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Offer and Invitation to treaty An offer is a statement of the terms on which the offeror is willing to be bound.

For a contract to exist, usually one party must have made an offer and the other must have accepted it. A person is said to make an offer when he puts forward a proposal with the intention that upon its mere acceptance, without more, a contract should be formed. In addition, although an offer is usually addressed to a specific individual or to a group of individuals, there is no reason why it should not be addressed to an indeterminate group or even to the public at large. In other words a contract can equally be formed when an offer is made to the world at large and is accepted by someone who performs the conditions of the offer. In Carlill v Carbolic Smoke Ball Co Ltd (1893), the defendants were the manufacturers of medication known as a carbolic smoke ball, which was claimed to be capable of preventing influenza, as well as a variety of other ailments. By way of an advertising stunt the defendants offered to pay 100 to any person who used the smoke ball according to the instructions and nevertheless caught influenza. In order to show their sincerity, the defendants also stated that they had deposited 1,000 with their bankers to meet any possible claims. The plaintiff used one of the smoke balls according to the directions, but still caught influenza. She then claimed payment of the 100, which the company refused to pay. They argued that their advertisement could not give rise to a contract, since it was impossible to make a contract with the whole world. The court rejected the argument and held that the advertisement did constitute an offer to the world at large, which became a contract when it was accepted by Carlill using the smoke ball in the prescribed manner and getting influenza. She was therefore entitled to the 100. Furthermore, an offer, capable of being converted into an agreement by acceptance, must consist of a definite promise to be bound provided that certain specified terms are accepted. The offeror must have completed his share in the formation of a contract by formally declaring his readiness to undertake an obligation upon certain conditions, leaving the offeree the option of acceptance or refusal. He must not merely have been feeling his way towards an agreement, not merely initiating negotiations from which an agreement might or might not in time result. An invitation to treat is an indication that a person is willing to enter into negotiations, but not that he is yet willing to be bound by the terms mentioned. In Gibson v Manchester City Council (1979), Gibson, a council tenant, received a letter from the council saying that the council may be prepared to sell the house to you at the purchase price of .2,180. Gibson formally applied to buy at this price, but meanwhile council policy was changed and it refused to sell. It was held that the councils letter was only an invitation to treat not an offer. Therefore there was no contract. In Fisher v Bell (1961) the Offensive Weapons Act 1959 prohibited offering for sale various offensive weapons including flick knives. A shopkeeper displayed some on his window and was prosecuted unsuccessfully. The court held that this display of the weapon was not offering the prohibited weapon for sale but was a mere invitation to treat, an invitation to the customer to make an offer to buy. The distinction between an offer and an invitation to treat is that the former may be accepted, turning it into a contract whilst an invitation to treat may not. Invitations to treat are merely steps in the negotiation of a contract. A common instance of agreement arrived at by offer and acceptance occurs where tenders are called for and one is accepted as in National and Overseas Distributors P/L v Potato Board (1958) at 479E, Schreiner J.A said, if the respondent

had been a natural person who has accepted a tender according to its terms, there is no doubt that a contract would have been made when the acceptance was communicated to the tenderer, as by posting it. In contrast, an invitation to treat may not result in a contract as shown in Crawley v R (1909) in which the court held that where a tradesman advertises goods at a certain price he does not make an offer which any member of the public is entitled to accept, he invites the public to do business with him and to make an offer which he can then accept or refuse. A display of goods in a shop, in a window or on shelves even with price tags attached is an invitation to treat and not an offer. The shopkeeper does not undertake to sell the goods. They are on display merely to invite customers to come in and offer to buy at the price shown. In Pharmaceutical Society of Great Britain v Boots Cash Chemists (1953), Boots refurbished a shop into a self-service system which at the time was novel. By s.18 Pharmacy and Poisons Act 1933, the sale of certain drugs and poisons should not occur except under the supervision of a registered pharmacist. The point at which the contract was formed was therefore critical, either when the customer removed goods from the shelves or when they were presented to the cash desk for payment. The court held that the contract was formed when goods were presented at the cash desk where a pharmacist was present, not when taken from the shelf. Mere display of goods on the shelf was an invitation to treat and Lord Parker agreed with this in Fisher (supra) when he stated, it is clear that, according to the ordinary law of contract, the display of an article with a price on it in a shop window is merely an invitation to treat. It is in no sense an offer for sale, the acceptance of which constitutes a contract. In contrast with an offer, Bowen L.J in Carlill (supra) concluded, it is not like cases in which you offer to negotiate, or you issue advertisements that you have got a stock of books to sell, or houses to let, in which case there is no offer to be bound by any contract. Such advertisements are offers to negotiate offers to receive, offers Further, an offer differs from an invitation to treat in that the latter may come in the form of advertisements. Advertisements are usually considered invitations to treat on the grounds that they may lead to further bargaining, potential buyers might want to negotiate over the price. In Grainger and Sons v Gough (1896) the court held that the circulation of a price-list by a wine merchant was not an offer to buy at those prices but merely an invitation to treat. Lord Herschell noted, the transmission of such a price-list does not amount to an offer to supply an unlimited quantity of the wine described at the price named, so that as soon as an order is given there is a binding contract to supply that quantity. If it were so, the merchant might find himself involved in a number of contractual obligations to supply wine of a particular description which he would be quite unable to carry out, his stock of wine of that description being necessarily limited. An offer also differs from an invitation to treat in that the latter may come in the form of tenders. When a large organisation, such as a company, hospital or government ministry, needs to find a supplier of goods or services, it will often advertise for tenders. Organisations wishing to secure the business then reply to the advertisement, detailing the price at which they are willing to supply the goods or services and the advertiser chooses whichever is the most favourable quotation. The court in Spencer v Harding (1870) held that as a general rule, a request for tenders is regarded as an invitation to treat, so there is no obligation to accept any of the tenders put forward.

Offer and Acceptance According to Watermeyer v Murray (1911), every contract consists of an offer and an acceptance of that offer by another party. Acceptance is the express or implied signification by the offeree of his intention to be contractually bound in terms of an offer made to him. It can be described as the declaration by the offeree of his intention to conclude a contract according to the terms set out in the offer. For acceptance to be legally valid it has to meet certain requirements as outlined below. Firstly, the acceptance has to be consistent with the essentials of a contract. An acceptance cannot create a binding contract if it does not comply with the requirements and essentials of a contract. It has to be lawful. Where sales on a Sunday are prohibited by statute, an acceptance on a Sunday of a valid offer to sell cattle made on the Saturday before would not create a contract Cape Dairy Auctioneers v Sim (1924). The acceptance must be made within the limits of the offerees contractual capacity. This was held in Edelstein v Edelstein NO (1952), where the court held that an unassisted minor could not enter into a contract without the assistance of her guardian. The acceptance has to be serious and made with the intention that a contract should be created. This intention can be expressed either by express words or by conduct. In Stevenson v McLean (1884) the court held that where Stevenson had sent a telegram stating that he had accepted McLeans offer, that telegram constituted a valid acceptance. In Smith v Hughes (1871) the court laid out that acceptance could be by conduct, where the accepting party conducts himself in a manner that would lead the other party to conclude that he was accepting his offer, such conduct would be construed as acceptance and would be legally binding. In relation to the above, the acceptance must be communicated to the offeror and in the manner prescribed in the offer otherwise it would be void. When the offer contains no indication of the manner of acceptance, the offeree is free to accept the offer in any manner which he deems fit. In Laws v Rutherford (1924) the Court of Appeal stressed that when an acceptance of an offer is conditioned to be made within a time limit or in a manner prescribed by the offeror, then the prescribed time limit and manner should be adhered to. In this case, the offer stipulated that acceptance or rejection was to be notified by registered post to the offeror. The failure by the offeree to adhere to this condition vitiated his acceptance and no contract resulted therefrom. As well, the acceptance must be clear and unambiguous. There must be no doubt that the offer has been accepted and that the acceptance conforms to the terms of the offer. Acceptance subject to conditions is not acceptance but is in fact a counter-offer. In Hyde v Wrench (1840), Wrench offered to sell Hyde a farm for $1,000. Hyde made a counter-offer of $950. Wrench rejected this. Later Hyde came back and said that he now accepted the original offer of $1,000. Wrench rejected it. The court held that Hyde could no longer accept the original offer. It had been terminated by the counter-offer and was no longer capable of acceptance. His acceptance was merely a fresh offer which Wrench was free to turn down.

The natural consequences of a valid acceptance meeting all of the above requirements is a valid and binding contract. Once an acceptance has been tendered, which meets the terms and conditions of the offer, a valid contract comes into being. In the case of Carlil v Carbolic Smokeball Company (1893) the court held that acceptance of an offer for a reward naturally resulted in a contract between the offeror and the offeree.

As corollary to the above, once acceptance has been tendered, and it is shown that it was in accordance with the offer, a contractual relationship between the two parties is formed. Accordingly, a legitimate expectation of performance is founded. Either of the parties can seek performance or delivery by the other party depending on the terms of the contract. If either party defaults in its obligations, the aggrieved party automatically has a right of recourse to the courts seeking enforcement of the contract. In Tel Peda Investigation Bureau (Pty) Ltd v Van Zyl (1965) the court held that a contract is as a matter of law concluded when the offeror receives the acceptance of his offer from the offeree. Put differently, the meaning and import of the above discussion is that a valid acceptance of an offer gives rise to a binding agreement.

Quasi Mutual Assent For a valid contract to come into effect, the law of contract dictates that there be a valid offer and an equally firm and valid acceptance of that offer. The cases of Crawley v Rex (1909) and Carlil v Carbolic Smokeball Co (1892) are illustrative of this. The law of contract goes on to provide various ways by which a valid offer or acceptance can be made. It can either be oral, written or under the doctrine of quasi-mutual assent by conduct. The doctrine of quasi-mutual assent dictates that if a party to a contract acts in such a manner as to lead the other party to reasonably believe that he was accepting the terms of the contract, that party shall be bound as if he had expressly assented thereto. In the leading case of Smith v Hughes (1871), it was held that if a party to a contract acts in such a manner as to lead the other party to believe that he was assenting to the terms proposed by the other party and that other party relying upon that belief enters into the contract with him, the party thus conducting himself would be equally bound as if he had intended to agree to the other partys terms. In a situation such as the above, mere action and conduct is enough to conclude a valid contract as the law holds that it in itself signifies assent. The doctrine of quasi-mutual assent therefore dictates that a valid offer or acceptance can be made by conduct or action when a party to a contract acts as if he is assenting to it. Under the doctrine consequently, a valid contract can come into effect based on a partys conduct, even in the absence of express words to that effect. If one party so leads the other to reasonably understand that they were in agreement as to the terms, a valid contract would come into being based on that other partys conduct and act. Based on the above dictum, even the terms and conditions of a contract can be lawfully brought into effect based on a partys conduct. If one party so acts or conducts himself in a manner suggesting acceptance to the contracts terms, the law by virtue of the quasi-mutual assent doctrine shall hold him liable to perform according to those terms even if he did not expressly assent to them. In the absence of written or oral words to that effect, his conduct

shall hold him liable by operation of the quasi-mutual assent doctrine as if he actually assented to them. In the case of Springvale v Edwards (1969) a parent who received a prospectus containing the terms of a contract of enrolment at a private school was said to have accepted them when he did not raise any objection to them in due time and proceeded to act as if he was assenting to them. His act of receipt and failure to object to terms or attempt to vary or discharge them was held as valid acceptance of the terms contained in it. In George v Fairmead (Pvt) Ltd (1958) a party to a contract who sought to repudiate it on grounds of error despite having signed it, was held liable to perform under it. It was held that a party who acts in such a manner as would lead the other party as a reasonable man to believe that he was assenting to the terms of the contract and was binding himself to it, is bound to perform his duty under it by virtue of his conduct. By appending his signature to the contract and accepting the keys to his hotel room, George had signified by conduct his acceptance of the terms contained in it. As such the doctrine of quasi-mutual assent provides that conduct by itself can be effective evidence of assent to a contracts terms and conditions. As it is very difficult to ascertain the true terms of a contract in the absence of express words to that effect, the law of contract by the doctrine of quasi-mutual assent provides that the courts will look at the partys conduct and will arrive at a conclusion based on the partys conduct. In Levy v Banket Holdings (Pvt) Ltd (1956) and in SA Railways and Harbours v National Bank of SA Ltd (1924), the court held that: the law does not concern itself with the working of the minds of parties to a contract but with the external manifestation of their minds. The law will look to their acts and assume that their minds did meet. The doctrine of quasi-mutual assent therefore provides that parties to a contract who conduct themselves or act in a way suggesting that they are assenting to the terms of the contract shall be held to have so assented and shall be bound to perform under that contract. The Appellate Division has on a number of occasions directed its mind to the question of acceptance by conduct when the offeree, instead of signifying his acceptance of the offer by written or spoken words, does so by his conduct. In Timoney and King v King (1920) Innes CJ said: An acceptance may be inferred from conduct. In Reid Bros (SA) Ltd v Fischer Bearings Co Ltd (1943) Watermeyer ACJ said: Now a binding contract is as a rule constituted by the acceptance of an offer, and an offer can be accepted by conduct indicating acceptance, as well as by words expressing acceptance. Generally, it can be stated that what is required in order to create a binding contract is that acceptance of an offer should be made manifest by some unequivocal act from which the inference of acceptance can logically be drawn. In Collen v Rietfontein Engineering Works (1948) Centlivres JA said: there is no doubt in my mind that the plaintiff did by its conduct accept. It did not reply in writing that it accepted, but it paid the defendants cheque into its banking account. Its conduct in so doing and its retention of the proceeds of the cheque, coupled with the

fact that it failed to notify the defendant that it did not accept his offer, was, in my view, a sufficient indication to the defendant that it had accepted his proposals. If a party to a contract conducts himself in a way that gives the other party the impression that he was accepting the other partys offer, he shall be held to have accepted it even in the absence of express words to that effect and a valid contract will ensue. In Springvale v Edwards (supra), the defendants action and conduct was held to be valid acceptance of the plaintiffs offer even though he had not expressly stated so.

In the same manner, a party that so conducts himself to the other party and gives the impression that he is in agreement or ad idem with the other partys terms shall be so held and bound as if he had expressly agreed thereto. If his conduct is in relation to an offer, he shall be held to have made an equally valid acceptance by virtue of his conduct. The doctrine seeks to give relief and effect to the contracts of parties who have been led by the conduct of another party to reasonably believe that they were contracting. The court will look into their conduct and infer from it the conditions of the agreement. In the absence of vitiating factors such as fraud, illegality, mistake, duress or undue influence, all things being constant a valid and legal contract shall be regarded as formed and shall be given effect to. Both parties to that contract shall be bound at law to perform their duties or side of the agreement in fulfillment of the terms of that contract. In George v Fairmead (supra) the Plaintiff was ordered to perform as per the dictates of the contract as his actions had legally and validly signified his acceptance and assent to the terms of the contract. The doctrine of quasi-mutual assent therefore provides that in the absence of express words, conduct or action can be sufficient to bring a valid contract into effect. Doctrine of Privity of Contract The doctrine of privity of contract provides that only the parties to a contract can exclusively enjoy the rights and benefits arising from it. Under this provision, no one else who was not party to the contract shall be allowed to claim rights or benefits attendant to that contract. In this regard, the law prevents strangers to the contract from attempting to enforce it or claim relief under it. In the illustrative case of Beswich v Beswich (1968) a man sold his business to his nephew on condition that he would pay an annuity of 5 per week to his wife after his death. The wife tried to enforce the contract but was barred from doing so as it was held that she could not enforce it in her personal capacity as she was not party to it. The doctrine therefore provides and ensures that only the parties to a contract can enforce or effect it. Furthermore, the doctrine of privity of contract provides that a contract cannot confer or impose obligations or duties arising under it on any person or agent except the direct parties to it. In Twiddle v Atkinson (1861), the fathers of an engaged couple contracted with each other to pay some money to the son upon the marriage taking place. It was held that the son could not enforce the contract as he was not a direct party to it and that the contract could only be enforced by the two direct parties to it. Consequently, the doctrine of privity of contract provides that a contract cannot impose duties or liabilities upon one who is not party to the contract i.e. all things being constant, a stranger to the contract cannot be sued or be asked to perform under a contract he was not party to. In Joubert v Komati River Gold Mining (1892), a plaintiff who failed to prove that the contract had been ceded to him was held to have no valid legal claim under the contract. In Orr v Stevenson (1908), a subcontractor was disallowed from suing or being sued by the party with whom the main contactor had contracted. It was held that he could not be held liable under a contract to which he was not a party.

