GUVAVA
JA:
INTRODUCTION
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:
BACKGROUND
FACTS
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. Wedzera 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 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
USD500,000.00 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
USD450,000.00 ... being the total amount of the Bank Guarantee to
Engen Petroleum Zimbabwe (Pvt) Limited. The payment of the
USD450,000.00 will be after a period of 10 (ten) days from the date
of fuel drawdown and is on revolving basis …”
After
the guarantees had been issued, Wedzera 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 wrote to the respondent informing that it
(Wedzera) 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 further informed the respondent that it would pay its entire
indebtedness within 14 days.
Wedzera
failed to honour its indebtedness as promised.
The
respondent wrote to the appellant on 15 March 2011 informing it to
liquidate Wedzera'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. 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.
Following
the failure by Wedzera to make due payment of the debt and the
repudiation of the guarantees by the appellant, the respondent issued
summons against Wedzera 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 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 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's debt
on the basis of the two guarantees.
At
the trial, Wedzera was in default. The court a quo upon application
from the respondent, granted default judgment against Wedzera 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 IDBZ Act 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 IDBZ Act.
The
court held that in spite of the provisions of section 30 of the IDBZ
Act which made the appellant immune to the provisions of the
Companies Act, the actions of Mugwara fell squarely within the scope
of the presumptions of ostensible authority.
The
court found that 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 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 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 Mugwara in respect of Wedzera'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, 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 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 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 Mugwara had authority to
issue the two guarantees relied upon by the respondent
The
appellant argued that 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 Mugwara possessed there is
need to make reference to his key duties in the Bank.
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 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 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 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 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 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 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 Mugwara found that the onus to prove fraud and bribery was on
the appellant and that the prosecutor had failed to prove that
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”.
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 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 were not counter-signed meant
that the guarantees were fake and invalid.
Sample
guarantees produced before the court a quo showed that 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 Mugwara would countersign 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 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 to the respondent.
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 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 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 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 SC 34/01.
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.
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 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 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
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 fuel.
It
was the appellant's argument that no such implied authority existed
and that on the basis of Mugwara's job description such authority
was not given to him.
The
appellant also argued that in terms of the Bank's Lending Policy,
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) at paragraph 45, in which the case
of Hely-Hutchinson CA v Brayhead Ltd and Another [1968] 1 QB 549 (CA)
at 583 A-G 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 at paragraph 65:
“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, 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, 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 Mugwara and
the respondent met was not on the issuance of the guarantees. Mugwara
had previously made presentations before Mr Mudzengerere who was the
respondent's Managing Director. Mugwara approached the respondent
to issue the guarantees on fuel procurement and disbursement. The
intended business venture between 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 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 Mugwara even before
Wedzera 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
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. 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 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 IDBZ Act 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 IDBZ Act 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 IDBZ Act
and in spite of section 30 of the Act which makes the appellant
immune to the provisions of the Companies Act, the actions of 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'.)”(emphasis added)
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 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 IDBZ Act the implied authority
exercised by 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 at page 198 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 at 898; Farrell v
Secretary of State for Defence (1980) 1 All ER 166 at page 173 44.
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 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 Mugwara had
ostensible authority. The appellant at para 18-22 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 IDBZ 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
Mugwara as a representative of the Bank. The matter before the court
a quo was correctly disposed of on whether or not 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 IDBZ 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.
MAVANGIRA
JA: I agree
ZIYAMBI
AJA: I agree
Kantor
& Immerman, appellant's legal practitioner
Wintertons,
respondent's legal practitioner
