IN THE LABOUR COURT OF SOUTH AFRICA
HELD AT CAPE TOWN
CASE NO:C524/2004
In the matter between:
PETER JEFFREY HOOD APPLICANT
And
THE ASSOCIATION OF RETIRED PERSONS
& PENSIONERS (ASSOCIATION INCORPORATED
NOT FOR GAIN UNDER SECTION 21) 1 ST
RESPONDENT
VUYISA MAZWI N.O. 2 ND
RESPONDENT
THE COMMISSION FOR CONCILIATION,
MEDIATION AND ARBITRATION 3 RD
RESPONDENT
JUDGMENT
Murphy, AJ
1. The applicant seeks an order setting aside the award of the second
respondent, the arbitrator, consisting of a finding that he was not an
employee of the first respondent, the Association of Retired Persons
and Pensioners (“the Association”).
2. The Association is an association not for gain incorporated as a
company limited by guarantee in terms of section 21 of the Companies
Act 61 of 1973.
3. During May 2003 the Association felt the need to “rejuvenate” and
strengthen its efforts to give effect to its stated purpose of uniting all
retired pensions and pensioners in South Africa in a single organization
for their common good in order to enhance and promote their social
and material welfare. Accordingly, at a meeting of the board on 22 May
2003 the directors of the Association resolved to appoint the applicant,
himself a director of the company, as Chief Executive Officer for two
years. The applicant was informed of the appointment and was advised
that his salary would be determined after perusal of his curriculum
vitae, which he was requested to submit.
4. On 23 June 2003 the Chairman of the Association addressed a circular
to all directors regarding the appointment of a CEO which read as
follows:
“APPOINTMENT OF A CHIEF EXECUTIVE OFFICER
A decision taken at the Exco Meeting in February was to recommend
that a restructuring of the Head Office administration be made
effective as from 1 September 2003.
A CEO should be responsible for setting up an administration which would be able to
cope with modern procedures and improved communication.
It was agreed that it would be too costly and may even create problems if an outsider
or a person who was not interested in the welfare of older persons were appointed.
It was agreed that Head Office should stay domiciled in Cape Town because the
majority of members are from the Western Cape.
Mr Hood was prepared to accept the appointment as CEO as from 1 September
2003.
A suggested ARP&P job description had been circulated. A more specific job
description to be decided on in due course.
A Curriculum Vitae was requested for information before an agreement could be
formalized and the appointment made.
The appointment would be in a temporary capacity for a period of two years as from
1 September 2003.
2
Mr Hood is willing to commit himself to ARP&P business exclusively in return for an
allowance of R5 000 for traveling and a salary of R7 000 per month. The decision to
appoint Mr Hood was taken at the Directors Meeting held on Thursday 22 May.
Mr Hood will in the meantime represent us in negotiations with Arcay/Lanson/SI and
in the finalizing of a new agreement. Head Office will reimburse him for traveling and
accommodation.
I expect members and some Branch committees will object to the spending of R150
000 a year on the employment of a CEO as we are as yet not benefiting financially
from the new ventures. The funds required will have to be funded from Head Office
investments.
The CV was posted to all Regional Directors on 18 June 2003.
I will confirm the appointment of Mr Hood on 27 June 2003.”
5. On 27 June 2003 the Chairman addressed a letter to the applicant
confirming the decision of the board which read:
“I have pleasure in confirming the decision of the Board of Directors
taken in Cape Town on 22/23 May 2003, to appoint you as Chief
Executive Officer of the ARP&P. The appointment is for the period of
two years as from 1 September 2003.
Head Office is to remain domiciled in Cape Town as the majority of members are
resident in the Western Cape.
The Board of Directors accept that you are not able to relocate to Cape Town and
that you will have to exercise your office as CEO by using the Southern Regional
facilities.
The Board of Directors agreed to the remuneration you have requested, ie. an
allowance of R5 000 per month for traveling and a salary of R7 000 per month.
The implications of your executive role in the Association will become clearer once
you have been able to familiarise yourself with the duties of the present Head Office
staff and current procedures.
Thank you for keeping me informed of your factfinding visit to Arcay Systems in
Johannesburg.
I trust you will have a safe and comfortable return trip home.”
3
6. The applicant replied to the Chairman on 2 July 2003 as follows:
“I thank you for your letter dated 27 June confirming the Board’s
decision to offer me the position of Chief Executive Officer of the
ARP&P.
It is with pleasure and much anticipation of playing a constructive role in the months
to come that I am pleased to accept the position of CEO.
