Turquand Rule or Indoor Management Rule and the Presumption of Regularity re: Parastatals and Statutory Bodies

Appealed
SC16-20 : INFRASTRUCTURE DEVELOPMENT BANK OF ZIMBABWE vs ENGEN PETROLEUM ZIMBABWE (RIVATE) LIMITED
Ruled By: GUVAVA JA, MAVANGIRA JA and ZIYAMBI AJA

This is an appeal against the decision of the High Court handed down under HH253-16 wherein the court a quo found the appellant liable to pay to the respondent the sum of US$847,847=65 together with costs of suit and interest at the prescribed rate from the date of the granting of the judgment to the date of payment in full.

The appellant is a statutory corporation set up in terms of the Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14] (“the IDBZ Act”). The respondent is an oil company registered in accordance with the Companies Act [Chapter 24:03].

The background to the matter may be summarized as follows:

A company known as Wedzera Petroleum (Private) Limited (“Wedzera”) entered into a verbal agreement with the respondent wherein the respondent would sell bulk petroleum fuels to it from time to time. The respondent would supply the petroleum products on credit and raise invoices to be settled by Wedzera Petroleum. Wedzera Petroleum would, in turn, settle the invoices within ten days from the date on which the invoices would be raised.

In November 2010, the respondent sold to Wedzera, petroleum products worth US$847,847=65. The sale of the petroleum products was made on the basis of two guarantees made by the appellant binding itself to pay in the event that Wedzera Petroleum failed to honour the debt. The two guarantees were drafted on 5 November 2010 and 19 November 2010 for the sums of US$500,000 and US$450,000 respectively.

The guarantees issued by the appellant were in the form of a letter, which bore the letter head of the Infrastructural Development Bank of Zimbabwe. It was addressed to the respondent and signed by one Francis Mugwara (“Mugwara”) the Head of the Short Term Loans Unit.

Part of the first guarantee, dated 5 November 2010, read as follows:

“In consideration of Wedzera Petroleum (Pvt) Ltd…, agreeing to the submission of a guarantee for the supply of fuel products by Engen Petroleum Zimbabwe (Pvt) Ltd, we, Infrastructure Development Bank of Zimbabwe – IDBZ…, do hereby guarantee full payment of USD500,000.00…, being the total amount of the Bank Guarantee to Engen Petroleum Zimbabwe (Pvt) Limited. The payment of the USD500,000 will be after a period of 10 (ten) days from the date of fuel drawdown and is on revolving basis…,.”

The second guarantee, dated 19 November 2010, read as follows:

“In consideration of Wedzera Petroleum (Pvt) Ltd…, agreeing to the submission of a guarantee for the supply of fuel products by Engen Petroleum Zimbabwe (Pvt) Ltd, we, Infrastructure Development Bank of Zimbabwe – IDBZ…, do hereby guarantee full payment of USD450,000…, being the total amount of the Bank Guarantee to Engen Petroleum Zimbabwe (Pvt) Limited. The payment of the USD450,000 will be after a period of 10 (ten) days from the date of fuel draw-down and is on revolving basis…,.”

After the guarantees had been issued, Wedzera Petroleum failed to pay the debts arising from the petroleum products which were sold to it on credit by the respondent.

On 8 March 2011, Wedzera Petroleum wrote to the respondent informing that it (Wedzera Petroleum) was experiencing negative cash flows due to the unavailability of fuel during the months of December 2010 and January 2011 and that it was aware of its indebtedness to the respondent. Wedzera Petroleum further informed the respondent that it would pay its entire indebtedness within 14 days.

Wedzera Petroleum failed to honour its indebtedness as promised.

The respondent wrote to the appellant on 15 March 2011 informing it to liquidate Wedzera Petroleum's debt in accordance with the two guarantees.

The appellant, through a letter dated 31 of March 2011, informed the respondent that upon checking its records it found that it had not issued the guarantees in favour of the respondent against any debts incurred by Wedzera Petroleum. The appellant further informed the respondent that it was unsure of the circumstances under which the purported guarantees had been drafted and issued to the respondent on behalf of Wedzera Petroleum.

Following the failure by Wedzera Petroleum to make due payment of the debt, and the repudiation of the guarantees by the appellant, the respondent issued summons against Wedzera Petroleum and the appellant for the payment of the sum of US$847,847=65.

PROCEEDINGS BEFORE THE COURT A QUO

In the court a quo, Wedzera Petroleum, in its plea, admitted its indebtedness to the respondent but denied liability as it argued that liability had passed to the appellant who undertook to settle the debt due in terms of the two guarantees.

The appellant, in its plea, denied being indebted to the respondent at all. It indicated that according to their records there was no indication that Wedzera Petroleum had applied for, or had been granted any guarantees. It further alleged that the guarantees had been generated through fraud.

At the pre-trial conference, the main issue which was referred to trial was: whether or not the appellant was liable to pay Wedzera Petroleum's debt on the basis of the two guarantees.

At the trial, Wedzera Petroleum was in default. The court a quo, upon application from the respondent, granted default judgment against Wedzera Petroleum in favour of the respondent for the sum of US$847,847=65 together with costs of suit and interest at the prescribed rate.

The trial proceeded against the appellant.

In analysing closing submissions made by counsel, the court a quo noted that the appellant's counsel sought to introduce a new argument which had not been pleaded.

The argument was based on the fact that the appellant was a statutory corporation which derived its powers from the Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14] and that the provisions of the Companies Act [Chapter 24:03] (“the Companies Act”), which codified the Turquand Rule, could not be applied against the appellant in terms of section 30 of the Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14].

The court held that in spite of the provisions of section 30 of the Infrastructure Development Bank of Zimbabwe Act (IDBZ Act) which made the appellant immune to the provisions of the Companies Act, the actions of Francis Mugwara fell squarely within the scope of the presumptions of ostensible authority.

The court found that Francis Mugwara held a senior position in the Bank; that he had subordinate staff under him; he had access to and used the appellant's stationery. He was the Head of the Short Term Loans Unit which Unit had, amongst others, a mandate to issue guarantees.

The court further found that Francis Mugwara's job description empowered him: “…, to generate, manage and control the Bank's short-term lending portfolio as well as [to] supervis[e]…, Regional Offices.”

Further, that his key duties included decision making authority, authority to approve departmental expenses and the budgets for the Unit and the Regional Offices.

The court found that the onus was on the appellant to prove that Francis Mugwara did not have any form of authority to facilitate guarantees and to prove any form of fraud and bribery on his part.

The court found the appellant liable to the respondent for the guarantees which were issued by Francis Mugwara in respect of Wedzera Petroleums's indebtedness. The appellant was thus ordered to pay the respondent the sum of US$847,847=65, or the remaining amount after payment was made by Wedzera Petroleum, together with costs of suit and interest at the prescribed rate from the date of the granting of the judgment to the date of payment.

PROCEEDINGS ON APPEAL

Aggrieved by the findings of the court a quo the appellant noted this appeal on the basis of the following grounds of appeal:

(i) Having found, as it did, that there was no conclusive evidence to establish that one Francis Mugwara had authority to issue the two guarantees relied upon by the respondent on his single signature, the court a quo erred in law in placing a further negative onus of proof on the appellant to establish that one Francis Mugwara had no such authority.

(ii) Having found, as it did, that there was no conclusive evidence to establish that one Francis Mugwara had authority to issue the two guarantees relied upon by the respondent on his single signature, the court a quo erred and misdirected itself on the facts, and in law, in finding, as it did, that Francis Mugwara had actual and/or implied authority to issue the two guarantees relied upon by the respondent in its cause of action.

(iii) The court a quo erred and misdirected itself in law in finding the appellant liable to the respondent on the basis of ostensible authority when such was not pleaded by the respondent in the Summons and Declaration.

(iv) The court a quo grossly erred and misdirected itself on the facts in finding, as it did, or must be taken to have done that the appellant represented to third parties, in particular to the respondent, that one Francis Mugwara had authority to issue the guarantees relied upon by the respondent in its cause of action.

(v) The court a quo erred in law in failing to find that the two guarantees relied upon by the respondent were fraudulently procured and thereafter tendered to the respondent by Wedzera Petroleum (Private) Limited, and, as such, no liability could flow from such fraudulent instruments.

(vi) The court a quo erred on the facts and in law in finding, as it did, that the respondent had acted diligently in accepting the two guarantees tendered to it by Wedzera Petroleum (Private) Limited in the absence, inter alia, of any facility between the appellant and Wedzera Petroleum (Pvt) Ltd.

(vii) The court a quo erred on the facts and in law in failing to find that the conduct of Francis Mugwara, in purporting to issue the two guarantees in the absence, inter alia, of any facility agreement between the appellant and Wedzera Petroleum (Pvt) Ltd and/or the respondent not only offended the internal processes of the appellant but also the procedure set out in the Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14]. Consequently, the court a quo ought to have found that his conduct was a legal nullity and no liability attached to the appellant.

(viii) The court a quo erred in law in effectively finding the appellant liable on the two guarantees on the basis of the Turquand Rule when the application of such rule is specifically ousted by the provisions of section 30 of the Infrastructure Development Bank of Zimbabwe Act.

In my view, it is apparent from the appellant's grounds of appeal that three issues arise for determination. These are the following:

A. Whether or not the court a quo erred in finding that Francis Mugwara had authority to issue the two guarantees relied upon by the respondent.

B. Whether or not the court a quo erred in finding the appellant liable to pay the respondent on the basis of ostensible authority.

C. Whether or not the appellant was liable to pay the respondent on the basis of the Turquand Rule when such was never pleaded by the respondent in its summons and declaration.

I will proceed to deal with each of these issues.

Whether or not the court a quo erred in finding that Francis Mugwara had authority to issue the two guarantees relied upon by the respondent

The appellant argued that Francis Mugwara's contract of employment did not give him authority to act on behalf of the Bank. It also submitted that the court a quo erred in its factual findings to the effect that he had implied authority to act on behalf of the appellant.

In order to fully understand the authority Francis Mugwara possessed there is need to make reference to his key duties in the Bank.

Francis Mugwara held the title of the 'Head of Short Term Loans'. Under this title, he was the second in charge after the office of the Director of Private Sector Projects as shown from the organogram of the Short Term Loans Unit. A summary of Francis Magwara's job was stated as:

“To generate, manage, and control the Bank's short term lending portfolio as well as supervision of Regional Offices.”

Among his key tasks was “marketing of Bank products to achieve bankable portfolio of clients, disbursements of funds on approved facilities, and making presentations to the Private Sector Projects Committee (PSPC) on projects for approval.”

In addition, Francis Mugwara's job description had an incidental clause on error of judgment and the consequences which would affect the Bank if the Head of Short Term Loans made a wrong decision. The clause stated as follows:

“Catastrophic as bad decisions can lead to the insolvency of the Bank through the creation of a Bad Loan portfolio. Reputation of the Bank can be on the line if prompt and correct decisions are not made.”

The court made factual findings that Francis Mugwara had authority to act on behalf of the appellant. The court a quo noted the following:

“…, notwithstanding the Bank's argument that Mugwara's power might have been limited, I find that as much as between himself and the Bank, Mugwara had actual or implied authority to issue those guarantees. I find that as between Engen and the Bank, Mugwara had ostensible authority to issue the guarantee and to bind the Bank to third party recipients.”

A clear reading of Francis Mugwara's key tasks shows that he worked under a Unit which controlled the manner in which guarantees were issued. He was the senior personnel in the Bank as he was second in command from the Director of the Unit. He had access and control of the appellant's stationery to an extent that he had business cards to identify himself. He had the task of marketing Bank products and disbursements of funds on approved loan facilities.

The court a quo found that on these factual findings the key tasks done by Francis Mugwara were enough evidence to show that he had authority to act on behalf of the appellant.

The court a quo also took into account that although criminal proceedings were instituted against Francis Mugwara by the appellant, on the basis of fraud and bribery, the office of the Prosecutor General refused to prosecute the matter on the basis that it was a labour matter. That, in any event, the appellant had failed to provide adequate evidence to sustain a conviction.

The court a quo, in determining the impact of the criminal charges laid against Francis Mugwara, found that the onus to prove fraud and bribery was on the appellant and that the prosecutor had failed to prove that Francis Mugwara had been fraudulent or had received any bribe.

The proof to be proffered by the appellant for fraud and bribery in casu would be proof on a balance of probabilities as the fraud and bribery were being alleged in a civil trial after the criminal charges had failed to materialise.

Proof in civil proceedings is always on a balance of probabilities.

In the case of Zimbabwe Electricity Supply Authority v Dera 1998 (1) ZLR 500 (SC), the court stated the following:

“…, in a civil case, the standard of proof is never anything other than proof on the balance of probabilities. The reason for the difference in onus between civil and criminal cases is that in the former the dispute is between individuals, where both sides are equally interested parties. The primary concern is to do justice to each party, and the test for that justice is to balance their competing claims.

In a criminal matter, on the other hand, the trial is an attack by the State, representing society, on the integrity of an individual. The main concern is to do justice to the accused. If the prosecution fails, the State does not lose.”

Francis Mugwara, having admitted that he issued the guarantees and having alleged that he did so lawfully, it was for the appellant to prove all the allegations laid against him of fraud and bribery.

The appellant did not adduce any proof to the contrary, but, rather, stood on the argument that he had no authority to individually sign a guarantee.

The appellant produced sample guarantees which it alleged were lawfully facilitated for other parties. These sample guarantees were juxtaposed with the guarantees which Francis Mugwara had facilitated and affixed a single signature instead of two signatures as appeared on the sample guarantees. The appellant argued that the fact that the guarantees issued on behalf of Wedzera Petroleum were not counter-signed meant that the guarantees were fake and invalid.

Sample guarantees produced before the court a quo showed that Francis Mugwara would countersign a guarantee with other personnel of the Bank. It is of importance to note, however, that such other personnel would be junior personnel and Francis Mugwara would counter sign to give effect to the validity of the guarantee facilitated by his subordinates.

It thus could not have been extensively irregular that on the two guarantees made in favour of the respondent Francis Mugwara signed the guarantees with no other counter signature as he was the head of the Unit from which such guarantees originated.

The arguments raised by the appellant, that absence of a second signature rendered the guarantees ineffective, thus lacks merit.

The appellant did not adduce any evidence to show that the facilitation of the guarantee was not carried out in-house. The appellant's witnesses could have brought the register for credit facilities issued by the Bank to show that no entry was ever made in favour of Wedzera Petroleum to the respondent.

Francis Mugwara vehemently denied that he had not followed proper procedures in processing the guarantees and stated that records of the guarantees were with the appellant.

