This
matter involves two separate claims by the applicant as against the
same respondent in Case Nos. HC11737/11 and HC279/12. The two claims
emanate from the same cause of action and involve the same facts in
issue between the same parties. They were accordingly consolidated,
by consent, on 19 November 2012 through a chamber application filed
under Case No.13310/12.
The
applicant's consolidated claim is for summary judgment in Case Nos.
HC11737/11 and HC279/12. He seeks the payment of two tranches of
US$83,500= each and BUPA medical aid subscriptions in the sum of
GB£1,332=92 together with interest at the prescribed rate and costs
of suit on a legal practitioner and client scale.
Background
The
applicant is the former Managing Director of the respondent and a
former Director of Meikles Ltd, having resigned from both positions
with effect from 30 June 2011. His claim arises from a severance
package totalling US$334,000= which was executed on 22 June 2011. The
agreement in question was signed by one Brendan Beaumont,
representing the respondent in his capacity as Group Chief Executive
of Meikles Ltd and being duly authorised thereto. Meikles Ltd owns
the entire shareholding in the respondent company. The applicant
avers that the respondent has complied with certain aspects of the
agreement, relating to payments in lieu of notice and leave and the
transfer of the applicant's motor vehicle and cellphone. However,
it wishes to resile from the principal element pertaining to
severance pay. Its defence, as to the absence of proper authority to
conclude the agreement and non-compliance with statute, is merely a
dilatory tactic and an abuse of court process.
The
respondent accepts that the applicant did report to Brendan Beaumont
as his immediate boss. However, it denies that the latter had
authority to execute the agreement with the applicant in the absence
of resolutions from Meikles Ltd and the respondent authorising him to
bind the respondent to the agreement. According to a supporting
affidavit from its erstwhile lawyer (now deceased), the agreement was
drafted on the instructions of Brendan Beaumont in collaboration with
the applicant's counsel herein. Its defence, as per its plea, is
that Meikles Ltd is a distinct legal entity quite separate from the
respondent company. In any event, the agreement is invalid because of
the absence of due authorisation to conclude it and because its
principal features would entail non-compliance with certain
provisions of the Companies Act.
The
applicant avers that Brendan Beaumont, in his several capacities,
held himself out to possess the requite authority and that he relied
upon that representation. Brendan Beaumont therefore had ostensible
authority to bind the respondent to the agreement with the applicant.
Moreover, the provisions of the Companies Act which are relied upon
by the respondent do not apply to the applicant as an employee who
assumed the position of Director due solely to his contract of
employment.
Requisites
for Summary Judgment
The
approach to be adopted in proceedings for summary judgment has been
laid down on numerous occasions. All that the defendant need do in
order to resist summary judgment is to allege facts disclosing a
defence and sufficient to establish that defence; Rex
v Rhodian
Investments Trust (Pvt) Ltd
1957 R & N 723; 1957 (4) SA 631 (SR)…,. He must show that there
is a mere possibility of his success or that he has a plausible case
or that there is a triable issue; Jena
v Nechipote
1986 (1) ZLR 29 (S)…,. It is only when all the proposed defences to
the plaintiff's claim are clearly unarguable, both in fact and law,
that the drastic relief of summary judgment may be allowed; Chrismar
(Pvt) Ltd
v Stutchbury
1973 (1) RLR 277 (GD)…,. In short, the plaintiff's case must be
unassailable and unanswerable; Pitchford
Investments (Pvt) Ltd
v Muzari
2005 (1) ZLR 1 (H)…,.
