Answers

7
Fundamentals Level Skills Module, Paper F4 (BWA)
Corporate and Business Law (Botswana) December 2009 Answers
1 This question requires the candidates to discuss the various ways of classifying law.
(a) Common Law and Legislation
Common Law
This is the law that is laid down in the cases (case law).
Legislation
This is the law that is in the Acts of Parliament. Important examples are the Constitution, the Companies Act 2003, and the
Bills of Exchange Act (Cap 68:01).
(b) Public Law and Private Law
Public Law
This is the law involving the State. A very good example is criminal law. The State lays down the law prohibiting certain
omissions and actions. In case of a breach, the State prosecutes the accused. Thus a crime is a wrong against the entire
community. Accordingly, the State takes the responsibility of enforcing the law and punishing offenders. Most commercial
laws are also part of public law (e.g., company law and banking law). Other examples of public law include licensing law,
constitutional law and administrative law.
Private Law
Private law is concerned with matters arising between individuals within the community. A good example is family law: Matters
of marriage, divorce, and adoption are private law matters. Another good example is the law of delict. A delict is a wrong
committed by one individual against another mainly violating the rights of that other person. The injured individual brings an
action (as plaintiff) against the person who has committed the wrongful act (the defendant).
(c) Criminal Law and Civil Law
Criminal Law
Criminal law is a very common branch of the law. It is concerned with the denition and prosecution of crimes. Crimes are
dened mainly in the Acts of Parliament such as the Penal Code. When a crime is committed, the State brings the prosecution
against the offender. The police assist in the maintenance of law and order and in prosecuting offenders. The courts get
involved in determining whether the crime was actually committed and in imposing a sentence.
Civil Law
It is concerned with actions by an individual (the plaintiff) against another person (the defendant) to obtain compensation for
loss suffered (e.g. in the case of breach of contract) or to establish legal rights. A good example is the law of contract which
deals with the enforcement of legally binding obligations. Another good example is the law of delict. Other examples include
property law, commercial law and employment law.
(d) Substantive Law and Procedural Law
Substantive Law
This determines the law which governs a particular dispute.
Procedural Law
This states the procedure to be followed by litigants to have the dispute resolved in court. It will, for example, state which court
has jurisdiction and it will further indicate which documents, if any, have to be led. Criminal Procedure, Civil Procedure and
Evidence are part of the procedural law.
(e) Common Law and Equity
Common law was gradually established by the judges of the Kings Courts in England. These judges would go around the
country on circuit interpreting the customs of the people. Their judgments became the common law of England. However,
common law was too slow and the remedies were inadequate. The litigants complained to the King who appointed his
Chancellor to sit as a court to resolve the disputes. The Chancellor established faster procedure and better remedies (such as
specic performance and injunction). The law established by the Chancellor ensured justice and fairness and this new body
of law became known as equity. The principles of equity were eventually fused into the common law. Botswana received this
common law as part of its Roman-Dutch law.
(f) Municipal Law and International Law
Municipal Law
Municipal law is the internal law of a country. It is the substantive and procedural law that governs matters within a State.
These matters usually involve individuals.
International Law
This is the law that governs relations between nations. It comprises treaties, customary international law principles and
conventions.
8
2 This question requires candidates to establish the difference between express and implied terms in contracts.
(a) Express terms are statements actually made by one of the parties with the intention that they become part of the contract and
thus binding and enforceable through court action if necessary. It is this intention that distinguishes the contractual term from
the mere representation, which, although it may induce the contractual agreement, does not become a term of the contract.
Failure to comply with the former gives rise to an action for breach of contract, whilst failure to comply with the latter only gives
rise to an action for misrepresentation.
Such express statements may be made by word or in writing as long as they are sufciently clear for them to be enforceable.
Thus in Scammel v Ouston (1941). Ouston had ordered a van from the claimant on the understanding that the balance of
the purchase price was to be paid on hire purchase terms over two years. When Scammel failed to deliver the van Ouston
sued for breach of contract without success, the court holding that the supposed terms of the contract were too uncertain to be
enforceable. There was no doubt that Ouston wanted the van on hire purchase but his difculty was that Scammel operated
a range of hire purchase terms and the precise conditions of his proposed hire purchase agreement were never sufciently
determined.
Implied terms, however, are not actually stated or expressed included in the contract, but are introduced into the contract by
implication. In other words the exact meaning and thus the terms of the contract are inferred from its context.
(b) Implied terms can be divided into three types.