In examination in chief, Francis Mugwara admitted to having recorded the guarantees in the Bank's register. The court a quo, in assessing these facts, found that:

“The evidence on whether or not Mugwara could issue guarantees on his single signature was inconclusive. Mugwara said he could. The Bank said he could not. The onus was on the Bank to prove that he could not. It did not refute, satisfactorily, Mugwara's claim that it was only guarantees initiated by subordinates that required to be counter-signed for validity. I find that the Bank failed to discharge the onus on such a key aspect of defence.”

In finding that Francis Mugwara had authority to act on behalf of the appellant, the court a quo made reference to the incidental clause in his job description document. A reading of the clause shows that Francis Mugwara, as the Head of Short Term Loans, had to take due diligence and not make an error of judgment as such error in creating a bad loan portfolio would have catastrophic consequences which could lead the appellant to insolvency.

This clause, in itself, crystalizes the point that he had authority to act on behalf of the appellant in a manner which could extend to issuing guarantees. Only a senior officer of the Bank could possess authority to act on its behalf to an extent where an error of judgment would lead to catastrophic results.

It is a settled principle that this Court will not easily interfere with factual findings made by a lower court unless the findings are grossly unreasonable. See ZINWA v Mwoyounotsva 2015 (1) ZLR 935 (S); Hama v NRZ 1996 (1) ZLR 664 (S); Reserve Bank of Zimbabwe v Corrine Granger and Another SC34-01.

The lower court enjoys the opportunity to see the witnesses on the stand, assess their demeanour and credibility. Such findings of fact cannot easily be interfered with by an Appellate Court as it is limited to the record of proceedings. See Mtimukulu v Nkiwane and Another SC136-01.

It is my view that the court a quo's factual findings cannot be impugned.

Francis Mugwara was a senior employee who could carry out credit facilitation and represent the appellant.

All the above findings lead to the inescapable conclusion that the court a quo's factual findings were correct.

The next inquiry that arises from this finding is the extent of the authority Francis Mugwara had in issuing the guarantees to the respondent; that is, whether or not it was implied or express authority.

Whether or not the court a quo erred in finding the appellant liable to pay the respondent on the basis of ostensible authority

The court a quo found that the authority exercised by Francis Mugwara, in issuing the guarantees, was implied (apparent or ostensible) authority.

The respondent based its arguments for the claim of payment of the guarantees on the ostensible authority which had been exercised by Francis Mugwara. Counsel for the respondent submitted that it was on the basis of this apparent authority exercised in the issuing of the guarantees that the respondent agreed to issue Wedzera Petroleum fuel.

It was the appellant's argument that no such implied authority existed and that on the basis of Francis Mugwara's job description such authority was not given to him.

The appellant also argued that in terms of the Bank's Lending Policy, Francis Mugwara did not have authority to single-handedly facilitate a credit facility, sign it, and issue it without proper procedure being followed.

Ostensible authority, or apparent authority, exists where an agent's words or conduct lead a reasonable person in a third party's position to believe that the agent is authorized to act, even if the principal and the purported agent have never discussed such a relationship.

The effect and meaning of ostensible authority was discussed in Makate v Vodacom Ltd 2016 (4) SA 121 (CC)…, in which the case of Hely-Hutchinson CA v Brayhead Ltd and Another [1968] 1 QB 549 (CA)…, was referred to with approval. The court stated the following:

“Actual authority and ostensible or apparent authority are the opposite sides of the same coin. If an agent wishes to perform a juristic act on behalf of the principal, the agent requires authority to do so, for the act to bind its principal. If the principal had conferred the necessary authority, either expressly or impliedly, the agent is taken to have actual authority. But, if the principal were to deny that she had conferred authority, the third party who concluded the juristic act with the agent may plead estoppel in replication.

In this context, estoppel is not a form of authority but a rule to the effect that if the principal had conducted herself in a manner that misled the third party into believing that the agent has authority, the principal is precluded from denying that the agent had authority.”

The court went on to state the importance of ostensible authority and made the following remarks..,.:

“The concept of apparent authority, as it appears from the statement by, Lord Denning, was introduced into law for purposes of achieving justice in circumstances where a principal had created an impression that its agent has authority to act on its behalf.

If this appears to be the position to others, and an agreement that accords with that appearance is concluded with the agent, then justice demands that the principal must be held liable in terms of the agreement.

It cannot be gainsaid that, on present facts, there is a yearning for justice and equity.”

In Rama Corporation Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147, SLADE J noted as follows:

“Ostensible or apparent authority which negatives the existence of actual authority is merely a form of estoppel; indeed, it has been termed agency by estoppel, and you cannot call in aid an estoppel unless you have three ingredients:

(i) A representation;

(ii) A reliance on the representation; and

(iii) An alteration of your position resulting from such reliance.”

See also Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480.

Ostensible authority thus binds a principal over actions done by its agent with relation to third parties. Such principal can thus be estopped from denying liability of the actions of the agent.

In casu, Francis Mugwara was an agent of the appellant; he was the head of the Short-Term Loans Unit and had subordinates under him. His key duties included a mandate to approach companies and commercial institutions in a bid to facilitate that these companies and institutions acquired loan facilities from the appellant.

It was not in dispute that at the time the two guarantees were issued to the respondent on behalf of Wedzera Petroleum, the appellant was running off-balance sheet facilities due to the economic situation which was prevailing in the country at that time. On the basis of such off balance sheet facilities the appellant would issue credit facilities to finance different business ventures.

It is important to note that the first encounter under which Francis Mugwara and the respondent met was not on the issuance of the guarantees. Francis Mugwara had previously made presentations before Mr Mudzengerere, who was the respondent's Managing Director. Francis Mugwara approached the respondent to issue the guarantees on fuel procurement and disbursement. The intended business venture between Francis Mugwara and the respondent did not materialise at that time but a relationship had been formed.

It thus cannot be taken as being irregular that, upon being presented with the guarantees in favour of Wedzera Petroleum, for fuel allocation, Mr Mudzengerere, on behalf of the respondent, accepted these guarantees.

The respondent duly accepted the guarantees on the basis of the conduct and representations which had been made by Francis Mugwara - even before Wedzera Petroleum sought a credit facility from the appellant.

The respondent's cause of action against the appellant, for payment, was on the basis of ostensible authority which had been exercised by Francis Mugwara.

The court a quo duly made factual findings on the exercise of this authority. Clearly, there is nothing illogical or unreasonable from the court a quo's findings.

Francis Mugwara confirmed that he had authority to carry out his duties and the respondent could not be faulted for honouring the guarantees which were issued on behalf of the appellant by its Head of Short Term Loans.

The court a quo found Francis Mugwara to be a reliable witness.

On the basis of the above finding it is therefore my view that the appellant is liable to pay the respondent the sums of money arising from the guarantees.

In view of the 7th and 8th grounds of appeal, the Court has been called upon to determine the applicability of the Turquand Rule vis-a-vis the provisions of the Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14] and the effect of such on the present appeal.

I therefore, for the sake of completeness, propose to deal with this issue.

Whether or not the appellant was liable to pay the respondent on the basis of the Turquand Rule

The appellant, in its closing submissions, sought to plead that the Turquand Rule did not apply as the Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14] specifically ousted it under section 30.

The court a quo, in dealing with the submission made by counsel, noted the following:

“In his closing submissions, Mr Moyo sprang a new argument. It had not been pleaded. It had never referred to it before. It was that the Bank was a statutory corporation the powers of which were set out in the enabling Act.

In summary, Mr Moyo's new argument was that anyone could check what the Bank could or could not do…,. Mugwara's conduct had been in contravention of the law.”

The court a quo held that regardless of the provisions of the Infrastructure Development Bank of Zimbabwe Act, and in spite of section 30 of the Infrastructure Development Bank of Zimbabwe Act, which makes the appellant immune to the provisions of the Companies Act, the actions of Francis Mugwara fell squarely within the scope of the presumptions of ostensible authority as depicted in section 12 of the Companies Act.

The importance of the Turquand Rule was stated in Arinaitwe v Africana Clays Ltd [2017] UGCOMMC 93 wherein the court stated that:

“The rule in Turquand's case, also known as the indoor management rule, is premised not on logic but on business convenience because a third party dealing with a company has no access to the company's indoor activities. It would be very unfair to the company's creditors if their company could escape liability on the ground that its officials acted irregularly when it was unaware of the internal procedures.

The Turquand Rule flows from the celebrated case of Royal British Bank v Turquand [1943-60] ALL ER Rep. 435 at page 437 H- 438 A where the court held the following:

'We may now take for granted that the dealings with these companies are not like dealings with other partnerships, and that the parties dealing with them are bound to read the statute and the deed of settlement. But they are not bound to do more. And the party here, on reading the deed of settlement, would find, not a prohibition from borrowing, but a permission to do so on certain conditions. Finding that the authority might be made complete by a resolution, he would have a right to infer the fact of a resolution authorizing that which, on the face of the document, appeared to be legitimately done.'

The Turquand Rule thus provides that when there are persons conducting the affairs of a company in a manner which appears to be perfectly consonant with the Articles of Association, those so dealing with them externally are not to be affected by irregularities which may take place in the internal management of the company. See Mahony v East Holyford Mining Co. (1874 - 75 LR 7 HL 869).

The exceptions to this rule are;

(i) Firstly, if the outsider was aware of the fact that the internal requirements and procedures have not been complied with (in other words, he acted in bad faith); and

(ii) Secondly, if the circumstances under which the contract was concluded on behalf of the company were suspicious, then the Turquand Rule cannot be raised as a defence.

The Turquand Rule is similar to the principle of ostensible authority in that both tenets seek to protect a third party against a principal or company which refutes actions done by agents or representatives without express authority.

A difference between the two appears to be based on the point that the Turquand Rule functions as a defence for the principal.

Where the principal argues that the third party was aware that internal procedures were not followed by the agent and that the contract was concluded on behalf of the company under suspicious means, such third party cannot be heard to claim that the principal is liable for the actions of the agent.

The third party should take due diligence in contracting with the principal through the agent.

Ostensible authority, on the other hand, acts as a defence for the third party who claims that, on the basis of the conduct and presentations of the agent on behalf of the principal, such conduct amounts to apparent authority justifying the third party's belief to contract.

In One Stop Financial Services (Pty) Ltd v Neffensaan Ontwikkelings (Pty) Ltd and Another 2015 (4) SA 623 (WCC); [2015] 4 All SA 88 (WCC) the court, at paragraph 25, stated the following in a bid to explain the difference between the Turquand Rule and ostensible authority:

'I think it will be found, from an analysis of these and other leading authorities, that the Turquand Rule is simply an adjunct, in the context of companies and other entities with Constitutions available to the public, of the law on ostensible authority, which is, in turn, a particular form of estoppel by representation.

(In Northside 10 Developments supra Brennan J said that Diplock LJ's lucid exposition in Freeman of the general principles of estoppel 'provides the framework within which the specifically “indoor management” cases are to be placed').'”…,.

Section 12 of the Companies Act codifies the common law principle of the Turquand Rule. See Govero v Ordeco (Private) Limited and Another SC25-14; Andrew Mills v Tanganda Tea Company Limited HH12-13.

The section provides for the presumption of regularity to an extent that any person who deals with a representative of a company is taken to presume that all procedures are regular.

Section 12 is further reinforced by section 13 of the same Act which provides that such liability is not affected even where the company alleges that the representative acted in a fraudulent way.

It was counsel for the appellant's argument that as the Bank is a statutory corporation founded under an enabling Act it cannot be subjected to the provisions of the Companies Act. Counsel made reference to section 30(2) of the Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14] (IDBZ Act) which provides that the provisions of the Companies Act, or any other law, do not apply to the Bank.

The appellant, however, did not plead this defence at the beginning of the proceedings before the court a quo but sought to introduce it in closing submissions. The appellant did not make an application for amendment of its plea.

The court a quo, after acknowledging that the point had not been pleaded by the appellant, went on to make a determination on it.

It seems to me that the argument raised by the appellant amounted to an amendment of its plea to include a defence on a point of law, that, on the basis of section 30 of the Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14] (IDBZ Act) the implied authority exercised by Francis Mugwara could not be a basis on which the respondent could make its claim.

It is trite that a court ought to be guided and to determine issues which are raised by the parties in the pleadings.

In Imprefed (Pty) Ltd v National Transport Commission 1993 (3) SA 94 (A), 108, the court cited with approval the case of Robinson v Randfontein Estates GM Co. Ltd 1925 AD 173 where…, the court emphasised the importance of pleadings. The court stated as follows:

“The object of pleading is to define the issues; and parties will be kept strictly to their pleas where any departure would cause prejudice or would prevent full enquiry. But, within those limits, the court has a wide discretion. For pleadings are made for the court, not the court for pleadings.

And, where a party has had every facility to place all the facts before the trial court and the investigation into all the circumstances has been as thorough and as patient as in this instance, there is no justification for interference by an Appellate tribunal, merely because the pleading of the opponent has not been as explicit as it might have been.”

See also Jowell v Bramwell-Jones 1998 (1) SA 836…,.; Farrell v Secretary of State for Defence (1980) 1 All ER 166…,.

Where a party seeks to have the court determine an issue or defence which was never pleaded, that party may only do so by way of application before the court. In terms of Order 20 of the High Court Rules, 1964 such application will be for an amendment of the pleadings.

The appellant sought to introduce a new defence in closing submissions. This was irregular.

The appellant ought to have made an application to re-open its case and thereafter applied to amend its plea and introduce the defence. The respondent would then have had an opportunity to address the defence raised.

It was thus improper for the appellant to raise a new point of law at the eleventh hour - which point the respondent had not been privy to, and which would obviously prejudice it.

In any event, it must not be forgotten that the respondent made its claim on the basis of the ostensible authority exercised by Francis Mugwara. The matter before the court a quo was thus determined on the basis of that ostensible authority.

The appellant, in its closing submissions filed of record, and in raising the defence on a new point of law, showed that it was aware that the matter was to be resolved on the point of whether or not Francis Mugwara had ostensible authority. The appellant…, stated the following:

“20. Consequently, this matter thus solely turns on whether Mr F. Mugwara was authorized to issue the guarantees or whether, in the absence of the said authority, the Second Defendant may be liable to the Plaintiff on the basis of the doctrine of ostensible authority as submitted in the Plaintiff's closing submissions.”

The court a quo, though erroneously giving regard to an argument which had not been properly pleaded, still arrived at the correct finding as it noted as follows:

“However, in spite of the ousting by section 30 of the Infrastructure Development Bank of Zimbabwe Act of the provisions of the Companies Act, and any other law relating to companies;…, I find that as between himself and the Bank, Mugwara had actual or implied authority to issue those guarantees. I find that as between Engen and the Bank, Mugwara had ostensible authority to issue the guarantees and to bind the Bank to third party recipients.”