Relationship
between Respondent and Meikles Ltd
It
is common cause that the respondent is a wholly owned subsidiary of
Meikles Ltd. This is confirmed by the latter's Annual Report of
2011 which deals with the respondent as a subsidiary of the Meikles
Group. It is also not in dispute that Brendan Beaumont was the Group
Chief Executive of Meikles Ltd, and, as such, the applicant's
immediate superior. Nevertheless, it cannot be doubted that Meikles
Ltd and the respondent are separate corporate legal entities. The
2011 Annual Report explicitly draws this distinction as between
Meikles Ltd and each subsidiary as being decentralised with a formal
operating Board and clear definition of responsibility within
well-defined policies. Again, the same report refers to and records
the applicant's resignation as Executive Director of Meikles Ltd
and as a member of its Board but makes no mention whatsoever of his
position as Managing Director with the respondent and his resignation
from that post.
All
in all, it is reasonably clear Meikles Ltd and the respondent are
distinct and separate legal entities, each with its own governing
Board
and executive management. The fact that Meikles Ltd owns 100% of the
shares in the respondent company does not, in itself, make the
actions of the Meikles Group Chief Executive binding on the
respondent.
Authority
to Conclude Agreement
Section
12 of the Companies Act [Chapter
24:03]
codifies the so-called turquand
rule or presumption of regularity in corporate affairs. It provides
that any person dealing with a company is entitled to make certain
assumptions and that the company is estopped from denying their
truth. In particular, it may properly be assumed that the company's
internal regulations have been duly complied with. See, in this
regard, Wolpert
v Uitzigt
Properties (Pty) Ltd & Others
1961 (2) SA 257 (W)…, and the authorities there cited.
In
terms of section 12 of
the Companies Act [Chapter
24:03],
it may also be assumed that every person described in the company's
register or returns as a director, manager or secretary of the
company, and every person whom the company represents to be an
officer or agent of the company, has been duly appointed and has
authority to exercise the functions customarily exercised by a
director, manager or secretary, or by an officer or agent of the kind
concerned. However, a person is not entitled to make any such
assumptions if he has actual knowledge to the contrary or if he ought
reasonably to know the contrary. Section 13 of the Companies Act
stipulates that a company shall be bound in terms of section 12
notwithstanding that the officer or agent concerned acted
fraudulently or forged a document purporting to be sealed or signed
on behalf of the company.
In
essence, what these provisions enact, in the corporate context, are
the common law rules governing ostensible or apparent authority
entitling third parties to enforce contracts concluded with the
agents or employees of their principals. See Reed
N.O. v
Sager's
Motors (Pvt) Ltd
1970 (1) SA 521 (RAD); Stewart
v Zagreb
Properties (Pvt) Ltd
1971 (2) SA 346 (RAD); Seniors
Service (Pvt) Ltd
v Nyoni
1986 (2) ZLR 293 (S); Mine
Consultants and Supply Company
v Borrowdale
Motors (Pvt) Ltd
1990 (2) ZLR 281 (S).
Counsel
for the applicant contends that the benefits of sections 12 and 13 of
the Companies Act apply not only to outsiders but also to the
Directors of a company, particularly where the termination of their
contracts of employment are in issue. He further submits that Brendan
Beaumont, by virtue of his position, had ostensible authority to act
for the respondent and bind it to the agreement that he entered into
on its behalf with the applicant.
Counsel
for the respondent submits to the contrary that sections 12 and 13
are not intended for the benefit of any insider who ought to have
known of the alleged irregularity.
I
fully agree with that submission.
As
I have already indicated, section 12 of the Companies Act legislates
the rule in Royal
British Bank
v Turquand
(1856) 6 E & B 327; [1843-60] All ER Rep 435. However, it is
well-established that the rule does not protect any person, who, by
reason of his position within the company, ought to have known of the
irregularity in question. See Mahony
v East Holyford Mining Co.
(1875) LR 7 HL 869…,.; Howard
v Patent
Ivory Manufacturing Co.
(1888) 38 ChD 156; Mineworkers
Union
v J.J.
Prinsloo
1948 (3) SA 831 (A). Moreover, Wolpert
v Uitzigt
Properties (Pty) Ltd & Others
1961 (2) SA 257 (W)
does not establish the broad proposition contended on behalf of the
applicant, having regard to what was stated in that case at pp. 264F
and
266.
