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[2010] ZAGPJHC 195
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Screen World Proprietary Limited t/a Off the Wall v Medshield Medical Scheme (09/52659) [2010] ZAGPJHC 195 (24 November 2010)
IN THE SOUTH GAUTENG
HIGH COURT, JOHANNESBURG
(REPUBLIC OF SOUTH
AFRICA)
CASE NUMBER: 09/52659
DATE: 24 NOVEMBER 2010
In the application between
SCREEN WORLD PROPRIETARY LIMITED
t/a OFF THE
WALL
….......................................................................................................
APPLICANT
And
MEDSHIELD MEDICAL
SCHEME
...........................................................................
RESPONDENT
JUDGMENT
EF Dippenaar AJ
[1] This is an application by the
Applicant for payment of certain monies as contractual damages
together with interests and costs
pursuant to the repudiation and
subsequent cancellation of a written agreement concluded between the
parties in terms of which
the Respondent procured certain advertising
services from the Applicant. The Respondent denies its liability on
one ground only
and contends that the agreement is not enforceable or
binding on it because its chief principal officer at the time of
conclusion
of the agreement, a Mr Clinton Ally (“Ally”),
was not authorised to conclude the agreement on its behalf and that
the
agreement is accordingly invalid.
[2] The majority of the facts giving
rise to the current application are common cause and are, in summary,
the following: On or
about 18 August 2009 a written agreement styled
Advertising Contract was concluded between the Applicant and the
Respondent, the
latter represented by its executive principal
officer, Ally, to perform certain advertising services. Prior to the
conclusion
of this agreement, the parties had previously and on the
16th of November 2007 concluded a similar written agreement for
similar
services, which had endured for a period of 15 months and in
respect of which an amount in excess of R3,2 million was paid by the
Respondent to the Applicant. At the time of conclusion of the earlier
agreement, the Respondent had similarly been represented
by Ally. The
Respondent is a registered medical scheme, thus registered in terms
of the
Medical Schemes Act 131 of 1998
. In terms of
section 57
of the
said Act, the business of the Respondent is governed by a board of
trustees in terms of the Act and its rules, which, inter
alia,
regulate the powers of the board of trustees and its principal
officer.
[3] In terms of the written agreement
here in issue, the Applicant would be entitled to a cancellation fee
of 75% of the incomplete
portion of the advertising contract and
would be entitled to payment of the advertising space already
delivered by it.
[4] There is no dispute between the
parties that the amounts claimed relate to the aforesaid amounts. It
is also common cause that
the Respondent repudiated the terms of the
agreement concluded between the parties and that the agreement was
cancelled.
[5] The main issue to be determined is
accordingly the authority issue raised by the Respondent. In response
thereto, the Applicant
has raised an estoppel against the denial of
authority of Mr Ally and it relies on Ally’s actual or
ostensible authority
as chief principal officer of the Respondent.
[6] In response to the Applicant’s
contention that the Respondent’s board of trustees were aware
of the earlier contract
and authorised payment being made in respect
thereof, and must have expressly or implicitly approved of Ally’s
conclusion
of the agreement, the Respondent filed a further affidavit
in which it denied that its board of trustees was aware of the fact
that Ally had concluded the earlier agreement with the Applicant and
was unaware of the payment made to the Applicant pursuant thereto.
On
this basis, the Respondent denies that it made any representation to
the Applicant which can form the basis of an estoppel.
[7] The Respondent contends that there
is an irresolvable dispute of fact on the papers on the issue of
whether any representation
was made by the Respondent and that the
matter should be referred to trial, in the event that the application
is not dismissed.
The Respondent invited me to dismiss the
application because the Applicant was, prior to institution of the
proceedings aware of
the Respondent’s defence and the existence
of irresoluble factual disputes and should have proceeded by way of
action. On
the other hand, the Applicant contends that the disputes
of fact raised by the Respondent are not bona fide and that the
matter
can be resolved on the papers.
[8] These contentions necessitate an
analysis of whether there are any disputes of fact and if so, whether
such disputes are bona
fide. The true dispute is narrower than the
issues surrounding the indication of estoppel as the only aspect of
the estoppel which
is disputed is whether or not the Respondent
represented to the Applicant that Ally was authorised to conclude the
agreement. It
is trite that any disputes of fact must be genuine.
