if on a subsequent occasion B again receives the money from C but fails to pay it over to A, A cannot claim the amount from C, for A is deemed to have been duly paid since he is estopped from denying that the money was paid to his agent (Monzali v Smith 1929)

Negotiorum gestor Our law recognizes the existence of a negotiorum gestor who undertakes the business of another person without the express or implied authority of that person but at the same time, without their prohibition either. He is an agent of necessity. For example, A.s neighbour B is away on holiday and B.s house is flooded by heavy rains A then takes it upon himself to drain the water from the house in order to save B.s furniture. A is regarded as a negotiorum gestor and the law gives him the right to recover from the principal all the necessary and useful expenses incurred provided his actions are reasonable. However, the negotiorum gestor is not entitled to a comission or remuneration for his services. (Khug and Khug v Penkin 1932)

Representations of an agent

The leading case authority on this matter is Mine Consultants and Supply Co v Borrowdale

Motors (Pty) Ltd (1990) which bears similar facts to those stated in this problem question.
In Wolpert v Uitzigt Properties (Pty) Ltd and Others (1961), Claasen J said that a party deals with or contracts with a company through the following apparent agents (i) the board of directors (ii) the managing director or chairman or any other person as an ordinary manager, secretary or a committee of directors who have express or implied authority. The fourth instance is where any of the above three have no authority but the company is estopped from denying such authority.

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Such estoppel would operate where the official acting for the company had represented himself as having authority from the company: Mine Consultants & Supply Company v Borrowdale

Motors (Pty) Ltd (1990).


In the above case, a representation by a sales representative that she was a sales manager for her principal, was held to be insufficient to hold the principal liable in contract for repairs authorised by an agent purporting to bind the principal. It was further held that the only authority that the sales manager could wield was that the appellant was issued with calling cards describing him as a sales manager. This, however, did not suffice to prove implied or ostensible authority following a finding that there was no express authority.

In the language of the law of agency, ostensible and apparent authority are synonymous and ostensible authority is sometimes said to be created by the principal holding out the agent as having authority, see Henney v Anneskey (1960).

Apparent authority flows from the capacity in which the agent is employed and ostensible authority is where the principal holds out by particular words or actions the agent as having authority as per Bristow v Lycett (1971). In this situation, because of the extent to which the principal held out the agent as having authority, especially the description of the calling cards and the previous correspondences between Dumatau and Avonlea Motors (Pty) Ltd, holding out Rodrick as a sales director should be deemed to be sufficient to warrant a presumption that Rodrick had either apparent or ostensible authority to order the repairs.

Thus, on an inquiry of facts, this case must be distinguished from the absence of ostensible or apparent authority in Mine Consultants and Supply Company v Borrowdale Motors (Pty) Ltd (supra). The second inquiry for ostensible authority to arise is that, the party in this case, Avonlea Motors (Pty) Ltd should have relied on such representations. This representation refers only to the nature of the principals representation. The representation has to have come to the attention of the third party and has to have been acted upon by him and the third party must be unaware of the agents lack of actual authority. See Baldchins Trustees v Solomon & Solomon (1944).

Ostensible authority may also arise from the capacity in which the agent is employed, see

Cripps v Collins (1937). In the case of Seniors Service (Pty) Ltd v Nyoni (1986), where an estate
agents negotiator possessed business cards and was named in the newspaper advertisements as a person to be contacted was held to have ostensible authority to receive deposits from purchasers.

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The third requirement for ostensible authority is that the party alters its position by reason of such reliance, see Monzali v Smith, supra or that the third party has acted on the representation to his prejudice. In Tuckers Land and Development Co-operation v Perpellief 1978 (2) SA (T) it was stated in

obiter that implied authority exists when the official acting on behalf of the company purports
to exercise an authority which that official usually has even though the official is exceeding his actual authority. In this case, the question was whether Immelman as a farm manager had general or implied authority to purchase on credit. The inquiry was whether, on a balance of probabilities, what the farmer did was incidental, usual or customary in his ordinary duties as a farm manager.

Even, supposing that there was no express, apparent or ostensible authority, Dumatau Estate Agency (Pvt) Ltd can still be estopped from denying such authority. See Wolpert v Uiztig

Properties (Pty) Ltd and Others (1961). Again it should be noted that the company gave more
than a mere calling card representing Rodrick as sales director in earlier correspondences, settled claims from Avonlea Motors (Pty) Ltd on repairs made on Rodricks vehicle in his capacity as sales director.

Ratification Ratification is the adoption by a principal of an act done professedly on his behalf, either by a person who was not his agent at the time or by a person who although his agents did not at the time, have authority to do the particular act. It can therefore be used either to create a contract of agency or to confer authority on an existing agent and also to validate, both between the principal and the agent. Flood v Taylor (1978).

