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[2014] ZALAC 128
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Blue IQ Investment Holdings (Pty) Ltd v Southgate (JA 28/13) [2014] ZALAC 128 (30 May 2014)
REPUBLIC OF SOUTH AFRICA
IN THE LABOUR APPEAL COURT OF SOUTH AFRICA, JOHANNESBURG
Case no: JA 28/13
In the matter between:
BLUE
IQ INVESTMENT HOLDINGS (PTY) LIMITED
Appellant
and
DOUGLAS
SOUTHGATE
Respondent
Heard: 11 March 2014
Delivered: 30 May 2014
Summary: Contract- existing contract of employment has ‘no
variation/ no cancellation clause’ restricting variations
and
cancellations thereof to writing signed by or on behalf of the
parties- Held: new alleged oral contract was to cancel and /or
vary
the existing contract- new contract not completely negotiated- and in
any event not valid in light of the no variation clause
in the
existing contract. Authority to contract- Held: CEO had no authority
to conclude new contract of employment with person
on a management
level without consulting the Board- intended position was at
management level-
Turquand
rule of no assistance to alleged
appointee.
Coram
:
WAGLAY JP, NDLOVU JA, COPPIN AJA
JUDGMENT
COPPIN AJA
[1] This is an appeal against the judgment of the Labour Court (A C
Basson J) ordering the appellant to pay the respondent “
contractual
damages in the amount of R5 576 500
” as well as party and
party costs. Leave to appeal was granted on petition by this Court.
The case is about whether a three
year employment contract was
concluded between the parties and whether the appellant had
repudiated that contract, resulting in
the respondent suffering
damages.
[2] In the Labour Court, the respondent’s claim against the
appellant, in terms of his statement of claim, was for reinstatement,
an order directing the appellant to pay him the remuneration he would
have earned between 15 February 2009 and the date the contractual
relationship between them is restored, as well as costs of suit on
the scale as between attorney and own client. The respondent
claimed,
alternatively, an order directing the appellant to pay him the
remuneration he would have earned between 15 February 2009
and 15
October 2011, as well as costs on an attorney-client scale.
[3] The basis of the respondent’s claims is as follows. The
respondent alleged that while he was employed by the appellant
as a
Special Projects Programme Manager in terms of a fixed contract for
one year (“
the second contract
”), which was to
terminate on 15 February 2009, he, personally, negotiated and entered
into a contract (“
the third contract
”) with the
appellant, who was represented by its Chief Executive Officer (CEO)
at the time, Ms Nomhle Canca (“
Canca
”) during or
about October 2008, on the following terms:
3.1
The
second contract would terminate with effect from 15 October 2008 and
would be replaced by the third contract;
3.2
The
third contract would commence on 16 October 2008 and would endure for
a period of three years;
3.3
The
respondent would be Group Programme Co-ordinator;
3.4
The
respondent would receive the same remuneration package as he had
received in terms of the second contract;
3.5
The
respondent’s monthly salary would be subject to the appellant’s
normal salary review process.
[4] The respondent alleged, in essence, that even though the third
contract had not been reduced to writing it had effectively
and
validly been concluded; that Canca ceased to act as the appellant’s
CEO after the conclusion of the third contract and
that Mr Jameel
Chand (“
Chand
”) had replaced her; that even though
Chand was at all material times aware of the respondent’s
employment as Group
Programme Co-ordinator he directed the letter to
the respondent, through the appellant’s legal officer, Mr
Mulaudzi (“Mulaudzi”),
which the respondent received on
or about 10 February 2009, informing him that his employment with the
appellant would terminate
on 15 February 2009, which was the date
upon which the second contract was to terminate; that despite
protestations of the respondent
and contentions that the appellant
was bound to the third contract, the appellant maintained its stance
and the respondent’s
employment was terminated accordingly.
[5] Respondent also alleged, in essence, that the termination of his
employment amounted to a repudiation of the third contract
by the
appellant. Respondent seemingly refused to accept such repudiation
and tendered his services to the appellant who, according
to the
respondent, refused to accept it. The respondent consequently
instituted the claim in which he sought the relief which I
have
mentioned earlier.