Terms implied by statute
In this instance a particular piece of legislation states that certain terms have to be taken as constituting part of an agreement,
even where the contractual agreement between the parties be itself silent as to that particular provision. Some statutes provide
that particular terms are to apply unless the contract in question specically states otherwise. As an example of this type of
implied term in the area of company law is First Schedule of the Companies Act 2003, which contains the model constitution,
the provisions of which apply unless they are specically excluded. If they are not excluded they apply, even if the actual articles
make no reference to the provision.
Terms implied by custom or usage
An agreement may be subject to terms that are customarily found in such contracts within a particular market, trade or locality.
Once again this is the case even where it is not actually specied by the parties. For example, in Hutton v Warren (1836), it
was held that customary usage permitted a farm tenant to claim an allowance for seed and labour on quitting his tenancy. It
should be noted, however, that custom cannot override the express terms of an agreement (Les Affreteurs Reunis SA v Walford
(1919)).
Terms implied by the courts
Generally it is a matter for the parties concerned to decide the terms of contract, but on occasion the court will presume that the
parties intended to include a term which is not expressly stated. They will do so where it is necessary to give business efcacy
to the contract.
Whether a term may be implied can be decided on the basis of the ofcious bystander test. Imagine two parties, A and B,
negotiating a contract. A third party, C, interrupts to suggest a particular provision. A and B reply that that particular term is
understood. In just such a way, the court will decide that a term should be implied into a contract. In The Moorcock (1889),
the appellants, owners of a wharf, contracted with the respondents to permit them to discharge their ship at the wharf. It
was apparent to both parties that when the tide was out the ship would rest on the riverbed. When the tide was out, the
ship sustained damage by settling on a ridge. It was held that there was an implied warranty in the contract that the place of
anchorage should be safe for the ship. As a consequence, the ship owner was entitled to damages for breach of that term.
Alternatively the courts will imply certain terms into unspecic contracts where the parties have not reduced the general
agreement into specic details. Thus in contracts of employment the courts have asserted the existence of implied terms to
impose duties on both employers and employees, although such implied terms can be overridden by express contractual
provision to the contrary.
3 Compensation for damage suffered by a person can be recovered from another person only if there are legally recognised grounds
for recovery. The law of delict lays down what is required for an act causing damage to qualify as a delict and what remedies are
available to the party suffering the damage. A delict is any unlawful culpable act whereby a person (the wrongdoer) causes the
other party (the person injured) damage or injury to personality, and whereby the prejudiced person is granted a right to damages
or compensation, depending on the circumstances. From this denition the following elements of a delict may be isolated, that is
(a) an act, (b) unlawfulness, (c) fault, (d) causation, and (e) damage or injury to personality (harm). To be held liable for the harm
which he or she has caused another, the wrongdoers action must comply with all these requirements or elements.
Not all acts (including omissions) that are harmful to others are delicts. Before an act can be deemed to constitute a delict it must also
(in addition to meeting the other requirements) be unlawful. An act or conduct is wrongful if it either infringes a legally recognised
right of the plaintiff or constitutes a breach of a legal duty owed by the defendant to the plaintiff. The legal duty may be imposed
by statute or by operation of common law, in which case the imposition of the duty depends upon the particular circumstances of
the case. The inquiry into whether the plaintiffs right has been infringed or the defendant has contravened a duty is objective in
the sense that the defendants state of mind, motives and the degree of care taken are not considered. The focus is on whether the
infringement of the plaintiffs interest was in the particular circumstances objectively justiable or unjustiable.
9
Conduct is wrongful or unlawful if it is unreasonable, in other words when, in the light of all the circumstances, the defendant
is expected to behave in a manner which will not harm the plaintiff. Courts also refer to concepts such as the boni mores, the
prevailing conceptions in a particular community at the given time or the legal convictions of the community. Each of these is merely
a different expression of the general criterion of reasonableness. To determine whether conduct is reasonable, courts must consider
and balance the particular conicting interests of the parties, the parties relationship to each other, the particular circumstances of
the case, whether the harm was foreseeable, whether any superior legal right exists, constitutional values and any other appropriate
considerations of social policy. Proof of the existence of a recognised ground for justication, such as, for example, self-defence,
conclusively demonstrates the reasonableness of the defendants conduct. Grounds of justication that have been accepted as
defences are therefore recognised expressions of the constant application of the test of reasonableness in particular situations.
4 This question requires the candidates to explain the various ways in which a contract of employment may be terminated.
A contract of employment may be terminated by:
(a) performance, e.g., completion of a specic project for which a person was employed;
(b) agreement, e.g., resignation by an employee;
(c) frustration, e.g., in the event of ill-health or military conscription;
(d) breach, the most important of these four means of discharge.