In the other case of McGruther v Pitcher (1904), X sold to Y some rubber heels packed in a box with the instruction that they were not to be resold below a certain price as a condition of the contract. Z later bought the heels from Y but resold them below the stipulated price. It was held that as there was no contract between X and Z, X could not enforce the prior agreement he had with Y on Z as he was not party to the contract. As a result, one who was not a direct party to a contract cannot be compelled under operation of the privity of contract doctrine to perform as if he had been party to it. Conversely, someone who was not party to the contract cannot compel performance to a contract he was not privy to. Hence the privity of contract doctrine provides that in enforcing a contract, the court will look into whether the person seeking relief was a party to that contract and whether the person against whom relief is sought was also party to the contract. Strangers can neither sue nor be sued on a contract they were not party to. Put differently, such third parties have no locus standi to sue or be sued under the said contract. Nonetheless in operation, there are recognised exceptions to the application of the privity of contract doctrine. The first instance relates to a situation where a party to the contract cedes his rights and obligations under the contract to a third party or when he gives another person the right to sue or be sued under the contract. In the case of Thal v Baltic Timber Co (1935), Sutton J held that it was necessary for the Baltic Timber Company to show before it can recover under the contract that it was either a party to the contract or that as a third party for whose benefit the stipulation had been made it had accepted it. As such, it is only parties to a contract that can claim relief under that contract. Unless a party so proves that he is entitled to relief by virtue of that contract being ceded to him or by virtue of him being a party to it, he cannot obtain relief under the contract. In Maynards Walker & Co v Southey (1867) a plaintiff who failed to prove a cession to himself had no claim under a contract as the court held that he was not a direct party to it. Equally, a party who acts in a representative capacity or as agent to a principal can legally have the principal held liable for his actions or can have him claim relief under that contract as the law holds the principal as party to the contract even though he did not himself personally contract with the other party. In cases of partnership, a partner can be held liable for the actions of his other partners. In Turkstra v Kaplan (1953), the court held that the appointment by an agent of a sub-agent does not in itself create a contractual relationship between the sub-agent and the principal.

Moreso, where the contract is for the benefit of a third party, the party for whose benefit the contract was made can seek performance or relief under that contract. Outside of these exceptions, the doctrine of privity of contract provides that only the direct parties to a contract can have valid claims to rights, obligations, liabilities or duties under that contract and that people or parties not privy to the contract may not have any claim, right, obligation, liability or duty under a contract they were not party to. Contents of a contract Terms and representations It is common cause in the law of contract that not all statements made in the course of formation of a contract are necessarily terms. In Petit v Abrahamson (1946), the court held that statements made by parties when negotiating a contract may conceivably take the status of either (i) mere puffi ng or commendation, or (ii) representations, or (iii) undertakings, commonly referred to as terms. In light of the above, it is imperative that one distinguishes the difference between terms of a contract and mere representations. In establishing the differences between terms of the contract and mere representations, it is important to remember that a contract is an agreement seriously and deliberately made and intended to be enforceable at law. Terms of the contract will therefore be those promises susceptible to, and capable of enforcement, as was held in Voges v Wilkins (1992). On the other hand, representations are mere statements of fact made prior to contracting, which are not meant to be terms of the contract and are therefore not capable of performance.

Representations are often made at the pre-contractual stage and are usually meant to induce the contract. They do not form part of the contract but are mere attestations as to the attributes of a product, which is the subject of the contract. It was held in Mazza v Jones (1973), that it is accepted that sellers are in the habit of praising their wares. This amounts to mere sales talk and does not amount to terms of the contract and therefore has no legal signifi cance. On the other hand, terms effectively constitute the substance of the contract or agreement. According to Holmes JA in Phame (Pvt) Ltd v Paizes (1973), terms are material statements, which go beyond mere commendation or praise and amount to the actual essentialia of the contract. The other major difference between terms and representations is that representations or their breach thereof is not actionable at law unless they misled or induced the other party to enter into the contract. Terms on the other hand are enforceable at law as they constitute the contract per se. Breach of the terms therefore amounts to breach of contract and an aggrieved party can seek recourse from the courts in such a case. If breach is established, the court can order or grant any of the contractual remedies available to an aggrieved party in the case of breach such as specifi c performance, interdicts, declaratory orders or rescission. As regards representations, they are not made with the intention that they be binding or that they be a part of the actual contract. They may even be mere puffery which is meant to advertise a product or which is just meant to induce the other party to enter the contract. In Small v Smith (1954), a term was, however, defi ned as a statement made seriously and deliberately during the negotiation of a contract and which the parties by mutual intention either express or implied intend to be a term of the contract. In a written contract, it will usually be easier to identify the terms of the contract and to seek their enforcement. Representations on the other hand do not form part of the contract and are therefore not contained in written contracts. Once a representation is contained in a written contract, it becomes elevated to a term of the contract and becomes binding. It becomes apparent therefore that a representation is of a lower order when compared to terms of a contract. Another difference between terms and representations lies in the nature of remedies available for breach of them. The remedies for breach of contract do not apply to a misrepresentation, which at most will entitle the aggrieved party to rescission of the contract and to damages if fraudulent or negligent see Voges v Wilkins (supra). Every contract is made up of terms and conditions which form the actual substance of the agreement. These terms come in various types and forms. They can either be express or implied or both depending on the particular facts and circumstances of the case. Express terms These are the explicit or clear terms of the contract, which the contracting parties intentionally and deliberately adopt as the terms or conditions of their contract. These may be stated expressly and agreed upon in the case of verbal contracts or may be clearly written down in the case of written contracts.

In the case of Burger v Central SAR (1903), an example of a written contract containing express terms was given. In this case the written contract in the form of a consignment note contained the express term that: the goods traffic regulations are hereby incorporated as though they were fully stated therein. Express terms are therefore the apparent and clear conditions of the contract. They form the actual agreement and embody the totality of what the contracting parties explicitly intend to be the contract per se. The written provisions of standard form contracts are assumed by the courts to be the express terms of the contract. A party who, therefore, appends his signature to a written contract containing written terms is held to have assented to those terms by operation of the rule. In the renowned case of George v Fairmead (Pty) Ltd (1949), a hotel guest was held bound by a hotel register containing contractual terms which he had signed without reading. Implied terms These terms of the contract are not expressly or explicitly stated as terms of the contract and are not apparent on the face of it. Implied terms come in different classifi cations. There are those terms that are implied by law, those implied from trade usage and those terms, which are implied from the facts, also known as tacit terms. Terms implied by law The nature of terms implied by law was succinctly captured in the dissenting judgement of Corbett AJA in the case of Alfred McAlpine and Son (Pty) Ltd v Transvaal Provincial Administration (1974). In this case, the learned judge defi ned an implied term as an unexpressed provision of the contract, which the law imports therein, generally as a matter of course, without reference to the actual intention of the parties. It has often been said that implied terms are meant to give business effi cacy (completeness or sense) to the agreement. An implied term therefore does not originate from the contractual consensus of the parties, but is imposed from outside by the operation of the law. In the case of Falch v Wessels (1983), a house was sold and in the kitchen was a stove, connected to the electrical system. Though it was not a fi xture, and was not included in the actual contract of sale, the court implied ex lege that the stove was included in the sale of the house. An example of a term implied by law is that of vacuo possessio or undisturbed possession in contracts of sale, and undisturbed occupation in contracts of lease. In these cases even though the parties do not expressly say so, the law assumes that the other party to the contract, either the purchaser or the lessee is guaranteed against eviction. In the event of eviction, the courts will construe it as a breach of contract. However, a term normally implied by law will be excluded where it would confl ict with the express terms of the contract, or where the parties have made it clear that it should be excluded.

Terms implied by trade usage or custom Terms implied by trade usage have been defi ned in the case of Golden Cape Fruits (Pty) Ltd v Fotoplate (Pty) Ltd (1973), as those particular practices and customs, which are universally and uniformly observed within a particular trade or occupation. Certain occupations have particular practices and customs that they abide by when engaged in their trade, e.g. it is the binding practice amongst auctioneers that a thing is considered sold at the fall of the hammer. The auctioneer does not therefore have to explain this to the other contracting partner as it is implied that he knows it, see Estate Duminy v Hofmeyer and Son Ltd (1925), where the court held that it is implied from the facts that a person who is in the habit of dealing with auctioneers knows of this custom. In the case of Koenigsbergs Trustee v Taylor (1905) which involved the Stock Exchange rules, the court held that, it must be conceded that a person employing an agent to buy or sell in a particular market impliedly authorises him to deal according to the usages and rules regulating transactions in that particular market, at all events in so far as there is nothing illegal or unreasonable in them. For the term to be implied, it must have been long established and notorious. In Meyerthal v Baxter (1916), the court emphasised that it is imperative that a party who seeks to rely on a trade usage must prove the existence of the usage. The implied term must also be reasonable, certain and should not confl ict with either positive law or with the clear provisions of the contract for it to be considered a binding term of the contract. In Freeman v Standard Bank of SA Ltd (1905), the court held that a term implied by trade usage would not be binding where it attempts to override the general law. Terms implied by custom A custom is generally defi ned as a particular rule which has existed either actually or presumptively from time immemorial in a particular locality and obtained the force of law in that locality, or has become recognised as binding in that area. It need not be restricted to a particular trade or profession. In the case of Crook v Pedersen Ltd (1927), the court outlined the requirements of a term implied by custom. In it, Krause J held that the custom must be long established, reasonable, have been uniformly observed and certain if it is to fi nd application. Hence, where a custom is universal and notorious, a person may be presumed in certain circumstances or cases to have had knowledge of such custom and to have intended to include such custom in his contract. The following circumstances as expressed in the Crook case (supra), give rise to the application of the presumption. where a principal engages an agent to deal on his behalf with other persons, in a particular market, or where the transaction is peculiar to a particular locality, or where the persons engaged in such transactions belong to a particular class, who, for the better conduct of their business, are subject to certain customs and rules, or where the transaction itself is of a special or peculiar nature.

Damages The general approach of our courts in the cases of breach of contract is that we are not concerned with the mental or bodily sufferings of the creditor. The action for damages in such a case is intended to place the creditor as much as possible in the same position as regards his property as he would have been in if the contract had been performed. Hence the damages must have been in satisfaction of some pecuniary or material loss.

This principle has been restated in a number of cases. Corbett JA in Holmdene Brickworks v Roberts Construction (1977) made the following observation: The fundamental rule in regard to the award of damages for breach of contract is that the sufferer should be placed in the position he would have occupied had the contract been properly performed, so far as this can be done by the payment of money and without undue hardship on the defaulting party To ensure that undue hardship is not imposed on the defaulting party the sufferer is obliged to take reasonable steps to mitigate his loss or damage. In addition, the defaulting partys liability is limited in terms of the broad principles of contractual causation and remoteness of damages to: 1 those damages that flow naturally and generally from the kind of breach of contract in question and which the law presumes the parties contemplate as a probable result of the breach; 2 those damages that although caused by breach of contract are ordinarily regarded in law as being too remote to be recoverable unless in the special circumstances attending the conclusion of the contract the parties actually or presumptively contemplated that they would probably result from its breach. Shartz Investments Ltd v Kalovyrnas (1976). In the well-known case of Victoria Falls and Transvaal Power Co Ltd v Consolidated Mines Ltd (1915) the court made the following observation in relation to the approach to take towards the issue of damages for breach of contract: The sufferer by such a breach should be placed in the position he would have occupied had the contract been performed, so far as that can be done by the payment of money and without undue hardship to the defaulting party. The reinstatement cannot invariably be complete for it would be inequitable and unfair to make the defaulting party liable for special consequences which could not have been in his contemplation when he entered into the contract The general approach of our courts would appear to be that in an ordinary commercial contract damages may not be claimed for sentimental loss or injured feelings unlike in actions founded in the law of delict or tort.

In Jockie v Meyer (1945), J, a Chinese and second officer on a British ship, having reserved a room at Ms hotel in Port Elizabeth was allotted the key to a room and took occupation. A few minutes later M sent for J, told him that there was a mistake as to the room number and asked him to return the key. J did so and was then told that the hotel was full and there was no room for him. The real reason for the breach of contract was Js race. J sued M in the Magistrates Court for 200 damages and was awarded 50 damages, 40 of which was in respect of the humiliation and annoyance felt by J. The appeal court set aside the portion of the damages relating to Js humiliation and annoyance.