The appellant was thus aware that the respondent's claim was made on the basis of the ostensible authority which had been exercised by Francis Mugwara as a representative of the Bank. The matter before the court a quo was correctly disposed of on whether or not Francis Mugwara had ostensible authority to act on behalf of the appellant.

Having found that he had ostensible authority to act on behalf of the appellant it thus follows that the arguments raised by the appellant on the effect of the Infrastructure Development Bank of Zimbabwe Act on the turquand rule fall away.

DISPOSITION

The court a quo correctly made factual findings which cannot be interfered with by this Court. The appeal must therefore fail.

Costs are to follow the cause. It is accordingly ordered as follows:-

The appeal be and is hereby dismissed with costs.

View Appeal
HH253-16 : ENGEN PETROLEUM ZIMBABWE [PVT] LTD vs WEDZERA PETROLEUM [PVT] LTD and INFRASTRUCTURE DEVELOPMENT BANK OF ZIMBABWE
Ruled By: MAFUSIRE J

This was a civil trial. The first defendant [“Wedzera”] was in default. On application by the plaintiff [“Engen”] in respect to which the second defendant [“the Bank” or “IDBZ”] had nothing to say, I entered a default judgment against Wedzera, in favour of the plaintiff, in the sum of $847,847=65, together with costs of suit and interest at the prescribed rate.

Most of the material facts were common cause.

Engen was an oil company. It sold bulk fuels. Wedzera operated filling stations at which it retailed fuels. IDBZ was a statutory corporation set up in terms of its enabling Act, the Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14] [“IDBZ Act”].

Engen's claim arose out of petroleum fuels sold and delivered to Wedzera in terms of an agreement between them. Wedzera had failed or neglected to pay. Engen claimed IDBZ had guaranteed the due payment by Wedzera up to an amount in the sum of $950,000. That amount was made up of two guarantees, one for $500,000 and the other for $450,000.

But, IDBZ disowned them. It argued that one of its ex-employees had issued them fraudulently or without authorisation.

Engen called two witnesses.

The first, Johannes Mudzengerere [“Mudzengerere”] had been Engen's Managing Director at the relevant time. He had been in charge of Engen's entire operations, including the procurement and disposal of fuel stocks.

Engen's second witness, Francis Mugwara [“Mugwara”], was the man at the centre of the guarantees. He had been subpoenaed just before the trial commenced. He was the one who had signed and issued the impeached guarantees. Figuratively, and perhaps not unexpectedly, the Bank sought to lynch him.

For the Bank, there were also two witnesses.

At the relevant time, Norbert Munengwa [“Munengwa”] had been an Assistant Director in charge of a unit or division called Private Sector Projects. He reported to the Chief Executive Officer. His portfolio covered the crafting of strategies, policy formulation, and business development. Within that sector Francis Mugwara had, at all relevant times, been the Head of the unit called Corporate Banking. It was formerly called the Short Term Loans Unit. He had joined it as Assistant Head, and had subsequently been promoted. He reported to Norbert Munengwa.

The Bank's second witness was Desmond Matete [“Matete”]. He was a qualified lawyer. At the relevant time he was the Director for Legal and Corporate Services. Amongst other duties, he was the custodian of the Bank's legal documents.

There was much convergence, or little controversy, on such key aspects of the evidence as would, in my view, decide the matter. Differences were mainly on peripheral issues and on the parties' application of the law to the facts.

Wedzera used to buy bulk fuels from Engen for cash. As its sales increased, it wanted more fuels - but on credit. Engen obliged. Wedzera signed Engen's standard credit facility application form. Johannes Mudzengerere ran it past Engen's agent for credit rating. He also sought and obtained clearance from Engen's head office in South Africa. Everything seemed in order.

Wedzera had to provide a Bank guarantee to guarantee the due payment for the fuels. These came from IDBZ.

During this period, 2010, the country's economy had just “dollarized”. A multi-currency system had been introduced following the demise of the local currency. Most companies' balance sheets had almost reduced to zero. As a re-capitalisation strategy, the Bank had decided to offer non-traditional or non-generic products that either avoided or minimised direct cash outlays, or that brought in quick income. The witnesses said the Bank was trading off-balance sheet. The Bank's new strategy concentrated on non-direct cash products such as short to medium term loans, Bankers' acceptances, Bills discounting and Bank guarantees. This strategy also involved the bulk importation of petroleum products and the procurement of fertilisers for disposal on the local market.

The Bank had set up a body known as the Private Sector Projects Committee [“the PSPC”]. This committee would grant global approvals and cap the upper monetary limits for any new projects. The members of this committee were the Bank's senior officials, including Norbert Munengwa and Desmond Matete. But heads of divisions, such as Francis Mugwara, were also members. Francis Mugwara was a member.

It was common cause that Francis Mugwara had the Bank's authority to market this new strategic innovation. He had the authority to procure new business, to manage, and grow it.

The point of departure between Francis Mugwara, on the one side, and Nobert Munengwa and Desmond Matete on the other, was the extent of Francis Mugwara's authority - specifically with regards to the issuing of guarantees.

Francis Mugwara claimed he had the authority to issue guarantees in favour of third parties and binding on the Bank, for as long as the amounts on them did not exceed the limits set by the Private Sector Projects Committee (PSPC). He claimed he could issue such guarantees on his single signature. He had access to the Bank's stationery - including sample guarantee forms. He managed Harare, Bulawayo and other towns. He was in charge of all staff falling under his unit. He insisted he had complied with all the standard operating procedures, not least opening an account for Wedzera and issuing it with a facility letter; raising bank charges and completing all other relevant documents. He claimed all the paper work had been placed in the relevant Bank records which Desmond Matete kept. He challenged Desmond Matete to produce those records.

Of some guarantees that were produced in evidence bearing two signatures and which the Bank gave as an example of what a valid guarantee was like, Francis Mugwara said these had been initiated by his subordinates who also had the authority to issue guarantees. However, guarantees by subordinates had to be countersigned by himself, as head of the unit, or else they would be invalid.

Nobert Munengwa and Desmond Matete vehemently disputed that Francis Mugwara could issue guarantees on his single signature and bind the Bank. They said all the Bank's guarantees had to be counter-signed. They said there were elaborate internal standard operating procedures. These had to be followed at all times that the Bank would offer any credit facility to anyone. Of the two guarantees in question, and some two others that Francis Mugwara had also issued on his single signature in favour of other third parties, Nobert Munengwa and Desmond Matete said they were invalid for lack of authority. They had never been brought up to the Private Sector Projects Committee (PSPC) for specific approval.

Nobert Munengwa and Desmond Matete also accused Francis Mugwara of fraud. They said when they had confronted him after Johannes Mudzengerere had called up the guarantees and was pressing for payment, Francis Mugwara had broken down and confessed to having been paid by Wedzera's Managing Director, one Eric Nhodza [“Nhodza”], an amount in the sum of $10,000 in return for the guarantees. The Bank had raised misconduct charges against him. However, he had ducked out of the disciplinary process by resigning.

Francis Mugwara denied the fraud. He denied the confession. He maintained he had issued the guarantees within the scope of his mandate.

It was common cause that the Bank had reported Francis Mugwara to the police. However, it was also common cause that the State had declined to prosecute for lack evidence.

For Engen, Johannes Mudzengerere said his first encounter with Francis Mugwara was when, a few days before the guarantees, Francis Mugwara had arrived at his office offering Engen two million litres of fuel. Francis Mugwara had introduced himself as the Bank's Head of Corporate Unit. He had produced his business card. However, the fuel deal had subsequently fallen through. When Wedzera was increasing its fuel purchases and was asking for supplies on credit, Johannes Mudzengerere had required the provision of security in the form of assets or guarantees from a reputable Bank. A few days later a Wedzera representative and Francis Mugwara had returned to Johannes Mudzengerere's office with a sample guarantee from IDBZ. Johannes Mudzengerere had been satisfied with the wording. He had been comfortable with IDBZ as a “Government Bank”.

The first guarantee had been issued. It was for $300,000. Engen never had to call it up. Wedzera had paid in accordance with the agreement. Wedzera had further increased its fuel purchases. It had provided further guarantees from IDBZ for $500,000 and $450,000.

It was on these last two guarantees that the case before me was all about. Wedzera had failed to pay. Its debt at the time of the default stood at $847,847=65. That was the amount claimed in the summons.

There was no issue about the wording of the guarantees.

When Johannes Mudzengerere called up the guarantees, Francis Mugwara got in touch with Wedzera. Wedzera wrote something to assuage Engen. Johannes Mudzengerere was un-impressed. He pressed for payment. Eventually, he got through to Nobert Munengwa. Nobert Munengwa disowned the guarantees. The Bank's position was that Wedzera was not, and had never been, a customer of the Bank. Among other things, and contrary to standard operating procedures, there was no record of any account having been opened for Wedzera before or after the guarantees had been incepted. No bank charges had been raised as fees for the guarantees. There was simply no paper trail relating to them. As far as the Bank was concerned, the purported guarantees had been an abuse of the Bank's stationery by Francis Mugwara. They were invalid.

Having faced a brick wall, Engen sued. That was essentially the case before me.

Counsel for the plaintiff argued that the Bank's defence was misconceived. From the facts, Francis Mugwara had the actual authority to issue the guarantees in question. He was the Head of the Bank's unit that had the requisite mandate to issue such type of Bank products. Francis Mugwara's contract of employment empowered him to issue such guarantees. Counsel for the plaintiff further argued that if it should be said that Francis Mugwara had no actual authority to issue the guarantees, then he undoubtedly had ostensible authority. The Bank had held him up as one with such authority. He had started off as Assistant Head in the Short Term Loans Unit. He had interacted with the public in that capacity. This unit had subsequently changed its name to Corporate Banking. Francis Mugwara had subsequently been promoted to head it. All this had been in the eyes of the public.

Counsel for the plaintiff highlighted that Francis Mugwara had access to the Bank's stationery. It had provided him with business cards, obviously to assist in the marketing of its products. One such product had been the non-generic, off balance sheet facility that involved minimal cash outlay. There were also other innovations, such as the non-traditional trade in fuels and fertilizers. Francis Mugwara had been mandated to market and manage them. Third parties, like Engen, could hardly be faulted for accepting Francis Mugwara's authority and his guarantees. Nothing warned them that he might be unauthorised. That he might have breached the Bank's in-house standard operating procedures, or that he might have exceeded the bounds of his authority, could not dis-entitle Engen from holding the Bank to the guarantees.

Counsel for the Bank explored Francis Mugwara's contract of employment in some detail and argued that nothing said therein could be said to amount to authority for Francis Mugwara to issue such guarantees on his single signature.

Counsel for the Bank further explored the Bank's standard operating procedures and concluded that Mr Mugwara had manifestly breached all the important check-lists. Among other things, Wedzera had never been a customer of the Bank. There was nothing on record to show that any of the account opening and account operating procedures had been put in place. No fees had been raised. No facility letter had been issued. No customer vetting had been done. The guarantees had never been brought up to the Private Sector Projects Committee (PSPC) for approval. There was not a single meeting convened for this business, let alone any minutes taken in respect of it.

To the Bank, Francis Mugwara was just a rogue.

He had taken a bribe for $10,000 in return for the guarantees. When confronted by Messrs Nobert Munengwa and Desmond Matete, he had confessed. To avoid disciplinary action he had simply resigned. He had an axe to grind with the Bank. He had been blacklisted and was no longer employable in the finance industry.

According to counsel for the Bank, Francis Mugwara had neither the actual nor the ostensible authority to issue those guarantees. Engen had been negligent in accepting them without verification. It should have checked with the Bank for their authenticity. On this particular point, Desmond Matete claimed, in his evidence, that it was the practice and custom in the capital markets that a third party who is given a guarantee, such as the type Francis Mugwara had issued, would run them past its own bankers. The bankers would know how to go about verifying them for authenticity.

Counsel for the Bank discredited Engen's credit rating process of Wedzera. He pointed out that on the credit facility application form, the Standard Chartered Bank, not IDBZ, had been listed as Wedzera's bankers. If Engen had been diligent or prudent enough, it should have been suspicious to be receiving from Wedzera guarantees from IDBZ instead of the Standard Chartered Bank.

In his closing submissions counsel for the Bank sprang a new argument. It had not been pleaded. It had never been referred to before.

It was that the Bank was a statutory corporation the powers of which were set out in its enabling Act. In summary, counsel for the Bank's new argument was that anyone could check what the Bank could or could not do. Among other things, only the Bank's Board and its Chief Executive Officer had the sole mandate to represent the Bank. Francis Mugwara's conduct had been in contravention of the law.

Counsel for the Bank quoted section 21 of the Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14] (IDBZ Act) in extenso. It sets out the procedures and requirements for financing by the Bank. Among other things, there can be no financing for any project without the Bank's Board having first considered it. An elaborate procedure is then set out on how the Board may go about considering a proposal for funding; what sort of things it must look for, and what conditions it may prescribe if the proposal is approved. It was argued that Francis Mugwara, not having followed, or caused to be followed, the statutory procedures, his guarantees were ultra vires the Infrastructure Development Bank of Zimbabwe Act, manifestly void, and, therefore, unenforceable.

Inevitably, reference was made to LORD DENNING'S seminal statement in McFoy v United Africa Co. Ltd [1961] 3 All ER 1169 [PC]…,; If an act is void, then it is a legal nullity. Such an act is not only bad, but also incurably so. There is no need for an order of court to set it aside. Every proceeding founded on it is also incurably bad:

“You cannot put something on nothing and expect it to stay there. It will collapse.”

Counsel for the Bank also referred to section 30 of the Infrastructure Development Bank of Zimbabwe Act (IDBZ Act). By this provision, the Bank is made immune from the provisions of the Companies Act [Chapter 24:04], or of any other law relating to companies.

This has huge significance.

Section 12 of the Companies Act codifies the common law rule of Company Law, also known as the Turquand Rule, after the 19th century English case of Royal British Bank v Turquand (1856) 6 E & B 327; (1843-60) 119 ER 886 in which the rule was first succinctly expounded.

This rule says that any person dealing with a company is entitled to make certain assumptions, such as that the company's internal regulations have been duly complied with. The company is estopped from denying the truth of such assumptions. Anyone is entitled to assume that every person whom the company represents to be its officer or agent has been duly appointed and has authority to exercise the functions customarily exercised by him: see Mills v Tanganda Tea Company Ltd 2013 [1] ZLR 38 [H]…,.

In terms of section 13 of the Companies Act, a company shall be bound in terms of section 12 notwithstanding that the person held out to be the officer or agent for it might have acted fraudulently or forged a document purporting to be sealed or signed on behalf of the company.