There are two further circumstances which do not fall into any of these categories, but which are also extremely important in
employment law. These are:
(a) termination by notice; and
(b) termination by dismissal.
Termination by breach
An employment contract is terminated by breach where there is:
(a) summary dismissal;
(b) constructive dismissal;
(c) inability on the employers behalf to continue;
(d) repudiation of the contract by the employee.
Each of these are considered in turn below.
(a) Summary dismissal the employer dismisses the employee without notice. He may do this if the employee has committed a
serious breach of contract and, if so, the employer incurs no liability. If, however, he has no sufcient justication the employer
is liable for breach of contract and the employee may claim a remedy for wrongful dismissal.
(b) Constructive dismissal the employer, although willing to continue the employment, repudiates some essential term of the
contract, e.g., by a complete change in the employees duties, and the employee resigns. The employer is liable for breach of
contract.
(c) Employers liability to continue employment if a persons employer dies, an employing rm of partners is dissolved, and
employing company is compulsorily wound up, a receiver is appointed or the employees place of employment is permanently
closed, the employer may become unable to continue to employ the employee.
(d) Repudiation of the contract by the employee if the employee resigns or fails to perform the contract and to observe its
conditions, that is breach of contract by him, and the employer may dismiss him or treat the contract as discharged by the
employees breach.
Termination by notice
As regards termination by notice, the following rules apply:
(a) The period of notice given must not be less than the statutory minimum, whatever the contract may specify;
(b) It may be given without specic reason for so doing, unless the contract requires otherwise;
(c) An employment contract may be terminated for reason of retrenchment. To be lawful, retrenchment should be preceded by
consultation with employees likely to be retrenched. As soon as the employment forms the intention to retrench, he should
inform both the Commissioner of Labour and the employees likely to be affected in writing. A months notice pay is generally
required.
Although there is no breach of the contract, termination by notice is dismissal under the Employment Act (Cap 47:01) and the
employee may be entitled to compensation for unfair dismissal.
Termination by dismissal
The concepts of summary dismissal and constructive dismissal are both examples of dismissal without proper notice. A dismissal
with proper notice is generally held to be lawful, unless it is shown to be wrongful or unfair. Wrongful dismissal is a common law
concept arising in specic circumstances and which gives the employee an action for breach of contract. Unfair dismissal is a concept
introduced by the jurisprudence of the Industrial Court. As a rule, every employee has the right not to be unfairly dismissed.
10
5 This question requires the candidates to explain one of the grounds for the termination of a partnership.
Whether or not there is a denite period for the duration of a partnership and even though the partnership agreement expressly
prohibits withdrawal, a partner may unilaterally terminate the agreement and obtain a court order dissolving the partnership against
the wishes of the partners, if his conduct is justiable and reasonable. He must show just cause or justa causa. A partner may
renounce the partnership on the following grounds:
(a) fulllment of a condition allowing a partner to give notice of dissolution; or
(b) breach of an essential term of the partnership agreement; or
(c) conduct causing loss of condence.
(a) Fulllment of a condition
The partnership agreement may allow a partner to dissolve in certain circumstances for example, if either partner became
addicted to drinks: Holshausen v Comming (1909).
(b) Breach of an essential term of the agreement
A partner is entitled to dissolve the partnership on breach by a co-partner of an essential term of the agreement, see example,
Schur v Davidoff (1916); Reidy v Dromey (1923); Purdon v Muller (1961).
A partner may renounce the partnership where his co-partner disappears (In re Coch & Nicholson (1884) or may be presumed
dead (Ex parte Warehouse & Anor v McKay (1919)), or becomes substantially incapable through illness of performing the
terms of the agreement (Pelunsky v Pastoll (1920)).
(c) Conduct causing loss of condence
A partner is entitled to renounce on the ground of circumstances, arising other than through his own fault, which cause him to
lose condence in his co-partner: McKay & Anor v McKay (1903); Gildenmeister v Machanglan (1906).
What constitutes just cause in the circumstances is a question of fact in each case. Generally, any event which irreparably destroys
the mutual trust and condence between the partners and/or which makes good co-operation between the parties impossible, may
afford just ground for dissolution.
Examples
(i) carelessness in the conduct of a business by a managing partner, not in itself amounting to gross negligence but coupled with
a refusal to attend to the legitimate complaints of a co-partner;
(ii) the withholding of information, particularly as to the partners indebtedness to the partnership: Marshall v Marshall (Pty) Ltd
& Ors (1954);
(iii) adultery by a partner with his co-partners wife: Salter v Haskins (1914);
(iv) the institution of divorce proceedings between spouses, the two being partners: Warrington v Warrington (1916);
(v) the surreptitious and illegal appropriation of prots: Woomack v Commercial Vehicle Spares (Pvt) Ltd (1968).