[6]
In the original response to the respondent’s claim,
[1]
the appellant, in essence, admitted that the respondent was employed
by it in terms of the second contract and admitted that prior
to the
termination of that contract, negotiations had commenced regarding a
new contract of employment, but denied that the negotiations
were
concluded and that the third contract came into being. Furthermore,
the appellant alleged that the parties had contemplated
reducing
their verbal negotiations to writing and to have the written
documents signed by the parties; but that no such contract
was
concluded. It was further alleged that Canca instructed Mulaudzi on
some of the aspects for the new contract, but she gave
no
instructions in respect of two essential or material aspects, namely,
the remuneration package and the duration of the new agreement.
It
was further denied that the respondent rendered services to the
appellant as Group Programme Co-ordinator and that the respondent
was
appointed as such and that Mr Chand had knowledge of his appointment
to that position. The appellant denied unlawfully terminating
the
respondent’s employment and alleged that the termination
happened as a result of the expiry of the second contract on
15
February 2009. In its original response, the appellant also raised
other technical issues which are not relevant for the purposes
of
deciding this appeal.
[7] During or about November 2009, the appellant delivered a notice
to amend its response to the respondent’s statement of
claim.
The proposed amendment was not opposed and on or about 8 March 2010,
the appellant’s attorneys delivered an amended
response to the
respondent’s statement of claim. Of significance (beside other
issues raised) the appellant alleged that
negotiations in respect of
the third contract had not been concluded and that the parties had
contemplated that the third contract,
if concluded, would be in
writing; denied that the respondent was appointed as, or rendered
services to the appellant as Group
Programme Co-ordinator; denied
that Chand had knowledge of the respondent’s appointment as
Group Programme Co-ordinator;
denied that Canca had authority to
unilaterally create a position of Group Programme Co-ordinator and to
employ a person in such
a position without first obtaining the
approval of the appellant’s board of directors for the creation
of the position and
for the employment of a person to the position;
alleged that Canca had failed to comply with the Public Finance
Management Act
(“
the PFMA
”) and the appellant’s
delegation of authority policy; and accordingly, denied that Canca
had the authority to enter
into and/or bind the appellant on the
terms alleged in respect of the third contract. Of further
significance for this appeal,
the appellant alleged in the amended
response that the respondent was bound to the second contract,
including the terms contained
in clauses 13.2 and 13.4 thereof.
Clause 13.2 is a no variation/no cancellation-except- in writing
clause, requiring the
parties to reduce to writing and to sign any
variation or consensual termination of the second contract. Clause
13.4 is a no waiver
clause. The appellant contended, accordingly, in
essence, that since the no variation/no cancellation clause was not
complied with
and there was no waiver by the appellant of its rights
in terms of the second contract, the third contract could not have
come
into existence. I shall deal in more detail with the precise
wording of the clauses, referred to, later in the judgment. The
appellant
accordingly sought a dismissal of the respondent’s
claim with costs.
[8]
At the hearing before the Labour Court, several issues remained for
determination, but the two main issues were, firstly, whether
the
third contract came into existence even though it was not in writing
and particularly in light of clauses 13.2 and 13.4 of
the second
contract. Secondly, whether Canca had the necessary authority to
create the position of Group Programme Co-ordinator
and employ a
person to that position and whether the appellant was nevertheless
bound by the agreement between the respondent and
Canca (i.e. the
third contract). In respect of the latter question it was in issue
whether the respondent could rely on the so-called
“
Turquand
rule
”.
[2]
This rule was adopted into our law in the earlier part of the
twentieth century. For the application of the rule in our courts
see
for example
National
and Overseas Distributors Corporation (Pty) Ltd v Potato Board
[3]
and
Potchefstroomse
Stadsraad v Kotze
[4]
.
[9] The appellant called Mulaudzi as a witness. He was acting company
secretary of the appellant and at the time of the alleged
negotiation
of the third contract he was also its Group Legal Adviser. The
appellant also called Chand, who was acting CEO of the
appellant
after Canca was suspended, and Mr Waja, a non-executive director of
the appellant, as witnesses. The respondent gave
evidence in person
and called Canca as a witness.