Plainly, but for section 30 of the Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14] (IDBZ Act), the Bank could never have mounted the kind of defence that it did herein, for Francis Mugwara's actions fell squarely within the scope of the presumptions of regularity prescribed by section 12 of the Companies Act.

However, in spite of the ousting by section 30 of the Infrastructure Development Bank of Zimbabwe Act (IDBZ Act) of the provisions of the Companies Act and any other law relating to companies; in spite of such further provisions of the Infrastructure Development Bank of Zimbabwe Act as may repose in the Bank's Board the sole power to represent it and to consider all funding proposals, and, furthermore, notwithstanding the Bank's argument that Francis Mugwara's powers might have been limited, I find that, as between himself and the Bank, Francis Mugwara had actual or implied authority to issue those guarantees. I find that as between Engen and the Bank, Francis Mugwara had ostensible authority to issue the guarantees and to bind the Bank to third party recipients.

LORD DENNING MR, in Hely-Hutchinson v Brayhead Ltd & Another [1968] 1 QB 549; [1967] 3 All ER 98 [CA] [quoted with approval by MPATI P in Northern Metropolitan Coal Council v Company Unique Finance [Pty] Ltd & Ors 2012 [3] All SA 498 [SCA]…, explained actual or implied authority as follows:

“[Actual authority] is express when it is given by express words, such as when a Board of Directors pass a resolution which authorises two of their number to sign cheques. It is implied when it is inferred from the conduct of the parties and the circumstances of the case, such as when the Board of Directors appoint one of their number to be Managing Director. They thereby impliedly authorise him to do all such things as fall within the usual scope of that office.”

BEADLE CJ, in Reed NO v Sager's Motors (Pvt) Ltd [1969] [2] RLR 519 [AD]…,; 1970 [1] SA 521 [RAD] [quoted with approval in Seniors Service [Pvt] Ltd v Nyoni 1986 [2] ZLR 293 [SC]] explained apparent or ostensible authority as follows:

“The word 'ostensible', in the Rhodes Motor Company case (1965 (4) SA 40), is used in the sense of 'apparent' and in the language of the law of agency these two terms are synonymous.

If a principal employs a servant or agent in a certain capacity, and it is generally recognised that servants or agents employed in this capacity have authority to do certain acts, then any of those acts performed by such servant or agent will bind the principal because they are within the scope of his 'apparent' authority. The principal is bound even though he never expressly or impliedly authorised the servant or agent to do these acts, nor had he by any special act [other than the act of appointing him in this capacity] held the servant or agent out as having this authority.

The agent's authority flows from the fact that persons employed in the particular capacity in which he is employed, normally have authority to do what he did.”

The principles that emerge from case authority in relation to the ostensible authority of employees in general, and Bank managers in particular, are that the principal [the employer] must have created an impression in the mind of the third party, even though that impression might be wrong, that his agent [the employee] had the requisite authority to transact on behalf of the principal. The third party must show a representation by words or conduct by the principal, not merely by the agent. The representation must have been in such form as would reasonably lead outsiders to act on the strength of it to their prejudice.

The court considers the façade of regularity of the employee's actions purporting to act on behalf of the employer, given all the trappings of his appointment as set in a context....,.

Francis Mugwara's job description empowered him “to generate, manage and control the Bank's short term lending portfolio as well as [to] supervis[e]…, Regional Offices.”

Expressly, he was tasked with ensuring that his unit achieved its set business volumes, and, significantly, he was also tasked with the “disbursements of funds on approved facilities.”…,.

Among Francis Mugwara's key decision making authority aspects was the approval of departmental expenses and the budgets for the Unit and the Regional Offices.

There was one further subtle detail on Francis Mugwara's job description.

Listed as one of the consequences of an error of judgment on his part in relation to, for example, financial/material loss, etc., i.e. what could happen to the organization if he made a wrong decision or failed to perform his job, was this:

“Catastrophic, as bad decisions can lead to the insolvency of the Bank through the creation of a bad Loan portfolio;” and:

“Reputation of the Bank can be on the line if prompt and correct decisions are not made”…,.

During trial, the Bank tried desperately to downgrade Francis Mugwara's position. It tried to strip him of all manner of authority.

I totally disagree.

The evidence on whether or not Francis Mugwara could issue guarantees on his single signature was inconclusive.

Francis Mugwara said he could. The Bank said he could not.

It did not refute, satisfactorily, Francis Mugwara's claim that it was only guarantees initiated by subordinates that required to be counter signed for validity. I find that the Bank failed to discharge the onus on such a key aspect of its defence.

Francis Mugwara was by no means a junior employee. I have found nothing from his contract of employment, or his job description, that precluded him from issuing those guarantees on his single signature.

Admittedly, these documents did not expressly say he could. But, equally, they did not expressly say he could not.

There was simply nothing in them that was specific to any type of product the Bank was offering at the time. But, when one considers, objectively, the overall job description and the trappings of his appointment; when one considers that an error of judgment on his part could lead to the Bank going bankrupt or putting its reputation at risk, I find that the issuing of the guarantees in the manner Francis Mugwara did, fell squarely within the scope of the risk the Bank had assumed when it appointed him to that position.

That, in my view, was implied authority for what Francis Mugwara did.

With respect, it was disingenuous for the Bank to try and seek refuge from the provisions of the Infrastructure Development Bank of Zimbabwe Act (IDBZ Act) that, as argued by counsel for the Bank, reposed in its Board of Directors or the Chief Executive Officer the mandate to represent it or to consider funding for new projects.

The argument was flawed because in terms of sections 4 and 4A of the Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14] (IDBZ Act), the Board is in charge of the policy and administrative affairs of the Bank - not its operations. It can supervise all the activities of the Bank. But, section 7 of the Infrastructure Development Bank of Zimbabwe Act empowers the Board to establish committees and vest them with the requisite authority for the better exercise of functions. Persons appointed to such committees need not be members of the Board.

I believe the Private Sector Projects Committee (PSPC) was one such committee.

As said before, Francis Mugwara was a member.

Furthermore, and at any rate, the Board can delegate its powers to the Chief Executive Officer, who may, in terms of section 9 of the Infrastructure Development Bank of Zimbabwe Act, employ staff necessary for the conduct of the Bank's business.

Nobody said that the Bank's innovative strategy, in offering non-traditional products in the post dollarization period, was not sanctioned by the Board.

Francis Mugwara was expressly authorised to market that vision. This was consistent with his job description. The Bank held him out to the world as one authorised to do so. It provided him with the necessary stationery to issue out the guarantees. He could incept them....,.

Francis Mugwara's position, as Head of Corporate Banking, who had business cards issued to him by the Bank confirming such status, was not a “nude appointment”. It was an appointment that had to be considered with “all its trappings”: see NBS Bank Ltd v Cape Produce Co [Pty] Ltd & Ors 2002 [1] SA 396 [SCA]; [2002] 2 All SA 262 [SCA].

Appealed
SC110-21 : UPSET INVESTMENTS (PRIVATE) LIMITED vs CHITUNGWIZA MUNICIPALITY
Ruled By: GARWE JA, HLATSHWAYO JA and BHUNU JA

This is an appeal against the judgment of the High Court dismissing the appellant's claim for US$119,300 being the balance of the purchase price for a 20-tonne Hyundai Excavator sold and delivered by the appellant to the respondent.

In dismissing the appellant's claim, the court a quo upheld the respondent's counterclaim and ordered the appellant to refund US$140,000 to the respondent, being the deposit paid towards the purchase of the excavator and front-end loader.

The brief summary of the case

The facts giving rise to the claim and counterclaim are hotly contested. The brief facts of the case are that the respondent is a Municipal Council duly constituted as such in terms of the Urban Councils Act [Chapter 29:15], whereas the appellant is a company in the business of selling excavators and front-end loaders.

Sometime in 2014, the parties concluded a contract of sale of a twenty-tonne excavator. The terms of the contract are in dispute.

The appellant's claim is, that, sometime in 2014, it sold and delivered, in good working order, a refurbished 20-tonne excavator for US$209,300 at the respondent's instance and request. The purchase price was payable in instalments with an initial deposit of US$90,000 and the balance of US$119,300 payable on delivery.

The appellant's complaint is, that, despite effecting delivery at the respondent's premises, on 19 June 2014, the latter refused or neglected to pay the balance of the purchase price.

The respondent denies breaching the contract of sale as alleged or at all and has counterclaimed for a refund of the deposit it paid on account of defective performance.

Its defence is that, on 16 May 2014, it floated a tender for the purchase of a brand new twenty-tonne Tracked Excavator to the tune of US$182,000. The advertisement read:

“MUNICIPALITY OF CHITUNGWIZA TENDER NOTICE NO. 05/11

Tenders are hereby invited, in terms of section 211 of the Urban Councils Act (Chapter 29:15) from reputable and legally registered companies and institutions to provide specified brand new plant and machinery to the Municipality of Chitungwiza….,.

Supply and Provision of Specified Plant and Machinery

1. Jet Machine (high velocity clearing machine).

2. Tracked Excavator (30 tonne).

3. Front End loader (3 tonne).

Tender specifications are available at Chitungwiza Municipality Head Office.”

The appellant won the tender to supply the respondent with a brand new 20-Tonne Tracked Excavator at the cost price of US$182,000 and a brand new 3-Tonne Front End Loader at the cost price of US$105,000.

It was therefore a material term of the contract that the appellant was to deliver a brand new excavator and front end loader.

The appellant, however, in breach of contract, delivered a refurbished dysfunctional excavator.

It was also a material term of the contract that the respondent would pay US$140,000 deposit for both machinery and the balance upon delivery. The respondent paid the deposit in terms of the contract but the appellant, in breach of contract, delivered a pre-owned, dysfunctional excavator without the necessary accessories.

To date, the appellant has not delivered the brand new machinery in terms of the contract.

That being the case, the respondent counterclaimed for specific performance in terms of the contract, or, alternatively, a refund of the deposit of US$140,000 paid in anticipation of the fulfilment of the terms and conditions of the contract.

The respondent also claimed payment of damages in the sum of US$30,000 for breach of contract as well as storage charges at the rate of US$20 per day from the date of summons to the date of collection of the defective refurbished excavator.

The claims for damages and storage charges were not persisted with and are not the subject of this appeal.

Thus, the court a quo was left with only two issues for determination. The issues were defined at the pre-trial conference as follows:

“1(a) Whether or not plaintiff (appellant) should be compelled to deliver a brand new excavator.

OR ALTERNATIVELY

(b) Whether or not the defendant (respondent) is entitled to a refund of the deposit paid.

2. Whether or not the plaintiff (appellant) is entitled to payment of the outstanding amount.”

Determination of the two issues by the court a quo

Upon consideration of the evidence before it, the court a quo found, that, the appellant was guilty of breach of contract. It dismissed the appellant's claim and sustained the respondent's counter-claim. Consequently, it ordered as follows:

“In the result, I order as follows:

1. The plaintiff's claim is dismissed.

2. The plaintiff pays the defendant US$140,000, being the refund of the deposit paid by the defendant towards the purchase of the Excavator and Front End Loader.

3. The plaintiff pays to the defendant costs of suit.”

The Appeal

Aggrieved by the above order, the appellant appealed to this Court for relief on five grounds. The five grounds of appeal attack the judgment a quo basically on failure to appreciate the sufficiency of evidence and failure to apply the turquand rule in its favour.

Analysis of the Facts and the Law

It is clear right from the outset, that, the cardinal question to be answered is the validity and fulfilment of the contracts allegedly concluded by the parties. In simple terms, the court a quo had to determine whether the contract was for brand new or refurbished machinery.

The parties relied on different contracts for their competing claims.

The terms of the two contracts are incompatible and at variance with each other. The respondent relied on the tender as advertised in the Herald newspaper with a wide circulation in the area. The appellant, however, denied having responded to the notice floated in the newspaper. Its Managing Director, Darlington Chirara, testified that he responded to a different notice pinned on the notice board at the respondent's registry office. It was his testimony that the notice was a tender for the procurement of a refurbished twenty-tonne crawling excavator and a refurbished three-tonne front end loader.

The appellant's sole witness, Darlington Chirara, was however unable to verify or prove the existence of the notice he claimed to have responded to on behalf of the appellant. Under cross-examination by counsel for the respondent, this is what he had to say:

“Q. Do you have proof to show that there was such a notice?

A. I do not have any documentary evidence. I could not have removed the notice that was on the notice board because others were supposed to come and see that notice.”…,.

What the appellant said under cross examination is ample proof, that, apart from his mere say so, he has no evidence of the existence of the offer he says he accepted for the provision of refurbished second hand machinery.

It is trite, that, a valid contract is constituted by an offer and acceptance.

The appellant, by his own admission, failed to establish the existence of the tender for the provision of refurbished second hand machinery. The onus was on the appellant to establish the existence of all the essential elements of a valid contract. Failure to establish the existence of such tender, on the alleged terms and conditions, was fatal to its case as there can be no acceptance without an offer.

The respondent's version was, that, it tendered for the procurement of a brand new twenty-tonne excavator and three-tonne front end loader by floating a tender in the Herald Newspaper. After observing all the legal requirements and procedures, it awarded the appellant the tender, as amended for the acquisition of a twenty-tonne tracked excavator instead of a thirty-tonne as originally tendered. The appellant duly accepted the tender and undertook to perform the contract in accordance with the given terms and conditions.

The respondent proffered evidence of the described tender notice by producing a copy of the relevant Herald newspaper cutting. It further produced copies of the related minutes of the procurement Board duly constituted in terms of section 210 of the Urban Councils Act [Chapter 29:15]. The meeting was held at the respondent's offices on 17 September 2013. It was attended by the appellant's two directors, namely, S. Mlambo and D. Chirara, who were accompanied by its legal practitioner Mr Mucheriwesi of Mushangwe and Company Legal practitioners. The respondent was represented by its Chamber Secretary, Human Resources Manager, Deputy Finance Director of Works and a medical doctor.

The minutes of that meeting speak for themselves.

The record of proceedings captures the recommendations of the Procurement Board as follows:

“…, that the tenders for the tenders of the supply of new machinery/equipment be awarded as follows:

“1. Scotia Steel (Pvt) Limited – jet machine for US$119,113=50.

2. Upset Investments (Pvt) Ltd – Tracked Excavator, 20 tonne for US$162,000.

3. Upset Investments (Pvt) Ltd Front End Loader, 3–ton for US$105,000.”

The meeting, having been apprised of the recommendations of the Procurement Board, agreed that:

“Upset investments (is) to supply and deliver brand new equipment within 10 days after receipt of 50% deposit of the total value. Further, the Chitungwiza Municipality undertook to pay legal fees as the lawyer's invoice sic). All payments were to be made through Upset Investments lawyers, Mushangwe and Company Legal Practitioners.”…,.