See: Soffiantini v Mould,
1956 (4) SA 150E.
The representation relied
upon by the Applicant, lies in the following:
[8.1] Ally concluded the earlier
contract with the Applicant in his capacity as executive principal
officer of the Respondent;
[8.2] The earlier contract was
implemented for its full duration of 15 months during which time the
Respondent paid the Applicant
in excess of R3.2 million for the
services rendered;
[8.3] Ally was at all material times
the executive principal officer of the Respondent, signed the
agreements in that capacity and
on at least one occasion confirmed to
the Applicant that as such, he had the requisite authority to do so;
[8.4] The agreement here in issue was
for all intents and purposes merely a renewal of the earlier
agreement;
[8.5] The Applicant was at no stage
prior to the current dispute arising, informed by the Respondent that
Ally did not have the
requisite authority to conclude the agreement,
nor were the Respondent’s Rules and Procurement Policy brought
to the Applicant’s
attention; i.e. there was nothing which
would have put the Applicant on its guard that Ally did not have the
requisite authority
to conclude the agreement in question;
[8.6] By virtue of the Respondent’s
conduct the Applicant, at all material times, believed that Ally was
duly authorised to
conclude the 2009 contract on behalf of the
Respondent.
[9] The Respondent does not dispute
that Ally was at all material times the executive principal officer
of the Respondent, but contends
that the board of trustees of the
Respondent was not aware of the initial contract or the payments made
in terms thereof and the
board of trustees had not authorised Ally to
conclude the agreements relied on by the Applicant. As such, it is
argued that the
Respondent cannot in law be estopped from denying
Ally’s authority and the enforceability of the agreement.
[10] The Applicant contends that
irrespective of whether Ally had actual authority or not, the
representation of his appointment
as chief principal officer was
sufficient to cloth him with such ostensible authority as to
constitute the representation element
of the estoppel.
[11] The relevant principles to import
liability on a party based on ostensible authority are set out in NBS
Bank Limited v Cape
Produce Co (Pty) Limited and Others,
2002 (1) SA
396
SCA, at paragraph 26. The Applicant must accordingly prove:
[11.1] A representation by words of
conduct;
[11.2] A representation made by the
Respondent and not Ally that he had the authority to act as he did;
[11.3] A representation in a form such
that the Respondent should reasonably have expected that outsiders
would act on the strength
of it;
[11.4] Reliance by the Applicant on the
representation;
[11.5] The reasonableness of such
reliance;
[11.6] Consequent prejudice to the
Applicant.
[12] At 411H to 412B the Supreme Court
of Appeal held:
“Where a principal is liable
because of the ostensible authority of an agent, agency by estoppel
is said to arise. But the
law stresses that the appearance, the
representation, must have been created by the principal himself. The
fact that another holds
himself out as his agent cannot, of itself,
impose liability on him. Thus, it is accordingly the principal that
must create the
impression that the agent is entitled to act on its
behalf. It is not enough that an impression was in fact created as a
result
of the presentation. It is necessary that the representee
should have acted reasonably informing that impression. Although an
intention
to mislead is not a requirement for estoppel, where such an
intention is lacking and a course of conduct is relied on as
constituting
the representation, the conduct must be of such a kind
as could reasonably have been expected by the person responsible for
it,
to mislead. Regard is had to the position in which he is placed
and the knowledge which he possesses. A court will not hold a person
bound by consequences which he could not reasonably expect and are
therefore not the natural result of his conduct.”
[13] The representations by Ally as to
his authority accordingly do not assist the Applicant and it is the
conduct of the Respondent
itself which must be scrutinised. The first
salient feature of this conduct is to examine the appointment by it
of Ally as chief
principal officer of the Respondent.
[14] The Applicant contends that the
Respondent’s board of trustees in the circumstances and
specifically through its conduct,
represented to the Applicant that
Ally had the necessary authority to conclude the initial and the
contract upon which it relies
in this application and that in the
circumstances the Respondent is estopped from denying that Ally had
the authority to conclude
the agreement in issue.
