On
13 March 2012, the plaintiff issued summons against the defendant
claiming payment of $1,071,992=05 being architectural fees for
architectural services allegedly rendered to the defendant.
The
salient facts surrounding this claim are as follows.
On
19 September 2005, the defendant, represented by its Managing
director, Dr Zvandasara, entered into an agreement for the provision
of architectural services and upgrading of Belvedere Maternity Home
with the plaintiff. The plaintiff, together with some consultants,
provided the services. The defendant has refused to settle the fee
notes presented and denies that it ever hired the plaintiff to
provide the architectural services in issue.
The
following issues were referred for trial:
1.
Whether or not the plaintiff and defendant entered into a memorandum
of agreement.
2.
Whether or not the memorandum of agreement is a valid agreement which
binds the defendant.
3.
Whether or not the plaintiff rendered architectural services to the
defendant.
4.
Whether the defendant is liable to pay the plaintiff the sum claimed.
5.
Whether interest on the sum should be paid at the rate of 16% per
annum.
The
plaintiff called three witnesses in support of its case. The first
witness M.C.R. Vengesayi, an architect with the plaintiff, testified
as follows;
He
entered into an agreement for the provision of architectural services
with the defendant which was represented by its Managing Director,
Professor Zvandasara (the MD). The agreement was witnessed by the
defendant's Company Secretary. The plaintiff worked on the project
between 2006 and 2010.The initial stages of the work involved
consolidation of two Stands into one and this was done with the
knowledge of the defendant. The work done includes designing and
additions and alteration to the existing hospital, submitting plans
to the municipality for approval, consolidation of the two Stands as
well as carrying out sewerage capacity tests. No one objected to
their work.
In
the year 2006, the plaintiffs submitted a fee note. They were paid in
dribs and drabs. At some stage Dr Mazonde was drafted in to help. The
plaintiff also dealt with Mrs Chitemerere, the Company Secretary, and
Dr Saungweme.
The
witness insisted that the plaintiffs had no reason to doubt that
Professor
Zvandasara (the MD)
had authority to enter into the agreement.
The
disbursements were being paid by the defendant and not Dr Zvandasara
personally. After the dispute, Dr Zvandasara started paying them from
his own funds. He indicated that he would recover the money from the
defendant. The disbursements towards the project were paid by the
defendant to the consultants, the town planner, surveyor and the
municipality for submission of the plans. All this money was official
payment and was in the form of transfers. If these monies had not
been authorised, this fact would have been picked. The defendant's
Board of Directors has always been aware of what was happening. He
persisted with the claim of $1,071,992=05.
The
witness was not aware, at the time the agreement was entered into, or
at any later stage, that the internal processes in the defendant
company may not have been adhered to or completed….,.
Dr
Zvandasara, the erstwhile Managing Director, was called as a witness
for the plaintiff. His evidence may be summarised as follows;
He
was the Managing Director and Executive Chairman of the defendant in
2005.
He
ceased to be the Executive Chairman in 2006. He is also a founder
member and major shareholder of the hospital. The defendant has two
shareholders which are companies and individuals, in turn, have
shares in the companies. He entered into an agreement for the
alteration and extension of Belvedere Maternity Hospital with the
plaintiff witnessed by Mrs. Chitemere the hospital Administrator and
Company Secretary. He had the express and implied authority to enter
into the agreement and kept the defendant's Board advised of the
developments taking place.
His authority
also stems from his appointment as the Managing Director and
Executive Chairman. He could have found the authority in the hospital
records but he has not had access to the hospital since 2011.
All
he did was done on behalf of the defendant. Everyone was aware of
this arrangement.
The
plaintiff was going to draw diagrams to be used to construct the
hospital. The work also entailed consolidation of two Stands to which
the defendant gave its consent. After the drawings were done, they
were posted at the entrance to the hospital reception area for five
(5) years for everyone to see. The final plans were displayed in the
boardroom. All Board members were aware of what was happening. Some
of the sketches were provided by some of the Board members and the
matron. He kept other members of the Board informed about the
developments. There was an item at every Board meeting dealing with
these developments. He has no access to all the Board minutes and is
unable to prove that assertion. None of the Board members objected to
the development. The plaintiff did its work in broad daylight.