In
the instant case, the applicant was clearly not an outsider or mere
employee of the respondent, but its Managing Director. He alleges
that he was precluded from attending Board meetings of Meikles Ltd
and the respondent at the relevant time. Even if this were true, he
could quite easily have obtained the minutes of relevant Board
meetings so as to ascertain decisions taken concerning his
resignation and severance package. In any event, in his position as
Managing Director, he must have known that any decision in that
regard would require a Board resolution from the respondent
authorising Brendan Beaumont to negotiate and conclude his severance
package. For these reasons, I take the view that the applicant is not
entitled to take advantage of the presumption of regularity embodied
in section 12 of the Companies Act.
For
the same reasons, I do not think that there is any basis for invoking
ostensible authority in relation to Brendan Beaumont's actions.
Firstly, the fact that he was the Group Chief Executive of Meikles
Ltd does not mean that he had the requisite ostensible authority, by
virtue of that position, to negotiate and conclude severance packages
on behalf of the respondent. There is nothing in the papers to
suggest that he normally exercised that function in that particular
capacity. Secondly, as I have already emphasised, the applicant was
not some third party dealing with an agent or employee of the
respondent. He was its Managing Director, and, given that position, I
can see no justification for extending the doctrine of ostensible or
apparent authority to the facts of this case.
Application
of Companies Act to Validity of Agreement
Section
176 of the Companies Act [Chapter 24:03] prohibits tax-free payments
to directors in the following terms:
“(1)
It shall not be lawful for a company to pay a director remuneration,
whether as director or otherwise, free of any taxation in respect of
income, or otherwise calculated by reference to or varying with the
amount of such taxation or with the rate of taxation on incomes,
except under a contract which was in force on the 1st
January 1952, and provides expressly, and not by reference to the
articles, for payment of remuneration as aforesaid.
(2)
Any provision contained in a company's articles or in any contract
other than such a contract as aforesaid, or in any resolution of a
company or a company's directors, for payment to a director of
remuneration as aforesaid shall have effect as if it provided for
payment, as a gross sum subject to taxation, of the net sum for which
it actually provides.”
Counsel
for the applicant submits that the sum of US$334,000= payable to the
applicant as severance pay in terms of clause 2(c) of the agreement
is a net amount after taxation is taken into account. The payment
therefore does not contravene section 176 of the Companies Act.
Counsel
for the respondent counters that this section applies even if the
payment in question is calculated by reference to the rate of
taxation.
I
entirely agree.
Section
176(1) of the Companies Act is designed to curb the mischief of
parties determining the tax element on their own without the approval
of the taxman. This construction is fortified by section 176(2) which
deems the net sum actually provided for as a gross sum subject to
taxation. Furthermore, even the agreed figure of US$334,000= cannot
possibly be a net amount after taxation because it includes the sum
of US$110,000= as compensation for restraint of trade. It follows
that the severance payment stipulated in the agreement is unlawful as
being in contravention of section 176(1) of the Companies Act
[Chapter 24:03].
Section
178 of the Companies Act [Chapter 24:03] requires the approval of the
company for any payment to a Director for loss of office as follows:
“It
shall not be lawful for a company to make to any director of the
company any payment by way of compensation for loss of office or as
consideration for or in connection with his retirement from office,
without full particulars with respect to the
proposed payment,
including the amount thereof, being disclosed to members of the
company and the
proposal being approved
by the company in general meeting.”…,.
Counsel
for the applicant contends that this provision merely requires
disclosure of any compensatory payment to members of the company and
its ratification by a resolution of members at a general meeting. He
argues that disclosure is not a prerequisite, particularly as general
meetings are only held once every year.
I
must emphatically disagree.
Firstly,
it is perfectly practicable for severance payments envisaged in
section 178 of the Companies Act to be raised at special general
meetings of a company, which meetings may be convened at any time to
deal with matters arising in the intervening period between Annual
General
Meetings.