On appeal, the Judge said: I have come to the conclusion that the . magistrate was not entitled to award damages for the injury to the plaintiffs feelings which he suffered as a result of the refusal of accommodation by the defendant. As an exception to the general rule it can be said that where the pleasure to be obtained from proper performance is an important aspect of the contract, as it is when a travel agent makes specific representations about the facilities and entertainment available at a hotel, or a photographer undertakes to take wedding photographs, the courts may take mental distress into account in awarding damages. The argument then would be that emotional and mental satisfaction is an important aspect of the contract. In Jarvis v Swan Tours Ltd (1973) J, a solicitor aged about 35 years, booked a 15 day Christmas winter sports holiday. He did so on the strength of Ss sales brochure, which described the holiday in very attractive terms. In that event, the holiday was a great disappointment and most of the things that had been advertised in the brochure like a house party, skiing, etc were not provided. Awarding damages for sentimental loss, Lord Denning MR said: In a proper case damages for mental distress can be recovered in contract One such case is for a holiday or any other contract to provide entertainment and enjoyment. If the contracting party breaks his contract, damages can be given for the disappointment, the distress, the upset and the frustration caused by the breach. In Diesen v Samson (1971), Mrs D engaged S, a professional photographer to take photographs for her wedding. She paid a deposit for which she was given a receipt. S failed in breach of contract to appear at the wedding or at the reception. As a result Mrs D had no photographs of her wedding and claimed damages for the resulting injury to her feelings. The court ruled that damages could competently be awarded. If the contract is not primarily a commercial one in the sense that it affects not the plaintiffs business interests but his personal, social and family interests, the door is closed to awarding damages for mental suffering should the court think that in the particular circumstances the parties to the contract had such damages in their contemplation

not

In summation, it can be noted that although the general rule is that our courts will award damages for patrimonial or material loss in breach of contract cases, in appropriate and limited cases an exception is made to award damages for sentimental loss as well. Such exceptions to the general rule are admitted very sparingly and with a lot of circumspection and care. Remedies for breach of contract Our law provides for various remedies in cases of breach of contract and they include specific performance, interdicts or injunctions, rescission, cancellation among others. Of these remedies, there are equitable and non-equitable remedies. Specific performance falls under the former while damages fall under the latter. Specific performance is an equitable and discretionary remedy issued by the court which compels a contracting party to do that which he has promised to do. In general, the injured party has the right to claim specific performance if he is ready to carry out his own obligation under it, but the court has a discretion to order it or not. In Farmers Co-op Society v Berry (1912), the court said, prima facie every party to a binding agreement who is ready to carry out his own obligation under it has a right to demand from the other party, so far as it is possible, a performance of his undertaking in terms of the contract ... It is true that courts will exercise a discretion in determining whether or not decrees of specific performance should be made. This decree is a form of relief that is purely equitable in origin and is granted at the discretion of the courts on the basis that it is just and equitable to do so. The fundamental rule is that specific performance will not be granted if there is another adequate remedy at law. The purpose of such a decree is to ensure that justice is done. In Wilson v Northampton and Banbury Junction Rail Co (1874), the court said, The court gives specific performance instead of damages only when it can by that means do more perfect and complete justice. Furthermore in Flint v Brandon (1803), it was stated, The court does not profess to decree a specific performance of contracts of every description. It is only where the legal remedy is inadequate or defective that it becomes necessary for courts of equity to interfere... In the present case complete justice can be done at law ... In that cas e, the court refused specific performance of the defendants promise to make good a gravel pit which he had quarried. Where a contract contains interdependent and mutual undertakings, a plaintiff cannot obtain an order for specific performance if he is in breach of his own obligations or if he fails to show that he is ready and willing to perform his outstanding obligations in the future. This was aptly said in Australian Hardwoods Pty Ltd v Railways Commissioners (1961) and in Intercontinental Trading v Nestle Zimbabwe (1993), the court ordered specific performance, viz, the defendant company to deliver certain quantities of milk to the plaintiff since the plaintiff was willing and capable of performing its obligation under the contract. The exercise of the equitable jurisdiction to grant specific performance is not a matter of right for the person seeking relief but a discretion of the court. This does not mean that the decision is left to the uncontrolled caprice or arbitrariness of the individual judge, but that a

decree, which would normally be justified by the principles governing the subject, may be withheld, if to grant it in the particular circumstances of the case would defeat the ends of justice. In Stickney v Keeble (1915), the court said, Indeed the dominant principle has always been that equity will only grant specific performance if, under all circumstances, it is just and equitable so to do. Where damages are an adequate remedy, specific performance will not be ordered. In Beswick v Beswick (1968), a contract provided for B to transfer property to his nephew and, in return, the nephew would make payments to Bs wife after his death. The nephew failed to make the payments and Bs estate sued the nephew. The court held that damages were an inadequate remedy as the estate itself had suffered no loss, since the payments were due to be made to the widow in a personal capacity. In the event, the court made an order for specific performance compelling the nephew to carry out his obligations. But in Swartz & Sons (Pty) Ltd v Wolmaransstad Town Council (1960), the court held that damages were an adequate remedy and refused the decree of specific performance, The right to elect specific performance is not an absolute one. The court has a discretion, when specific performance is applied for, to leave the applicant to his remedy for damages ... it does seem to me that the probabilities on affidavit are so strong in the respondents favour that it should not be obliged to perform a contract which it apparently has cancelled lawfully, whilst the applicant can adequately be compensated by means of damages. Specific performance will not be granted where it is impossible to effect. In Shakinovsky v Lawson and Another (1904), where a buyer, S, sued for the specific performance of a contract of sale of a shop and business with no alternative claim for damages, and it appeared from the evidence that the seller, L, could not give specific performance as the subject-matter of the sale had subsequently been sold to the second defendant who had no notice of the previous sale, the court allowed the buyer to amend his declaration by inserting an alternative claim for damages. In refusing specific performance the court said, Now a plaintiff has always the right to claim specific performance of a contract which the defendant has refused to carry out, but it is in the discretion of the court either to grant such an order or not. It will certainly not decree specific performance where the subjectmatter of a contract has been disposed of to a bona fide purchaser, or where it is impossible for specific performance to be effected; in such cases it will allow an alternative of damages. Where it would be difficult for the court to enforce its order, the decree of specific performance will be refused. In Lucerne Asbestos v Becker (1928), B undertook to form a company to purchase certain property from L and guaranteed to L that the company would pay an agreed price for the property. B, having failed to form the company because the property had subsequently proved to be valueless, was sued by L for specific performance or alternatively damages for breach of his contract. The court held that it would not order specific performance but would leave L to his remedy in damages. In addition, in Barker v Beckett & Co Ltd (1911), Barker, having let certain premises to a company, brought an action for the payment of rent and order on the company to keep the premises insured and in repair. The court would not specifically enforce a contract merely to repair or to insure a building, ... it would be difficult for the court if it were to give an order for specific

performance to enforce its order and that of course is at the root of the doctrine of specific performance. Furthermore, where the thing claimed can readily be bought anywhere, the court will not order specific performance. In R v Milne and Erleigh (1951) the court said, In our law a grant of specific performance does not rest upon any special jurisdiction, it is an ordinary remedy to which in a proper case the plaintiff is entitled. But the court has a discretion whether to grant the order or not

... so in contracts for the sale of shares which are daily dealt in on the market and can be obtained without difficulty specific performance will not ordinarily be granted...

The court also would refuse to grant this decree where the order would cause great hardship on the defaulting party or the public at large. In Haynes v Kingwilliamstown Municipality (1951), the plaintiff had entered into an agreement with the respondent company, in which the latter would deliver certain quantities of water to her but due to an unprecedented drought, the respondent company defaulted. She sought a decree of specific performance but the court refused it and said, There can be no doubt that in the present case to have ordered the respondent to release 250,000 gallons of water a day from their storage dam while the unprecedented drought continued and the water in the dam had sunk dangerously low, would have worked very great hardship not only to the respondent but to the citizens of Kingwilliamstown to whom the respondent owed a public duty to render an adequate supply of water ... In terms of our common law, where the subject matter of the contract is the rendering of services of a personal nature, the decree will be refused. In Grundling v Beyers and Others (1967), G, who had been employed by a mining company, had been summarily dismissed for inefficiency. G applied for an order of reinstatement. The court held that as the relationship between the company and G had been contractual, the order for his reinstatement, which amounted to a claim for specific performance, could not be granted but G was left to his remedy in damages for wrongful dismissal. In Schierhout v Minister of Justice (1926), the court underscored, the inadmissibility of compelling one person to employ another whom he does not trust in a position which imports a close relationship... Another example of a familiar equitable remedy for breach of contract is an interdict. It is an order in which a person is ordered to refrain from doing a particular act. It is an appropriate remedy where a party to a contract has good reason to fear a breach of contract by the other party, to prevent the threatened breach. In Municipality of Bulawayo v Bulawayo Waterworks Co Ltd (1923), the court said that an interdict was the appropriate remedy for such a threatened breach of contract, involving the supply of water to residents of the countrys second largest town and the dispute primarily centered on the appropriate tariffs to be charged. For the enforcement of negative provisions in a contract, an interdict would be granted. In Pretoria City Council v Kontinentale Films (1956), P, in letting a portion of its farm to K, for

the purpose of a drive-in cinema, provided in the lease that the property should not be used for any other purpose without Ps consent. One V, Ks employee, on behalf of K applied for and obtained a licence to sell intoxicants at the cinema. P applied for an order interdicting K from conducting that particular business on the property leased. The court held that as it was never in contemplation of the parties, in granting the right to carry on a drive-in cinema, that there should be an inherent right to sell intoxicants which was a very special trade, the application should be granted. It is also an appropriate remedy in cases of restraint of trade covenants. In Schwartz v Subel (1948), Subel sold a business to Schwartz. A clause in the agreement of sale provided that the seller was not permitted to open up a store in opposition to the buyer within a radius of five miles. Subel purchased a business one and a half miles from that sold. The court granted the interdict stating that the restraint was reasonable. An interdict can also be granted after a contract has been terminated, to prohibit interference with a partys other rights. In Pougnet v Ramlakan (1961), P and R were parties to a contract under which R was appointed manager on Ps sugar farm. R had been dismissed for not delivering reaped sugarcane to a particular mill and when R refused to leave, P sought an interdict restraining him from remaining on the farm. The court held that the interdict should be granted. It observed that the parties were agreed that breach of the obligation to deliver to a particular mill would entitle P to cancel the contract. The value to P of his quota and the fact that the quota was at the particular mill in question gave that term of the contract an importance it would otherwise not have had. This case is on a par with that of Blismas v Dardagan (1951) and the court reached a similar decision. In that case the court laid down the requirements for an interdict which have over the years been rigorously followed by the courts in Zimbabwe. Summarising the requirements the then Chief Justice, Mr Beadle said: now to obtain an interdict the applicant must satisfy the court either: a) he has a clear right and that injury has been committed or reasonably apprehended or b) that he has a prima facie right and that irreparable injury will be caused to him if the interdict is not granted and no irreparable injury will be caused to the respondent if it is. In either case he must show he has no other appropriate remedy. Another equitable remedy for breach of contract is cancellation or rescission. Where one party repudiates the contract or where there has been a breach of a material term, or of a certain term, breach of which the parties expressly agreed would entitle one of them to cancel, the injured party may cancel the contract. In Swaartz and Son (Pty) v Wolmaransstad Town Council (1960), a term in a building contract that the builder should provide security forthwith on the acceptance of the tender was held to be a material term, breach of which entitled the other party to cancel the contract. The court said, the question now is whether failure to furnish security was a breach which justified the respondent from rescinding from the contract. It has not been stipulated in the contract as a sufficient ground for cancellation. The test is therefore the common law one for which various expressions have been used, such as whether the breach goes to the root of the contract or affects a vital part of the obligations or means that there is no substantial performance. It amounts to saying that the breach must be so serious that it cannot reasonably be

expected of the other party that he should continue with the contract and content himself with an eventual claim for damages... the provision of security is a vital matter in a building contract and continued failure to provide it after a month and seven days have elapsed since signing the contract which required security forthwith is a breach justifying the other party in resiling. In Aucamp v Morton (1949), the court made the observation that a breach by one party of the mutual obligations resting on him will only give the other party a right to treat the contract as discharged if the breach is one which manifests an intention on the part of the defaulter no longer to be bound by the terms of the contract for the future, or if the defaulter has broken a promise, the fulfillment of which is essential to the continuation of the contractual tie ...

In one and the same action, the injured party may claim cancellation and restitution of what he has paid over or transferred under the contract. If he does so and if there is no agreement to the contrary, he is bound to restore what he received. In Bonne Fortune Beleggings v Kalahari Salt Works (Pty) Ltd (1974), as B, the purchaser of some properties, had not paid all the payments due under the deed of sale, the sellers, K, cancelled the contract and claimed, among other things, an order obliging B to return the property or their value. The court granted the order and B was granted leave to appeal in regard to the balance within two weeks of the date of judgement. B appealed. The court held that K was only entitled to judgement in terms of the above-mentioned claims against the repayment of the portion of the purchase price already paid, further K could not utilise their unliquidated claim for damages for the purpose of set-off, accordingly the appeal succeeded. Provided that the claims are made in one action, the injured party may ask for damages in addition to cancellation or cancellation and restitution. The addition of such a claim does not relieve the injured party of his duty to restore what he received, a claim for damages is not a liquidated claim and set off cannot operate. This was stated in the Bonne Fortune Beleggings case and in Custom Credit Corporation (Pty) Ltd v Shembe (1972), the court said, ... The law requires a party with a single cause of action to claim in one and the same action what the law accords him upon such cause. In Jardin v Agrela (1952), J claimed an order cancelling a contract by which he had sold his interest in a partnership to A, and damages suffered by him as a result of As breach of the contract of sale. In the alternative, he claimed payment by way of instalments due under the contract. A opposed this but the court held that J had a sustainable cause of action and in regard to the alternative claim, it was permissible for J to claim cancellation and damages and in the alternative, if As breach did not go to the root of the contract, enforcement of the obligation to pay instalments of the purchase price which had fallen due. Thus an injured party who considers that a court may find that the breach is not a material one, and to whom performance of part of the other partys obligation is due, may claim cancellation, failing which, specific performance of that part of the other partys obligation which is due. If the injured party declines to cancel a contract and sues for specific performance and is awarded his decree it may happen that the decree cannot be enforced. In such a case he may cancel the contract. To avoid having to bring two actions he may claim in the

alternative in the first action since, ... the law requires a party with a single cause of action to claim in one ... as said in the Custom Credit Corporation case above. Rescission of a contract is an equitable remedy, enabling the parties to a void contract to treat it as if it has never been made and to recover from one another any money or property which had changed hands before the defect came to light. In Thorpe v Fasey (1949), the court stated that there can be no rescission for breach unless the contract can be eliminated in toto and the parties put in status quo ante (the position which obtained prior to the conclusion of the contract).

Another equitable remedy is quantum meruit and it means reasonable remuneration. Instead of suing for the recovery of damages for the loss of the contract, he may claim on a quantum meruit basis for the value of the work that he has already done, a course that will be advisable if the value exceeds what would have been due to him had the contract been fully performed. In Planche v Colbum (1831), the plaintiff agreed to write articles for the defendants. When the work was partly completed the defendants abandoned the series. The court held that the plaintiff was entitled to recover reasonable remuneration for the work which he had completed on a quantum meruit basis. If, for example, he has agreed to render personal services for a sum payable upon completion of this promise, he may recover remuneration for services already rendered up to the time when the contract is discharged. In Luxor Ltd v Cooper (1941), it was said if he adopts this course his claim is quasi-contractual in nature. In conclusion, it can be said that, as already established in this answer, our law provides for a number of equitable remedies in breach of contract cases. These equitable remedies are not available as a matter of course, rather they are awarded at the courts discretion (depending on the equities of the situation) and the courts are enjoined to exercise that discretion judiciously.

Specific Perfomance Specific performance is a remedy aimed at the fulfilment of the contract because when it is claimed by the innocent party, he is trying to achieve the result envisaged at the conclusion of the contract by the parties. In general, the injured party has a right to claim specific performance (an order compelling a party to a contract who is in breach, to perform his obligation in the manner required by the terms of the contract) if ready to carry out his obligations under it. However, the courts will exercise a discretion in determining whether or not decrees of specific performance should be made. In Farmers Co-op Society v Berry (1921) B, who was a member of F, and as such obliged to send in his whole crop to F, notified it that he had a crop of 1,200 bags of mealies but later refused to deliver any to F. F then sued B asking for specific performance of a contract to deliver 1,200 bags and in the alternative, damages. Addressing the question of specific performance the court ruled that: Prima facie every party to a binding agreement who is ready to carry out his own obligation under it has a right to demand from the other party, so far as it is possible a performance of his undertaking in terms of the contract. It is true that the courts will exercise a discretion in determining whether or not decrees of specific performance should be made. The discretion which the court enjoys in awarding (or declining to award) must be exercised judicially and is not confined to specific types of cases, nor is it shackled by rigid rules. Each case must be judged in the light of its own specific and peculiar circumstances. The injured party usually adds to his prayer for specific performance an alternative prayer for damages. As was noted by the court in Woods v Walters (1921). It is common practice to add to a prayer for specific performance an alternative prayer for damages As examples, the grounds on which the courts have exercised their discretion in refusing to order specific performance although performance was not impossible, may be mentioned. (a) where damages would adequately compensate the injured party, for example, if the subject matter of the contract can easily be bought on the open market as is the case with items like cars, clothes, bicycles, shares, etc. On the other hand a rare and unique painting by a renowned and celebrated artist might not fall into this category.