The documentary evidence proffered by the respondent was corroborated in every material respect by oral evidence from four witnesses.

In its plea, in reconvention, before the court a quo, the appellant however gave the impression that it responded to an amended extended tender of the original advertised tender. It was its plea in reconvention, that, the amended tender did not require the provision of new machinery. Paragraphs 4 and 5 of its plea in reconvention read:

“Ad paragraph 4

It is denied, when plaintiff in reconvention advertised its tender, it was not won by its deadline. It was then extended and revised.

Ad paragraph 5

The defendant, in reconvention, will aver that it submitted its bid during the extension. According to the specifications, it was not a requirement that the excavator ought to be brand new. The tonnage of same was also reduced.

It affirms that the tender won by the defendant in reconvention is not the same with the one initially advertised as evidenced by the discrepancy in tonnage of the excavator.”

While the Procurement Board minutes record the amendment downsizing the weight of the excavator from 30 tonnes to 20 tonnes, there is no record of the amendment of the requirement for the provision of brand new machinery. On the other hand, the appellant contended, without proof, that it responded to a notice pinned on the respondent's notice board for the supply of refurbished second hand machinery.

It is noteworthy, that, the appellant vacillated between saying that it responded to a notice pinned on the notice board and saying that it responded to an amended tender revised notice.

Such vacillation and inconsistency undermines the appellant's case.

The appellant's assertion, that the respondent offered to buy refurbished second hand machinery is not backed up by any proof of recommendations from the Procurement Board as is required by law.

Section 210(4) of the Urban Councils Act [Chapter 29:15] requires that any procurement of goods, materials, or services be subject to recommendations of the Procurement Board. The section provides as follows:

“A municipal council shall not procure any goods, materials, or services unless its municipal procurement board has made recommendations to the council thereon and the council has considered such recommendations.”

The section is couched in peremptory terms because it constitutes a prohibition coupled with the use of the mandatory term 'shall not'.

The appellant was unable to proffer any evidence of the Procurement Board having tendered for the procurement of second hand refurbished machinery. The evidence on record shows, that, before the full Council met to adjudicate over that tender, the then Town Clerk G. Tanyanyiwa, had, fifteen days earlier, written to the appellant advising him that he had won the tender to supply second hand refurbished machinery. The letter reads:

“Date 6/07/2011
Dear Sir/ Madam

REF: SUPPLY OF REFURBISHED TWENTY TONNE CRAWLING EXCAVATOR AND 3 TONNE FRONT END LOADER

Reference is made to the above.

You have been awarded the tender to supply the municipality with the above equipment. You are required to supply the equipment within 30 days from receipt of deposit which is going to be paid within the next 2 weeks. May you treat this order with urgency since there are disease outbreaks and we would like to use the equipment to arrest the spread of disease.”

It is needless to say, that, the above letter was false and in fact misleading, because, no such tender had been awarded by the respondent at that stage.

On the basis of the summation of the evidence in this case, no fault can be laid at the learned judge a quo's door for holding that the ruling contractual terms were as advertised in the Herald newspaper. The letter by G. Tanyanyiwa was pre-emptive and patently unlawful as he had no mandate to award such tender to the appellant without authority from Council.

In dealing with the unlawful and unbecoming conduct of G. Tanyanyiwa, the learned judge a quo had this to say:

“I do not believe that a Town Clerk's actions have the power to override the provisions that is (sic) peremptory. Therefore, the letter of Mr G. Tanyanyiwa, which was written on 6 July 2011, before the full Council meeting had been held on 21 July 2011, notifying the plaintiff that it had won the tender to supply refurbished machinery is therefore of no force or consequence. It does not bind the defendant. So the contract that was purportedly entered into and between the plaintiff and the defendant, pursuant to the letter which was written by G. Tanyanyiwa, is a nullity.”

In apparent concession that the Town Clerk acted unlawfully and unprocedurally, the appellant sought to rely on the Turquand rule in an attempt to sanitise and regularise G. Tanyanyiwa's unlawful and irregular conduct.

The Turquand rule is derived from the famous British case of Royal British Bank v Turquand 1856 199 ER 886.

In that case, the directors of the respondent company could borrow on behalf of the company under a company resolution. Two directors of the company signed a bond on behalf of the company, under the company seal, without the requisite company resolution. When pressed for payment, the company objected on the basis that the directors had signed without company resolution. The court held, that, when dealing with a corporate body, parties are not bound to do more than peruse the statutes of the company: and if the power to transact is given in the statute, then, the party so contracting has the right to infer that the authority to so contract on the part of the corporation has been perfected by the necessary resolutions.

In other words, a party contracting with a company is entitled to assume that all the internal procedures have been complied with, provided the company has the power to transact.

This case can easily be distinguished from Royal British Bank v Turquand 1856 199 ER 886 on two grounds:

(a) First, the respondent, being a Municipality, was expressly prohibited by section 210(4) of the Urban Councils Act from contracting without the necessary recommendations from the Procurement Board and approval from Council.

A statutory prohibition is mandatory and binding on the parties as everyone is presumed to know the law regardless of whether one has read and understood the law.

No such statutory prohibition bound the respondent in Royal British Bank v Turquand 1856 199 ER 886.

The finding by the learned judge in the court a quo, that the unsanctioned contract to provide refurbished machinery was a legal nullity, as it was prohibited by law, is beyond reproach.

The argument, that section 210 of the Urban Councils Act constitutes internal issues unbeknown to the appellant is therefore baseless and without any foundation at law. The respondent had therefore no capacity to transact in contravention of the law.

(b) Second, the letter written to the appellant by the Town Clerk, G. Tanyanyiwa, conveying the message that the appellant had won the tender to supply the machinery was false in fact and misleading. It was written without Council authority fifteen days before the adjudication of the tender. The letter was fraudulently calculated to prejudice other bidders, and the respondent, because it was meant to abort the whole purpose of the tender to identify the most suitable bidder for the supply of the advertised new machinery.

As correctly observed by the learned judge a quo, the Turquand rule cannot override a statutory prohibition. This is for the simple reason that the rule was not designed to promote and perpetuate illegality. It is meant to protect gullible members of the public who innocently contract with company agents oblivious of their failure to observe internal procedures.

Reliance on case law where the rule was applied in our jurisdiction was therefore misplaced, because, in this case, the purported contract was void ab initio and a nullity at law on account of fraud and statutory prohibition.

View Appeal
HH100-17 : UPSET INVESTMENTS (PRIVATE) LIMITED vs CHITUNGWIZA MUNICIPALITY
Ruled By: MUREMBA J

The plaintiff issued summons claiming the following:

“(i) Payment of the sum of US$119,300 being the remaining balance of the agreed purchase price for one x 20 Tonne Hyundai Excavator, sold and delivered by the plaintiff to the defendant, at its specific instance and request.

(ii) Interest at the prescribed rate calculated from the date of delivery, being 19th of June 2014, to the date of full payment.

(iii) Costs of suit on a legal practitioner and client scale.”

In its declaration, the plaintiff averred the following:

In 2011, the parties entered into a procurement contract in which the defendant ordered one by 20 tonne hydraulic excavator from the plaintiff. The agreed purchase price was US$209,300 inclusive of VAT. The defendant was obliged to pay 50% deposit towards the purchase price. The remaining balance was payable upon delivery of the excavator.

In partial fulfilment of the agreement, the defendant paid, in instalments, the sum of US$90,000 as part deposit to the agreed purchase price.

The plaintiff accordingly delivered the excavator on 19 June 2014 which delivery was accepted. The excavator was accepted in good working order by the defendant at its premises.

The defendant has, despite demand, refused or neglected to pay the outstanding balance of US$119,300....,.

To the merits, the defendant averred, that, the plaintiff delivered a defunct Hyundai Excavator contrary to the undertaking that it made that it would deliver a new excavator. It had to incur unnecessary costs in having the excavator checked by an independent company. The defendant averred, that, it will only effect payment of the balance after delivery of a brand new and properly functioning machinery.

The defendant also made a counter claim. It averred the following:

On 16 May 2014, it advertised a Tender Notice in the Herald newspaper in terms of section 211 of the Urban Councils Act [Chapter 29:15]. The notice was inviting tenders for the supply of brand new machinery, viz:

(i) One Jet machine Chigu Velocity clearing machine.

(ii) One Tracked Excavator 30 tonne.

(iii) One Front End Loader.

On 18 July 2011, the defendant in reconvention won the tender to supply it with a 20 tonne Tracked Excavator and a 3 tonne Front End loader. It was a term of the agreement that:

(a) The defendant in reconvention would deliver a brand new excavator and a brand new front-end loader.

(b) The plaintiff in reconvention would pay the deposit of the agreed purchase price before delivery of the machinery.

(c) The plaintiff in reconvention would pay the outstanding purchase price upon delivery of the machine.

The plaintiff in reconvention paid the initial deposit to the defendant in reconvention on 29 January 2014 in the sum of US$140,000. On 19 June 2014, the defendant in reconvention delivered a dysfunctional excavator in breach of the agreement terms.

It has refused and failed to deliver a brand new machinery.

The plaintiff in reconvention has been prejudiced by the breach. The plaintiff in reconvention is entitled to specific performance of the agreed terms of the contract. Alternatively, it is entitled to restitution of US$140,000 being the deposit paid as part of the purchase price and damages for breach of contract. Consequently, it claims for:

“(a) An order compelling the defendant in reconvention to deliver brand new excavator and Frond End loader to the plaintiff in reconvention in terms of the agreement.

(b) Alternatively, an order compelling defendant in reconvention to pay the sum of US$140,000 being the deposit paid as part of the purchase price.

(c) An order compelling defendant in reconvention to pay US$30,000 as damages for breach of contract.

(d) An order compelling defendant in reconvention to pay US$20 per day from date of summons to date of collection being storage fees for the excavator.

(e) An order compelling defendant in reconvention to pay interest at the rate of 5% per annum from the date of demand to date of payment in full.

(f) Costs of suit on a legal practitioner client scale.”

The defendant in reconvention pleaded as follows to the counter-claim:

When the plaintiff in reconvention advertised its tender notice, the tender was not won by the deadline. The tender notice was then revised and extended.

It (the defendant in reconvention) submitted its bid during the extension.

According to the specifications of the re-advertised tender notice, it was not a requirement that the excavator be brand new. Even its tonnage had also been reduced. The tender that was won by the defendant in reconvention was not as per the initially advertised tender notice as evidenced by the discrepancy in tonnage of the excavator.

The defendant in reconvention averred, that, at all material times, the plaintiff in reconvention was fully aware that the excavator to be supplied would be pre-owned.

When the excavator was delivered, it was inspected by all responsible authorities and then certified to be in good working condition. The parties did not agree that the machinery to be supplied would be brand new.

The defendant in reconvention prayed for the dismissal of the counter claim with costs on a higher scale.

In its replication, the plaintiff in reconvention averred the following:

The excavator was supposed to be new. It disputes that the tender that was won by the defendant in reconvention was not the one that was initially advertised. The defendant in reconvention was paid the deposit for both the excavator and front end loader after a meeting was subsequently held. It disputes that the excavator that was delivered was in good working condition.

At the pre-trial conference, the parties agreed that the issues for trial were:

1(a) Whether or not the plaintiff should be compelled to deliver a brand new excavator; or, alternatively

1(b) Whether or not the defendant is entitled to a refund of the deposit paid.

2. Whether or not the plaintiff is entitled to payment of the outstanding amount.

To prove its case, the plaintiff led evidence from one witness, Darlington Chirara, who is its Managing Director since 2007.

His evidence was as follows:

In June 2011, he went to Chitungwiza Municipality head office chasing after his payment. At the Registry section notice board there was a tender notice asking for a refurbished 20 tonne Crawling Excavator and a 3 tonne Front End loader. Tender documents were going for US$5,000.

He went back the next day and bought the tender documents which included a tender form which was supposed to be filled in duplicate and attached to the quotation. He filled in the tender form for the excavator and attached it to his quotation and had them stamped by the defendant's registry section on 9 June 2011 on receipt.

The tender document, together with the tender form and the quotation, were produced as exhibit(s) 4 and 5…,.

The tender reference number for the supply of the excavator is CH.05/11.

Darlington Chirara said, that, on the tender form, he filled in the condition of the machinery as a 200g Model, a Hyundai Model which had already done 2,972 hours as it was a second hand. Its under-carriage life percentage was 76% meaning that 24% was already worn out or gone because of use.

He said that in exhibit 5, which is the quotation, he quoted a 20 tonne excavator valued at $182,000.

He said that, on 7 July 2011, he received a letter from the defendant saying that the plaintiff had won the tender to supply a refurbished 20 tonne excavator and a 3 tonne front-end loader.

The letter was produced by consent as exhibit 6 in the supplementary bundle.

The letter was written on 6 July 2011 to the directors of the plaintiff, by G. Tanyanyiwa, who was the then Town Clerk. It is on the defendant's letter head. It reads:

“REF: Supply of refurbished 20 tonne Crawling Excavator and 3 tonne Front Loader

Reference is made to the above.

You have been awarded the Tender to supply the Municipality with the above equipment.

You are required to supply the equipment within 30 days from receipt of deposit which is going to be paid within the next 2 weeks.

May you please treat this order with urgency since there are disease outbreaks and we would like to use the equipment to arrest the spread of diseases.”...,.

During cross-examination, Mary Mukonyora, who is the defendant's Acting Chamber Secretary, said that she got employed by the defendant on 1 October 2012 as Head of Human Resources, and, in 2015, she assumed the position of Acting Chamber Secretary.

She admitted, that, the letter notifying the plaintiff of having won the tender to supply a 20 tonne refurbished excavator and a 3 tonne front end loader, which was written by G. Tanyanyiwa, the then Town Clerk, on 6 July 2011 (exhibit 6) and the minutes of the Procurement Board recommending that the plaintiff supplies a 20 tonne excavator and 3 tonne front end loader were consistent.

She said that she, however, doubted the authenticity of the letter of G. Tanyanyiwa. She said that she doubted if it was genuine.

She, however, admitted, that, other than this document which was written by G. Tanyanyiwa, there is no any other document from the defendant which notified the plaintiff of having won the tender....,.

George Makunde, the current Town Clerk of the defendant, testified as follows:

He said that he joined the defendant in August 2012 and got to know about this case through a perusal of the defendant's documents.

He outlined the procedure that is followed by the defendant in procuring equipment.

He said that a Tender Notice is flighted in a national newspaper guided by section 30 and 31 of the Procurement Act [Chapter 22:14] inviting the submission of tenders. The Procurement Committee/Board then deliberates on the submitted tenders and makes recommendations in terms of the award of the tender to the winner of that particular tender. The recommendation is made to a formally constituted full Council of the defendant in the form of a report. Full council then makes a resolution on the issue which resolution then allows or authorises the Town Clerk, as the Chief Executive Officer or Accounting Officer, to then notify the winning tenderer for the provision of the goods or service so required.