[10] The court
a quo
concluded as follows regarding the first
issue:
‘
[54]
… I am, however, not persuaded that the non-variation clause
contained in the second contract has the effect of rendering
the
third contract invalid simply on the basis that it (the third
contract) was not reduced to writing. The purpose of a
non-variation clause (except in writing) is to protect the parties to
the agreement by preventing one of the contracting parties
(for
example the employer) from, for example, vary
[ing]
the
salary that was agreed upon in the employment contract.
[55]
Clause 13.2 of the second contract is, in my
view, valid only in respect of the second contract.
This clause
cannot be used to prevent the parties (in this case the applicant and
Canca contracting in her capacity as the CEO
on behalf of the
respondent) from concluding a third or further contract. In the
present case, the applicant and Canca did not
negotiate the amendment
of the second contract. They had negotiated the terms of another
(third) contract in terms of which the
applicant who was appointed to
a different position and for a longer period. Clause 13.2 of the
second contract is therefore in
my view irrelevant vis-à-vis
the third contract. Moreover, nothing in the second contract prevents
the parties from entering
into a new contract. Lastly, the two
parties to the contract were ad idem that it was a requirement that
the new contract
had to be reduced to writing. Canca contracted
on behalf of the respondent. She was the CEO at the time and she
concluded
the contract on behalf of the respondent and she concluded
the third contract on the basis that it was not a material
requirement
that the contract had to be in writing.
’
[11] The court went on to apply something in the nature of an
estoppel, in that it held that even if it was wrong in finding that
the third contract did not have to be in writing to be binding, the
appellant was, nevertheless, bound by it because Mulaudzi,
the
appellant’s legal adviser, had not drafted the third contract
in time and the respondent had “
in fact commenced
”
working in his new position since October 2008. Furthermore, the
court
a quo
stated that it took into account that if Canca had
not been suspended, the third contract would have been reduced to
writing and
held that “
in light of these factors …
the third contract came into being despite the fact that it was not
in writing
”.
[12] Regarding whether the appellant was bound by the third contract,
i.e. allegedly entered into between Canca (its CEO at the
time) and
the respondent, the court
a quo
concluded that Canca was
empowered to appoint the respondent to the new position in terms of
her delegated powers. The court
a quo
was not persuaded that
the respondent was in fact a senior manager as defined in the
regulations. It was seemingly accepted that
Canca was not obliged to
consult the Board in respect of the creation of the post of group
programme co-ordinator and in respect
of the appointment of the
respondent, in terms of the appellant’s delegation policies.
The court
a quo
also held that Canca’s evidence was not
challenged that the respondent was not a manager and further that it
was never put
to her that the respondent was a senior manager and
that she therefore had to consult with the board. Regarding the
application
of the Turquand rule, the court
a quo
held that if
it was wrong in its conclusion that Canca had the necessary authority
to appoint the respondent to the new position,
then the Turquand rule
was applicable and the respondent was entitled to assume in good
faith that Canca had the necessary authority
to appoint him and to
conclude the employment contract on behalf of the appellant.
[13] At the hearing before us counsel for both the appellant and the
respondent were in agreement that there were only two issues
that had
to be addressed, namely, the issue regarding the validity of the
alleged third contract in light of the no variation/no
cancellation
and no waiver provisions in the second contract and, secondly,
whether the alleged third contract, if it was validly
concluded, was
binding on the appellant. With regard to the latter issue it had to
be determined, in particular, whether Canca
was empowered to bind the
appellant without having consulted the board regarding the
appointment of the respondent and, in the
alternative, whether the
respondent could invoke the Turquand rule. I shall now deal with
those issues in turn.
Conclusion of the third contract
[14] The argument of the appellant was, briefly, that in light of the
no variation/no cancellation and no waiver provisions in
the second
contract, the third contract could not be validly concluded and in
fact was not validly concluded. Related to this point
it was
submitted on behalf of the appellant that with the third contract the
respondent and Canca purported to terminate and/or
vary the second
contract orally; the prescription of the no variation/no cancellation
clause, i.e. that any consensual termination
be in writing and signed
by the parties and that any variation, similarly, be in writing and
signed by the parties, was not complied
with. Accordingly, that in
those circumstances the third contract was not validly concluded.