(b) where it is impossible to effect In Shakinovsky v Lawson and Smulowitz (1904) the plaintiff purchaser, sued for the specific performance of a contract of sale of a shop and business with no alternative claim for damages. L could not give specific performance as he had subsequently sold the same business to

Smulowitz who had no notice of the previous sale. The court said that it was not practicable to award specific performance and the purchaser had to contend with damages. Now a plaintiff has always the right to claim specific performance of a contract which the defendant has refused to carry out but it is in the discretion of the court either to grant such an order or not. It will certainly not decree specific performance where the subject matter of a contract has been disposed of to a bona fide purchaser or where it is impossible for specific performance to be effected, in such cases it will allow an alternative of damages. (c) where the subject matter of the contract involves the rendering of services of a personal nature Since it is undesirable and indeed in some cases impossible to compel an unwilling party to maintain continuous personal relations with another it is well established that a contract for personal services is not specifically enforceable at the suit of either party. The courts, said Jessel, MR have never dreamt of enforcing agreements strictly personal in their nature, whether they are agreements of hiring and service, being the common relationship of master and servant, or whether they are agreements for the purpose of pleasure or for the purpose of scientific pursuits, or for the purpose of charity or philanthropy. (d) where the order would work great hardship on the defaulting party or the public at large. If the effect of a decree of specific performance is to cause undue and great hardship to the defendant and members of the public alike the courts are unlikely to award it. In Haynes v Kingwilliamstown Municipality (1951) the defendant contracted to supply the plaintiff with 250,000 gallons of water per day for a number of years. After some time the defendant was unable to honour the agreement because of a crippling drought. An action for specific performance by the plaintiff was dismissed by the court because full compliance with the agreement would have resulted in a positive danger to the health of the Municipalitys citizens. In breach of contract cases it is quite clear that the courts award specific performance on a discretionary basis rather than as a matter of course. In conclusion it is quite clear that our courts will not grant specific performance anyhow as a remedy for breach of contract. Ultimately, it is a discretionary remedy which an aggrieved plaintiff might fail to get notwithstanding the fact that the defendant is clearly in breach of his contractual obligations towards the plaintiff. The court is enjoined by the law to use the discretion prudently and judiciously taking into account the facts on the ground and the larger interests of justice. The usual practice is for a plaintiff who desires to get the relief of specific performance to include an alternative prayer (request) for damages. Law of Delict A delict has been defined as the breach of duty imposed by the law, independently of the will of the party bound, which will ground an action for damages at the suit of any person to whom the duty was owed and who has suffered harm in consequence of the breach. Others have defined a delict as a civil wrong in the sense that it is committed against an individual, which includes legal entities such as companies, rather than the state.

In England and America, the term used for what we call a delict is a tort. From these definitions, one can discern that the essential purpose of the law of delict is to afford a civil remedy, usually by way of compensation, for wrongful conduct that has caused harm to others. The essence of delict law is that a person has certain interests which are protected by law. It has been said that the law of delict or tort constitutes a body of liability rules. These rules signal when a person is to compensate another by the payment of damages, or to be restrained from doing certain acts by way of an interdict or injunction. Those rules, then, indicate whether or not losses by human conduct will be shifted from one party to another or the loss will be where it falls. In terms of an obligation ex delicto the wrongdoer has a personal right to compensate the victim for the harm done and, vice versa, the victim has a personal right to claim reparation of harm done from the wrongdoer. In Union Government v Ocean Accident and Guarantee Corp Ltd (1956), it was held that, in general, the Roman-Dutch law of delict is founded on the basic principle that all harm caused by wrongful and blameworthy conduct can be recovered by delictual action, though criminal proceedings aimed at punishing the wrongdoer may also ensue, in some cases. For example theft, assault and malicious injury to property are wrongs which will ground civil as well as criminal proceedings. The main types of loss, for which compensation can be claimed under the law of delict, are wrongs resulting in financial loss and wrongs to personality leading to sentimental loss. Wrongs of substance are wrongs that cause tangible harm, such as injury to person including psychological harm, damage to property and harm to economic interests. Wrongs to personality are those that cause intangible harm, for example, harming reputation, defamation or subjecting a person to indignity. It is trite law that, to succeed in such claims, a plaintiff must allege and prove that the defendant has been guilty of conduct which is both wrongful and culpable and which caused patrimonial damage to the plaintiff. To summarise, in relation to the law of delict, a delict means a breach of a general duty imposed by law, giving rise to a civil action at the suit of the injured person. It consists of an act or omission by the defendant which causes damage to the plaintiff. The damage must be caused by the fault of the defendant and must be a kind of harm recognised as attracting legal liability. Causation The concepts of causality and remoteness operate in the determination of liability in delict and also the extent of such liability to pay damages. These are security devices inherent in the law of delict, which are contained in the public interest to protect defendants and promote the proper administration of justice. The concept of causality states that the conduct of the defendant must be both the factual and legal cause of the harm to the plaintiff before liability can attach. The test for factual causality concentrates on whether harm would have occurred in the absence of the defendants actions. It is a broad test, which only seeks to establish the factual nexus or link between harm and conduct. The test for legal cause, which is narrower, concentrates on reasonable foreseeability. The question to be asked is, Was it within the range of ordinary human experience that harm would result from the defendants conduct?

In Sadomba v Unity Insurance (1978) a motor accident had been caused by the defendants negligence. The plaintiff was dragged in an injured state and placed on the side of the road where he lay unconscious. His watch and shoes were stolen as he lay unconscious. The court held that he was entitled to claim for these losses as it was reasonably foreseeable that such losses could

occur in the circumstances. Similarly in Mbalawa v Mutandiro (1989) the driver had been driving quite dangerously when a passenger seated in the front seat grabbed the steering wheel thinking that the driver had lost control. This led to an accident occurring and the court held that it was foreseeable that a passenger who felt he was in danger could act like that. As it appears before the test for legal causality can arise, the factual causality test must be determined first and the determination must be in the plaintiffs favour. Essentially, the common sense question to be asked is, was there a sufficiently close connection between the defendants conduct and harm caused to justify imposing delictual liability? The test for legal cause contains a policy element and was conceived to limit the range of actionable harm. The test, it would also appear, is applied with hindsight knowledge i.e. looking at the sequence of events, the courts then enquire as to whether that sequence was so exceptional as not to be reasonably foreseeable. This makes the distinction between the test for legal cause and that for the fault required where negligence is alleged. The chain of causation can be broken by the intervention of a third party whether such intervention is negligent or intentional. If however, a reasonable person in the defendants position would have foreseen the possibility of such intervention and guarded against it, the defendant is negligent if he fails to do likewise. He cannot rely on the intervention of an act breaking the causal link. Similarly if the intervention was itself a negligent product of the defendant, then the chain of causation does not break. It is also accepted that it is reasonably foreseeable that some people in society suffer from ailments and other physical conditions, which make them more susceptible to injury or more serious injury than the person who is free from such conditions. This is the so-called thin skull rule. The rule lays down that defendants should take their plaintiffs as they find them. A defendant could thus be liable under such circumstances the peculiarity of the plaintiffs condition notwithstanding. In Santam Insurance Co (Ltd) v Paget (1981) an accident aggravated a pre-existing back complaint and the court applied the rule and as a result the defendant was found liable. Similarly in Smith v Leech, Brain and Co (1961) a flake of molten metal splashed on a workmans lip. The burn turned cancerous and the workman died. The defendant was held liable under the circumstances as such harm was within the range of human experience and expectation. The concept of remoteness on the other hand operates when liability has been determined and is meant to limit delictual damages payable. It has a public policy bias and is meant to protect defendants. Damages are therefore awarded only when there is a sufficient nexus and remote damages will not be awarded. The idea is to limit infinite liability for damages in an infinite amount. In the interests of fairness to the defendant, a line must be drawn between damages caused by his negligence for which he is liable and damages which, although in the broad sense are caused by his negligence, are so remote from it that he ought not to be liable for them. Somewhere, at some stage, liability for damages arises.

This stage is highlighted in Holmdene Brickworks (Pty) Ltd v Roberts Construction Co Ltd (1977) where the court stated that: to ensure that undue hardship is not imposed on the defendant, the defendants liability is limited in terms of broad principles of causation and remoteness to (a) those damages that flow naturally and generally from the kind of action in question and which the law presumes the parties contemplated as a probable result of their actions and (b) those damages caused by the defendants actions and are ordinarily regarded by law as being too remote to be recoverable The rationale for this position comes from the idea that the law of delict being based on negligence seeks to encourage diligent conduct. A person should thus be made to pay damages only for loss that was within his contemplation and which he could have averted. The position however, leads to an injustice on the party who remotely suffers as that party would not have suffered but for the defendants conduct. It clearly appears that both the concepts of causality and remoteness are meant to cushion the defendant from extravagant claims. The starting point for the concepts however is to recognise that the defendant should ordinarily make good the loss that he causes.

Negligence Most actions in delict are based on negligence. This is an allegation that a person acted carelessly, was thoughtless or imprudent because, by giving insufficient attention to his actions he failed to adhere to the standard of care legally required of him. The criterion adopted by our law to establish whether a person has acted negligently is the objective standard of the reasonable person. The defendant is negligent if a reasonable person in his position would have acted differently and if the unlawful act causing damage was reasonably foreseeable and preventable. In Kruger v Coetzee (1966), Holmes JA formulated the test to be applied on negligence. He said liability on negligence arises if a reasonable person (diligens pater familias) in the position of the defendant would foresee the reasonable possibility of his conduct injuring another in his person or property and causing him patrimonial loss and would take reasonable steps to guard against such occurrence and that the defendant failed to take such steps. In Jones v Santam Bpk (1965) it was stated that: A person is guilty of culpa (negligence) if his conduct falls short of the standard of a diligens pater familias a standard that is always objective and which varies only in regard to the exigencies arising in any particular circumstances. It is a standard which is one and the same for everybody under the same circumstances. The first stage in any case of alleged negligence is for the court to decide the facts. After the facts have been decided, the court has to determine how an ordinary average reasonably careful citizen would have behaved in the circumstances.

Negligence is thus the failure to display the same degree of care in avoiding the infliction of harm which the reasonable person would have displayed in the circumstances. In Gordon v Da Mata (1969), it was held that it was not reasonably foreseeable that during the cutting of cabbage leaves, a small cabbage leaf would fly that distance and land under the plaintiffs foot causing her to slip and fall and be injured. The accident was so bizarre and freakish that a reasonable man would not have foreseen or taken steps to guard against it. There are some situations where despite the fact that harm was reasonably foreseeable, a reasonable person might not necessarily have taken any steps at all to prevent that particular harm or might only have taken certain limited precautions. Therefore, in addition to reasonable foreseeability, the question of what steps, if any, a reasonable person would have taken has to be investigated. The enquiry can be broken down as follows: (i) would a reasonable person placed in the position of the defendant have foreseen the possibility that harm would result from the sort of conduct in which the defendant was engaged? (ii) if he would have foreseen harm, would the reasonable person have taken steps to prevent that harm from occurring? (iii) If he would have taken steps what steps would he have taken? When deciding whether a reasonable person would have guarded against harm which was reasonably foreseeable the court will take into account the following: (i) the degree of risk that the harm would occur (was it probable or unlikely that the harm would occur?) (ii) the nature of the harm that would occur (if the harm occurred would it be serious harm or trivial harm?)

(iii) the nature of the precautions required to prevent the harm (were these elaborate and expensive or easy and inexpensive) (iv)The objective which the defendant was seeking to attain (was this legitimate or illegitimate). In Lomagundi Sheetmetal v Basson 1973 (4) SA 523, during welding operations on a roof, molten metal dropped on dry material alongside the building and a fire broke out resulting in damage to property. Although the risk of fire being caused in this way was not substantial, the precautions needed to prevent risk were easy, namely to move the dry material away. The defendant was therefore held liable to the plaintiff in negligence. In this regard, the law recognises that there are some members of the society who are rendered peculiarly weak by some particular ailments. It is thus considered to be still negligent to cause injury to such people as the law mandates everyone to take their victims as they find them, the so called thin skull rule.

The reasonable foreseeability test is certainly not without its difficulties as the sole determinant of liability in these sort of cases which span a wide spectrum of differing situations. The present position is that liability in all cases is to be determined simply by applying the ordinary test for negligence, namely reasonable foreseability of the average person. Volenti non fit injuria

Volenti non fit injuria means, he who voluntarily exercises his will suffers no injury. The concept
embodies the principle that a defendant is not liable where the injured person has consented to injury or the risk thereof. Thus if a person, knowing of the full nature and extent of the risks involved in an enterprise, voluntarily goes into the enterprise thereby assuming the risk of injury to himself, he should not be able to sue for injuries caused by that enterprise. Volenti non fit injuria thus constitutes a total defence in delict even in circumstances where the defendant was negligent. The defence would thus cover injuries sustained by sportspersons engaged in sports that inevitably cause harm such as boxing and in some such other circumstances. Thus in Lampert v Hefer NO (1995), the defence was maintained under circumstances where a passenger was aware that the motorcyclist with whom he was travelling was under the influence of alcohol, which intoxication led him into an accident and resultant injuries to the plaintiff. There are two approaches to the volenti defence which are, the narrow so-called bargain or bilateral agreement approach and the extensive voluntary assumption of risk approach. The basic difference between the two approaches is as follows: with the bargain approach, nothing less than an advance communication leading to an express or implied agreement between the parties is required whereunder, the plaintiff agrees to waive or give up his legal right to claim in respect of that type of harm, should it eventually occur. The approach thus postulates that there be a clear and unequivocal acceptance of a known risk in advance and a resultant waiver of the right to recover.

On the other hand, the voluntary assumption of risk approach does not require that the plaintiff must have agreed in advance of the enterprise to surrender his right to sue in the event of him being injured. All that is required is that the plaintiff having full knowledge and appreciation of the nature and extent of risk involved in an enterprise, nonetheless voluntarily goes into it thereby assuming the risk of injury. Though these approaches differ, the idea of voluntariness cuts across both of them. Our courts are yet to rule authoritatively on the approach to be adopted and followed by them. The one case that has dealt with the defence, Mutandiro v Mbulawa (1994), seems to cast doubt on the approach to be adopted. In that case the plaintiff who was a passenger in a vehicle which was being driven by the defendant had been seriously injured when the vehicle had overturned, apparently caused by the defendants drunken state. The court held that the defence could not apply because there was no express advance agreement between the parties. This holding was in line with the narrow approach. It however went on to add that the defence could still not apply as the plaintiff had no full knowledge of the nature and extent of the risk involved which seems to remind one of the extensive approach. The above notwithstanding the defence still forms part of our law and a case could be made for the application of the extensive approach as it is in line with the South African position enunciated in Santam Insurance v Vorster (1973). The defence is however difficult to raise and sustain because of its requirements. Whichever approach one looks at, it seems clear that there is a requirement that there be at least an appreciation of the nature and extent of the risk involved and this leads to an inquiry of subjective foresight. By way of illustration, in the Santam case (supra) a race between two cars on an ordinary road resulted in one of the cars overturning and leading to the plaintiff sustaining very serious injuries. The court noted that if the plaintiff had subjectively foreseen the risk of injury to himself that would ordinarily suffice as consent debarring him from recovering damages. It however, went on to refer to the practical difficulties of establishing subjective foresight. In order to overcome this difficulty a two stage approach is utilised. The first stage involves the court asking itself what objectively were the inherent risks of the activity in question. Having determined that, it then applies the subjective test and the court makes a factual finding as to whether the plaintiff must have foreseen the risk and whether he will be held to have consented to it despite his protestations to the contrary. There are however, limitations to the idea of voluntariness. There are two situations where the plaintiff will be acting under an obligation or constraint such that his conduct may not be termed voluntary with the result that the defence cannot be raised against him. Thus in rescue situations and in situations where an employee has to undergo a danger negligently caused by his employer, the defence will not be raised to evade harm caused under such circumstances. The volenti defence is justified on the grounds of public policy. The purpose of the law of delict being to protect people from harm negligently caused, it then makes no sense to extend the protection to those who actually go out to seek the harm. In the circumstances, the voluntary undertaking of risk thus constitutes a good defence and a total one too.