Thank you for your support on this matter which I appreciate has not
been easy when implementing a major change in the Association.”
7. On 3 July 2003 the applicant resigned his position as an estate agent
in order to take up the post of CEO of the Association.
8. At a meeting of the board of directors on 7 August 2003 it was decided
after some debate to withdraw the applicant’s letter of appointment.
Apparently the decision to withdraw the appointment flowed from
dissatisfaction among some members of the Association about the
procedures followed in making the appointment.
9. Sometime later the applicant referred a dispute of unfair dismissal to
the CCMA where arbitration proceedings took place on 25 February
2004. At the commencement of the arbitration hearing the Association
raised a point in limine claiming that the applicant was not an
employee.
10. The Association placed reliance upon what it describes to be an
established principle of company law that directors cannot appoint one
of themselves to any office of profit unless accorded the power to do so
by the articles of association. In the absence of such powers being
vested in the directors, the Association argued, the appointment of a
managing director or manager may only be made by the company in a
4
general meeting. From the arbitrator’s award it appears that the
contention was made on behalf of the Association that the articles of
association do not provide for the appointment of a CEO by the board
and that such authority therefore rested exclusively with the members
acting in a general meeting, and because the general meeting had not
approved the applicant’s employment as CEO, the appointment was
invalid. It was also contended that the chairperson did not have the
necessary mandate when appointing the applicant.
11. The arbitrator’s finding in this regard, to say the least, was cryptic, and
made no attempt whatsoever to discuss or explain the applicable law
or to provide any exposition of the facts or the application of the law to
them. In the final analysis he held that he had no jurisdiction to arbitrate
the dismissal because the applicant was not an employee. His entire
reasoning of the point reads as follows:
“Firstly, the articles of association do not authorize the appointment of
a CEO and as such the applicant’s appointment was not intra vires.
Secondly, the appointment also seems not to have been in
accordance with the articles, as Mr Visser did not have the requisite
mandate to appoint the applicant. The applicant was a director and as
such knew or ought to have known what the respondent’s constitution
provided. He could not be a party to a process that is not authorized
by the constitution and then try to hold the company to the same
illegitimate process. On the contrary he should be the custodian of the
respondent’s constitution. The employment contract between the
parties was accordingly not a valid one as it was not compatible with
the articles of association or the constitution.”
12. It is noteworthy that in his award the arbitrator makes no reference at
all to the actual provisions of the articles of association. In his founding
affidavit the applicant submits that the articles do indeed authorize the
5
appointment of a CEO. Article 19 is the relevant provision which states:
POWERS AND DUTIES OF DIRECTORS
The business of The Association shall be managed by the Directors
who may pay on behalf of The Association, all expenses incurred in
promoting and incorporating The Association, and may exercise all
such powers of The Association as are not required by The Act, or
these Articles, to be exercised by The Association in General Meeting.
Without in any way derogating from the generality of the aforegoing,
the Directors shall be entitled to exercise on behalf of The Association
all and any of the Common Powers of Companies itemised in
Schedule 2 of The Act, subject only to any contrary stipulation
contained from time to time in the Memorandum or Articles of The
Association (emphasis supplied).
13. On the face of it Article 19 provides that the business of the
Association shall be managed by the directors who may exercise all
powers of the Association except those which the Companies Act and
the articles require to be exercised by the Association in General
Meeting. Because neither the Act nor the articles require the
appointment of a CEO to be exercised by the Association in general
meeting, according to the applicant, the board had the necessary
authority to make the appointment in terms of Article 19.
14. The applicant further submits that the evidence (including the minutes
of the meeting of 22 May 2003) clearly show that the board did indeed
mandate the chairman of the Association to finalise his appointment.
15. On these bases the applicant contends that the arbitrator did not apply
his mind to the terms of the articles of association or the material
placed before him and that there is accordingly no rational connection
6
between the material before the arbitrator and his findings.
16. The Association asserts that the award is rational and justifiable and
although no specific reference is made in the award to the articles of
association, it maintains that it is apparent that the arbitrator had them
in mind and properly considered them.
17. The power of the directors of a company to appoint one or more of their
body to the office of managing director or manager is routinely
bestowed upon them in terms of the articles of association. Thus the
standard form articles of association for a public company having a
share capital contained in Table A of the First Schedule to the
Companies Act provides in Article 61:
‘The directors may from time to time appoint one or more of their body
to the office of managing director or manager for such terms and at
such remuneration… or they may think fit and may revoke such
appointment subject to the terms of any agreement entered into in any
particular case…”
18. The first paragraph of the Association’s articles of association provide:
“The Standard Articles of Association as contained in Table “A” or “B”
of Schedule 1 of the Act shall not be applicable to this Company;
whose articles of Association shall be as set out hereunder.”