The
hospital paid the disbursement pertaining to materials and vouchers
payments were prepared by the hospital's accounting department.
Cheques were signed by two signatories who are Board members, Ms
Ngwerume, Drs Mbiriri and Kambarami or himself and there were no
objections. When the 2006 fee note was presented no-one objected to
it. Payment of $8,000= has already been made on that fee note which
was approved by the Board after a request. This was after the
plaintiffs had requested for $13,000=. This request was discussed in
the Board and he was specifically asked to approach the architects
for a payment plan. He paid $50,000= from his own pocket after the
defendant had refused to settle the fee notes. The witness insisted
that he had authority to enter into the contract….,.
The
defendant called two (2) witnesses in support of its case, Drs
Chipato and Chiware. Both are founding members and shareholders of
the defendant. Their evidence may be summarized as follows;
They
own shares in the defendant through Mainbrain (Pvt) Ltd and Finpower
(Pvt) Ltd. Both companies did not approve the extension of the
project. They became aware of the project in the year 2010. This was
when the witnesses attended a shareholders meeting called by Dr
Zvandasara when he wanted to go to South Africa and requested for two
other shareholders to accompany him to South Africa to raise money
for the project. The shareholders refused. The shareholders were not
consulted over the project and members of the Board did not approve
the project. The next thing they saw were bills emanating from the
plaintiff. The two defence witnesses maintained their version that
the project was embarked on without the authority of the Board of
Directors and shareholders. The witnesses corroborated each other.
The
plaintiff maintains that the agreement between the parties is valid
and was entered into with the express and implied authority of the
defendant's Board of Directors. The defendant denies this assertion
and contends that no authority was sought from the shareholders of
the defendant whose Articles of Association require a valid
resolution of the shareholders before any diversification,
modernisation or expansion of the principal business of the company
is carried out.
The
defendant contends that its Managing Director was on a frolic of his
own and hence the defendant is not bound by the agreement the parties
entered into….,.
At
the close of the plaintiff's case, the defendant applied for
absolution from the instance. I dismissed the application and
directed that the matter proceeds. I would give my reasons for this
decision in this judgment.
The
court, at that stage, formulated the view that there was evidence
upon which a reasonable court might give judgment in favour of the
plaintiff and that the plaintiff had
established a prima
facie
case.
The court, in coming up with this decision, considered that an
agreement had been entered into and executed. The indications, at
that stage, were that Dr Zvandasara (the MD) had ostensible authority
to enter into the contract in issue and there was work done, after
the first fee note, which the plaintiff may be entitled to claim for.
The analysis below will further elucidate why I formulated that
opinion.
It
is common cause that the plaintiff and the defendant's Managing
Director entered into an agreement for the provision of architectural
services. The plaintiff, together with different consultants, carried
out part of the work agreed on to the tune of 75% of the project. The
issues are;
(i)
Whether the defendant's Managing Director had authority to enter
into this agreement.
(ii)
Secondly, whether the agreement is contractually binding on the
parties.
(iii)
Thirdly, whether the plaintiff is entitled to payment for the work
carried out.
In
determining whether the Managing Director had authority to enter into
the agreement, I will examine three types of authority. Express
authority exists in a situation where there is actual or express
authority to do a thing. Implied authority is defined, in LEE
and HONORE, The South African Law of Obligations
2nd
ed…,
as
follows:
“Every
agent, unless the contrary manifestly appears to be the intention of
his principal, has implied authority to employ all lawful means
necessary and usual for the execution of his express authority. An
agent having authority to conduct a particular trade or business or
undertaking, has authority to do every lawful thing necessary or
usually incidental thereto.”
This
type of authority stems from an agent's actual or express
authority.
The
third category is that of ostensible authority. This type of
authority was defined in River
Ranch Limited v Delta Corporation Limited
HH01-10
as follows;
“In
the language of the Law of Agency, apparent and ostensible authority
is synonymous…,; and ostensible authority is sometimes said to be
created by the principal holding out the agent as having authority…,
although sometimes a distinction seems to be drawn between apparent
authority (flowing from the capacity in which the agent is employed)
and holding out (by particular words or actions)…,.”