Passing off Passing off is a form of deception that consists of taking unfair advantage of a trade reputation that the plaintiff has built up. This delict is committed when the defendant, by means of a misleading name, mark or description or otherwise, represents that his business or merchandise is that of another, so that members of the public are misled. If the defendant uses a business name which he is not entitled to use so that his business is mistaken for that of the plaintiffs, and in this way he unfairly procures the plaintiffs customers, or the defendant packages his goods in such a way that they are likely to be mistaken for the plaintiffs goods, the latter can obtain an interdict to prevent the defendant from continuing this practice and can claim damages for any loss which he has suffered as a result of the public being misled. The plaintiffs interest, which is protected, is his financial interest in his property. The principle is that it is akin to fraud for a trader to pass off his goods as those of his rival and thus, by deceiving the public, reap the benefit of his rivals reputation. The modern version of the delict was set out in Even Warnick BV v Townend and Sons (Hull) Ltd (1979), when the plaintiffs made a drink called advocaat. The defendants began to make a drink called Old English Advocaat. Lord Diplock identified the essential elements of the tort: a misrepresentation, made by a trader in the course of his trade, to prospective customers of his or ultimate consumers of goods or services supplied by him, which is calculated to injure the business or goodwill of the trader by whom the action is brought or will probably do so. As the name which was used by the plaintiffs distinguished the plaintiffs product from any others, the plaintiffs were entitled to the interdict. The test applied by the courts when deciding upon whether the similarity in trade name or packaging was likely to mislead is: is there a reasonable likelihood that members of the public might be misled into believing that the business is that of the plaintiff, or the goods are the plaintiffs goods? In Capital Estates for General Agencies v Holiday Inns (1986), the court stated, in order to determine whether a representation amounts to passing off, one enquires whether there is a reasonable likelihood that members of the public may be confused into believing that the business of one is confused with that of another. This delict can be committed by using the plaintiffs name or one which closely resembles that of the plaintiff. Usually the courts are reluctant to interfere with a persons right to trade under any name he chooses. Where, however, a person trades under a name the same as or closely resembling that of the plaintiff, he may be restrained from carrying on business under such name. In Zambezi Conference of Seventh Day Adventist Church v Seventh Day Adventist Association of Southern Africa (2000), the court held that the principles of a passing-off action apply also to the unauthorised use of the name of a non-trading body. Thus, a mother church which was a long established and well-known religious body, with branches world-wide, was entitled to the protection of the law insofar as its name is concerned. In addition, adopting or imitating the substance of the plaintiffs goods amounts to passing-off. A trader has no monopoly in the substance of his goods, but where the plaintiff has selected a peculiar or novel design as a distinguishing feature of his goods, and his goods are known in the

market by that design and have acquired a reputation by reason of its peculiarities, the court will restrain any person from using that design, if such use is calculated to deceive the public. Furthermore, adopting or imitating the trade name or mark of the plaintiffs goods amounts to passing off. A person may be restrained from selling his goods by the same name as that of the plaintiff as any colourable imitation thereof. As regards registration and protection of trade names and trade descriptions by legislation, the provisions of the Trade Marks and the Industrial Designs Act cover them. Sections 20 and 21 Companies Act (24:03) provides for the non-registration and de-registration of company names identical to, or similar to, other company names such that the public is likely to be misled. Any person who is aggrieved by the incorporation of a company with a name which is likely to cause confusion in relation to his goods may be able to bring proceedings for an interdict to prevent the delict of passing off. The basis of the action is a right, not so much in the name itself, but in the goodwill engendered by the use of the name in connection with the plaintiffs business. However, a person may carry on business under their own name, even if it does cause confusion with competitors provided they do not intend to deceive the public in relation to the goods. The courts may infer such an intent. Thus in Ewing v Buttercup Margarine Co Ltd (1917), the plaintiff carried on an unincorporated business under the trade name Buttercup Dairy Co. The defendant company was incorporated to trade in similar products and had adopted the name innocently. The court held that, nevertheless, the plaintiff was entitled to an interdict since confusion must result. Furthermore, where the name of a new company may lead to the suggestion that it has taken over an existing business, this may be the ground for an interdict. Thus in North Cheshire and Manchester Brewery Co v Manchester Brewery Co (1899), the Manchester Brewery Company was granted an interdict against the North Cheshire Brewery Company on the basis that it was calculated to deceive.

Contributory negligence The law of delict recognises as a valid defence the doctrine of contributory negligence. Under this defence, the courts generally look into the conduct of both parties involved in the dispute before apportioning blame and liability to either or both of them. In given situations, the courts usually find that the plaintiff may to a certain extent have contributed to the resultant injuries he himself would have suffered. A defendant in such a position can raise the defence of contributory negligence and allege that the plaintiff was also responsible for the injuries that he suffered himself and should be held to have contributed to the causing of the accident from which injuries were sustained. As a result, the plaintiff will also be held to be delictually liable for his own injuries. If for example a vehicle driven by the defendant collides with the plaintiff, a pedestrian, and it turns out that both parties were negligent in causing the accident in that the plaintiff tried to cross the road without carefully ensuring that it was safe to do so, and that the defendant was driving at an excessive speed and was not keeping a proper lookout. The court will take into account the respective degrees of fault on the part of each party before apportioning damages.

The doctrine of contributory negligence is therefore an equitable precept that provides that a person should not recover in full for damage caused partly by his own fault. In terms of s.4 (1) of the Damages (Apportionment and Assessment) Act (Chapter 8:06), Any person who suffers damage which was caused partly by his own fault and partly by the fault of any other person the damages awarded in respect thereof shall be reduced by the court to such an extent as the court may deem just and equitable having regard to the respective degrees of fault of the claimant and of such other person in so far as the fault of either of them contributed to the damage. If for instance, P was 20% at fault and D was 80% at fault, P the plaintiff will be able to recover only 80% of his damages from D the defendant. As for D, he in turn will be able to recover 20% of his damages from P. The court may also adopt the approach whereby it calculates the percentage of deviation by each party from the norm of the reasonable person and then reduce the figures to proportions. If for example P deviates from the norm by 20% and D by 40%, when reduced to proportions, this will be 1:2. Therefore P is liable to pay one third of Ds loss and D is liable to pay two thirds of Ps loss. Statute law also recognises the concept of contributory negligence, under s.4 (1) of the Law Reform (Contributory Negligence) Act (Chapter 8:06), failure by a passenger to wear a seatbelt can amount to contributory negligence as this failure will aggravate Ps injuries in the event of an accident, injuries which could have been avoided had proper care and caution been exercised. In the case of Koen v Keates (1989) the court held that the failure to wear a seatbelt by a passenger despite express instruction to do so by the driver amounted to contributory negligence. Under the Zimbabwean law of delict, contributory negligence is not a full defence as defined in apportionment legislation but instead the courts will apportion blame between the two parties and reduce the amount of damages payable to a claimant proportionately considering the extent of his fault. If however, the defendant was the sole and proximate cause of the plaintiffs harm, the defence of contributory negligence will not apply and the defendant will be held liable to pay all of Ps damages. Professional liability of auditors Auditors are skilled professionals whose duties are to review and inspect a companys fi nancial statements and records and ensure that they give a true and fair view, or present fairly in all material respects. Their task is to present independent and reliable information of the true position of a companys fi nancial affairs at the time the audit is carried out. As auditors are skilled and qualifi ed professionals, they are expected to perform their tasks with due care, diligence and competence. They should be wary of making errors that could result in undue loss to their clients or individuals who will rely on their information. In the event of negligence, the auditors may be found liable by the court to pay damages to their clients for misstatements or misrepresentations in their work. The courts have laid out a test applicable to auditors in the event of such loss.

The court will seek to establish the following: 1. Was there loss or damage occasioned to the aggrieved party?

From the facts of the case, the court has to establish whether the plaintiff suffered any loss because of the conduct of the auditor or from reliance on the work of the auditor. After establishing this, the court has to proceed to the next step. In International Shipping v Bentley (1990), the court found the auditor as having been negligent in his duties, and the company as having suffered fi nancial loss. However, it still had to proceed to the next step. 2. Was the auditor negligent in carrying out his duties? The courts normally have to ascertain and establish from the facts of the case whether the auditor was negligent in carrying out his duties. The test for negligence of an auditor is above the ordinary test of negligence. In Al Saudi Banque v Clarke Pixley (1989), Clarke Pixley carried out an audit negligently and a bank lent money based on the audit. The court found that there was an insuffi ciently close or direct relationship between the two to establish a duty of care. 3. Would a reasonable auditor in the same position have been equally negligent? If they fi nd the auditor negligent, they have to proceed to the question of whether a reasonable auditor of the same level of skill and competence would have been thus negligent. Auditors are put on a stricter test of the reasonable auditor rather than the reasonable man as they are held to be more skilled than the ordinary average reasonable man is. In certain cases, the fraud

may be so ingenious and diffi cult to uncover to the extent that no reasonable auditor, even if he performed his duties diligently, would have been expected to uncover it. In such cases, the auditor who failed to uncover the fraud will not be found to have been negligent. If on the other hand, the reasonable auditor would have uncovered the fraud, the commercial corporation that employed him to carry out the audit could sue him for damages suffered as a result. 4 Is there a close connection between the auditors report and the loss suffered by the plaintiff? The court also has to ascertain whether there is a close or direct nexus between the auditors report and the loss suffered by the plaintiff. In JEB Fasteners v Marks, Bloom & Co (1981), an auditor was found to have been negligent in the conduct of his duties and thus had caused harm to the plaintiff company. The court, however, held that there was no causal link between the auditors statement and the loss, as the company would not have acted any differently had it known the true position. In International Shipping v Bentley (supra), the court held that even though the auditor had been negligent, the loss suffered was too remote to be attributed to the auditor as it happened two years after the initial audit. In our law, auditors are liable only when they have been grossly negligent or where they have breached their duty of care. In Capara Industries v Dickman (1990), the court held that an auditor had not breached his duty of care where shareholders of a company had made a loss after having invested more money into the company on the strength of the audit report. The court held that the duty of the auditor was to audit books of accounts in order for the shareholders to exercise informed control over the company and not to enable individual shareholders to buy shares. He had no duty of care as to what happened after he had done his audit. In the case of In Re Kingston Cotton Mill Company (1896), the court stated that an auditor is expected to exercise that skill, care and caution which a reasonably competent, careful and cautious auditor would employ. It stated that: an auditor is not bound to be a detective, or to approach his work with suspicion or a foregone conclusion that there is something wrong. He is a watchdog and not a bloodhound of the company. Auditors therefore have to exercise due care and diligence in conducting their work in order to avoid liability.

Employment Duties of an employee Under a contract of employment, an employee has various duties which he is obliged to perform, thereby honouring his part of the contract, and these duties include the duty to provide service, the duty to serve diligently and competently and the duty of subordination among others. At common law, the worker has the duty to make his services available to the employer from the agreed time and in terms of the contract, including duties reasonably ancillary thereto. He must commence working on an appointed day and render his services consistently at the times agreed upon. In addition, he must obey all lawful instructions loyally and accurately. Zimbabwean law stipulates that an employee may be dismissed where there is absence from work for a period of five or more working days without leave or a reasonable excuse. An employee is supposed to report for work as provided by his contract. In Girjac Services (Pvt) Ltd v Mudzingwa (1999) an employee was arrested on charges of theft at the instance of his employer. He was released on bail but did not come back to work. After some days, he asked to be allowed to resume work but the employer refused the request. Some months later the employee was acquitted, although the circumstances of his acquittal did not establish his innocence. The employee sought to resume work and payment of wages from the date of arrest until the date of resumption of duty was also demanded. The employer said that the contract had been repudiated by the employees absence. After fruitless negotiations the employee brought an action in the High Court seeking reinstatement. The court held that the employee was not entitled to absent himself from work because he had been arrested. He was not incapacitated from working and should have tendered his service. He could not blame his absence on his employer for having wrongfully caused his arrest, there having been a reasonable suspicion that he had committed an offence. This shows that an employee risks dismissal from employment if he is absent from work without reason or consent as he commits a breach of contract. However, there are circumstances when an employee is justified in refusing to render services, that is where the employer fails to pay for services rendered or there is unlawful deduction on remuneration. In Mukandi and Others v Hwedza Rural District Council (2004), the court reversed the dismissal of employees who had gone on strike in protest against the non-payment of their backpay which the employer had diverted to other uses. There is another duty which the employee is expected to pay due regard to and this is a duty of competence and efficiency. This entails that the worker has a duty to be reasonably efficient and competent at the commencement of the contract and throughout its duration, in other words not to be negligent. In Zimbabwe Mining and Smelting Co Ltd v Mafuku (1992), the court upheld the dismissal of a human resources manager who was unable to perform the basic duties of personnel management despite being given a number of chances. In Gemsbock Construction Ltd v Prowse (1950) it was held that the worker is bound by any representations made concerning her competency including information in testimonials and references. However in Rhodes v SA Bias Binding Manufacturers (1985), the Industrial Court stated that the employee may not, however, be summarily dismissed. He must first be granted the opportunity to improve his performance and the employer must give him proper orders, and possibly also training. At the end of the day, the employee is expected to be efficient and competent for the

job he was appointed to do. Once on the job, the employee should exercise reasonable skills, diligence and perform his duties competently. Quest Motor Corporation (Pvt) Ltd v Nyamakura (2000). As the employer is in a position of authority, the employee is obliged to be subordinate to the employer and to show him due respect. He commits a breach if he does not display the required respect. Rather, he must obey the lawful order given by the employer and he must also be respectful to the employer and their business associates and customers. In Miles v Jagger and Company (1904) the use of rude language to a superior by an employee was cited as an example of insubordination that warrants dismissal. In Matereke v CT Bowring and Associates (1987), it was held that for wilful disobedience of a lawful order given by the employer to justify summary dismissal of an employee in terms of the Act, it must be such as to be likely to undermine the relationship between the employer and employee, going to the root of the contract of service. The duty of good faith or of maintaining bona fides means that while an employee is in service, he obtains certain information regarding his employers business. He is obliged to act in good faith and not to do anything which may harm the relationship of trust. He has a duty to work in and advance the interests of the employer and not against their interests. Furthermore, the employee must at all times act in accordance with acceptable practice and the policy of his employer and therefore must not commit any misconduct, for example, assault, incompetence, drunkenness, etc. In May v Raw and Co (1881) the court held that the giving of trade secrets of his employer by the employee to anyone in competition with the employer is viewed in a serious light and justifies summary dismissal. The employee has another duty to exercise reasonable care when using the property of the employer. Negligent behaviour by the employee causing damage to the property of the employer constitutes breach. On the whole, it is important to always bear in mind that once a contract of employment comes into existence, either party to the contract has his obligations to perform and uphold. The employer has his own, and the employee also has his own, obligations to take care of. Failure by the employee to uphold any of the vital duties he shoulders in the contract usually leads to the termination of the contract through dismissal by an aggrieved employer. The sanctity of contract (of employment) is upheld if parties diligently and efficiently perform and take care of their responsibilities under the contract. Duties of an employer The following are the principal duties of the employer towards his employees: the the the the duty duty duty duty to accept the employee into his service. to pay the remuneration agreed upon. to provide safe working conditions. of good faith and to respect the employees dignity.