In accordance with the well-established principle that a person cannot both approbate and reprobate or a person who purports to ratify only that part of a complex act that he wishes to take, the benefit will be taken to have ratified the whole act. See Theron v Neon (1928).

Ratification need not be express but may be implied, even from mere acquiescence as was the case in Barratt v Thame Mine Ltd (1944) where a company failed to repudiated a contract entered into on its behalf, or as occurred in Cripps v Collins (1937) where a principal endorsed and banked a cheque cashed without authority by an agent.

Similarly in Ottawa Rhodesia (Pty) Ltd v Burger (1974), ratification was implied from reliance on the unauthorised act in the acceptance of the benefit of the transaction. The effect of ratification is to put all parties in the position they would have been had the act been properly authorised

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before it was performed.

Uberrimae fides

The concept of uberrimae fides (utmost good faith) applies to a number of legal relationships like insurance and agency. In insurance law the insured has a duty to disclose all material facts of which he might be aware before the conclusion of the contract. If the insured does not comply with this duty the contract will be voidable at the instance of the insurer and the insurer can repudiate the contract, not only if the insured makes a positive misrepresentation, but also if the insured does not disclose a material fact.

One of the major duties of the agent towards the principal is to exhibit utmost good faith in the performance of his duties. He must avoid a situation of conflict of interest in the performance of his mandate. The agent also must refrain from making a secret benefit or profit at the expense of the principal who has the right to sue for breach of contract and where appropriate, to bring an action in delict. Cases like Robinson v Randfontein Estates Gold Mining Company (1921) and Fox and Carney v Dilworth (1974) are very instructive and useful on this point.

Breaching the contract of agency


The relationship between principal and agent is connected to their various duties and is based on the utmost good faith. It is trite law of agency that the agent is obliged to fulfill all obligations which he expressly or impliedly undertook to fulfill. The duties of an agent can be summarised as follows: (i) to perform the mandate according to the instructions of the principal; (ii) to act honestly and in good faith; (iii) to display skill, care and diligence; and (iv) to account to the principal. (i) Agency being a service, agents are bound to do what they have been instructed to do. The case of Blooms Woollens (Pty) Ltd v Taylor (1962) is in point. Should an agent fail to perform, he forfeits his remuneration i.e his commission and is consequently liable to delictual claims. Le Clus Pty Ltd v Kearney (1946). (ii) The duty of honesty and good faith underpins the fiduciary relationship between the agent

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and the principal. This is one of the most fundamental duties of an agent in the law of agency.

An agent breaches the fiduciary relationship if he makes secret profit, if there is conflict of interest, if there is abuse of confidential information and if he delegates the authority granted to him without authorisation. (1) Secret Profits The general rule is that an agent may not acquire and retain any secret profits as a result of actions within the scope of his agency. It is also a basic principle that the principal is entitled to the benefit of the care and skills which the agent undertook to use on his behalf. See Robinson v Randfontein Estates Gold Mining Co Ltd (1921). When the agent has made secret profits the principals remedies may include termination of the relationship. Gerry

Bouwer Motors (Pty) Ltd v Preller (1940). However, if the principal decides to keep the
relationship, he may claim profits the agent arranged to make or made. The principal may as well claim damages either in contract or in delict. Transvaal Cold Storage Company v Palmer (1904). Stainer & Ors v Palmer Pilgrime (1982). The principal may forfeit commission. See

National Screenprint Pty Ltd v The Campell-Scott Company (Pty) Ltd (1979).
(2) Conflict of Interest An agent should not place himself in any position where his interests are in conflict with those of his principal. Interests may be personal or financial. Transvaal Cold Storage Company Ltd (supra). It is often quoted from this case as follows: An agent, employed to sell cannot legally purchase the property entrusted to him for sale . . . and his principal on discovery of the fact, is entitled to repudiate the sale. That is a settled rule which is quite independent of fraud or of fact that the agent has gained an advantage by the transaction. Nor does it make any difference whether the agent is the sole purchaser or is jointly interested with others in the purchase.

(3) The duty to avoid making secret profits interfaces with the duty not to abuse or disclose confidential information. See Jones v East Rand Extension Gold Mining Co Ltd (1903). Bristow J from this case said: The principle is that an agent (including a servant) cannot make a secret profit out of anything including information which can be used for the purposes of the principals business which belongs to his principal and

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which the agent possesses merely in a fiduciary capacity. (iii) Duty to Display Care, Skill and Diligence An agent will act with the necessary care and diligence if he exercises his duties with reasonable caution. The degree of care, skill and diligence required, will depend on the nature of the transactions in which the agent is involved. Concerning the standard of care required, the basic residual rule is stated by Milne J in Blooms

Woolens (Pty) Ltd v Taylor (1961) in the course of time the law has implied into every contract of agency on
undertaking by the agent, that he will act with the care and diligence of the ordinary prudent man when he engages upon his principals business.