6 This question requires the candidates to explain those situations where a principal may be bound by a contract entered into by an
agent on his behalf without his express authority.
There are three occasions where a principal may be bound by a contract entered into by an agent on his behalf but without his
express authority. These are agency of necessity, agency with implied authority and agency involving apparent (or ostensible)
authority.
An agency relationship between principal and agent can arise by operation of law if very strict conditions apply. This is agency by
necessity. It applies where the principal entrusts goods to the agent for some purpose (usually carriage) and an emergency arises
while the goods are in the agents possession, in circumstances where it is impossible to contract the principal for instructions. This
emergency must cause the agent to take some action to protect the principals interest; it must not be action taken for the agents
own convenience: Sachs v Miklos (1948). If these conditions are satised, then the principal is bound by the contract made by the
agent (for example, for the feeding and care of livestock left in the agents care: Great Northern Railway v Swafeld (1874)).
In Roman-Dutch law, this type of agency is known as negotiorum gestio. The person who manages the business of another without
the authority of the latter and in the latters absence is known as the negotiorum gestio. The negotiorum gestio has no express or
implied authority to represent the principal. He therefore cannot create obligations between the principal and third parties. He is
not entitled to remuneration for his services: Williams Estate v Mollenschool & Schep (Pty) Ltd (1939). He is entitled only to his
necessary or useful expenses provided he has not spent more than is appropriate to the occasion, nor more than the owner himself
would have spent.
An agent may have limited actual authority but may make contracts beyond those limits. In this case, the principal will be bound
if the agent acts within the scope of his implied authority. It is assumed that an agent has the authority to do things incidental to
his express powers. This may be inferred from his position (for example, as company secretary: Panorama Developments v Fidelis
Furnishing Fabrics (1971)). An agent may also have apparent (or ostensible) authority. A former agent may continue to bind his
principal if the third party with whom the agent deals is unaware of the agents loss of authority. Similarly, if the agent purports to
act on the principals behalf and the principal, aware of this, does nothing to deny this, the principal cannot refuse to be bound by
the contract: Freeman & Lockyer v Buckhurst Park Properties (1964).
11
A contract made by the agent without the principals authority may be adopted as the principals contract by ratication. The
principal must exist when the contract is made (Kelner v Baxter (1866)), and must be identied as a party to the contract by the
agent (Keighley Maxstead & Co v Durrant (1900)). The contract is not binding until ratied. Ratication is of retrospective effect,
but must be done before the contract is to come into effect. The principal must be aware of all the facts relevant to the contract for
effective ratication.
7 This question requires candidates to explain what is meant by the term duciary duties as it applies to company directors and to set
out the various heads under which such duties can be considered.
The directors have the power to manage the business of their company and it is the directors, rather than the shareholders, who
conduct the day-to-day business of the company. As a consequence of the extensive powers they have in operating capital that they
do not actually own, the law has placed company directors in the position of duciaries. A person usually comes into a duciary
relationship when he controls the assets of another, or holds the power to act on behalf of another.
In general terms directors must act honestly and with good faith for the benet of the company in discharging their duties. The
general duty to the company can be sub-divided into three further heads: the duty to act bona de in the best interests of the
company; the duty to exercise their powers for a proper purpose; and the duty not to allow their personal interests to conict with
their duties to the company. It should be emphasised that directors owe their duty to the company and not to individual shareholders
(Percival v Wright (1902)).
Duty to act bona de in the interest of the company
This places directors under the duty to act in such a way as they genuinely believe is in the best interests of their company. However,
the test is not purely subjective and, if an act or decision is one that no reasonable director could properly have come to, the court
will intervene.
A particular aspect of this general requirement is that directors must use their powers for the purpose for which those powers were
given to them and not for any ulterior or improper purpose.
Most of the cases on this point have related to the exercise by directors of their power to issue new shares in an attempt to thwart
threatened take-overs. In Howard Smith v Ampol Petroleum (1974) directors preferred one take-over bid as opposed to another,
which was supported by the majority shareholding. In order to defeat the bid they disliked, the directors issued new shares,
effectively reducing the existing majority to a minority holding in the company, incapable of blocking the directors preferred takeover
bid. This was clearly an abuse of the directors powers and a breach of their duty to act bona de in the best interests of the company.
See also Hogg v Cramphorn (1966); Bamford v Bamford (1970).