(a) To accept the employee into his service In the contract of employment, the rendering of services is a prerequisite for the payment of remuneration, it follows that the employer is obliged under the contract of employment to

receive the employee into his service. Should the employer fail to take the employee into his service, he will be committing substantial breach. The employee will then be entitled to claim damages amounting to his actual loss, i.e. the amount which he would have earned in respect of the incomplete part of his period of service see Rogers v Durban City Council (1950). (b) To pay the remuneration agreed upon It is the employers most important obligation to pay the employee the agreed remuneration. This remuneration may be paid in money or otherwise depending upon the agreement between the parties. The most basic duty of the employer is to pay the agreed or prescribed remuneration to his employees. In Tel One v Nyambirai and Others (2004), the court held that the failure to pay contract workers the agreed remuneration amounted to an unfair labour practice. In NRZ v National Railways Contributory Fund (1985), the court was of the view that the employer has a basic duty to pay wages that are due. Where there is no agreement regarding the time of payment, the common law prescribes that payment will take place at the end of the period of service. When the employee is employed for an undetermined period, it is important that he be paid on a regular basis, either weekly, fortnightly or monthly. (c) To provide safe working conditions It is an obligation of the employer to provide safe and healthy working conditions for the employee. In terms of the law, the employer has a fundamental duty not to require any employee to work under any conditions or situations, which are below those prescribed by law or by conventional practice of the occupation for the protection of such employees health or safety. In Kwaramba v Bain industries (Pvt) Ltd (2001), the court recognised that an employer has a fundamental duty to ensure the safety and well being of the employee as he carries out his work. If he fails to do so, he will be liable to compensate the injured worker for the injuries sustained providing that the employee had not voluntarily consented to the harm. (d) The duty of good faith and to respect the employees dignity Under the common law, this major duty encompasses the need to act in good faith in the employment contract. In detail, it amounts to the duty to comply with the prescribed conditions of employment and to uphold the terms and conditions agreed thereto in the employment contract.

This essential duty entails the following subsidiary duties: 1 The duty to adhere to maximum working hours. The law has always allowed parties to the employment contract to agree on the number of hours and time limits that the employee can work. This is however subject to exception and to basic standards of fairness. The employer cannot therefore unilaterally increase the working hours of the employee without his consent except in the case of an emergency. In Philemon v OK Bazaars (1995), the court reversed the dismissal of an employee who had refused to work an extra 15 minutes, as such extra work was not a requirement in her contract of employment and neither was it an emergency. 2 The duty to respect the employees right to democracy and membership of trade or representative unions. In terms of s.7 of the Labour Act (Chapter 28:01), employers are under a fundamental duty to respect the employees right to democracy in the workplace. This entails that the employer is under a duty not to hinder employees from forming or conducting any workers committee activities or to threaten employees with reprisals for lawfully conducting acts designed to advance their rights or interests. The employer should also allow labour offi cers or a representative of any appropriate trade union or employment council to have access to employees at their place of work during working hours, and advise them on employment law, formation of workers committees or trade unions and on issues related to the protection and advancement of their rights. 3 The duty not to discriminate any employee on whatever grounds. Employers are under a fundamental duty not to discriminate against employees or prospective employees in regards to certain specifi ed grounds. In terms of s.23 of the Declaration of Rights contained in Part III of the Constitution, no person shall be discriminated against on creed, gender, religion, political affiliation etc. This also applies to employment contracts. Equally in terms of s.5(1) of the Labour Act (Chapter 28:01), employers are under a fundamental duty to refrain from discrimination: against any employee or prospective employee on grounds of race, tribe, place of origin, political opinion, creed, gender, pregnancy, HIV/AIDS status or any disability In the case of In Re Chikweche (1995), the Supreme Court overturned a High Court ruling barring a dread-locked applicant the right to register and practice as a legal practitioner on the basis that it constituted discrimination on the grounds of religion and freedom of conscience. The employer is therefore duty bound to desist from all forms of discrimination. (iv)The duty to uphold the contract of service and not to unilaterally vary it. An employer is bound at law to uphold as best as he can the provisions of the employment contract relating to him. He should by all means ensure that his side of the bargain is met. This duty in terms of s.6 of the Labour Act (Chapter 28:01) entails that the employer should

provide such conditions of employment as are specified by law or as may be specified by lawful agreement made under this Act. These conditions include but are not limited to granting employees general or sick leave, maternity leave, study leave, occasional leave etc when needed see City of Harare v Zimucha (1995). At the same time, the employer should not breach the terms of the employment contract by using his superior position to vary or alter the terms and provisions of the contract. He may not impose new duties on the employee other than those provided in the employment contract see Philemon v OK Bazaars (supra). In terms of our employment law there is a whole range of duties and obligations that are placed on the shoulders of either party to the employment contract.

Distinction between employee and independent contractor The essence of agency in the context of employment law is that an agent performs services for a principal in cases where the principal lacks expertise, finds its performance impracticable, inconvenient or just out of mere preference. Broadly, there are two types of agents, namely an agent who is an independent contractor and one who is a servant (now commonly called an employee). RomanDutch law draws a distinction on one hand between a locatio conductio operanum which is a contract of services, under which a servant is employed and on the other hand a locatio conductio operis which is a contract for services which covers an independent contractor. The distinctions between them have largely been a common law affair led by the judgment in Colonial Life Assurance Society Ltd v McDonald (1931). The first distinction between these two agents is to be found in the idea of subjection to orders R v Feun (1954). An employee is subject to the orders of the employer as to the time, place and the work to be done. The employees duty is simply to apply his skill in doing the work at the place and time chosen. An independent contractor is on the other hand not subject to such orders. He is independent, he is his own master. Although the period within which the work to be done can be specified, he is largely free to exercise greater discretion and latitude in doing such work. The idea of subjection is however, not absolute and each case will depend on its own circumstances Norton v Canadian Pacific Steamships Ltd (1961). Linked with the idea of subjection to orders is the question of supervision and control. In Smith v Workers Compensation Commission (1979), it was held that supervision and control are a necessary condition for a contract of employment. An independent contractor is, thus, subject to less or no supervision and control from the principal. He is independent De Beer v Thomson and Son (1918) and the principal does not follow him around. An employee is put on a leash so to speak as the employer determines such things as the time to start the work, when to break for lunch and when to finish work for the day. An independent contractor determines all these issues without reference to the principal. By and large he is at liberty to operate as he sees fit.

Yet another difference comes when one considers the part/space occupied by the employee in the principals organisation see Stevenson Jordan & Harrison Ltd v McDonald & Evans (1952). An employee forms part of the principals organisation, he is on his payroll, and now commonly on his medical aid. He is counted amongst those that form the employers organisation and in essence constitutes it. An independent contractor is on the other hand detached from the principals organisation. He comes once to do a particular task and vanishes after its completion. Linked with the foregoing is the fact that an independent contractor practises a calling distinct from that of the principal. He has his own business which he runs and contracts with the principal so that the principal derives benefits from that calling. Put cynically, a servant is part of the principals business. He is, thus intimately if not intrinsically, linked to the principal as not to form a separate existence in the area of the relevant services. Certain other obligations that the employer has towards these agents highlight yet further differences between them. In R v Feun (1954), it was observed that the principal has a duty to provide equipment to the employee for the performance of his work he does not have such a duty in relation to an independent contractor. Failure to provide the servant with necessary equipment may amount to constructive dismissal. There is no such duty as regards the independent contractor who is himself obliged to have his own equipment. Further the employer has further statutory obligations in relation to a servant which obligations he does not have in relation to an independent contractor. Thus he is obliged to put in place pension schemes for employees, workers compensation schemes and meet certain health requirements. As observed, statute does not lay such requirements to a principal as relates to independent contractors. The regularity and continuity of service also shows yet another difference between the two agents. In Performing Rights Society Ltd v Mitchell and Booker (Palais de Davise) (1924) it was held that an employee unlike an independent contractor either has a regular or continuing service contract. An independent contractor on the other hand performs his mandate for a specific season and can only be engaged in future to carry out a different mandate altogether. In the same light, because of the continuity of the relationship a servant is bound to serve one master at a time, (at least at a time when he should be doing the masters work) but an independent contractor is not bound to exclusively serve one principal Templeton v William Parkin & Co Ltd (1929). An employee is, thus, paid regularly, say when the month ends but an independent contractor receives a lump sum either as a deposit or upon the completion of the mandate Imperial Cold Storage v Feo (1927). A further distinction lies when one considers the question of vicarious liability under the law of delict. As an employee is essentially the employers hand, the employer is liable for the delicts committed by the employee within the course and scope of his employment. In Banda v Gamegone (Pvt) Ltd and Anor (2003), the court held that such liability does not attach as against an independent contractor that is to say the principal is not liable for the delicts committed by an independent contractor in the performance of his mandate. In order to hold the employer liable for the delicts of his employee the following requirements must be met: (i) there must be an employer/employee relationship

(ii) the delict must have been committed by the employee in the course of the performance of his duties.

In Hendricks v Cutting (1937) the employee was a lorry driver. While he was doing his work he stopped at a filling station for fuel. He lit a cigarette causing a fire in which the pump attendant was injured. The employer was held liable. On the other hand, if the employee abandons his work in order to promote his personal interests the employer will not be liable. In Carter and Company v McDonald (1955) the employee used his employers bicycle to go to the market for private reasons. He knocked down and injured a pedestrian. The court decided that the employee was promoting only his own interests when the accident occurred and therefore the employer was not held liable. It appears from the above that a principals relationship with the servant is governed by employment laws which do not govern his relationship with an independent contractor. Thus a principal can dismiss an employee but needs to follow relevant procedures laid out in statute. Further an employee can be retrenched if he becomes excess to requirements. This does not apply to an independent contractor whose relationship with the principal is governed by the contract of agency. If that relationship is to be severed, the law of agency as opposed to employment law comes to the fore. The above constitutes a survey of the major differences that exist between an independent contractor and an employee. Termination of the Contract There are various methods of termination of the employment relationship. The main methods of termination recognised are: (a) by notice (b) cancellation for breach or repudiation (c) by mutual agreement (d) by expiry of time or conclusion of specified time (e) by supervening impossibility (a) Termination by Notice A permanent contract of employment may be terminated by either party on giving due notice. The party terminating does not have to give reasons or to conduct any hearing before terminating. The principles governing fixed-term contracts are different. Such contracts cannot be terminated on notice unless it is expressly provided for in the contract itself. In Lever Brothers (Pvt) Ltd v Marafuzah & Ors (1997), the court upheld the dismissal on notice of employees on a short-term contract because the terms of the contract expressly provided that it may be so terminable. The giving of notice is a unilateral act which does not require acceptance or concurrence by the other party. The notice must be unequivocal and clear and may not be unilaterally withdrawn. Notice may be given at any time or day and it is standard procedure for the notice to be in writing.

(b) Termination for Breach/Repudiation The right to terminate the contract is available to either the employer or the employee where the other party is in material breach. If an employee breaches a contract of employment by conduct which amounts to fundamental breach, the employer is entitled to terminate the contract summarily and possibly to sue the employee for losses occasioned by the breach. In the case of Muchakata v Netherburn Mine (1996) the appellant was employed as a security sergeant at the mine by the respondent. Under him were a number of security guards. On a number of occasions, there were breaches of company rules by various employees. Following these incidents, the assistant personnel manager instructed the appellant to take disciplinary action against the employees concerned but he refused. It was held that what the appellant was being required to do was not within the parameters of his contract of employment. The appellants wilful disobedience to an unlawful order gave the respondent no right to dismiss him. (c) Termination by Mutual Agreement Despite the actual provisions of the contract on termination, the parties may mutually agree to terminate their contract. Agreement may be in writing or made orally. It should not be unilateral. In the case of Mushonga v NRZ (1986), it was held that when an employee renounces his obligations by tendering his resignation, an assertion that the contract was wrongfully terminated cannot be sound in law. Parties to a contract may, at any time during the currency of the contract, mutually agree to terminate the contract. Such an agreement can override formal and substantive restrictions placed on the termination of the contract by the original contract itself. (d) Termination by Expiry of Time or Performance of Task If a contract of employment is for a specified period of time or for a specific task, then such contract expires automatically at the end of the period or completion of the task. No notice or reason is required. In Chikinye & Others v Peterhouse School (1999), the appellants were employed by the respondent school as teachers. Their task for which they had been employed ceased. They claimed to have been unfairly dismissed but the court could not agree with them because their contracts had terminated through operation of law. (e) Termination because of Supervening Impossibility If either party to a contract becomes permanently unable to perform his obligations due to an exceptional and unforeseen happening (vis major), the other party is entitled to terminate the contract of non-performance. In Baretta v Rhodesia Railways Ltd (1947), the contract was held to have been properly terminated by action of the state as a result of the Second World War, when an Italian employee was designated an enemy alien and unable to lawfully work in the then British colony of Rhodesia, now known as Zimbabwe. In City of Harare v Zimucha (1995), the respondent worked for the City of Harare as a fitter and turner from January 1984 until 4 May 1988. From that date he was absent as he was sick. The council knew he was sick and kept sending him medical forms to complete which he never did. He was summarily dismissed. The council claimed the return of the salary paid from 4 May 1988 on the grounds that it was not due and payable, as the respondent had been absent

without authority because he did not apply for sick leave. It was held on appeal that the respondent did not have a valid reason for his absence. If he was sick and wanted to go on being paid, he had to apply for sick leave. Without sick leave he was absent without leave.