[15] On behalf of the respondent, it was submitted that the third
contract was not a variation of the second contract but was a
new
contract; that it was a novation of the second contract that did not
require compliance with the prescriptions in the second
contract
relating to consensual terminations and variations. An alternative
argument raised on behalf of the respondent was that
even though the
third contract was concluded during the currency of the second
contract it did not come into effect during the
currency of the
second contract, but only came into effect upon termination of the
second contract by the effluxion of time as
was agreed in terms of
the second contract. This latter argument was not the case made out
by the respondent in the court
a quo
and was raised for the
first time on appeal before us in response to a point that it could
never have been the intention of the
respondent and Canca that the
parties would be bound by two contracts of employment simultaneously,
or concurrently (i.e. both
the second and the third contracts).
[16] The appellant’s counsel argued that for the third contract
to constitute a novation, it had to substitute the contractual
obligation in the second contract. The contractual obligation,
according to this argument, was the employment relationship. The
third contract, so it was submitted, did not substitute the
contractual obligation in the second contract, but purported to vary
certain terms of the second contract, more particularly, by extending
the period and by slightly changing the respondent’s
job
description and extending his duties. It was submitted that the third
contract did not purport to change the respondent’s
salary and
the other terms of the second contract.
[17] In my view, the issue whether the non-variation clause in the
second contract had the effect of rendering the third, oral,
contract
invalid should not have been considered in an abstract sense. The
actual wording and meaning of that clause was important
in
determining its purpose, range and impact.
[18]
The no variation clause provides:
‘
No
amendment of this agreement or any consensual cancellation thereof or
any part thereof shall be binding on the parties unless
reduced to a
written document and signed by them.
’
In
my view, the meaning of this clause is clear and unambiguous. A
variation or consensual termination of the second contract, in
order
to be valid, had to be reduced to writing and signed by the parties
(or on their behalf). The case made by the respondent
in the Labour
Court was that in terms of the third oral contract, the second
contract was consensually terminated. In my view,
that cannot be a
valid termination in light of the no variation/no cancellation clause
in the second contract.
[5]
There was no contention either in the court
a
quo
or before us that the no variation/no cancellation clause was not
sufficiently entrenched in the second contract.
[19] It is furthermore apparent from an examination of the second
contract and the alleged terms of the third contract that the
latter
was not a novation, but an attempt to vary the second contract by,
firstly, extending the period of the respondent’s
employment
contract for three years from the date of the alleged conclusion of
the third contract, i.e. during or about October
2008 and, secondly,
by altering the job description of the respondent, although not
materially. Whereas the respondent was employed
by the appellant
under the second contract as a special project programme manager in
respect of, principally, the Blue Umbrella
Project, in the third
contract, his responsibilities were to be extended to other projects
and he was to be employed, on his suggestion,
as “
Group
Programme Co-ordinator
”. Other than these variations, the
employment relationship was to persist. The respondent was to
continue earning the same
salary that he earned in terms of the
second contract and the other standard terms, which were part of the
second contract, were
to continue to apply.
[20]
A contract is novated when an existing contractual obligation is
replaced by a new obligation.
[6]
The main obligation in the second contract was not replaced by a new
obligation in the third contract, but the effect of the latter
agreement was to extend and vary certain obligations in the second
contract. Even if it was to be assumed that the third contract
did
not vary the second contract, the respondent and Canca clearly never
envisaged that the two contracts would bind the parties
simultaneously or concurrently. One cannot ignore the fact that
according to the respondent, one of the terms of the third contract
involved the termination of the second contract. The respondent’s
evidence was also to the effect that he had already begun
performing
in terms of the third contract by about October 2008. Prior to the
hearing of the appeal, it had never been the respondent’s
version that he and Canca had intended the third contract to apply
only after the second contract had expired by the effluxion
of time
on 15 February 2009.
[21] The formalities for the consensual termination or variation of
the second contract were laid down in the no variation clause
in that
contract. It is therefore not correct to conclude that the no
variation clause was only valid in respect of the second
contract.
The parties intended to lay down formalities for any further
contracts in terms of which the second contract was either
terminated
or varied. If such further contracts were not in writing and signed
by the parties as ordained by the no variation/no
cancellation clause
in the second contract, they were not valid. The alleged third
contract was accordingly not valid and the court
a quo
erred
insofar as it held the contrary. In any event, I am not persuaded on
the evidence that was led that the third contract was
negotiated to
finality. Over and above the fatal lack of compliance with the
formalities of writing and signature by the parties,
it was at best
nothing more than a “
limping
” contract that was in
the process of being negotiated and finalised.