Another aspect of this general duciary duty is that directors must not act in such a way as will fetter the exercise of their discretion
in relation to decisions that affect the operation of the company. For example, directors might enter into a contractual agreement
with some outsider to use their vote in a particular way at board meetings. Once again such an agreement is a clear breach of their
duciary duty. It must be recognised, however, that if directors enter into a contract on behalf of the company, which they genuinely
consider to be in the companys best interests, then they may vote in favour of any subsequent resolutions necessary to achieve the
successful completion of the contract.
Duty not to permit a conict of interest to arise
This rule is strictly enforced by the courts and it can be clearly stated that directors are forbidden from entering into any arrangement
which will involve, even the possibility of, a conict between their personal interests and the interests of their company. It follows,
therefore, that a director may obtain no other advantage from his ofce than that to which he is entitled by way of directors
remuneration. In Robinson v Randfontein Estates Gold Mining Co Ltd (1920) the chairman of the board purchased a farm in his
own name after his company, which was anxious to acquire the farm, could not reach nality with the sellers. He purchased the
farm through an agent and thereafter sold it to the company at a considerable prot. The Appellate Division held that the chairman
was not justied in making a prot from his ofce, nor in placing himself in a position where his personal interests conicted with
the duties arising out of his duciary position. He was ordered to repay to the company the prot which he had made. See also
Aberdeen Rly Co v Blaikie (1854).
In Regal (Hastings) v Gulliver (1942) the directors were required to repay to the company prots made on the sale of shares in a
subsidiary company, on the grounds that they had only been in a position to benet because of their position as directors in the
parent company. On the same principle a director may not, for personal gain, make use of information acquired in his capacity as
director. See Industrial Development Consultants v Cooley (1972).
8 This question invites candidates to examine the way in which contractual relations can come into existence. It requires a treatment
of the rules relating to offer and acceptance and the possibility of revoking offers to unilateral contracts. The answer will set out the
general law applicable before applying it to the circumstances of the problem scenario.
Unilateral contract
A unilateral contract arises where one party promises something in return for some action on the part of another party. Reward cases
are typical examples of such cases. There is no compulsion placed on the party undertaking the action but if they carry out the task
requested they would receive the reward offered.
12
Offer
An offer is an undertaking, capable of acceptance to be bound on particular terms. The person who makes the offer is the offeror;
the person who receives the offer is the offeree. An offer sets out the terms upon which the offeror is willing to enter into contractual
relations with the offeree. An offer may, through acceptance by the offeree, result in a legally enforceable contract. It is important
therefore, to distinguish what the law will treat as an offer from other statements that will not form the basis of an enforceable
contract. For example, the offer must be capable of acceptance. Thus it must not be too vague and the intended obligations must
be stated unequivocally and unconditionally so that the rights and duties intended by the offer are determined or ascertainable. It
is also essential to distinguish genuine offers from the following: a mere statement of intention; a mere supply of information or an
invitation to do business (Crawley v Rex (1909)). An offer may be made to a particular person or to a particular group of persons,
in which case it is only open for those persons to who, the offer has been made, to accept it. Alternatively, an offer may be made to
the world at large, in which circumstances it can be accepted by anyone (Bloom v The American Swiss Watch Company (1915)).
Offers to the world at large are usually made in the form of advertisements.
Acceptance of offers
Acceptance is necessary for the formation of a contract. Once the offeree has assented to the terms offered, a contract comes
into effect. Both parties are bound: the offeror can no longer withdraw their offer, nor can the offeree withdraw their acceptance.
Acceptance does not have to be in the form of express words, as it can be implied from conduct. Although a person cannot accept an
offer they do not know about, their motive for accepting it is not important as long as they know about the offer. Generally acceptance
must be communicated to the offeror. As a consequence of this rule, silence cannot amount to acceptance. However, acceptance
need not be communicated where the offeror waived the right to receive communication.
Revocation
An offer may be revoked at any time before acceptance and once revoked it is no longer open to the offeree to accept the original
offer (The Fern Gold Mining Company v Tobias (1890)). In relation to unilateral contracts revocation is probably not possible once
the offeree has started performing the task requested.
Intention to be contractually bound
The quintessence of reaching consensus is that every party to the contract must have the serious intention to be contractually bound.
This means that each of the parties must have the serious intention to create particular rights and duties. It also means that each
party must intend to be legally bound to perform their duties and to hold the other party legally liable for rendering performance as
promised in the agreement.
If two friends make an arrangement to meet at a rugby match to enjoy the game in each others company, there is normally no
intention on their part to be legally bound to each other. The position is quite different if two persons agree that one will give the
other a sum of money to produce the ownership of the others table. In this case the intention to create a legal obligation is indeed
present.