The witness alluded to the Tender Notice that was flighted by the defendant; the minutes of the Procurement Committee of 23 June 2011; and the minutes of the full Council meeting of 21 July 2011 that Mary Mukonyora referred to in her evidence.

His evidence on all these documents was similar to that of Mary Mukonyora in all material respects....,.

The witness said that he suspected that the letter that was written by the then Town Clerk, G. Tanyanyiwa, on 6 July 2011, notifying the plaintiff that it had won the tender to supply a refurbished excavator and front-end loader was as a result of a collusion between Mr. Tanyanyiwa and the plaintiff because it was written before the full Council of the defendant had made a resolution on 21 July 2011 to award the tender as per recommendations by the Procurement Committee which had set on 23 June 2011....,.

What is disturbing about this case is that, on 23 June 2011, when the defendant's Procurement Committee/Board set and recommended, in its report to full Council, that the tender for the supply of a brand new excavator and front end-loader be awarded to the plaintiff, Mr G. Tanyanyiwa, the then Town Clerk, was in attendance.

In terms of procedure, the recommendation was subject to adoption as a resolution by a full Council meeting. Such a meeting was only held on 21 July 2011.

The Town Clerk, Mr. G. Tanyanyiwa, even attended that meeting as well.

At that meeting, full Council passed a resolution that the plaintiff be awarded the tender to supply a brand new excavator and front end loader.

What is buffling is that, on 6 July 2011, well before full Council had sat, Mr. G. Tanyanyiwa wrote to the plaintiff notifying it that it had won the tender to supply a refurbished excavator and frond-end loader.

Two questions arise:

(i) Firstly, why did he notify the plaintiff that it had won the tender before full Council had held a meeting to pass the recommendation as a resolution?

(ii) Secondly, why did he tell the plaintiff that it had won the tender to supply refurbished machinery?

These queries or questions show that the then Town Clerk was not conducting himself properly in the discharge of his duties.

This is worsened by the fact, that, he was in attendance at the full Council meeting which was later held on 21 July 2011 which adopted the recommendations of the Procurement Committee/Board which stated that the plaintiff was to supply brand new equipment.

When the adoption of the recommendation was made, he knew that he had already notified the plaintiff that it had won the tender to supply refurbished equipment - but he did not inform the Council.

Obviously, that is a sign that he knew that what he had done was improper.

This is further evidenced by the fact, that, after full Council had passed the resolution to award the tender to the plaintiff, he did not write a letter notifying the plaintiff about it as he was supposed to do as per procedure.

The critical question now is: is the defendant bound by the irregular conduct of its employee, the Town Clerk, who told the plaintiff that it had won the tender to supply refurbished machinery when in fact it wanted to be supplied with brand new machinery?

The plaintiff's counsel submitted, that, by virtue of the turquand rule, the defendant is bound.

I must point out from the onset, that, the turquand rule is a principle of company law.

In terms of the turquand rule, if a party transacts with a company only to later discover that the director lacked the authority to bind the company, the company may be forced to honour the transaction if the transaction was completed in good faith by the other party.

The rule is based on the English case of Royal British Bank v Turquand 1856 119 ER 886, wherein it was held, that, people transacting with a company are entitled to assume that internal company rules have been complied with even if they are not. The exceptions to this rule are:

(i) Firstly, if the outsider was aware of the fact that the internal requirements and procedures have not been complied with (in other words, he acted in bad faith).

(ii) Secondly, if the circumstances under which the contract was concluded on behalf of the company were suspicious.

Counsel for the plaintiff went on to cite the case of Potchefstroom se Stadsraad v Kotze 1960 (3) SA 616 AA…,. The case involved a municipality. The turquand rule was held to be applicable to municipalities.

In that case, the Town Clerk, just like in this case, had written a letter to the respondent cancelling the lease agreement between the municipality and the respondent when the municipality had not authorised the cancellation of the lease agreement. The municipality was now demanding money for rent from the respondent and a dispute arose as the respondent refused to pay saying that the lease agreement had been cancelled. The court held that:

“A municipality, in the normal exercise of its functions, necessarily concludes contracts with members of the public. It would be unbusiness-like if the respondent had been duly bound, when he received the Town Clerk's letter, to make enquiries to ensure that the Town Clerk was in fact authorised by the Town Council to convey the cancellation.”

Applying the law to the present case, counsel for the plaintiff submitted, that, the internal workings of Council are not known to the plaintiff, and, as such, there is a presumption of regularity in the adherence to Council procedures which makes it impossible for the defendant to escape liability on the basis that Mr. Tanyanyiwa had not been authorised by the defendant to write the letter that he wrote on 6 July 2011.

To begin with, with all due respect, I am not in agreement with the reasoning in Potchefstroom se Stadsraad v Kotze 1960 (3) SA 616 AA that the turquand rule is applicable to municipalities.

I see no basis for saying that.

Municipalities and companies are different entities.

In terms of section 131 of the Urban Councils Act [Chapter 29:15], a Town Clerk is an employee of the defendant (municipality) and his duties are outlined in section 136. These involve the administration of council, managing operations and property of council, supervise the activities of council employees, and any other duties that may be assigned to him by the Council.

The Urban Councils Act does not give the Town Clerk powers to take over the functions of Council when it comes to procurement issues and make binding decisions on its behalf.

The Urban Councils Act has provisions which deal with how goods and services are procured and those provisions are worded in peremptory terms as they use the words 'shall' and 'shall not'.

In terms of section 210(1) of the Urban Councils Act, every municipal council shall appoint a Procurement Board which is responsible for arranging tenders and for making recommendations to Council in regard to the acceptance of tenders and the procurement of goods, materials, and services.

In terms of section 210(4) of the Urban Councils Act:

“A municipal council shall not procure any goods, materials, or services unless its municipal procurement board has made recommendations to the council thereon and the council has considered such recommendations.”…,.

I do not believe that a Town Clerk's actions have the power to override the wording of the provisions that is peremptory.

Therefore, the letter of Mr. G. Tanyanyiwa, which was written on 6 July 2011, before the full Council meeting had been held on 21 July 2011, notifying the plaintiff that it had won the tender to supply refurbished machinery is therefore of no force and consequence. It does not bind the defendant.

So the contract that was purportedly entered into by and between the plaintiff and the defendant pursuant to the letter which was written by G. Tanyanyiwa is a nullity.

Assuming that the turquand rule is applicable to municipalities, as was held in Potchefstroom se Stadsraad v Kotze 1960 (3) SA 616 AA, it would not be proper to hold the municipality bound by the actions of a Town Clerk because a Town Clerk is not a functionary of the municipality but an employee.

A councillor, instead, would bind the municipality because a council is run by councillors, not by its employees.

I would equate a councillor to a director of a company.

In terms of the turquand rule, an employee of a company does not bind the company if he purports to act on behalf of the company.

So, in the present case, even assuming that the Tender Notice was properly advertised, the letter that was written by the then Town Clerk, Mr. G. Tanyanyiwa, would not bind the defendant because he had no authority to enter into contracts on behalf of the defendant as he was not a councillor, but just an employee.

HH99-18 : C F (PVT) LTD vs ZIMBABWE REVENUE AUTHORITY
Ruled By: KUDYA J

The respondent is created by section 3 of the Revenue Authority Act [Chapter 23:11] as a single entity with the seamless functions outlined in section 4, amongst which is the assessment, collection, and enforcement of the payment of all revenues under the administrative purview of a single Commissioner-General appointed in ...

CC02-21 : TEMBA MLISWA vs PARLIAMENT OF THE REPUBLIC OF ZIMBABWE
Ruled By: MALABA CJ, GWAUNZA DCJ, GARWE AJCC, MAKARAU AJCC, GOWORA AJCC, HLATSHWAYO AJCC and PATEL AJCC

BackgroundThe applicant is a duly elected Member of Parliament for the Norton Constituency. On 24 June 2020, during an ordinary sitting of the National Assembly over which the Speaker of Parliament was presiding, he was removed from Parliament and suspended for six consecutive sittings for allegedly behaving in a violent ...

Background

The applicant is a duly elected Member of Parliament for the Norton Constituency. On 24 June 2020, during an ordinary sitting of the National Assembly over which the Speaker of Parliament was presiding, he was removed from Parliament and suspended for six consecutive sittings for allegedly behaving in a violent and grossly disorderly manner.

The expulsion and suspension were ordered by the Speaker of Parliament (“the Speaker”).

Aggrieved by the expulsion and suspension, the applicant filed this application on 20 July 2020. The application, brought specifically in terms of section 167(2(d) of the Constitution, alleged that the respondent had failed to fulfil a constitutional obligation to ensure compliance with its Standing Orders.

In particular, the applicant sought to demonstrate how the expulsion was inconsistent with the procedures and the powers granted to the Speaker by the Standing Orders and in terms of which the Speaker purportedly acted.

The applicant further denied having been disorderly as alleged or at all. He also challenged the propriety and validity of the punishment that was meted out to him on the basis that he was not afforded the right to be heard before he was punished.

The application was opposed with the respondent's opposing affidavit being deposed to by the Speaker.

In addition to opposing the matter on the merits, the respondent raised five preliminary points.

Not necessarily in the same order in which the points were raised in the opposing affidavit, the respondent;

(i) Challenged the jurisdiction of this Court;

(ii) The validity of the application itself, by alleging that it was fatally defective for want of compliance with the rules of the court; and

(iii) The efficacy of the relief sought which it alleged was moot since the applicant had already served the punishment by the time of the filing of the application.

(iv) The respondent also challenged the non-joinder of the Speaker which it alleged was fatal to the application; and

(v) Finally, it requested that this Court withholds its jurisdiction as the matter was pending before the High Court where similar relief had been sought under case no. HC3367/2020.

Regarding the merits of the application, the respondent contended, in the main, that, the applicant had indeed behaved in a disorderly manner and that the punishment meted out to him was appropriate and in accordance with the powers granted to the Speaker by the Standing Orders. The respondent specifically denied, that, the Speaker had exceeded his authority and powers as alleged in the application or at all.

The Issue

As stated above, the respondent raised the issue of the jurisdiction of this Court as one of its preliminary points. This it however did in direct response to the allegation that the applicant had not been afforded the right to be heard before he was punished.

In response to this specific allegation, the respondent contended, that, the applicant ought to have approached the High Court on review, challenging the procedure leading to his punishment. It was thus the position of the respondent, erroneously held in my view, that, since the High Court also enjoyed review jurisdiction in the matter, the jurisdiction of this Court was not triggered.

Whilst nothing turns on this point, I wish to note, in passing, that, this Court enjoys concurrent jurisdiction with other courts in constitutional matters. The coincidence of jurisdiction with the other courts does not oust the jurisdiction of this court.

The position may be contrasted with instances where this court has been granted exclusive jurisdiction. In those instances, naturally, it is the jurisdiction of the other courts that is ousted even if the matter is, technically, a constitutional matter.

Without necessarily accepting as correct the basis upon which the respondent challenged its jurisdiction in the matter, the court, was, on its own accord, concerned with whether its jurisdiction had been triggered at all by the averments made in the application taken in their totality.

It therefore raised the issue for preliminary argument.

The specific question put to both parties for the preliminary address was whether the applicant had chosen the appropriate forum and remedy for the vindication of his alleged injury.

Therefore, the sole issue that fell for determination in this preliminary ruling was whether the conduct complained of by the applicant was conduct signifying failure by the respondent to fulfil a constitutional obligation.

The Submissions

In the main, counsel for the applicant submitted, that, by failing to follow the provisions of its own Standing Orders, the respondent had failed to uphold the rule of law and had acted without due process.

To buttress his submissions in this regard, counsel relied heavily on the principles of constitutional supremacy and accountability and on which he expended the bulk of his time and energy.

Regarding the jurisdiction of this Court, counsel submitted, that, this court had jurisdiction as the respondent had a constitutional obligation which it breached “through its Speaker”.

It was thus his argument, that, the Speaker and the respondent were inseparable and that once he was in the House, the Speaker represented the respondent. On that basis, he invited us to find, as a fact, that, the expulsion and suspension of the applicant was conduct by the respondent “through its Speaker”.

Counsel for the respondent, in turn, submitted, that, the application was not properly before the court as the conduct complained of was not that of the respondent.

It was his argument, that, the Speaker is separate and distinct from the respondent.

In support of this argument, counsel maintained the respondent's position, once again erroneously held in my view, to the effect, that, the Speaker ought to have been cited as a co-respondent in this application as he was the decision maker in the instance and it is his conduct that allegedly violated the provisions of the Standing Orders.

The Law

That the power granted to the courts by the new Constitution, to hold public officers accountable to the Constitution, marks a clear departure from the State power sharing arrangement provided for under the repealed Constitution, and the jurisprudence that emerged under that order is now commonplace.

Our constitutional order has evolved from one where the conduct of those wielding public power was predominantly immune to judicial review, insulated and shielded from such by the strict application of the doctrine of separation of powers, to one where the conduct of all public affairs must measure up to the constitutional imperatives under the watchful eye of the judiciary, which, in turn, is also obliged to always venerate the Constitution.

Commenting on the new constitutional order, PATEL JA, in Judicial Service Commission v Zibani & Others SC68-17 had this to say:

“It is axiomatic that Zimbabwe is a constitutional in contradistinction to a parliamentary democracy: see Biti & Anor v Minister of Justice, Legal and Parliamentary Affairs & Anor 2002 (1) ZLR 177 (S) at 190A-B. This fundamental principle and its concomitant legal ramifications are codified in section 2 of the Constitution as follows:

(1) This Constitution is the supreme law of Zimbabwe, and, any law, practice, custom or conduct inconsistent with it is invalid to the extent of the inconsistency.

(2) The obligations imposed by this Constitution are binding on every person, natural or juristic, including the State and all executive, legislative, and judicial institutions and agencies of government at every level, and must be fulfilled by them.”

Adding a building block onto the now settled jurisprudence on the new Constitutional dispensation, HLATSHWAYO JCC, in Chironga and Another v Minister of Justice, Legal and Parliamentary Affairs and Others CC14-20 opens his judgment by noting that:

“One of the crucial elements of the new constitutional dispensation, ushered in by the 2013 Constitution, is to make a decisive break from turning a blind eye to constitutional obligations. To achieve this goal, the drafters of the Zimbabwean Constitution Amendment No.20 Act 2013 (“the Constitution”) adopted the rule of law and the supremacy of the Constitution as some of the core founding values and principles of our constitutional democracy. For this reason, public office bearers ignore their constitutional obligations at their own peril.”