[22] Even though the point relating to the validity of the third
contract is decisive of this case I shall now briefly turn to
deal
with the issue of authority of Canca and the applicability of the
Turquand rule. I would also have to proceed on the assumption
that
the third contract was complete (i.e. not a “
limping
”
contract).
[23] The appellant’s argument on the authority point was
briefly the following. One had to look at the written delegation
of
authority document of the appellant which was applicable at the time
of the alleged conclusion of the third contract. The board
has to be
consulted when the Chief Executive Officer deals with staff at a
management level. The respondent was at such a level
and therefore
Canca, as the CEO was obliged to consult with the board regarding the
respondent’s employment in terms of the
alleged third contract.
Since it was common cause that she did not consult with the board,
the appellant was not bound by her unilateral
decision, as it were,
to enter into the third contract with the respondent. Furthermore the
respondent could not rely on the Turquand
rule because the respondent
was not an “
outsider
”. At the time of the alleged
third contract, the respondent was employed by the appellant in terms
of the second contract.
In terms of, at least, that contract, he was
obliged to know about the policies and procedures that were
applicable in the employment
relationship and could not merely assume
that internal procedures or policies, that were applicable to his
appointment in terms
of the third contract, had been complied with by
Canca. He, being at a senior management level, had the responsibility
to see to
it that they were indeed complied with. According to this
argument, it was eminently clear from his contract of employment and
the alleged third contract that the respondent was functioning and
was to continue functioning at an executive management level.
At
least one person, a Mr Cook had to report to the respondent. The
respondent in turn had to co-ordinate projects and aspects
of
projects and reported directly to the Chief Executive Officer. The
respondent’s job description (including the key performance
indicators that were applicable to him), anticipated that in the
course of his work, the respondent would also manage people. The
respondent’s salary was also in excess of R5 million and the
board therefore had to be consulted. Even if it was anticipated
(or
agreed in terms of the third contract) that the respondent was to
continue earning the same salary as he earned under the second
contract the third contract had an unanticipated financial impact
since it was going to endure for a period of three years, in
other
words, for more than two years after the second contract would have
expired.
[24] The appellant’s counsel was dismissive of the contention
by the respondent’s counsel that two members of the
remuneration committee of the appellant’s board knew of the
respondent’s appointment in terms of the third contract
and had
approved of it, on the basis that there was no evidence whatsoever
that the remuneration committee had authority to appoint
people, let
alone people at the level at which the respondent was appointed or
supposedly appointed. On behalf of the appellant,
it was further
submitted that Canca had exceeded her authority in appointing or
purporting to appoint the respondent in terms of
the third contract.
In conclusion, it was submitted that all the relevant material was
before the court
a quo
and that if it had examined the
material, it could not reasonably have come to the conclusion it came
to on the issue of Canca’s
authority and the binding nature of
the third contract.
[25] On behalf of the respondent, it was submitted that the appellant
could not argue that the respondent was a manager because
it was
never put to him in evidence that he was a manager, nor was it
suggested to Canca that the respondent was a manager, nor
was Canca’s
evidence, that he was not a manager, ever challenged and Mr Waja did
not even know what the respondent’s
duties were. It was
furthermore submitted that the respondent could not be a manager
unless there was a key human resources component.
Furthermore, that
there was no merit in the appellant’s budget point and that the
court could not be ‘locked into’
an organogram that was
never produced. It was further submitted on behalf of the respondent
that, in any event, the Turquand rule
applied. The respondent did not
know of the delegations and was like an outsider. He was therefore
entitled to assume that the
internal procedures and policies relating
to his appointment in terms of the third contract had been complied
with.
[26] The primary purpose of the delegation of authority document of
the appellant, according to the document itself, was to provide
a
policy with regard to the delegation of powers, duties and functions
to management. The document describes the powers and duties
of
certain functionaries including the Chief Executive Officer (“
CEO
”).