19. From this the Association seeks to argue that in the absence of it
having adopted the standard form articles in Schedule 1 the directors
were not empowered to appoint the applicant as CEO since without an
article such as that in Article 61 of Table A the power to appoint
remained vested in the general meeting. The applicant, so it says, was
7
aware of this. And, moreover, in its view, Article 19 of its articles is
restricted to a general power to bind the Association commercially in
respect of its promotion and incorporation.
20. Although I am not entirely sure it does much to advance the
Association’s case, Mr Elliot, who appeared for the Association,
referred me to the celebrated judgement of Bristowe J in Robinson v
Randfontein Central Gold Mining Co Ltd 1917 WLD 78. The facts and
issues in that matter are in critical respects different from those in the
present. Nevertheless, it might assist to restate certain of the
principles that applied. Robinson had served as a director and
manager in the defendant company. His position underwent
transformation as a result of a restructuring of the company. In early
January 1917 the board reconfirmed his employment as its Supervisor
of Stores and then a few days later the general meeting confirmed his
appointment as a director on the board. On 16 January 1917 the new
board met and discussed at length “the whole question of the
appointment of officials with the dual office of director.” Subsequent to
this, and while Robinson was away on holiday, another person was
instructed to take over as manager of the stores. On his return from
leave Robinson addressed a letter to the board objecting to their
action. The board resolved: “ that the Company’s attitude be that Mr
Robinson’s appointment as Supervisor of Stores is nullified by the later
acceptance of the office of director.” Robinson sued for “the alleged
wrongful determination of his office as Supervisor.” The company
pleaded that the offices of director and supervisor were incompatible
and that the acceptance of the former ipso facto vacated the latter.
Bristowe J accepted that there was indeed a principle of English law
that the acceptance by a public or corporate official of an office
inconsistent with one which he already holds involves the vacation of
8
the first office. However, the possession of the one office is not a
disqualification for election to the other, but if the second position is
accepted it prima facie terminates the terms of the first. In other words,
the effect of the incompatibility is to bring about a surrender of the first
office and not to create a disqualification for the second. Although no
RomanDutch authority was cited in support of the principle, the
learned judge held that the broad principle is one of such obvious
common sense that “it seems impossible to doubt that it would be
accepted by our courts.”
21. Although this aspect of the Robinson judgment was not canvassed by
either counsel in argument before me, it strikes me that if anything it
assists the applicant. The principle enunciated is basically this: should
it be shown that the office of CEO is incompatible with that of a director
of the board (a question of considerable doubt in this instance), the
effect of the appointment of the applicant as CEO would not be to
disqualify him as an employee, it would merely bring about an implied
vacation or surrender of his office as a director. As Bristowe J also
pointed out, there is no substantive rule of law disqualifying a director
from becoming an employee. It is a matter of contract between the
parties. Much also depends on the nature and extent of any
incompatibility. In this regard the learned judge stated:
“There is in the first place the wide range which incompatibility within
the meaning of these authorities covers. Where the duties of the two
offices involve the holder being in two different places at the same
time, it is physically impossible for him to discharge the duties of both.
In such a case the inference of surrender may be a necessary
inference. But where the incompatibility depends on the relationship of
master and servant, particularly where (as in the case of a company)
the socalled mastership is only membership of a board or body of
the socalled mastership is only membership of a board or body of
persons who exercise the functions of master by the majority of a
9
quorum at meetings formally convened, or where… it is a mere
question of possible bias in the discharge of the duties of one of the
offices, the mischief likely to result from the legal incompatibility may
vary from very considerable interference with the due discharge of the
duties of the office to an obstruction so slight as to be unworthy of
practical consideration… Prima facie if a man enters into two contracts
with the same person he is liable on both; and it would be no defence
to an action for specific performance or damages that the duties
overlapped or that the appointee’s interest under one contract was in
some degree repugnant to his duty under the other. The answer would
be that the appointer was a free agent and should have thought of that
before he committed himself.”