The above remarks are ample evidence, if any is needed, that, the doctrines of constitutional supremacy and accountability, under the new Constitution, have been fully embraced by this Court and underpin the jurisprudence that is emerging therefrom.

Detailed and spirited submissions by counsel for the applicant on these principles, whilst necessary to establish the baseline from which all other arguments in the matter would be considered, were thus as effective as preaching to the clergy.

Similarly, this Court has also accepted and holds as the correct position at law, that, the respondent has an obligation to protect the Constitution and to promote democratic governance in Zimbabwe.

It accepts, that, the respondent has the obligation to uphold, among others, the rule of law and supremacy of the Constitution - two of the founding values and principles set out in the Constitution.

In Gonese & Anor v Parliament of Zimbabwe & Ors CC04-20, MALABA CJ noted…, that, there are provisions in the Constitution that impose obligations on the respondent as directly enforceable law. In his words:

“There are provisions of the Constitution which impose obligations on Parliament. The Constitutional provisions impose the obligations on Parliament as directly enforceable law.

Section 119 of the Constitution imposes an obligation on Parliament to protect the Constitution and promote democratic governance in Zimbabwe. The obligation imposed on Parliament, by section 328(5) of the Constitution, is that it must not pass a Constitutional Bill at the last reading in the National Assembly and the Senate except by affirmative votes of two-thirds of the membership of each House.”

As stated above, the submissions by counsel for the applicant on the supremacy of the Constitution and the transition from non-accountability to full accountability, under the Constitution, by all wielders of public power, whilst correct, do not go anywhere near addressing the issue that arises in this matter.

The issue that arises is whether the respondent acted at all or omitted to act, and, in so doing, failed to fulfil an obligation imposed upon it by the Constitution as envisioned by section 167(2)(d) of the Constitution.

The power granted to this Court “to determine whether Parliament or the President has failed to fulfil a constitutional obligation” is a specific and deliberate mechanism introduced into the procedures of this Court to ensure that Parliament, and the President, fulfil their respective constitutional obligations.

It is necessarily granted, in clear and unambiguous terms, to constitute the vehicle only through which the supremacy of the Constitution can be fully realised and the provisions of section 2(2) of the Constitution fulfilled in respect of Parliament and the President.

It sets the tone for the exercise of constitutional jurisdiction by the other courts over all other wielders of State power. The mechanism is therefore a deliberate attenuation of the applicability of the doctrine of separation of powers among the organs of State.

For the effective and smooth functioning of the State, the comity that must exist between the judiciary and the other organs of State must, as before, act to restrain this Court from using its special jurisdiction save in strict compliance with the section.

Quite apart from the comity considerations, the ambit of the court's jurisdiction, under section 167(2)(d) of the Constitution, is procedurally limited by the requirements of the cause of action that is created by the section.

These are clear cut. They are:

(i) An identified constitutional obligation; and

(ii) Conduct or an omission by the respondent signifying a failure to fulfil the obligation.

The two requirements are not consecutives but are concomitants, both of which must be alleged and proved.

In Doctors for Life International v Speaker of The National Assembly & Ors 2006 (6) SA 416 (CC), NCOBO J…, observed, that, a claimant who seeks, under the South African Constitution, to vindicate a constitutional right by impugning the conduct of a State functionary must identify the functionary and impugned conduct with reasonable precision.

To plead one's case with precision is a rule of procedure that I believe also applies with equal force to all applications brought under section 167(2)(d) of the Constitution.

I shall revert to this point below.

The special jurisdiction, not being inherent, cannot be invoked over all persons and over all constitutional matters.

In particular, it being a special vehicle to hold the other two organs of State accountable, the exclusive jurisdiction of this Court cannot be invoked to inquire into the conduct of other State agencies who are not Parliament or the President.

For these other actors, common law causes of action abound and the jurisdiction of this Court over such matters is shared with the other courts in the land as stated in passing above.

Put differently, the only permissible respondents under an application in terms of section 167(2)(d) of the Constitution are Parliament or the President.

Therefore, and limiting myself to the facts of this matter, the special jurisdiction cannot be invoked to determine whether the conduct of the Speaker, for instance, was a failure to fulfil a constitutional obligation.

On the basis of the above, I wish to comment, once again, in passing, that, it is impermissible to join another party as respondent to an application brought under section 167(2)(d) of the Constitution as submitted and suggested by counsel for the respondent.

Analysis

The application, as pleaded, seeks to impugn the conduct of the respondent “through its Speaker.”

In my view, such style of pleading, which conflates the Speaker with the respondent, obfuscates the exact conduct that the applicant seeks to impugn. It is not precise enough for the purposes of the section.

It fails to meet the requirements of the law.

The applicant specifically challenges the conduct by the Speaker as exceeding the powers granted to him by the Standing Orders, and, at the same time, imputes such allegedly unlawful conduct to the respondent.

Therein lies the first hurdle that this Court must overcome before its jurisdiction can be triggered: Whose conduct is under its scrutiny?

Being alive to the requirements of the cause of action under section 167(2)(d) of the Constitution, as discussed above, counsel for the applicant argued, that, the respondent expelled and suspended the applicant through its Speaker.

But, did it?

It is appropriate, at this stage, that, I advert briefly to the facts leading to the expulsion and suspension of the applicant, which facts are largely common cause.

On 4 June 2020, the applicant allegedly behaved in a disorderly manner during a sitting of the National Assembly that was presided over by the Deputy Speaker.

On 20 June 2020, the Speaker, now in the Chair, and in his capacity as Speaker, pronounced his ruling on the applicant's previous behaviour. He thereafter ordered the applicant to withdraw his un-Parliamentary language and to apologise to the House - which the applicant duly did.

Later, during the same sitting, the applicant allegedly, again, behaved in a disorderly manner.

The Speaker felt, that, the applicant was not remorseful. He thereafter summarily suspended the applicant for six consecutive sittings after which he ordered that the applicant be removed from the House.

As indicated above, counsel for the applicant did not seek to separate the Speaker from the respondent. In his words, during oral argument, the Speaker and Parliament are inseparable; once the Speaker is in the House, he becomes Parliament.

In this regard, counsel relied on a passage from the authors WOOLMAN and BISHOP, Constitutional Law in South Africa, Vol 1, 2nd Ed…, where they write:

“The NA (National Assembly) is chaired by the Speaker. The Speaker is the representative and spokesperson of the Assembly in its collective capacity. The Speaker may therefore give binding undertakings on behalf of the NA.”

On the basis of the above, counsel invited us to find, that, the conduct of the Speaker, in the circumstances of this matter, binds the respondent and amounts to a failure by the respondent to fulfil its constitutional obligation to uphold the rule of law and full compliance with its Standing Orders.

Whilst there is some undeniable cogency in the submission by the applicant's counsel, we must decline his invitation.

There are instances where the juristic acts of the respondent are performed through the agency of the Speaker - especially where the respondent is transacting with third parties.

Such instances include those referred to by the authors WOOLMAN and BISHOP, Constitutional Law in South Africa, Vol 1, 2nd Ed as cited above.

It stands to reason, that, the respondent, being a body of legislators, can only act through its members, officials and duly appointed agents.

The Speaker, being the head of Parliament, is naturally more often than not the voice and limbs of the respondent. Thus, quite conceivably, the pronouncements and conduct of the Speaker or other functionary can, at law, be regarded as the actions and conduct of the respondent and will bind the respondent.

An example of such an instance is readily afforded by the facts in the matter Gonese & Anor v Parliament of Zimbabwe & Ors CC04-20.

In that case, the certification by the President of the Senate, that a two-thirds majority had been attained on Constitution Amendment Bill No.1 when in fact it had not been so achieved, was found by this Court to amount to a failure on the part of the respondent to fulfil a constitutional obligation concerning the process for amending the Constitution.

However, in this application, the actions of the Speaker cannot be imputed to the respondent for the reasons that follow:

(i) Firstly, the Standing Orders, under which the applicant was punished, grant both the Speaker and the respondent the power to oversee the exercise of power, privileges, and immunities in the House.

The power given to the Speaker is independent of that given to the respondent.

He is granted a discretion on what penalty to impose on a member who breaches Parliamentary privileges. The level of punishment that he can decide upon is however on a lower threshold to that of the respondent.

For more serious breaches of Parliamentary etiquette meriting more severe penalties, the Speaker must refer the matter to the House after naming the member.

This procedure is fully laid out in the respondent's Standing Orders and it is common cause between the parties.

Also common cause between the parties is the fact, that, this procedure was never invoked in this matter.

The matter of the applicant's breach of privileges was never referred to the respondent.

The applicant accepts, that, the Speaker has disciplinary powers over Members of Parliament in terms of which he can order a member to leave the House for a full day.

In a moment of unintended levity, counsel for the applicant submitted, that, this power is used quite often against Honourable Members. Such power is not disputed.

Therefore, the legitimacy of the action by the Speaker, against the applicant, cannot be doubted.

If it is accepted, that, the disciplinary power of the Speaker over Members of Parliament is legitimate, which it must, then, it cannot be wished away into insignificance in his hands.

The Speaker's power cannot be negated by imputing it to the respondent. It remains conduct by the Speaker and must be given its full recognition at law.

It is in itself the wielding of administrative power and must be independently subject to judicial control.

The argument, that, the Speaker's such exercise of power is, at law, conduct by the respondent is therefore untenable.

SC13-24 : UNKI MINES (PRIVATE) LIMITED vs SHURUGWI TOWN COUNCIL and JUSTICE A. EBRAHIM N.O.
Ruled By: UCHENA JA

This is an opposed chamber application in terms of Rule 43 of the Supreme Court Rules 2018, for condonation and extension of time within which to note an appeal.BACKGROUND FACTSThe applicant and the first respondent entered into an agreement of sale of land belonging to the first respondent. The land ...

This is an opposed chamber application in terms of Rule 43 of the Supreme Court Rules 2018, for condonation and extension of time within which to note an appeal.

BACKGROUND FACTS

The applicant and the first respondent entered into an agreement of sale of land belonging to the first respondent. The land is held under Deed of Transfer 1989/08. The first respondent proposed a subdivision of the piece of land. The proposed subdivisions were never taken out of the original land identified under Deed of Transfer 1989/08.

The proposed subdivisions were made the subject of a sale agreement between the applicant and the first respondent.

It was a term of the agreement, that, in the event of a dispute, the parties would refer the matter for arbitration.

The merx of the sale were the proposed subdivisions, as depicted on the map.

The said map was later found to be invalid as it identified wrong portions of the land. A new map was produced which identified land which is different from the land identified in the agreement of sale itself.

A dispute arose concerning the number of Stands or sub-divisions bought by the applicant.

The dispute was brought before an arbitrator, who is the second respondent in this matter. The arbitrator's award held, that, there was a binding agreement between the parties.

The first respondent was aggrieved by the arbitrator's award.

It filed an application for the setting aside of the arbitrator's award before the court a quo, on the basis that the arbitral award is contrary to public policy.

At the hearing of the matter, the first respondent raised a point in limine to the effect, that, the arbitrator failed to keep a complete record of proceedings with regards to the matter.

It also averred, that, the applicant's counter application was incompetent as it was lodged through an opposing affidavit.

It averred, that, an application in the High Court is made in the form of a founding affidavit and under Form 29.

On the merits, the first respondent argued, that, the award given by the arbitrator is a brutum fulmen in that the disposition of the award is incapable of enforcement as it did not make an enforceable order.

It argued, that, the arbitrator did not give a formal order directing either party to do anything.

It further argued, that, the arbitrator failed to comply with the provisions of Article 31 and 33 of the Arbitration Act. It further argued, that, the arbitral award is contrary to public policy because the order interfered with the sanctity of the parties agreement and the agreement is contrary to mandatory provisions of the law.

On the contrary, the respondent, who is the applicant in this case, raised a point in limine to the effect, that, the application for the setting aside of the arbitral award could not be heard before its application for dismissal for want of prosecution is heard and completed.

On the merits, it argued that there was no basis for the setting aside of the arbitral award as the findings of the arbitrator were factually and legally correct. It disputed that the first respondent bought individual Stands. It contended, that, it bought the whole subdivision through an addendum to the Main Agreement.

The court a quo ruled, that, in the absence of the arbitrator's record, it would not be possible for it to scrutinize the proceedings in terms of Article 34 and 36. It held, that, at law, any tribunal whose proceedings may be challenged before another tribunal ought to keep and maintain a record of proceedings.

Regarding the applicant's counter-application, the court struck it off on the basis that it was not filed in the prescribed form.

It found, that, the arbitral award was contrary to public policy in that it made additions to the express terms of the parties agreement which was itself made contrary to mandatory provisions of the law.

The court a quo therefore set aside the arbitrator's award.

The applicant wishes to appeal against the decision of the court a quo but it is out of time, hence, the application for condonation and leave to note the appeal out of time.

At the hearing of this application, on 14 November 2023, counsel for the applicant submitted, that, the applicant failed to note an appeal on time because he was not advised of the handing down of the judgement which the applicant seeks to appeal against. He submitted, that, in the circumstances, a delay of a period of not more than 22 days is not inordinate. He further submitted, that, the fact that he was not advised of the handing down of the judgment proves that the applicant was not in willful defiance of the rules of this Court and that the explanation for the delay is reasonable.

Regarding the issue of prospects of success, he submitted that the application has good prospects of success.

Counsel for the first respondent agreed, that, the parties were not notified of the handing down of the judgment which the applicant seeks to appeal against and that it was handed down in the absence of the parties.

He submitted, that, the intended grounds of appeal enjoy no prospects of success as real rights to land can only be sold after a subdivision permit has been issued. He further submitted, that, there was no approved diagram. He submitted, that, the contract entered into by the parties is unenforceable because it does not comply with mandatory provisions of the law.

Counsel further averred, that, without a record of proceedings by the arbitrator, it is impossible for the court to make an informed decision.

After hearing submissions from both parties, I postponed the matter to 20 November 2023 and directed the parties to file supplementary heads on the interpretation of section 39(1) and (2) of the Regional Town & Planning Act [Chapter 29:12] (hereinafter referred to as the RTP Act”) and section 152(1)-(4) of the Urban Councils Act [Chapter 29:15] (hereinafter referred to as the UC Act”).

In his supplementary heads, counsel for the applicant submitted, that, in terms of section 39(2) of the Regional Town & Planning Act, section 39(1) does not apply to the subdivision of land which is owned by an urban council or town council. He averred, that, the first respondent owned the piece of land in dispute and it could sell it before the sub-division. He submitted, that, the first respondent took all necessary steps to comply with the provisions of section 152(1)–(4) of the Urban Councils Act.