Applying the foregoing to the facts of the scenario, it would appear that Thembi made a unilateral offer to the world at large. Kgosi
was thus able to accept the offer by performing the required act. He did not have to inform Thembi that he was accepting the offer,
he simply had to perform the act. However, because Kgosi was unaware of the reward it was not possible for him to accept the offer.
A person cannot accept an offer they do not know about. On the analysis, it would appear that Kgosi cannot claim the P70000
from Thembi. As for Thembis decision to revoke her offer, it would have been ineffective if Kgosi had in fact found the cat when he
was aware of the reward offered. An offer cannot be revoked once performance has begun. However as Kgosi was unaware of the
reward and had not accepted, he cannot claim the reward.
9 This question requires candidates to consider the authority of company directors and other company ofcers to enter into binding
contracts on behalf of their companies.
Thato
Section 126 of the Companies Act 2003 provides that the business affairs of the company shall be managed by the board and
that the board has all the powers necessary for the managing, and for directing and supervising the management of the business
affairs of the company. It is important to note that this power is given to the board as a whole and not to individual directors and
consequently individual directors cannot bind the company without their being authorised in some way to do so. There are three
ways in which the power of the board of directors may be extended to individual directors.
(i) The individual director may be given express authority to enter into a particular transaction on the companys behalf. To this
end, s.129 of the Companies Act 2003 allows for the delegation of the boards powers to one or more directors. Where such
express delegation has been made then the company is bound by any contract entered into by the person to whom the power
was delegated. However, in the present situation it does not appear that Thato has been expressly given the power to enter into
the contract with Dudu, and so the company cannot be liable on this basis.
(ii) The second type of authority that may empower an individual director to bind his company is implied authority. In this situation
the persons authority ows from their position. Article 11 of the First Schedule provides for the board of directors to appoint a
managing director and allows the board of directors to delegate to any managing director such powers as they may consider
desirable to be exercised by that person. Thus the board of directors may expressly confer any of their powers on the managing
director as they see t. The mere fact of appointment, however, will mean that the person so appointed will have the implied
authority to bind the company in the same way as the board, whose delegate he or she is. Outsiders, therefore, can safely
assume that a person appointed as managing director has all the powers usually exercised by a person acting as managing
director.
13
Implied actual authority to bind a company may also arise as a consequence of the appointment of an individual to a position
other than that of managing director. In Hely-Hutchinson v Brayhead Ltd (1968), although the chairman and chief executive
of a company acted as its de facto managing director, he had never been formally appointed to that position. Nevertheless,
he purported to bind the company to a particular transaction. When the other party to the agreement sought to enforce it, the
company claimed that the chairman had no authority to bind it. It was held that, although the director derived no authority from
his position as chairman of the board, he did acquire such authority from his position as chief executive and thus the company
was bound by the contract he had entered into on its behalf. The decision in Hely-Hutchinson was approved in NBS Bank Ltd
v Cape Produce Co (Pty) Ltd (2002).
Once again, however, it would appear that Dudu cannot make use of this method of xing Khudu Ltd with liability for her
contract as Thato has not been appointed to any executive ofce in the company.
(iii) The third way in which an individual director may possess the power to bind his company is through the operation of ostensible
authority, which is alternatively described as apparent authority or authority by estoppel.
This arises where an individual director has neither express nor implied authority. Nonetheless, the director is held out by
the other members of the board of directors as having the authority to bind the company. If a third party acts on such
a representation, then the company will be estopped from denying its truth. In Freeman and Lockyer v Buckhurst Park
Properties (Mangal) Ltd (1964), although a particular director had never been appointed as managing director, he acted as
such with the clear knowledge of the other directors and entered into the contract with the plaintiffs on behalf of the company.
When the plaintiffs sought to recover fees due to them under that contract, it was held that the company was liable: a properly
appointed managing director would have been able to enter into such a contract and the third party was entitled to rely on the
representation of the other directors that the person in question had been properly appointed to that position.
The situation in the problem is very similar to that in Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd. The
board of Khudu Ltd has permitted Thato to act as its managing director and he has even used the title. The board has therefore
acquiesced in his representation of himself as managing director and consequently they and Khudu Ltd are bound by any
contracts he might make within the scope of a managing directors implied authority. As entering into a contract to draw plans
would clearly come within that authority, Khudu Ltd will be liable to pay Dudu or face an action for breach of contract.