The CEO,
inter alia
, has the power “
to appoint,
determine the conditions of employment of and dismiss the staff of
Blue IQ, including members of staff on management
level; where the
management members are reporting to the CEO the board must be
consulted
”. The document does not define “
management
level
”, or the term “
management members
”,
but does define the term “
Executive Manager
” as
meaning “
a manager who is responsible for the management of
[a]
Blue IQ Department
”. A “
Department
”
is defined as “
a functional unit within Blue IQ tasked with
specific functions which are related to the achievement of that
unit’s objectives,
i.e. finance, marketing and communications
etc
”. The term “
Senior Manager
” is
defined as “
a manager who exercises direct managerial
control over specific human resources utilised in a department or
section in the achievement
of that department or section’s
objectives.”
[27] It is instructive that the powers of the CEO relating to the
employment of staff on management level does not only refer to
an
executive manager or a senior manager, but refers generally to
“
members of staff on management level
”. It
furthermore provides where “
management members
”
are reporting to the CEO the board must be consulted. There is no
reference to executive managers or senior manager, the
reference is
generally to “
management members
” who are
reporting to the CEO.
[28] It is noteworthy that in the second contract, the respondent is
referred to as “
the executive
” and his job
description is “
Special Projects – Programme Manager
”.
He was to report directly to the CEO or the board of the appellant
for the duration of the second agreement. His job was
to oversee and
manage the implementation of business plans and particular aspects
thereof. He is described elsewhere in that contract
in particular in
a portion dealing with working hours that he occupies a “
senior
position
” or is a “
senior employee
”.
[29] On 23 October 2008, Canca sent to the respondent a pro forma job
profile of a Programme Co-ordination Officer. In terms of
that
document, the skills and qualification required for the position
included having five years project management experience
and having
held an executive position for at least three years. The tasks and
outputs envisaged were to assist the management of
the Blue Umbrella
Programme to plan with milestones, scope, budget, deadlines and
programme deliverables, to compile management
reports; relate and
provide all information and documentation requests submitted to the
programme officer; oversee the participation
and delivery of all
stakeholders including public and private sectors participants;
develop and implement key PMO deliverables;
and be responsible for
billing management.
[30]
On 24 October 2008, the respondent responds to Canca in connection
with the job description document and informs her that he
has changed
the document significantly to “
more
mirror the role
”
that he has been playing with the Blue Umbrella Programme to include
the fact that his responsibility would be for more
than one
programme. It states further “
the
role, as defined, is essentially that of Group Programme ‘Manager’,
but I have stayed with ‘co-ordinator’
as I am comfortable
with the same
”.
A document as reviewed by the respondent, sets out the
responsibilities of the Group Programme Co-ordinator. It
inter
alia
mentions that the Group Programme Co-ordinator is responsible, on
behalf of the senior responsible owner, for successful delivery
of
the portfolio of programmes and projects. It further sets out the
role of the Programme Co-ordinator which includes managing
the
overall budgets on behalf of the senior responsible owner and
monitoring the expenditures and costs against benefits that are
realised as the programme progresses. He would also be
responsible for facilitating the appointment of individuals to the
programmes and projects delivery teams. He was furthermore to be
responsible for ensuring that the delivery of new products or
services from programmes and projects meet requirements and was of
appropriate quality, on time and within budget, in accordance
with
the plans and governance requirements. He was also to ensure maximum
efficiency in the allocation of resources and skills
within the
portfolio and then he was also responsible for managing third party
contributions to the programmes and projects; managing
the
communication with stakeholders; managing the dependencies and
interfaces between programmes and projects; managing risks to
the
programme and projects’ successful outcome. He was also
responsible for initiating extra activities and other management
interventions wherever gaps in the programmes and projects were
identified or issues arose. He was also to report progress of the
programmes and projects at regular intervals to the senior
responsible owner. In the ultimate paragraph the following is stated:
‘
Throughout
the programmes and projects, the Group Programme Co-ordinator
provides the ongoing ‘health check’ of the
programmes and
projects by re-assessing whether the programmes and projects continue
to meet their objectives and continue to use
available funds and
resources efficiently. This requires the timely management of
exceptions, slippage and conflicting priorities.