Counsel for the first respondent submitted, that, the consideration of these mandatory statutory provisions are for purposes of determining whether or not the contract entered into by the parties was lawful and enforceable.

He submitted, that, the provisions of section 152(1)–(4) of the Urban Councils Act requires Council to publish a Notice of Intention to sell the land in a Newspaper, and, in terms of subsection (4), Council cannot dispose of land without an approved Town planning scheme. He further averred, that, non-compliance with the mandatory provisions of section 152 of the Urban Councils Act renders the agreement a nullity.

In support of his argument, counsel cited the cases of Bruce v Econet Wireless (Pvt) Ltd & Anor 2009 (1) ZLR 284 (H); Ndemera v The State HH528-23 (HACC 15/23); and Pinnacle Property Holdings (Pvt) Ltd v Municipality of Redcliff & Another SC14-23.

Counsel for the first respondent further submitted, that, the turquand rule, which counsel for the applicant submitted was applicable, does not apply to the circumstances of this case. In addition, counsel for the first respondent contended, that, an arbitral award founded on an agreement that does not comply with mandatory provisions of statute law is contrary to public policy.

THE LAW

An application for condonation and extension of time within which to note an appeal must satisfy specified requirements before the court can grant the indulgence sought. In the case of Bessie Maheya v Independent Africa Church SC58-07, MALABA JA..., said:

“In considering applications for condonation of non-compliance with its Rules, the court has a discretion which it has to exercise judicially in the sense, that, it has to consider all the facts and apply established principles bearing in mind that it has to do justice. Some of the relevant factors that may be considered and weighed one against the other are: the degree of non-compliance, the explanation therefore, the prospects of success on appeal, the importance of the case, the 1st respondent's interests in the finality of the judgment, the convenience to the court, and the avoidance of unnecessary delays in the administration of justice.”

APPLICATION OF THE LAW TO THE FACTS

Counsel for the applicant's argument is that the delay in noting the application is not inordinate. Counsel for the first respondent agreed, that, the judgment a quo was handed down in the absence of both parties. He does not deny that it caused the delay in the noting of the appeal.

I am satisfied, that, the delay is not inordinate and that the explanation for the delay is reasonable.

In spite of the applicant's success on these requirements, it must prove that the application enjoys good prospects of success.

The test of prospects of success on appeal is an assessment of whether or not a different court can arrive at a different finding than the court a quo. In the case of Essop v S [2016] ZASCA 114, the court, in defining prospects of success, held that:

“What the test for reasonable prospects of success postulates is a dispassionate decision, based on the facts and the law, that, a court of appeal could reasonably arrive at a conclusion different to that of the trial court.

In order to succeed, therefore, the appellant must convince this court, on proper grounds, that he has prospects of success on appeal and that those prospects are not remote, but have a realistic chance of succeeding.

More is required to be established than that there is a mere possibility of success, that the case is arguable on appeal, or that the case cannot be categorised as hopeless. There must, in other words, be a sound, rational basis for the conclusion that there are prospects of success on appeal.”...,.

Prospects of success on appeal are ascertained from the grounds of the intended appeal.

On the issues covered by the parties filed supplementary heads, on the interpretation of section 39(1) and (2) of the Regional Town & Planning Act and section 152(2)-(4) of the Urban Councils Act, I make the following observations:

Section 39(1) and (2) of the Regional Town & Planning Act reads as follows:

“(1) Subject to subs (2), no person shall —

(a) Subdivide any property; or

(b) Enter into any agreement —

(i) For the change of ownership of any portion of a property; or

(ii) For the lease of any portion of a property for a period of ten years or more or for the lifetime of the lessee; or

(iii)…,.

(iv)…,.

(a) Consolidate two or more properties into one property; except in accordance with a permit granted in terms of section forty:

Provided that an undivided share in any property, whether or not it is coupled with an exclusive right of occupation, shall not be regarded for the purposes of this subsection as a portion of that property.

(2) Subsection (1) shall not apply to —

(a) Land within the area under the jurisdiction of a municipal council or town council which is owned by the municipality or town concerned; or

(b) Land within a local government area administered and controlled by a local authority which is owned by that local authority or by the State; or”…,.

A reading of section 39(2) of the Regional Town & Planning Act establishes, that, the provisions of section 39(1) do not apply to the first respondent which is a Town Council.

The land in dispute belongs to the first respondent. It can therefore be sold before it is subdivided.

That supports the applicant's intended ground of appeal No.5 which attacks the court a quo's finding, that, the entering of the parties into an agreement of sale of land, in the absence of a sub-division permit renders the agreement a nullity and the arbitrator's award contrary to public policy.

That part of the court a quo's decision is therefore not correct and gives the applicant prospects of success.

Section 152(2)–(4) of the Urban Councils Act provides as follows:

“(2) Before selling, exchanging, leasing, donating or otherwise disposing of, or permitting the use of any land owned by it, the council shall, by notice published in two issues of a newspaper and posted at the office of the council, give notice —

(a) Of its intention to do so, describing the land concerned and stating the object, terms and conditions of the proposed sale, exchange, lease, donation, disposition or grant of permission of use; and

(b) That a copy of the proposal is open for inspection during office hours at the office of the council for a period of twenty-one days from the date of the last publication of the notice in a newspaper; and

(c) That, any person who objects to the proposal may lodge his objection with the town clerk within the period of twenty-one days referred to in para (b).

(3) The council shall submit a copy of the notice referred to in subsection (2) to the Minister not later than the date of the first publication of that notice in a newspaper.

(4) A council may not, subject to section one hundred and fifty-three, sell, exchange, lease, donate or otherwise dispose of, or permit the use of any land owned by the council which lies within an area for which —

(a) There is no approved town planning scheme, unless —

(i) A copy of the proposal and of the notice published in terms of subs (2), together with any objections which have been lodged and the comments of the council on such objections, have been transmitted to the Minister; and

(ii) The Minister has consented to the sale, exchange, lease, donation or other disposition or permission to use, as the case may be:

Provided that the Minister shall not consent unless he is satisfied that an adequate area of land, suitable for the purpose, has, where necessary, been reserved for State purposes or for postal and telecommunication services; or, there is an approved town planning scheme, unless —

(i) The period of twenty-one days referred to in subsection (2) has expired; and

(ii) If any objections have been lodged, they have been considered by the council.”

In terms of section 152(2), (3) and (4) of the Urban Councils Act, land owned by a Town Council cannot be sold or leased, before the requirements stated in subsections (2) to (4) have been complied with.

The requirements are issuing two notices in a newspaper, submitting the notice to the Minister, the Minister's approval, and that there should be an approved town planning scheme.

In this case, there is no direct documental evidence to prove that the notices were given and the Minister's consent obtained. There is also no direct documental evidence that there is a town planning scheme or a diagram which forms part of the record besides indirect references in the first respondent's minutes and resolutions in which it is recorded that these requirements were complied with and that authority was granted.

Section 152 of the Urban Councils Act is couched in peremptory terms. The use of the word “shall” as opposed to “may” proves that the provisions are mandatory. The provisions have to be strictly complied with.

Failure to comply with mandatory provisions of the law renders the agreement of sale a nullity.

In the case of Pinnacle Property Holdings (Pvt) Ltd v The Municipality of Redcliff & Another SC14-23 BHUNU JA, commenting on the provision of section 152 of the Urban Councils Act, said:

“Undoubtedly, the interpretation placed upon section 152 of the Urban Councils Act in the Bruce case supra is correct. The section is couched in simple, unambiguous language admitting of no other meaning. It is axiomatic, that, the section in fact constitutes a condition precedent which must be fulfilled before a municipality can alienate its land. The object for the laid down procedure is to give interested members of the public the right to object as provided for under section 152(2)(c) of the Act.”

Further, in Bruce v Econet Wireless (Pvt) Ltd and Another 2009 (1) ZLR 284 (H)…, OMERJEE J…, said:

“Before dealing with the merits of the case, I wish to make the following observation. A local authority, such as the City of Harare, is empowered, by section 152 of the Urban Councils Act, to alienate any land it owns through sale, lease, donation, or otherwise dispose of, or permit the use of it. In doing so, the local authority is obliged to comply with the requirements stipulated in that provision.”…,.

As already indicated, there are allegations in the minutes and resolutions of the first respondent's minutes that authority to sell was obtained. It cannot therefore be confidently held, that, there was failure to comply with section 152(2) to (4) of the Urban Councils Act.

In the case of ZESA v Maposa 1999 (2) ZLR 452 (S)…, GUBBAY CJ, commenting on how to determine issues of public policy, said:

“An award will not be contrary to public policy merely because the reasoning or conclusions of the arbitrator are wrong in fact and or in law. In such a situation, the court would not be justified in setting the award aside.

Under Article 34 or 36, the court does not exercise an appeal power and either uphold or set aside or decline to recognise and enforce an award by having regard to what it considers should have been the correct decision. Where, however, the reasoning or conclusion in an award goes beyond mere faultiness or incorrectness and constitutes a palpable inequity that is so far reaching and outrageous in its defiance of logic or accepted moral standards that a sensible and fair minded person would consider that the conception of justice in Zimbabwe would be intolerably hurt by the award, then, it would be contrary to public policy to uphold it.”...,.

The above calls for caution in a judge's gate keeping function. The intolerable level of an award being contrary to public policy should not be lightly assumed by a single judge in chambers, especially when some proposed grounds of appeal point to the applicant's prospects of success. I would therefore allow the application to enable the full Bench to determine the proposed appeal.

It is accordingly ordered as follows:

1. The application for condonation of the late noting of an appeal and extension of time within which to note the appeal be and is hereby granted.

2. The applicant shall file its notice of appeal within five (5) days from the date of the granting of this order.

3. The costs of this application shall be costs in the cause.

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Turquand Rule or Indoor Management Rule and the Presumption of Regularity re: Parastatals and Statutory Bodies

Appealed
SC16-20 : INFRASTRUCTURE DEVELOPMENT BANK OF ZIMBABWE vs ENGEN PETROLEUM ZIMBABWE (RIVATE) LIMITED
Ruled By: GUVAVA JA, MAVANGIRA JA and ZIYAMBI AJA

View Appeal
HH253-16 : ENGEN PETROLEUM ZIMBABWE [PVT] LTD vs WEDZERA PETROLEUM [PVT] LTD and INFRASTRUCTURE DEVELOPMENT BANK OF ZIMBABWE
Ruled By: MAFUSIRE J

Appealed
SC110-21 : UPSET INVESTMENTS (PRIVATE) LIMITED vs CHITUNGWIZA MUNICIPALITY
Ruled By: GARWE JA, HLATSHWAYO JA and BHUNU JA

View Appeal
HH100-17 : UPSET INVESTMENTS (PRIVATE) LIMITED vs CHITUNGWIZA MUNICIPALITY
Ruled By: MUREMBA J

HH99-18 : C F (PVT) LTD vs ZIMBABWE REVENUE AUTHORITY
Ruled By: KUDYA J

CC02-21 : TEMBA MLISWA vs PARLIAMENT OF THE REPUBLIC OF ZIMBABWE
Ruled By: MALABA CJ, GWAUNZA DCJ, GARWE AJCC, MAKARAU AJCC, GOWORA AJCC, HLATSHWAYO AJCC and PATEL AJCC

SC13-24 : UNKI MINES (PRIVATE) LIMITED vs SHURUGWI TOWN COUNCIL and JUSTICE A. EBRAHIM N.O.
Ruled By: UCHENA JA

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Turquand Rule or Indoor Management Rule and the Presumption of Regularity re: Parastatals and Statutory Bodies

Appealed SC16-20 : INFRASTRUCTURE DEVELOPMENT BANK OF ZIMBABWE vs ENGEN PETROLEUM ZIMBABWE (RIVATE) LIMITED Ruled By: GUVAVA JA, MAVANGIRA JA and ZIYAMBI AJA

View Appeal HH253-16 : ENGEN PETROLEUM ZIMBABWE [PVT] LTD vs WEDZERA PETROLEUM [PVT] LTD and INFRASTRUCTURE DEVELOPMENT BANK OF ZIMBABWE Ruled By: MAFUSIRE J

Appealed SC110-21 : UPSET INVESTMENTS (PRIVATE) LIMITED vs CHITUNGWIZA MUNICIPALITY Ruled By: GARWE JA, HLATSHWAYO JA and BHUNU JA

View Appeal HH100-17 : UPSET INVESTMENTS (PRIVATE) LIMITED vs CHITUNGWIZA MUNICIPALITY Ruled By: MUREMBA J

HH99-18 : C F (PVT) LTD vs ZIMBABWE REVENUE AUTHORITY Ruled By: KUDYA J

CC02-21 : TEMBA MLISWA vs PARLIAMENT OF THE REPUBLIC OF ZIMBABWE Ruled By: MALABA CJ, GWAUNZA DCJ, GARWE AJCC, MAKARAU AJCC, GOWORA AJCC, HLATSHWAYO AJCC and PATEL AJCC

SC13-24 : UNKI MINES (PRIVATE) LIMITED vs SHURUGWI TOWN COUNCIL and JUSTICE A. EBRAHIM N.O. Ruled By: UCHENA JA

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Appealed
SC16-20 : INFRASTRUCTURE DEVELOPMENT BANK OF ZIMBABWE vs ENGEN PETROLEUM ZIMBABWE (RIVATE) LIMITED
Ruled By: GUVAVA JA, MAVANGIRA JA and ZIYAMBI AJA

View Appeal
HH253-16 : ENGEN PETROLEUM ZIMBABWE [PVT] LTD vs WEDZERA PETROLEUM [PVT] LTD and INFRASTRUCTURE DEVELOPMENT BANK OF ZIMBABWE
Ruled By: MAFUSIRE J

Appealed
SC110-21 : UPSET INVESTMENTS (PRIVATE) LIMITED vs CHITUNGWIZA MUNICIPALITY
Ruled By: GARWE JA, HLATSHWAYO JA and BHUNU JA

View Appeal
HH100-17 : UPSET INVESTMENTS (PRIVATE) LIMITED vs CHITUNGWIZA MUNICIPALITY
Ruled By: MUREMBA J

HH99-18 : C F (PVT) LTD vs ZIMBABWE REVENUE AUTHORITY
Ruled By: KUDYA J

CC02-21 : TEMBA MLISWA vs PARLIAMENT OF THE REPUBLIC OF ZIMBABWE
Ruled By: MALABA CJ, GWAUNZA DCJ, GARWE AJCC, MAKARAU AJCC, GOWORA AJCC, HLATSHWAYO AJCC and PATEL AJCC

SC13-24 : UNKI MINES (PRIVATE) LIMITED vs SHURUGWI TOWN COUNCIL and JUSTICE A. EBRAHIM N.O.
Ruled By: UCHENA JA