Secondly, and more significantly, there is no reference in the
provision to any binding agreement being submitted for mere
ratification by members. Rather, the provision refers to full
particulars of the
proposed payment
and the amount thereof being disclosed to members and the
proposal being approved
by the company in general meeting. In my view, the wording of the
section makes it unambiguously clear that approval by members is a
prerequisite for any severance payment to a Director.
Accordingly,
the severance payment in
casu,
not having been disclosed to the members of the respondent, and not
having been approved by them at a general meeting, is patently in
violation of section 178 of the Companies Act [Chapter 24:03] and
consequently unlawful.
Section
179 of the Companies Act [Chapter 24:03] deals with any payment to a
Director for loss of office in connection with the transfer of a
company's property. It provides that:
“(1)
It shall not be lawful, in connection with the transfer of the whole
or any part of the undertaking or property of a company, for any
payment to be made by any person to any director of the company by
way of compensation for loss of office or as consideration for or in
connection with his retirement from office, unless particulars with
respect to the proposed payment, including the amount thereof, have
been disclosed to the members of the company and the proposal is
approved by the company in general meeting.
(2)
Where a payment which is hereby declared to be illegal is made to a
director of the company, the amount received shall be deemed to have
been received by him in trust for the company.”
As
became apparent at the hearing of this matter, this section has no
bearing whatsoever on the facts of this case. It deals with any
payment made to a Director by a person other than the company itself
in connection with the transfer of its undertaking or property,
presumably to that person or some other party. I would simply note
that section 179(1), like section 178, requires the prior approval of
members at a general meeting as a precondition for any compensatory
payment envisaged in the provision.
Lastly,
there is the rather curious argument put forward by counsel for the
applicant that the above provisions do not apply to the applicant
because he first joined the respondent in 1993 as its General Manager
and was then appointed to the position of Managing Director in
November 2003. Therefore, so counsel for the applicant contends, as
the applicant was only appointed to the respondent's Board as a
Director by virtue of his contract of employment as Managing
Director, he was an employee at the time of his resignation and not a
Director.
This
contention is categorically facile and spurious in the extreme. It is
plainly obvious that when the applicant was appointed as Managing
Director he was appointed to an entirely new post. As from November
2003 he was no longer an employee but indisputably a Director within
the contemplation of sections 176, 178 and 179 of the Companies Act
[Chapter 24:03].
Bona
Fide Defence
and Triable Issues
It
is abundantly clear from all of the foregoing that the respondent has
several bona
fide
defences to the applicant's claim. These pertain to its
relationship with Meikles Ltd and its Group Chief Executive, the
latter's authority to conclude the agreement relied upon by the
applicant, and the validity of that agreement under sections 176 and
178 of the Companies Act. By the same token, it is equally clear that
the plaintiff's case is not unassailable and unanswerable.
There
is also the point that the issue of ostensible authority contended on
behalf of the applicant, if it is at all arguable in the context of
this case, is essentially a question of fact to be determined by viva
voce
evidence. See Reed
N.O. v
Sager's
Motors (Pvt) Ltd
1970 (1) SA 521 (RAD)…,.; and Stewart
v Zagreb
Properties (Pvt) Ltd
1971 (2) SA 346 (RAD)…,. This, together with the defences raised by
the respondent, constitute triable issues to be properly ventilated
in a trial.
Disposition
As
regards costs, I note that the applicant brought this application
some seven weeks after the respondent had filed its plea. He was
fully aware of the defences raised and must have appreciated that an
application for summary judgment was improper and bound to fail. In
these circumstances, and in terms of Rule 72, it seems just and
appropriate that the respondent be awarded the costs of this
application and that these costs be paid before the matter proceeds
any further.
In
the result, the application for summary judgment is dismissed with
costs. It is further ordered that the main action be stayed until the
applicant has paid the respondent's costs relative to this
application.