Pinkie
As has been stated, authority to enter into contracts on behalf of companies can be implied from positions other than the managing
director and one such position is that of the company secretary (Wolper v Uitzigt Properties (Pty) Ltd (1961)). Therefore with regard
to the contracts that Pinkie entered into, whether Khudu Ltd is liable on them depends on the extent of her implied authority. Although
old authorities such as Houghton & Co v Northard Lowe & Wills (1928) treated company secretaries as having little authority
to bind their companies, later cases have recognised the important role of the modern company secretary. Thus in Panorama
Developments v Fidelis Furnishing Fabrics Ltd (1971) held that a company secretary was entitled to sign contracts connected with
the administrative side of a companys affairs. There is little doubt that the court in Botswana will follow this decision.
It would appear that the order for the cement mixer would come within Pinkies implied authority but the building of the extension
onto her house would certainly not be covered.
10 This question tests the candidates understanding of the concept of corporate personality and the rules that govern the lifting of the
corporate veil.
The veil of incorporation refers to the fact that, upon registration of a company has its own legal personality, completely separate from
its members. A veil is said to be drawn between the company and its members, but that veil may, under appropriate circumstances,
be drawn aside to reveal those members.
The doctrine of separate or corporate personality is an old one, but the case cited in relation to separate personality is: Salomon v
Salomon & Co Ltd (1897). Salomon had been in the boot and leather business for some time. Together with other members of his
family he formed a limited company and sold his previous business to it. Payment was in the form of cash, shares and debentures.
When the company was eventually wound up it was argued that Salomon and the company were the same, and, as he could not
be his own creditor, his debentures should have no effect. Although early courts had decided against Salomon, the House of Lords
held that under the circumstances, in the absence of fraud, his debentures were valid. The company had been properly constituted
and consequently it was, in law, a distinct legal person, completely separate from Salomon. It should be noted that, contrary to what
some textbooks state, the Salomon case did not establish the doctrine of separate personality. It merely permitted its application
to one-man companies. In the present instance it is clear that Kompieno (Pty) Ltd is in law a separate persona distinct from its
shareholders and those who control the management of the company. This principle ensures that Kompieno (Pty) Ltd and Kudu Ltd
are to be regarded as separate legal persons, each responsible for their own but not each others debts.
In some cases, however, the courts have been prepared to disregard the corporate veil and pay regard instead to the realities of the
situation. This is known as judicial lifting of the veil. As in most areas of law that are based on the application of policy decisions it
is difcult to predict when the courts will ignore separate personality. What is certain is that the courts will not permit the corporate
form to be used for a clearly fraudulent purpose or to evade a legal duty. In Cape Pacic Ltd v Lubner Controlling Investment (Pty)
Ltd and others (1995) the Supreme Court of Appeal pointed out that it is undoubtedly a salutary principle that the South African
courts will not lightly disregard a companys separate personality, but will strive to give effect to and uphold it.
To do otherwise would negate or undermine the policy and principles that underpin the concept of separate corporate personality
and the legal consequences that attach to it. However, where fraud, dishonesty or other improper conduct is found to be present,
14
other considerations will come into play. The need to preserve the separate corporate identity would in such circumstances have to
be balanced against policy considerations that arise in favour of piercing the corporate veil.
In DHN Food Distributors Ltd v Borough of Tower Hamlets (1976), the defendant Council issued a compulsory purchase order in
respect of land occupied by a subsidiary of the plaintiff company. By an Act of Parliament, where a local authority acquires land
compulsorily, compensation must be paid in respect of the land and in respect of any disruption of business. The Council argued
that the owner of the land (the subsidiary) did not carry on any business as that was owned by the plaintiff company, a separate
legal person at law. The Court of Appeal noted that holding and subsidiary companies are treated as one for accounts purposes and
held that the plaintiff holding company and its two subsidiaries together comprised a single economic unit. In this case, only one
business was being carried on. It was merely the administration of the business that was separated between two legal entities. The
Council was therefore obliged to compensate the plaintiff for the land and the distribution to business.
The House of Lords was called upon to decide another case involving a compulsory purchase order by a Council in Woolfson and
another v Strathclyde Regional Council (1978), in which a company owned the land and the plaintiff owned the business carried
on from that land. The court distinguished the DHN case on the grounds that in that case the plaintiff enjoyed 100% control of
the subsidiary, whereas in the Woolfson case control was held jointly by Woolfson and his wife. The court doubted the decision in
the DHN case and stated that the corporate veil should be disregarded only where it is a mere faade designed to conceal the true
facts.