’
[31] It appears from his responsibilities that although he was not
responsible for the day to day management and delivery of the
programmes and projects, which was the responsibility of designated
teams, he was playing a management and oversight role over
those
teams. The respondent continued to be an executive or to be employed
at an executive level and was to report directly to
the CEO in terms
of the alleged third contract. In my view, he was part of management,
or at least at management level. Once he
was at management level and
reported directly to the CEO, the CEO had to consult the Board
concerning his appointment and the conditions
of his employment. The
fact that Canca’s evidence, that he was not in management, was
not contradicted, does not assist the
respondent. His job profile and
the nature of his responsibilities clearly placed him on the
management level and the fact that
he reported and was required, in
terms of the third contract, to report directly to the CEO was never
a point of contestation.
[32] The issue that now arises is whether the respondent could invoke
the Turquand rule and, nevertheless, hold the appellant to
the third
contract. I am of the view that the Turquand rule cannot be of any
assistance to the respondent in the circumstances
of this case.
Consultation with the Board was not a mere formality. It was not a
simple internal formality which had to be complied
with. One cannot
anticipate what the outcome of the consultation with the Board could
have been concerning the creation of the
position and the employment
of the respondent to that position. The Turquand rule can only apply
where a person purporting to transact
for the company would have had
the actual authority if the necessary internal formalities had been
complied with. When the rule
applies, it entitles the third party to
assume that the company has in fact contracted. There is nothing to
show that the appellant
purported to authorise Canca, the CEO, to
create the position and to appoint the respondent to the position in
terms of the third
contract. The fact that the remuneration committee
might have known, does also not assist the respondent. The committee
is not
the Board. There has been no evidence that the functions of
the Board regarding consultation with the CEO in respect of the
appointment
of staff on management level who are to report to the CEO
directly, had been delegated to the remuneration committee.
[33] Accordingly, I am of the view that the court
a quo
erred
in finding in favour of the respondent in the abovementioned issue
and in awarding damages for the alleged repudiation of
the third
contract. Accordingly, the appeal must succeed. However, taking into
account the law and fairness, I am of the view that
there should be
no costs order on appeal, which, effectively, means that each party
should bear its own costs.
[34] In the result the following order is made:
1.
The
appeal is upheld.
2.
The
order of the court
a
quo
is set aside and is substituted with the following order:
“
The applicant’s claim is dismissed
with costs.
”
Coppin AJA
I agree
Waglay JP
I agree
Ndlovu JA
APPEARANCES:
FOR THE APPELLANT:
Adv J G Rautenbach
SC
Instructed by Mkabela Huntley Adekeye INC
FOR THE RESPONDENT:
Adv MYBURGH SC
Instructed by Webber Wentzel
[1]
The
original response is dated 1 September 2009.
[2]
This
is a rule that was developed in
Royal
British Bank v Turquand
(1856)
6 E & B 327;
1843-60 All ER 435
, which 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 are not bound to enquire whether acts of internal
management had been regular
”
– see per Lord Simons in
Morris
v
Kanssen
1946
AC 459
at 474
(1946) 1 All ER 586
(HL) at 592 approving the
formulation of the Rule in Halsbury’s
Laws
of England
2
nd
Ed Vol 5 p 432 par 698.
[3]
1958
(2) SA 473
(A) at 480.
[4]
1960
(3) SA 616
(A) at 621-624. Also see
section 20(7)
of the
Companies Act No 71 of 2008
which appears to contain the gist of the
Turquand rule.
[5]
See
Impala
Distributors v Taurus Chemical Manufacturing Co (Pty) Ltd
1975
(3) SA 273
(T) following the Appellate Division decision in
S
A Sentrale Ko-op Graanmaatskappy Bpk v Shifren
1964 (4) SA 760
(A) where it was held that the parties could
effectively stipulate in a written agreement that no variation of
that contract
would be valid unless it was in writing. In
Impala
Distributors
the
court held that where the parties stipulate in a written contract
that the contract can only be terminated in writing and
that
restriction is retrenched by a clause in the contract, prohibiting
variation of the contract other than in writing, an oral
termination
will be of no effect. The decision in
Shifren
was confirmed by the Supreme Court of Appeal in
Brisley
v Drotsky
2002
(4) SA 1 (SCA).
[6]
See for example,
Tauber
v Von Abo
1984 (4) SA
482
(E);
Havenga v
Havenga
1988 (2) SA
438
(T) at 439.