22. Thus, far from advancing the Associations case these dicta, with which
I respectfully agree, are authority for the proposition that there is no
principle of company law precluding directors from appointing one of
their own to an office of profit within the company. When there is a
measure of incompatibility, such must be resolved in accordance with
the principles of the interpretation of contracts to determine whether the
inference of surrender or vacation is the necessary inference. It is trite
therefore, and I do not understand counsel to have argued otherwise,
that the mere appointment of a director to the position of CEO does not
constitute an invalid appointment or result in an invalid contract of
employment. In the final analysis it all depends upon the powers of
appointment reserved to the various organs of the company. In making
this point Bristowe J made reference to Eales v The Cumberland
Blacklead Mining Co Ltd (30 LJ Ex 141) where it was said:
“ It is argued that for the directors to appoint one of their own body to
an office at a high salary is inexpedient and bad for the interests of the
association…but the parties who associate themselves in
association…but the parties who associate themselves in
undertakings of this kind have their remedy, they may make provision
to restrain the powers of the directors in this respect…”
10
Bristowe J concluded as follows :
“Having regard to these authorities it must I think be admitted that
without the authorisation of the articles no power to appoint a director
to another office of profit under the company resides with the Board;
for the powers of the Board are defined by the articles and everything
not permitted by the articles is beyond their authority.”
23. The Association’s argument that the express exclusion of the standard
articles in Schedule 1 was intended to exclude the director’s powers to
appoint one of their own to an office of profit seems to me to be far
fetched. I agree rather with Mr. Engela, who appeared for the applicant,
that the reason Schedule 1 was not adopted was merely because it is
expressly intended to apply companies (both public and private) having
a share capital. The Association is a company incorporated under
section 21 and is limited by guarantee. It does not have a share capital.
The failure to adopt the articles in Schedule 1, including Article 61 of
the standard articles in its explicit terms, cannot alone lead to the
conclusion that the intention was to reserve for the general meeting the
power to appoint directors to positions of employment in the company.
As I see it, by not adopting the articles set out in the Schedule the
promoters intended rather to adopt articles of association they
considered more appropriate to an association not for gain. The
standard articles in Schedule 1 are appropriate for companies with
share capital. For that reason the promoters fashioned articles of
association that suited them and included wide and general powers for
the directors to enter into contracts in Article 19 and 20 (the latter
dealing specifically with borrowing powers).
24. Article 19 in clear and unambiguous terms grants the directors “all such
powers of the Association as are not required by the Act, or by these Articles,
11
to be exercised by the Association in General Meeting.” The Act does not
require that directors be appointed to employment in any specific manner, nor
do the articles reserve the power to make such appointments to the general
meeting. Nor is there any justification for constraining the director’s
contractual capacity to an authority to bind the Association “commercially”
(whatever that might mean). Moreover, as I have already indicated, no powers
of the directors have been excluded by the decision not to adopt Schedule 1. In
the premises, Article 19 accords the directors of the Association the power to
appoint one of themselves as CEO and the Applicant’s appointment as such
cannot be regarded as ultra vires. All else being equal, the contract of
employment would be valid and the applicant an employee in terms of
the Labour Relations Act. In the result the arbitrator made a reviewable
jurisdictional error.
25. Lastly, because I accept the contract was not concluded ultra vires and
especially since neither counsel canvassed the question, it is
unnecessary to consider whether section 36 of the Companies Act
might have operated to avoid the consequence of any invalidity, though
as I understand the arguments presented, there has been no
suggestion that the contract of employment was beyond the objects of
the company.
26. As for the alleged lack of mandate on the part of the chairman, the
arbitrator found that the appointment was not in accordance with the
articles, as the chairman did not have the required mandate. There is
no evidence to support this finding. None of the directors testified as to
the events and resolutions of the meetings of 22 May 2003 and 7
August 2003. In fact no evidence at all was led in this regard. Without
this evidence the arbitrator was unable to arrive rationally at the
conclusion he did. Nor was he in a position to give proper consideration
to the application of the doctrine of constructive notice or the Turquand
12
rule. In view of the lack of evidence I am regrettably in no position to
substitute any decision in this regard.
27. In the premises the award falls to be setaside in its entirety. This is an
instance when costs should follow the result.
28. In the premises I make the following order:
28.1. The award of the second respondent under case numbers WE
962103 dated 25 February 2004 is set aside.
28.2. The matter is remitted to the third respondent for fresh
consideration by a Senior Commissioner other than the second
respondent within 21 days of this order or such other period as
the parties may agree.
28.3. The first respondent is ordered to pay the applicant’s costs.
_____________
Murphy AJ
Date of hearing: 21 November 2005
Date of judgment: 17 December 2005
Applicant’s Representative: Adv RB Engela instructed by Millers
Attorneys
Respondent’s Representative: Adv G Elliott instructed by GJ Cassells
Attorneys
13