(iv) Duty to Account An agent must at all times give his principal full and accurate information of what he has done in the execution of his mandate. Martin v Scorgie (1950). In Stainer and Ors v Palmer-Pilgrim (1982) De Wet J said: At all material times defendant, in his representative capacity in relation to the negotiation . . . owed the plaintiff the utmost good faith, occupied a position of trust and confidence towards plaintiffs, stood in a fiduciary relationship . . . was under a duty to disclose to plaintiff all material facts which he knew and was obliged to deal with plaintiff fairly and honestly . . . If the agent fails to account to the principal, and suffers loss, the principal can sue him for delictual loss, fraud or alternatively damages in breach of contract see Stainer & Ors (supra). All in all the principal and agent relationship encompasses a number of duties and rights on either side and in the event of breach of those duties by the one party the aggrieved party is entitled to sue in terms of the specific provisions of the agreement of agency or where there is none, in terns of the common law.

Termination of contract of agency


Agency is a contract whereby one person, the agent concludes a juristic act for and on behalf of another who is called the principal with the result that a legal tie arises between the principal and a third party. The activities of an agent are thus concerned with the formation, variation or termination of

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contractual obligations. The essential characteristics of a contract of agency are as follows: (a) one person acts on behalf of another (b) this act on behalf of another person is a juristic act (c) the act is authorised (d) the act results in a legal tie between two parties one of which was not involved in the original action. There are various ways through which the authority of an agent can be established, namely by means of agreement, by operation of law, estoppel and ratification. Although the juristic act is concluded between the agent and a third party, the legal bond exists between the principal and the third party. The agent does not acquire any rights or duties (except in very limited cases) and the rights and duties exist between the principal and the third party.

Agency can be terminated in a variety of ways and some of them are as follows: (a) Performance of the transaction authorised. If for example the agent was given a mandate to find a specific property for the principal the relationship is terminated when both sides have fulfilled all their obligations. The Castle Wine and Brandy Company Ltd v Morris (1931) (b) Expiry of fixed time Where the contract of agency is to run for a set time, for example one year, the agency comes to an end when the time is up. However it is possible that the parties could expressly or impliedly renew the contract before it expires. An example of implied renewal is to be found in the case of Fiat SA v Kolbe Motors (1975) in which Fiat SA appointed Kolbe Motors in writing as its agent. The agreement in terms of which Kolbe was authorised to sell Fiats products (mostly motor vehicles and spares) was for one year but was renewed annually, until the end of 1972 at which time it was not renewed. The contract stipulated that it would cease to exist if it was not renewed in writing. During 1973 Fiat proceeded to supply its product to Kolbe and Kolbe continued to sell it. At the end of 1973 Fiat unilaterally terminated the contract. Kolbe claimed that it was entitled to 1 years notice of termination as was stipulated in the contract of agency. Fiat disputed this based on the fact that the contract was not renewed at the end of 1972. The court ruled that the parties entered into a tacit agreement and that one could conclude that they included the provisions of the original contract in the tacitly concluded new contract (c) Death of the principal or his insanity or insolvency. Pheasant v Warne (1922) (d) Death of the agent or his insanity. The death of the contracting party does not normally terminate a contract. The rights and obligations pass to the deceased estate which is represented by the executor, on the other hand, contracts of a personal nature such as marriage, agency or employment are however terminated by death. Ward v Barrett (1962) (e) Revocation by the principal. Save for a few exceptions the principal may summarily revoke

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his agents authority to perform a juristic act on his behalf provided that the act in question has not already been performed. For example if A employs B to find a suitable purchaser to buy his house and authorises B to sell the house on his behalf. A may change his mind and revoke the authority granted to B and B cannot thereafter bind A to a sale of the house. Of course, if A (the principal) has bound himself by contract not to revoke the authority but nevertheless does so, he will be liable in damages for breach of contract. Ward v Barrett (1962) (f) Renunciation by the agent. The agent may at any time but on just grounds renounce his authority. In the absence of such just grounds the agent will be liable in damages, to the principal. (g) Supervening impossibility of performance. This refers to a situation whose performance was possible at the conclusion of the agreement but subsequently became impossible. The impossibility must be beyond the control of the parties due to vis major or casus fortuitous (an act of God or an inevitable accident). In Peters, Flamman and Co. Ltd v Kokstad Municipality (1919) The municipality had concluded a contract with the appellants in terms of which the latter were to supply electricity to the town for a number of years. Before this period had expired, the appellants were interned as enemies of the state and their business was wound up under the relevant legislation. The court decided that supervening impossibility had terminated the contract. As soon as performance of a contract has become impossible because of supervening impossibility the contract is terminated and the parties are freed of their obligations.