[15] The Applicant disputes that
knowledge by the Respondent’s board of trustees of the initial
contract and its authorisation
of the payment is the relevant
information. Relying on the judgment in the NBS case, supra, the
Applicant contends that the mere
fact that Ally acted as the
principal executive officer of the Respondent, to the knowledge of
the Respondent’s board of
trustees, is sufficient to found the
representation as required for a successful reliance on estoppel. The
Applicant further pointed
out that the Respondents new principal
executive officer, who deposed to the affidavit of the Respondent,
was at the relevant time
not a member of the board of trustees of the
Respondent and has no personal knowledge of what the state of
knowledge of the Respondent’s
board of trustees was at the time
the contracts were concluded. As such, the Applicant alleges that the
Respondent’s denial
of knowledge rings hollow as it is not
supported by evidence of an individual with personal knowledge
thereof. On this basis the
Applicant contends that there is no fact
bona fide factual dispute regarding this issue.
[16] The Applicant contends further,
and I agree with this contention, that it is however not necessary
for the Applicant to prove
actual knowledge by the board of trustees
of the Respondent of the initial contract and the payments made to
the Applicant, but
that the element of a representation is
sufficiently proved by the undisputed contention that Ally was at the
time the chief executive
officer of the Applicant and held himself
out as such. In this context the knowledge of the board of trustees
of the Respondent
is not relevant as they clearly were aware of this
fact.
[17] It is trite that the
representations made by Ally himself and the fact that he held
himself out as being authorised to act
as he did, is irrelevant to
the enquiry in the current matter. It needs to be determined whether
it is undisputed on the papers
that the Respondent had created the
reasonable impression with the Applicant that Ally was entitled to
conclude the agreement on
its behalf. Irrespective of whether the
Applicant was aware of the existence of the board of trustees of the
Respondent, it cannot
be expected of it to be aware of the inner
dealings and ambit of the authority afforded to the Respondent’s
principals. The
chief principal officer of an entity is its public
face to the world and is the person who is authorised to speak and
act on behalf
of the Respondent. If something should have been beyond
the competence of a lesser official.
[18] The Applicant in these
circumstances was, in my view, entitled to accept that the individual
involved, being the chief principal
officer, knew of his own
authority limitations and would respect them so that when he dealt
with the Applicant, he had the full
authority of the Respondent to do
so. The Respondent had therefore created a platform for Ally to act,
as he did, whilst creating
a code of regularity and order. It is in
the totality of these appearances that the representation can be
found upon which the
Applicant relies.
[19] The Respondent’s appointment
of Ally as the chief principal officer is accordingly to be seen not
as a nude appointment,
but as an appointment with all its trappings,
set in a specific context. Seen in this context, the appointment of
Ally carries
with it, at least to the mind of the Applicant the
powers usually conferred upon a person thus appointed and the
Applicant was
not and could not reasonably have been aware of the
Respondent’s internal procedures and regulations and any
curtailment
of Ally’s authority. The Respondent has not
provided any evidence of what Ally’s actual authority was and
merely relied
in general terms on its rules and procedures, provided
by an individual with no personal knowledge of the actual position.
In my
view, the authority to conclude agreements is one usually to be
associated with the chief principal officer of an entity, as
envisaged
by Bowstead on Agency and enunciated in Monzali v Smith,
1929 AD 382
at 385. See also Glofinco v Absa Bank Limited,
2002 (6)
SA 470(A)
paragraphs 14, 15 and 18.
[20] Insofar as the Applicant has
placed reliance on the conclusion of and performance in terms of the
earlier agreement, the Respondent
contends that it cannot be held
liable when it did not even know of the earlier contract and the
payments made by Ally in terms
thereof.
[21] The Respondent further placed
reliance on Concor Holdings (Pty) Ltd t/a Technicrete v Potgieter,
2004 (6) SA 491
SCA at 495B and Electrolux (Pty) Ltd v Khota and
Another,
1961 (4) SA 244
W at 246A-C, dealing with representation by
conduct. The Respondent further contends that the Applicant has not
sought to overcome
the hurdle of its lack of knowledge, but has
relied on some speculative conduct which the Respondent denies, to
have been committed
by its board of trustees. The Respondent contends
that the Applicant’s case hinges on the allegation that the
Respondent’s
board of trustees knew about the initial contract
and that it authorised payments of some R2,3 million in terms of that
contract.