In Adams v Cape Industries plc (1990), the Court of Appeal had to determine whether the defendant, a company registered in the
UK, could be held liable in respect of the activities of its wholly owned American subsidiaries. The plaintiff sought to rely on the DHN
case in arguing that the defendant through its subsidiary had a presence in the USA. The Court applied the decision of the House
of Lords in the Woolfson case and held that the defendant had no such presence. The subsidiary was a genuine trading company
distinct from its parent, was not a mere faade, and must therefore be regarded as a separate legal person. When the above cases
are applied to Kompieno (Pty) Ltd and Kudu Ltd, it can be concluded that Kudu Ltd will not be called upon to settle the debts of
Kompieno (Pty) Ltd. The latter is a separate and distinct trading entity, is not a mere faade, and is therefore solely responsible for
its own debts.
15
Fundamentals Level Skills Module, Paper F4 (BWA)
Corporate and Business Law (Botswana) December 2009 Marking Scheme
1 610 Thorough and accurate explanation of the classication of law punctuated with relevant examples in the context of
Botswana.
05 Incomplete or inaccurate account, perhaps with major errors or omissions. A very weak answer will show either no or very
little knowledge of the area.
2 It is expected that this question will be marked as one answer, although 3 marks are available for distinguishing between express
and implied terms.
810 Thorough treatment of the topic. Clearly distinguishing between the two types of terms and explaining most, if not all of
the ways in which terms may be implied into contracts.
47 Less thorough answer, but showing a reasonable understanding of the topic.
03 Weak answer, perhaps showing some knowledge but little understanding of the topic generally.
3 810 Thorough explanation of the meaning of wrongfulness with appropriate references to examples and the grounds for
justication.
57 Reasonable explanation of the meaning of wrongfulness, but perhaps lacking in detail.
04 Very unbalanced answer, lacking in detailed understanding.
4 610 A clear understanding of the various ways of terminating a contract of employment. Full reference to relevant
authorities.
05 Weak answers showing little understanding of the different ways of termination of employment. Possible gaps and
omissions.
5 810 Answers in this band will show a thorough understanding of justa causa as one of the causes for termination of a
partnership. Full and accurate reference to relevant authorities.
57 A sound understanding of the area, although perhaps lacking in detail.
24 Some understanding of the area but lacking in detail, with little reference to relevant authorities.
01 Little or no knowledge of the area.
6 610 A thorough treatment of all the three instances in which agency is implied. Full reference to relevant authorities. Full use
of examples.
05 Weak, with little or no understanding of the relevant rules in this area.
7 This question requires candidates to explain what is meant by the term duciary duties as it applies to company directors and to set
out the various heads under which such duties can be considered.
610 Answers will demonstrate a thorough knowledge of the area. For the very highest marks, all of the duties will be considered
and it is likely that cases will be provided in support.
05 Limited understanding of the nature of the question and/or unbalanced treatment of the topic.
16
8 This question requires candidates to examine the way in which contractual relations can be brought into existence. It requires a
treatment of the rules relating to offer and acceptance and the possibility of revoking offers in relation to unilateral contracts.
810 Answers will demonstrate a thorough knowledge of the law generally together with a clear analysis of the problem
situation and a deployment of the appropriate legal principles. Cases and examples will be used to support the analysis
and conclusions.
57 Answers will be generally sound in relation to the law but may be lacking in analysis or application. Once again examples
will be used.
24 Answers will demonstrate some knowledge of the law relating to the question but not to the degree expected of the very
best answers. They may be weak in analysis and/or application.
01 Little or no understanding of the law relating to the question. Extremely weak in terms of analysis or application.
9 This question requires candidates to consider the authority of company directors and other company ofcers to enter into binding
contracts on behalf of their companies. Although marks are not allocated separately, it is envisaged that the bulk of the answer will
deal with Thatos situation with Pinkies constituting no more than a maximum of 8 marks at the outside.
810 Accurate knowledge of the legal principles involved in both situations, linked to a sound application of those principles.
It is highly unlikely that marks at this level could be achieved without reference to the cases.
57 Sound knowledge of the law but perhaps lacking in application or alternatively not showing sufcient clear understanding
of the legal principles involved.
24 Weak or unbalanced answer. Perhaps aware of the nature of the problem but lacking in clear knowledge of the law or
decient in relation to how those principles should be applied.
01 Very weak answer. Perhaps mentioning some of the issues but failing to consider or apply them in detail.
10 This question tests the candidates understanding of the concept of corporate personality and the rules that govern the lifting of the
corporate veil. Marks will be allocated as follows:
810 Full understanding and explanation of the concept of corporate personality and the rules that govern the lifting of the
corporate veil. Accurate application of case law.
57 Identication of the major issues in the problem and a good attempt to apply the law to those issues. Some use of case
law to support the conclusion.
46 Lacking in detail in some or all aspects of application.
03 Little or inappropriate knowledge of the topic with little appropriate application.