There
is a presumption that where an agent, manager, managing director or
other senior official of a company enters into a contract on behalf
of a company, he is clothed with the necessary authority to bind the
company and that the internal regulations of the company have been
complied with. Section 12(a)(b) and (c) of the Companies Act [Chapter
24:03]
provides for the presumption of regularity. It reads as follows:
“12
Presumption of regularity
Any
person having dealings with a company or with someone deriving title
from a company shall be entitled to make the following assumptions,
and the company and anyone deriving title from it shall be estopped
from denying their truth -
(a)
That the company's internal regulations have been duly complied
with;
(b)
That every person described in the company's register of directors
and secretaries, or in any return delivered to the Registrar by the
company in terms of section one hundred and eighty-seven, as a
director, manager or secretary of the company, has been duly
appointed and has authority to exercise the functions customarily
exercised by a director, manager or secretary, as the case may be, of
a company carrying on business of the kind carried on by the company;
(c)
That every person whom the company, acting through its members in
general meeting or through its board of directors or its manager or
secretary, represents to be an officer or agent of the company, has
been duly appointed and has authority to exercise the functions
customarily exercised by an officer or agent of the kind concerned;”
In
HAHLO,
South African Company Law Through Cases
5th
ed…, the author states the following on authority;
“Under
the rule also known as the indoor management rule persons dealing
with the director or manager of a company who only exercises
authority which he could have under the constitution of a company who
openly exercises authority which he could have under the constitution
of a company provided that some act of internal management was
preferred and are entitled to assume that an act was performed.”
In
Walenn
Holdings (Pvt) Ltd v Intergrated Contracting Engineers (Pvt) Ltd &
Anor
1998
1 ZLR 333 (H)
the
court endorsed the sentiments expressed in
Morris
v Kanssen
(1946)
1
All ER 586 (HL)…, per
LORD
SIMON, which stated the following about the rule;
“The
rule in Royal
British Bank v Turquant
(the Turquant on Indoor Management Rule) provides that persons
contracting with a company, and dealing in good faith, may assume
that acts within its constitution and powers have been properly and
duly performed and one is not bound to inquire whether acts of
internal management have been regular. The rule renders proof by the
company that the internal formalities have not been compiled with
insufficient to enable it to escape liability under the contract,
hence, the rule is not merely on applications of the rebuttable
presumption omnia
praesumtur rite esseacta.”
Section
12 of the Companies Act [Chapter 24:03] codifies the Turquand Rule.
In
any case, where there are business relations between the parties
after a disputed contract has been concluded, stemming from it, it is
incumbent upon the court to have regard to the conduct of the parties
after the contract was entered into in order to determine the state
of mind of the parties. In Levy
v Banket Holdings Pvt Ltd
R&N 98, TREDGOLD CJ
relied
on the remarks of
CENTLIVRES
JA in
Collen
v Rietfontein Engineering Works
1948
(1) SA
413
(AD)
and
said the following;
“In
considering whether a contract is concluded between two parties, a
court is not interested in the state of mind of the parties
considered in the abstract. It must decide the issue on the state of
mind of the parties as manifested by word or deed. It is idle for a
party to avow mental reservations or unspoken qualifications if these
are inconsistent with what is said or done.”
In
Monzali
v
Smith
1929
AD 345 the court stated as follows regarding ostensible authority;
“Where
any person, by words or conduct, represents or permits it to be
represented that another has authority to act on his behalf he is
bound by the acts of such persons with respect to any dealing with
him as an agent on the faith of any such representation, to the same
extent as if such other person had authority which he so
represented.”
See
also Powerspeed
Electrical Ltd v Enfield Zimbabwe
HH107-13,
where this court discussed the need to consider the conduct of the
warring parties, especially that of the one challenging the contract,
where there is evidence of continued association.