Retrenchment Retrenchment is one of the ways by which an employment contract comes to an end. It happens without reference to the culpability of the employee but is based solely and exclusively on operational grounds. As it is a method of termination, the question of an employees entitlements when retrenched arises as an issue ZBC v Jones (1982). Retrenchment was defined in Continental Fashions (Pvt) Ltd v Mupfuriri & Ors (1997) as: cutting back of expenditure on the employment of workers by reducing their number. The reasons for the cutting back of expenditure have never been exhaustively pinned down. It might be for the purposes of enhancing effectiveness through the use of machines, cutting down on costs, increasing profits, for purposes meant to ultimately pave the way for folding up or for changing the structure of the concern. The overriding theme is that the move taken should result in employees losing their employment for purposes that benefit the employer. The doctrine of unfair dismissal is alive and well in this area of the law. Any retrenchment should not lead to employees being unfairly dismissed. That means retrenchment should be on justifiable grounds and follow the laid down procedures. The procedure to be followed in retrenchment is largely governed by the number of employees who are to be retrenched. If five or more workers are involved, ss.12(c) and (d) of the Labour Act chapter finds application. If fewer than five employees are to be retrenched, then recourse is had to the relevant retrenchment regulations in force. The different retrenchment regimes mirror the different levels of concern which the law shows in the number of employees to be retrenched. Whatever the nature of the retrenchment, five main stages should be followed. A brief rundown of the stages is in order and follows: The first stage involves consultation on special methods that may be resorted to in order to avoid retrenchment. Such methods include allowing workers to work less than the normal hours, forfeiture of certain gratuitous benefits or a much more gradual and guided change in the introduction of machinery. The second stage which is only resorted to if the first does not produce any results relates to the giving of a notice of intention to retrench. The notice must be directed towards either the Works Council or relevant employment council. It must identify by name every employee sought to be retrenched and the reasons for that Prosses and Others v ZISCO (Ltd) (1993). This will be followed by the negotiation stage. The parties should negotiate on whether retrenchment should go ahead and if it should, the terms upon which it takes effect. Thus far retrenchment is shown to be a bilateral process which may not unilaterally be resorted to. Good faith is obviously at the heart of such negotiations. If there is agreement at this stage, then the employees can competently be retrenched Garikai v Zimbabwe Mining and Smelting Co (Pvt) Ltd (1996). If the parties cannot agree at this stage, then the matter will be referred to the Retrenchment Board and subsequently to the Minister who administers the Labour Act. The board will

consider the matter and make recommendations to the Minister who will make a final and binding determination. The court does not normally have the power to interfere with such a decision Mashave v ZUPCO and Another (1994). There is provision for appeals and reviews in favour of the party that may be aggrieved by a decision of the Minister at this stage. The above stages are applicable in the private sector. In the public sector a different legal regime subsists and the Public Service Commission has far reaching powers in any such proceedings. It is clear that the understanding of the procedures involved in retrenchment is indispensable to an understanding of the concept. There is a presumption whenever there is a mass loss of employment that retrenchment would have taken place. That presumption is made because more often than not, employers dismiss employees on trumped up charges in a bid to actually enhance or salvage the fortunes of companies. Law of Agency Agency may be defined as a contract whereby one person (the principal) employs another (the agent) to act for him and enter into contractual relationships binding between him and third parties. The relationship of principal and agent or the contract of agency like any other contractual relationship can be entered into in a variety of ways. The most common way in which this relationship is formed is as a result of express entry by the agent into a contract with the principal. In Oshea v Chiunda (1999), the appellant had employed the respondent as a manager and agent in one of her shops and had conferred authority on her to act on her behalf. This express appointment was recognised by the court. Accordingly where such a power is voluntarily conferred by one person on another, the person on whom such authority is conferred is said to be authorised by the other or to have his authority. Such authority is usually conferred on the agent before any action is taken but may at times also be conferred retrospectively by ratification. The parties to the agency relationship or contract of agency may expressly or impliedly agree that one shall have the power to act for, and on behalf, of the other. The contract can be express with all the formalities of a contract present. In this case, the parties actually define and agree on the provisions and terms of the contract, the powers, scope and coverage of the agents powers and the matters for which services are sought. Such an express appointment of an agent may be either oral or written. If it is in writing, it may take the form of a standard form contract or a power of attorney or a formal letter of appointment. In Matthews Garage & Service Station v Williams (Pvt) Ltd (1963), the court held that the formal or express appointment of a person as a company official and agent in terms of the Companies Act (Chapter 24:03) created the contract of agency. Even if the contract of agency does not specifically state the agents powers, the mere act of appointment is sufficient to conclude a valid contract of agency. A contract of agency can be created or implied from the conduct of the parties to it. Such a contract confers ostensible or apparent authority on the agent. In Karol v Fiddel (1948), the court held that a contract of agency could be implied from the conduct of the parties to it if on

a balance of probabilities, their conduct points to an agreement to appoint and accept appointment as agent and principal. In such a scenario, the period of the parties conduct is immaterial. In Simms v Landray [1994], the court held that whether the conduct of the parties continued for a lengthy period of time, or a few minutes, is immaterial as long as their conduct pointed to the existence of a contract of agency. Even if the agent is appointed expressly, his powers, or certain of his powers, can be implied. For example all the powers held by virtue of a particular contract are implied if an agent who has previously acted for a particular principal is reappointed, with nothing being said about his powers on reappointment. In Kahn v Leslie and Sons (1928), P employed A to manage his shop for him and gave him authority to purchase stock for the shop. When a dispute arose regarding purchases on credit, the court held that by implication, the employee was also authorised to borrow on credit even though the employer had not so expressly ordered. The law will also recognise certain actions as being within the contract of agency if certain conditions are met. This may be so even in the absence of express or implied agreement between the two parties that it should be so. According to Nel v South African Railways and Harbours (1924), an agent has the powers which are necessary to enable him to perform his obligations. In Ravene Plantation Ltd v Estate Abrey & Others (1928), the court held that a farm manager could bind the owner in regard to matters necessary to enable him to do the duties incidental to his station as manager. Consequently an agent is also allowed to employ not only the means necessary and proper for the accomplishment of the end included in the mandate, but also all the various

means, which are justified or allowed by the usages of trade and demanded by necessity. The same was held in Clifford Harris (Rhodesia) Ltd & Anor v Todd NO (1955). In DW Aitken & Co v Honey & Blanckenberg & Anor (1986), the court held that an agent can even though not expressly ordered to do so, act as would normally be done by a person employed in such specific capacity.

A contract of agency can be created as a result of necessity. There are situations where an agent though not expressly or impliedly authorised to act can do so without seeking the principals consent first. In Katanga v Rhodesia Railways (1955), the court recognised that a contract of agency can be created by necessity in circumstances where the agent cannot communicate with his principal, and where he takes the step that is the only reasonable and prudent course to take, and where he acts bona fide in the interest of the principal.

According to the doctrine of negotiorum gestor, any person is permitted to step in and act on behalf of another with the intention of benefiting him, unless prohibited by that other. In these circumstances it is not necessary that the principal should have authorised the other (gestor) to represent him. The gestor who thus steps in assumes the responsibility of completing the task he has begun. The principal can later ratify such actions, even though there was no earlier contract of agency.

Where no authority exists, an act performed by a person professedly as agent on account of a principal may be affirmed or ratified by the latter. Such ratification has the effect of clothing the act with authority so that the position is the same as if the act had been originally ratified. Such ratification may itself be express or implied as held in Legg & Co v Premier Tobacco Co (1926). For ratification to be possible, the person making the contract must at the time of contracting profess to be making it on behalf of a principal. The professed principal must be named or ascertainable and the act must have been done in his name. Lastly, the act itself must have been legal as held in Goldfoot v Myerson (1926) otherwise it cannot be ratified.

Duties of an agent In terms of Roman-Dutch common law the agent owes the principal a number of obligations and duties. He is obliged to fulfil all obligations which he expressly or impliedly undertook to fulfil. Likewise the principal owes the agent certain duties which he is enjoined by the law to observe. In the main, the primary obligations of an agent are the following: (a) To execute the mandate.

Agency being a form of service, it is trite that agents are bound to do what they have been instructed to do. Should he fail to perform the mandate, he would be in breach of contract and the principal enjoys the normal remedies for breach of contract. In addition, an agent who does not do what he has undertaken to do is not entitled to claim remuneration. However, it must be noted that if the principal claims damages, these must be proved in the ordinary way. Damages will not be presumed, they must be proved. It is not sufficient merely to prove the terms of the mandate and the amount received but also to prove the value of the goods sold (that is if the service is improperly rendered) (Umtali Farmers Co-op v Sunnyside Coffee Estates (Pvt) Ltd (1972)). When executing the mandate, the agent must confine himself to the parameters given by the principal in his instructions. If for example, the agent exceeds the principals instructions the latter may disown and repudiate the contract.

To exercise due care, skill, attention and diligence According to ancient legal authorities, such as Van Leeuwen, a mandatary agent was bound to prosecute the mandate which he had undertaken with diligence and in good faith. Equally, Pothier had this to say: the mandatory has the right to demand of the mandatary not only his good faith, but also all the care and skill required in the execution of the mandate In modern times the law is still more or less the same as it used to be in the olden days referred to by Van Leeuwen and Pothier. In S v Heller (1971) the court observed that the principal bargains for the exercise of the disinterested skill, diligence and zeal of the agent An agent will act with the necessary care and diligence if he exercises his duties with reasonable caution. The degree of care, skill and diligence required of him will depend on the nature of the transactions in which the agent is involved. If the transaction requires a high degree of care and skill, the test to determine whether he acted with the necessary care and skill would be more stringent. As was observed by Milne J in Bloom Woollen (Pvt) Ltd v Taylor (1961), In the course of time the law has implied into every contract of agency an undertaking by the agent that he will act with the care and diligence of the ordinary prudent man when he engages upon his principals business An agent who fails to exercise the degree of care and diligence required of him is in breach of contract. His principal has the normal remedies for breach which, in appropriate circumstances, include forfeiture of remuneration, Esse Financial Services v Cramer (1973). It is not the law that a person is required to have skills that he does not possess, but that if he does not have the requisite skill he should not, in the absence of agreement exculpating him, undertake a task which requires that skill (Mead v Clarke (1992)). (c) To impart information An agent is bound to give the principal all the information which a reasonable man in his (the agents) position would be expected to give (Town Council of Barberton v Ocean Accident and Guarantee Corporation Ltd (1945)). The second American Restatement of the law of agency very much reflects the RomanDutch position on the subject and it reads as follows: An agent who is appointed to sell property at a fixed price to a particular person may learn that another person is willing to pay a higher price. Unless he has reason to believe that his employer desires to sell at a fixed price to the particular person it is his duty to inform the principal of the facts if this can be done without violating a confidence

If a principal employs a skilled agent particularly one who has skills which the principal lacks, the agent is bound to advise the principal of the probable consequences of a course of action which he, the principal proposes to follow.(Union Government v Chappel (1918)). (d) The Duty to Account An agent is liable to account for all his activities falling within the ambit of the mandate to the principal. The agent must at all times give his principal full and accurate information of what he had done in the execution of his mandate. This involves the agent keeping the principals property separate, keeping up-to-date and allowing the inspection of his books in giving information when necessary and when the transaction is complete, in rendering an account and handing over any balance in his hands plus anything to which the principal is entitled. As per the observation of the court in Pretorios v Van Beeck (1926), it is the duty of the agent where the business in which he is employed admits of it or requires it, to keep regular accounts of all his transactions on behalf of his principal, not only of his payments and disbursements but also of his receipts and to render such accounts to his principal at all reasonable times without any suppression, concealment and or overcharge. Equally in the case of Mead v Clarke (1922) the court made the apt observation that it was the plain duty of the agent, once he accepted the mandate to perform his work in connection with the principals affairs in such a manner that the plaintiff could at any time he demanded, obtain a full and accurate statement that would enable him to ascertain with precision the exact dealings of the agent with his affairs. On termination of the relationship of principal and agent, the latter is obliged to account, to pay over any balance remaining in his hands and to hand over any property which he acquired either from the principal or from third persons for the purposes of or in pursuance of the agency. Documents which belong to the principal are also covered by this rule. (e) The duty to act in good faith The duty to exhibit utmost good faith is arguably one of the most important and exacting duties owed by an agent towards his principal. Agency creates a fiduciary relationship between agent and principal and he is enjoined by the law to conduct the affairs of his principal in the best interests of the principal and not for his own benefit. An agent holds a position of trust and confidence and the nature of fiduciary obligations has a number of ramifications. In a nutshell, an agent breaches the fiduciary relationship if he makes secret profits, if there is conflict of interest, if he abuses confidential information and if he delegates the authority granted to him without authorization.

(f) Secret Profits One of the major implications of an agents fiduciary obligations towards the principal is that he should avoid receiving secret benefits/rewards at the expense of the principal. In Levin v Levy (1917) the court said that: the mere fact of an agent receiving and retaining a secret profit or commission arising out of and in connection with the performance of his duty constitutes unfaithfulness and dishonesty towards the principal In Gerry Bouwer Motors Ltd v Preller (1940), the respondent was employed as a salesman by the appellant company. His duty was to sell used cars and if a sale was on hire-purchase terms for over a certain sum the car was to be insured by the purchaser. On several occasions the respondent arranged the insurance with a certain company and received small money payments for which he did not account to the principal. After reviewing the evidence the trial Judge said: I do not think there is any doubt that the respondent was not entitled to receive the gift from Mordant, the Dominion Companys representative and that it was the acceptance of a secret profit or commission arising out of or in connection with the performance of his duty In Roman-Dutch law, as is the case with several other jurisdictions, a director must never place himself in a position where his own interests clash with those of the company and he must never take an improper advantage of his position by acquiring for himself assets or opportunities that rightly belong to his company. In the well known case of Robinson v Randfontein Estates Gold Mining Company (1921) Chief Justice Innes stated that: where one man stands to another in a position of confidence involving a duty to protect the interest of the other, he is not allowed to make a secret profit at the others expense or place himself in a situation where his interests conflict with his duty Whenever an agent has arranged to make or has made a secret profit the principal has a number of remedies available. He may terminate the relationship of principal and agent. He may also claim the profit which the agent arranged to make or made. At the same time he forfeits any commission on the transaction in connection with which he acted improperly. Ultimately an agent who acts in a fraudulent or duplicitous manner might pay heavily for his transgression. Equally, no agent may place himself in any position where his interest and his duty may conflict. By way of practical examples, an agent employed to sell cannot legally purchase the property entrusted to him for sale and his principal, on discovery of the fact, is entitled to repudiate the sale. (Transvaal Cold Storage Co v Palmer (1904)).