Further cases of termination


The aim of appointment of an agent is the performance of a service for the principal on the formation of a contract involving the agency function, each party is bound by the obligations which he has expressly or impliedly undertaken and by those which the law imposes upon him in the absence of such express or implied agreement. The contract of agency terminates in the following ways:

(i) Performance The relationship of principal and agent terminates when both parties have fulfilled all their obligations. Thus in the case of Martin v Currie (1921) Gregorowski J said the auctioneer was employed exclusively as an auctioneer to see whether he could get the reserve price by public auction; there was not a word or suggestion that he was to be a general agent to sell the property, and there was not a single circumstance to show the property was put into the hands of the auctioneer to sell out of hand and generally. His contract was strictly limited to putting his property up to public auction at a reserve price of 5 per Morgen or more, if there was such a

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bid at the auction, and the moment that the auction was concluded and the 5 reserve was reached, there was no further contractual relation of any kind existing between the auctioneer and the appellant.

(ii) Effluxion of Time When they enter into a contract of agency the parties may stipulate the period during which their relationship will exist. The end of the period may be defined by reference to a date of a specified year or to an event, e.g. when the principal returns from a journey. In the case of National Board

Pretoria (Pty) Ltd and Anor v Estate Swanepoel (1975) one of the questions for decision was
whether a general power of attorney granted by S to one B on 14 December 1959 was still in force on 21 February 1973. Botha JA said in the facts the evidence established on a balance of probabilities that the power of attorney was given to B for the limited purpose of acting for S during his absence overseas if the need should arise, and that it therefore lapsed on Ss return from overseas.

(iii) Agreement The relationship of principal and agent being based on agreement, may naturally terminate by agreement. (iv) Revocation of the Principal The general rule is that a principal is entitled to revoke the mandate and when notice of the revocation or the facts which allow it to be assumed is brought, or may be considered to have been brought, to the knowledge of the agent the contract is terminated.

(v) Renunciation by the Agent A mandate is dissolved by renunciation on the part of the agent and depending on the circumstances of the renunciation, the agent may be liable to the principal for breach of contract. (vi) Death of the Principal According to the old Roman-Dutch authorities such as Van Leevwen and Grotius, a mandate terminates when the agent learns of the principals death. The death of the principal terminates not only the original mandate but also any sub-mandate. However, there are exceptions to the above rule. Thus, if the parties clearly intend that the agency shall continue after death it will not terminate.

(vii) Death of the Agent If an agent dies before he begins to peform the mandate it terminates on his death. This was stated in the case of Ward v Barrett NO and Anor (1982). If performance has begun and the part which remains to be performed requires the exercise of discretion, the mandate terminates on the agents death. However, if the part which remains to be done does not require the

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exercise of discretion and is necessary in the circumstances the executor or heir of the agent is bound to complete the performance.

(viii) Insolvency of the Principal The principals insolvency terminates his agents power. This was aptly stated in the case of

Natal Bank Ltd v Matorp and Registrar of Deeds (1908).

(ix) Insolvency of the Agent The fact that the agent goes insolvent may affect the confidence the principal has in him. The established view is that an agents insolvency gives the principal grounds to revoke the granting of power if he so wishes.

(x) Mental Incapacity of the Principal or Agent The relationship of principal and agent terminates, if the principal becomes insane. This was stated in the case of Tuckers Fresh Meat Supply (Pty) Ltd v Echakowitz (1958). As in the case of death, it is on the date when the other party acquires knowledge of the changed circumstances that the relationship comes to an end.

(xi) Subjection of the Principal to Another The common law position is that if the principal is a woman and she subsequently marries subject to the marital power, the agency ceases when the agent learns of the fact. However, this traditional or common law position has now necessarily been amended by statute (The Legal Age of Majority Act). The Legal Age of Majority Act says that once a person attains 18 years of age they acquire locus standi in judicio and in the case of a woman they can contract in their own right and without reference to anyone else (including the husband, where they are married).

(xii) Supervening Impossibility of Performance If the performance of the principals mandate becomes impossible (either through an act of State or an act of God) subsequent to the conclusion of the contract of agency the parties are then discharged from their obligations. A typical example would be that of an act which was perfectly legal at the time of the conclusion of the contract but has since become illegal on account of subsequent legislation.

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