No
resolution was produced to prove express or actual authority to carry
out the project. Dr Zvandasara's position was that he had express
authority from the Board and that the defendant refused him access to
hospital records and hence he failed to have access to the resolution
issued to carry out the project. Having failed to produce the
resolution, I am not satisfied that Dr Zvandasara (the MD) showed
that he had actual authority to carry out the project. The evidence
points towards the suggestion that Dr Zvandasara, being Managing
Director of the defendant, had ostensible authority to enter into the
contract in issue.
The
plaintiff was bona
fide
when dealing with Dr Zvandasara as the Managing Direcotr of the
defendant and believed that he had the necessary authority to enter
into the contract. No evidence was led to show that the plaintiff was
aware that Dr Zvandasara had no authority of the defendant to enter
into the agreement. The plaintiff's representative had no legal
duty to neither enquire into the regularity of Dr Zvandasara's
authority nor request for a resolution authorising the Managing
Director to enter into an agreement on behalf of the defendant. When
Dr Zvandasara entered into a contract with the plaintiff, he held out
that he was carrying out normal functions within his domain as the
Managing Director. The defendant is estopped from denying that he had
authority to carry out the project.
Where
a person in the position of the Managing Director deals with a third
party, it is presumed that the company's internal regulations have
been duly compiled with.
The
defendant has not alleged and shown that the plaintiff knew that the
alleged internal processes had not been followed or were irregular.
The plaintiff was entitled to assume that acts within the defendant's
Constitution and powers had been properly and duly performed, and,
further, that Dr Zvandasara had the necessary authority to enter into
the agreement in issue. The defendant cannot escape liability simply
because it has proved that the internal formalities were not complied
with.
The
conduct and deeds of the parties, after the contract was entered into
and during the progression of the project, confirms that the
defendant's Board of Directors was aware of the project and gave it
its thumbs up. The evidence led discloses the following;
(i)
An agreement, which was witnessed by the defendant's Administrator
and Company Secretary, was entered into between the parties.
(ii)
A letter dated 21 September 2005, written by the Company Secretary to
the plaintiff, states that permission to construct a maternity clinic
was granted on 6 June 2006.
(iii)
The plaintiff worked closely with various individuals, namely, a Dr
Mazonde, Dr Sangweme and Dr Kambarami who were Board members of the
defendant, the Company Secretary, and other members of staff.
(iv)
Sketch plans relating to the work to be carried out were provided by
Doctors Mbiriri and Mazonde with their comments endorsed on them.
(v)
Small interim payments were made by the hospital and approved by two
Board members, thus Dr Mbiriri and Kambarami.
(vi)
Minutes of Board meetings, all chaired by Drs Makonese and
Zvandasara, were produced. One of the Board meetings was held on 25
October 2005; minutes captured show that a Development Committee
reported on its analysis of the plans and gave recommendations for
improvements. Present were representatives of the two shareholders of
the defendant, Mainbrain (Pvt) Ltd and Finpower (Pvt) Ltd, namely,
Drs, Mujuru, Mabulala, Shumbairerwa, Nyaumwe, Mazonde, Mburiri,
Chirenje and Makonese. Another meeting was held the next day. The
minutes record that plans for the proposed second phase expansion
programme were presented in the meeting and discussed. That these
would be discussed in detail once permission to develop is granted by
the city council.
The
plans were discussed on 25 October 2006. Minutes of a Board meeting
held on 26 October 2005, attended by Doctors Mazonde, Mbiriri,
Chirenje and others, shows, without any doubt, that the Board was
aware of the project.
A
follow-up meeting was called for 23 November 2006 to discuss and
revise the plans for the hospital. The same members of the Board,
with the exception of Dr Mabulala, attended that meeting. The same
Board, on 7 May 2014, met and discussed the consolidation of the two
properties on Stand 17 and 19 Princes Road.
Dr Mazonde submitted handwritten comments on the architect's
drawings. He proposed changes to the structure.