I disagree with the Respondent that the Applicant’s
case hinges on such a narrow basis as on my reading of the papers,
the
basis of the representation relied upon by the Applicant is much
wider and includes the conclusion of the agreement by a person
appointed by the Respondent as chief principal officer, within the
ambit of functions normally performed by such person.
[22] The Respondent further contends
that no evidence has been placed before the Court to establish that
the Respondent’s
board of trustees knew about the initial
contract and that it authorised the payment of sum R2,3 million to
the Applicant. I disagree
with the Respondent that it was incumbent
upon the Applicant to do so. Moreover, it is not necessary for the
Applicant to prove
actual authority as it can rely on implied
authority.
[23] Other than relying in general
terms on its internal procedures, rules and policies, the Respondent
has not provided any evidence
to clarify the extent of Ally’s
actual authority and has not produced his employment contract or the
minutes of any trustees’
meeting where the extent of Ally’s
authority was determined. The Respondent, apparently because it was
unaware of its existence,
did not question the existence of the
initial contract and did question Ally on his authority to conclude
the initial contract.
This explanation is unsatisfactory and does not
begin to explain how it came about that the Respondent was unaware of
the existence
of the earlier agreement. The Respondent was in a
position to set up more than a bald denial of the Respondent’s
knowledge
of the earlier agreement and the payment made in terms
thereof and to provide exact information regarding the actual
authority
of Ally, but failed to so. In this context it must be borne
in mind that the Respondent’s denial of knowledge of the
initial
agreements and the other elements of the representation as
relied upon by the Applicant does not stem from personal knowledge,
but is made by an individual, occupying the same post as Ally who has
not sought to explain how he has acquired knowledge of the
board of
trustees’ lack of knowledge. As such, it is doubtful whether
this dispute can be considered as being bona fide,
for purposes of
determining whether the matter should be referred to trial or oral
evidence.
[24] In any event, in considering
whether the Respondent ought reasonably have expected that the
Applicant may in the circumstances
have been misled that Ally was
authorised to conclude the agreement and whether the Applicant was
reasonable in construing the
available facts in the sense it did, in
other words; that Ally was authorised. I am satisfied that the
Applicant’s interpretation
of the available facts was
reasonable and that the Respondent ought to have reasonably expected
the Applicant to be misled, even
though it might not have been aware
of the agreement, as it reasonably should have been. Even if I am
wrong on this issue, it is
not the crux of the matter, specifically
in light of my above findings and the Applicant has on an undisputed
basis illustrated
that a representation was made by the Respondent,
which can found an estoppel. It would in the circumstances serve no
purpose to
have this issue referred to evidence and a referral to
trial or oral evidence would be superfluous and a waste of both time
and
money.
[25] I accordingly find that no genuine
disputed fact exists on the issue of the Respondent’s
representation by conduct and
that the conduct of the Respondent is
sufficient to constitute a representation for purposes of the
Applicant’s reliance
on an estoppel.
[26] The Respondent has not disputed
that the Applicant had relied and acted on the representation that
Ally was authorised to conclude
the agreement and in doing so, acted
to its prejudice. Moreover, the reasonableness of the Applicant’s
reliance on the representation
of Ally’s authority has not been
contested.
[27] Mindful of the test enunciated in
Plascon-Evans Paints Limited v Van Riebeeck Paints (Pty) Ltd,
[1984] ZASCA 51
;
1984
(3) SA 623
A and the admissions contained in the Respondent’s
affidavits, I am of the view that the matter can be decided on paper
and
that in the circumstances the Applicant is entitled to the
relief it seeks.
[28] I accordingly make the following
order:
[28.1] The Respondent is directed to
make payment to the Applicant of the amount of R424 718,00;
[28.2] The Respondent is directed to
make payment to the Applicant in the amount of R1 592 694,00;
[28.3] The amounts in [28.1] and [28.2]
shall bear interest at the rate of 15,5% per annum calculated from 30
November 2009 to date
of payment;
[28.4] The Respondent is directed to
pay the costs of this application.
EF DIPPENAAR
ACTING JUDGE OF THE HIGH COURT
Date of hearing : 11 May 2010
Date of judgement : 24 November 2010
For Applicant : Adv C J McAslin
Werksmans Inc
For Respondent : Adv K Tsatsawane
Eversheds