The
Board meeting chaired by Dr Kambarami, dated 6 September 2010,
considered investors to sponsor the project. The Board resolved to
accommodate an investor group led by Dr Mbizvo. The meeting observed
that the expansion of the hospital was essential in order to remain
competitive. A meeting held on 2 March 2011 was held in order to
update the Board on the progress made in the proposed expansion
project. The two defence witnesses attended this meeting. The minutes
report that members expressed concern that the activity had reached
this stage without Board members meeting to discuss it. There were
concerns that the project was financially high risk and not properly
timed in view of the prevailing economic climate. The meeting
resolved to suspend the expansion project.
This
analysis does not reveal that anyone objected to the project until
the year 2010.
This
is contrary to evidence which reveals that the defendant's Managing
Director worked in close liaison with the Board of Directors; with
them being given an opportunity to contribute to the developments
that were taking place. The Board of Directors steered the project.
The plaintiff's disbursement costs were paid by the defendant. The
plans were posted at the entrance to the hospital reception area for
5 years for everyone to see. The final plans were displayed in the
boardroom for everyone to see.
The
court has also considered that after the year 2006 Dr Zvandasara
ceased to be the chairperson of the Board and yet the Board continued
to sit and maintain the project.
Evidence
also reveals that the defendant was aware of the payments towards the
project as the signatories to the defendant's account, Dr Nyaumwe,
Dr Kambarami and Dr Mbiriri would have been required to approve the
payments. An amount of $8,000= had already been paid as part of the
first fee note. It does not appear that anyone objected to the
payments.
There
was a suggestion that the defendant only disowned the project when
the 2010 fee note was submitted. The impression created is that the
defendant was aware of the developments that were taking place. It is
only when problems over payment arose in the defendant's camp that
the defendant disowned the project. The defendant's shareholders,
realizing the magnitude of the project and realising that their
shareholding would be affected if they brought in sponsors of the
project resulting and fall from 100% to 30%, decided to disown the
project.
The
Board members who sat in these meetings were deliberately not called
to give their side of the story. The defendant did not challenge the
minutes of Board meetings during the trial and only sought to do so
in its closing submissions. Dr Makonese, who appears to have taken
over from Dr Zvandasara, seemed to also have continued with the
project without protest. He was not called as a witness.
When
one considers the nature of the activities that took place and the
fact that plans of this project were displayed at the reception and
boardroom for years - and displayed for all to see; that the Board
members sat and discussed the plans of the hospitals; the objections
that were filed against the proposed consolidation; and the fact that
the hospital actually paid for the posts of the project, the
reasonable inference to be drawn from the proved set of circumstances
is that the hospital staff, shareholders, as well as the Board of
Directors were aware of the developments that were taking place. They
did not object to the project over the 6 years that the project was
carried out. Dr Mazonde submitted handwritten comments on the
architect's drawings. He proposed changes to the structure.
I
find, therefore, that the Board of Directors was aware of the
developments that were taking place at the defendant's hospital and
approved the developments.
The
shareholders of the defendant are the two companies (Mainbrain (Pvt)
Ltd and Finpower (Pvt) Ltd).
The
Board members that attended the Board meetings are directors in the
two companies that hold the shareholding in the defendant. The
shareholders were effectively, through its members, aware of the
developments. It is un-imaginable that none of the directors in the
shareholder companies, who constituted the Board meetings, would fail
to object to the project if indeed the shareholders were opposed to
the project and that representatives of the shareholders would fail
to notice the developments taking place. The same representatives of
the shareholders and Board members sat and discussed the project and
approved its bills.
The
conduct of the defendant, after the signing of the agreement, is
consistent with a party that is aware and approves of the agreement
and project. It facilitates the contract and project and makes
financial provision for it. What appears to have happened is that the
project became too costly and the defendant decided to renege from
it. I am persuaded that the parties entered into a binding contract
for the alteration, addition, and refurbishment of the hospital.
In
any case, where the existence of a contract is challenged on the
basis of lack of authority and the parties continue to engage each
other with respect to the contract in issue and perform in terms of
the contract, it is pertinent and sensible, in order to discern the
real intention of the parties, to consider the word or deed of the
parties after the aftermath of the contract.
I
find, therefore, that the Board of Directors were aware of the
developments that were taking place at the defendant's hospital and
approved the developments.