Liability to third parties The general rule is that the principal is bound by the acts of his agent, provided the latter has acted within the scope of his authority. In Chappell v Gohl (1928), it was held that this applies even where the agent has acted purely out of self-interest. However, an agent may be personally liable either on the contract or for damages of breach of warranty or authority. Even where the agent acts in his own name and does not disclose the existence of the principal, the latter will be bound as long as the agent was acting within the scope of his authority. Thus it is clear that where the agent properly acts on behalf of the principal, he drops out of the transaction altogether and the principal becomes the party thereto. In Smith v Lens Agencies (1992), the court held that it is not unlawful to be an undisclosed principal in a transaction or to act as agent for an undisclosed principal since there may be many reasons for the nondisclosure, some of which are legitimate. It is thus clear that the principal will be liable for the acts of his agent, regardless of the fact that he may be an undisclosed principal. If the agent has been authorised to make representations which were considered true by the principal, and the agent subsequently acquires knowledge of the falsity of the representations, but nonetheless makes them, knowledge of the falsity is imputed to the principal, provided the agent acquired the knowledge in the course of his employment, and there was a duty upon him to communicate it to the principal, and the principal will be liable for the fraud of his agent. This was clearly stated in the case of Pathescope (Union) of South Africa v Mallinick (1927). In addition, the principal may be held vicariously liable to the third party for the acts of his agent. He is liable for the delictual acts of his agent only if the delictual act was actually authorised by the principal, or if the agent is a servant and not an independent contractor and the act is done in the course of, and within the scope of, his employment as was held in Colonial Mutual Life Assurance Society Ltd v McDonald (1931), and more recently in the Zimbabwean case of National Social Security v Dobpropoulis (2005). Furthermore, a principal may be liable to a third party on the ordinary doctrine of unjustified enrichment. If he is enriched at the expense of the third party as a result of an unauthorised act by a person purporting to be his agent, he will be liable to the extent to which he has been enriched. In Reid and Ors v Warner (1907), the court stated, it seems to me a sound principle that where an agent has, without authority, borrowed money on behalf of a principal and where that money has been spent for the use and benefit of the principal, the latter is liable to repay it In Guarantee Investment Corp Ltd v Shaw (1953), the court said, no one shall be unjustly enriched at the expense of the another a principal shall not repudiate a loan borrowed on his behalf by his agent without authority and at the same time accept the benefit of that loan. When an agent contracts on behalf of his principal with a third person, no contractual liability or right in respect of the agreement can attach to the agent, if he has acted with his authority. The agent drops out of the transaction altogether. However, as noted above, there are exceptions to this rule and an agent may be personally liable either on the contract or for damages for breach of warranty or authority. Where an agent contracts on behalf of his

principal without authority or in excess of his authority, the agent, in effect, warrants to the third party that he has authority to bind his principal. The third party contracts on the faith of the warranty and the agent intends that he should do so. There is, therefore, an implied undertaking by the agent that his principal shall be bound by the contract and, if he is not so bound, the agent will place the third party in as good a position as if he were. If the principal, therefore, does not ratify the unauthorised act, the agent is not liable on the contract but on his warranty or authority. In Blower v Van Noorden (1909), the court stated, an agent who has exceeded his authority in contracting for a named principal is liable for damages to the other contracting party on the ground that, from his representation of authority, a personal undertaking on his part is to be implied that his principal will be bound and that if not, the other party will be placed in as good a position as if he were. Moreover, as stated in Trotman and Anor v Edwick (1951), in the case of fraud, the third party may, if he wishes, hold the agent liable on the warranty or authority, but he may also make use of his ordinary delictual remedies against the agent and claim damages for any loss he has sustained because of the fraud. This therefore illustrates how an agent may become liable to a third party. Additionally, where an agent contracts with a third party and does not disclose that he is acting for a principal, the third party may hold him personally liable on the contract. In Edelson v Greenfields Estates (1955), the court noted, it seems the embodiment of common sense to say that when the other party deals with an agent who tells him that he is an agent, but the other party does not trouble either to get the name of the alleged principal or even to remember his name or identity, then that third party gives credit to the agent for the due performance of the contract and relies on the agent for that, and so makes the agent a party to the contract. As shown above, the general rule is that where an agent has acted within the scope of his authority (express, implied or ostensible) or where his previously authorised act has been ratified by the principal, the latter is liable to any third party with whom the agent is contracted and no contractual liability to the third party attaches to the agent. However, in the case of fraud, for instance, the agent may be held liable to the third party as the latter has an option to sue either of the two. In relation to the issue of vicarious liability, the principal would be liable for the delicts committed by an agent towards a third party under the following circumstances: (a) The agent must be a servant rather than an independent contractor. (b) The delict must have been committed by the agent in the course of the performance of his duties. In Hendrickz v Cutting (1937), the employee was a lorry driver. While he was doing his work he stopped at a filling station for fuel. He lit a cigarette, causing a fire in which the pump attendant was severely injured. The principal was held liable.

In Minister of Justice v Khoza (1966), two police constables were going about their work. They were, inter alia, guarding prisoners. One of the constables aimed a pistol at the other in jest, the pistol went off and the second constable was injured. The principal was held liable. It is established practice in Zimbabwe, in such cases, for the aggrieved third party to sue for damages both the agent and the principal as co-defendants, the one paying, the one absolving the other.

Partnership A partnership may refer either to the contract between the parties or to the relationship brought about by that contract. One author has defined it as a contract between persons, in which the persons concerned agree to contribute money, labour or skill to a common stock and to carry on business with the object of making a profit for their joint benefit. There can be no partnership unless there exists a mandate between the contracting parties as illustrated in Blumberg and Anor v Brown and Anor (1922). A partnership may be established through a legally binding agreement between the intending partners, commonly referred to as a contract. In Oblowitz v Oblowitz (1953), it was held that it is essential that there should be a valid contract between the parties, otherwise no partnership can arise. All essentials of a contract must therefore be present, for example, the contract must not be illegal or contrary to public policy. In accordance with the ordinary rules of contract, the agreement need not be express but may be implied from the facts. Thus a partnership may be established by conduct, provided the conduct of the parties is such that, according to the rules of common sense, it admits to no other interpretation but that they intended to create a partnership. In Fink v Fink (1945), the spouses were married out of community of property. They bought cows and, the milk produced being in excess of what they needed for their own use, the surplus was sold. From that small beginning a very substantial milk-producing and distribution business was established. To that business, both had contributed money and labour. The court held a partnership existed between the spouses. Moreover, in Delyannis v K (1942), X advanced some money to Y in the common contemplation that a contract of partnership would be drawn up. Meanwhile, they carried on certain activities that would eventually ensue to the benefit of themselves as partners when the partnership materialised. The court held, ... it was a partnership in truth whatever views the parties may hold on this subject ... though they regarded their activities as provisional, pending the conclusion of a more elaborate agreement. A partnership may also be established through estoppel. It has long been established that a person who is not a partner becomes liable as if he were one to people towards whom he so conducts himself as to lead them to act upon the supposition that he is a partner in point of fact. If he gives such impression and acts towards third parties as if he were in partnership, he would be estopped from denying the same.

Essentials of a partnership The essential elements of a partnership were as defi ned in the case of Shingadia Brothers v Shingadia (1958). According to this case a partnership is a contract (and the legal relationship created by such contract) between persons, not exceeding 20 in number in which the persons concerned agreed to contribute money, labour or skill to a common stock and to carry on business with the object of making a profi t for their joint benefi t. Membership For a partnership to be valued constituted therefore, it has to comprise of at least two people who come together for a common purpose as held in the Shingadia case (supra). In the same, the number of partners should not exceed 20 in number as required by the law. Contribution Each and every partner to a partnership is obliged to contribute something to the partnership. The contribution can be in terms of money, labour or skills and expertise or of material for use in the running of the partnership business e.g. machinery,

computers etc. As per the case of Rhodesia Railways & Others v Commissioner of Taxes (1925) a partnership essentially entails that each of the partners brings something into the partnership, or binds himself to bring something into it whether it be money or his labour or skill. Such contribution is therefore an essential component of any partnership. Sharing Profits and Losses One of the most important attributes of a partnership is that the profi ts and losses incurred or acquired by the partnership in the course of carrying out their business has to be shared between the partners in accordance with the sharing ratio outlined in the partnership agreement. In the case of Tshabalala & Others v Tshabalala & Others (1921), the court held that the sharing of profi ts and losses is an essential component of a partnership agreement. Where a partnership incurs liabilities, debts or losses, the law holds all the partners liable jointly or severally for such. In the case of Standard Bank (SA) Ltd v Pearson & Anor (1961) the court upheld this salutary principle. Limited Liability partners A partnership is an association of two or more persons, but not in excess of 20 formed for the purposes of business with the object of profit Walker v Industrial Equity (1995). Members of the partnership do not form a separate legal entity in the sense of a company, which has separate legal existence. The general rule regarding partnerships is therefore that partners are jointly and severally liable, each for the whole of the debts of the partnership, provided that the debts are incurred with the authority of the partnership and in its name. The result of partnership is that each partner is the agent of the others as well as the partnership as shown in the case of Bain v Barclays Bank (DV & O) Ltd (1937), where it was held that the acts of a partner are binding not only on his fellow partners but also on himself. Accordingly, the partners share liability for partnership debts. According to R342 (3) of the High Court Rules 1971 and Order 26 Rule 4 of the Magistrates Court (Civil) Rules 1980, a third party who obtains judgment against a partnership may execute it against the partnership property, and if that is insufficient he may execute it against the property of the individual partners. The extent of a partners authority to bind the partnership to third persons is governed by the ordinary rules of agency. His authority may be express or implied. It may be conferred subsequently by ratification or it may be ostensible. In other words, each partner becomes an agent of the others and the partnership for the purpose of carrying on the partnership business in the usual way. It follows, therefore, that each partner has authority to do all acts incidental to the proper conduct of the business, and that such acts will bind the other partners in the firm. In the event that he incurs liability it therefore binds him and the other partners. In Zimbabwean law a partnership does not enjoy separate existence or perpetual succession. In Shingadia Brothers v Shingadia (1966) a local case, the courts re-affirmed the position that since a partnership does not enjoy locus standi in the eyes of the law litigation is to be done in the names of the individual partners, either as joint plaintiffs or co-defendants. However, this general rule is not cast in stone, an individual partner cannot be sued personally on a partnership obligation while the partnership is still in existence. This is well underscored in the case of Standard Bank of South Africa Ltd v Pearson and Another (1961), where it was

argued that it is only after the dissolution of a partnership that a creditor of the partnership can sue the members of the firm individually and personally, and if execution be necessary proceed to execute on their personal assets. Although the general rule is that partners are jointly and severally liable for the debts of the partnership, there are situations in which the general rule does not apply. It is therefore necessary to establish the extent of a partners liability in each of the types of partnerships that exist i.e. in general or ordinary partnership and in special partnerships. (i) General Partnership The very nature of an association of partners is that all rights and liabilities accrue to each of them personally as the partnership is not endowed with separate legal personality. Each partner in this partnership is liable for partnership debts and they together are jointly and severally liable for the same, implying that a creditor is entitled to recover his debts from either of the partners. If a creditor proceeds against only one or more partners, while excluding others, these others are not absolved from liability for the partnership debt. They remain liable to those of the partnership who have met the entire debt to the extent of their share of the liabilities. Effectively all partners in an ordinary partnership owe debts in equal proportions. If for example, X, Y and Z in partnership incur a debt of $30,000, each one of them is liable to pay $10,000. (ii) Special Partnerships In relation to the liability of partners in special partnerships the situation is a bit different. There are two forms of extraordinary partnership in which the liability of certain partners to third parties is limited, an anonymous partnership and an en commandite partnership. In a special partnership, certain rights and obligations of partners are varied by agreement of the

partners. The effect of such variation on partnership debts in an anonymous partnership and en commandite partnership is considered below. (e) Anonymous Partnership An anonymous partner is basically considered a sleeping partner. By agreement of the partners, an anonymous partner usually contributes some capital to the enterprise and shares in the profits of the partnership but remains unknown to the outside world. A sleeping partner is not liable to a partnership creditor for partnership debts. He only becomes liable to the fellow partners who have incurred the partnership debt. If X, Y are in partnership with Z a sleeping partner incur a debt of $30,000, the creditor may only proceed against X and Y for the recovery of the full amount of $30,000. Only X and Y may thereafter claim $10,000 from Z for his share of the partnership debt they would have met. However, where a sleeping partner is proved to have held himself out publicly as a partner, or led third parties to believe that he was a normal partner by doing such acts as are done only by an ordinary partner, he may be directly liable to a partnership creditor for partnership debts incurred thereof. In Bale & Greene v Bennet (1907), it was held that creditors who have not given the partnership credit on the strength of him being a partner cannot claim that the anonymous partner contribute to pay up the debts due to them. They can only require that any claim he has against co-partners be postponed until their own claims are satisfied. Thus, an anonymous partner is not normally liable to a third party but to his co-partners. (f) En Commandite Partnership This is a kind of partnership carried out in the name of one or more partners with the other partner(s) name(s) being undisclosed. The partners agree that the undisclosed partners are to have a share of the profits, if any and to bear losses if any, but without their liability exceeding their specific contributions to the partnership capital. Consequently, the liability of the undisclosed partners is limited only to the extent of his contribution to the partnership capital. This implies that in the event of a partnership debt, this undisclosed partner is the partner en commandite. This partner is not liable to any partnership creditor. He is only liable to his fellow partners for his share of the debt, which is limited only to the extent of his contribution to the partnership capital. Thus if X, Y and Z in partnership owe B $90,000 and Z is a sleeping partner, B can only sue X and Y for the full amount of $90,000. Where Zs contribution to the capital of the partnership is say $5,000, X and Y cannot subsequently claim $30,000 from Z, they can only claim $5,000 from him. As a result an en commandite partner has a degree of limited liability for partnership debts. From the above, it becomes clear therefore that the liability of partners for the debts of a partnership depends on the particular nature of the partnership and the nature of the partnership structure.

Termination of Partnership Upon termination of a partnership, the partners would still be liable to each other until dissolution of the partnership is completed, see Van Tonder v Davids (1975). They must still account to each other any profi t made from partnership business. If debtors owing money to the partnership subsequently pay after dissolution, the former partners are entitled to share among themselves the money that would have been paid. The enforceability of existing obligations between the partners and third parties are not affected by the termination of the partnership. Until dissolution is completed, a third party may still claim against the partnership. A creditor may therefore sue the partnership for sums owing. On dissolution of the partnership, partners do not have any authority to bind other partners except in relation to the orderly process of dissolving the partnership. It is prudent to notify the public of the dissolution of the partnership in order to avoid liability on the grounds of estoppel, see Midlands Auctioneers v Bowie (1902). After termination of the partnership, the terms of the partnership are no longer applicable. However partnership contracts often include provisions which bind the partners after termination of the partnership, such as, arbitration clauses, restraint of trade clauses and provisions with regard to dissolution.

Distinction between business entities 1. Sole Trader This is when a businessman owns the business alone. A single owner of a business can commence operation free from any formalities. In fact, unlike a company which for it to exist needs to be registered by the Registrar of Companies, a sole trader as a businessman is not regulated by any provisions of the law because the law does not consider him as a separate entity from his business. As a result if the business suffers serious losses resulting in inability to pay creditors, the sole trader will be called upon to make good the losses from his private resources. Like a partnership, the sole trader has no limited liability.

In Zimbabwe there are numerous sole trading businesses. The reason is that unlike companies which require so many formalities, a sole trading business is easy to set up. Also a sole trading business does not need an injection of large sums of money or the drawing up of complicated documents like the memorandum and articles of association. Unlike a company which enjoys

perpetual succession, a sole trading business has no perpetual succession. If the sole trader dies, or is declared insolvent that will be the end of the business as well. This means that a sole trading business has no perpetual succession. In this country most sole trading businesses are found in the informal sector of the economy where they operate a wide variety of cottage industries. They are basically small and usually family run businesses whose operations are not constrained by legislation unlike registered companies be they public or private. If the sole trader dies or becomes insolvent that usually leads to the termination of the business venture. 2. Partnership Unlike a sole trading business which consists of only one person, a partnership is an association of two or more persons, but not exceeding 20 which is formed for the purpose of carrying on business that has as its main object the acquisition of profit. A partnership is not a legal entity or persona separate from its members. Under a partnership, every partner brings or binds himself to bring something into the partnership. However, this contribution need not be measurable in any moneys worth as shown in the case of B v Commissioner of Taxes (1957). It is also the aim of partners to carry on business for the benefit of all partners. However in the case of a sole trading business the purpose of the business is to benefit the sole trader and his or her family. Furthermore, there is no Partnership Act in Zimbabwe, a partnership only depends on the agreement made with a view of gain and unlike the private business corporation, a partnership does not have a regulatory statute which requires such an agreement to be in writing. Thus, unlike the registration of a company, there are no formalities to be complied with if the partner wishes to enter into a partnership agreement. The partnership is normally governed by the ordinary rules of contract through a partnership deed and if there is no partnership deed regulating the activities of the partnership the relations between partners are automatically governed by the common law (through operation of law). In Zimbabwean law a partnership does not enjoy separate existence or perpetual succession. In Shingadia Brothers v Shingadia (1939) a local case, the courts re-affirmed the position that since a partnership does not enjoy locus standi or separate legal standing in the eyes of the law, litigation is to be done in the names of the individual partners, either as joint plaintiffs or co-defendants. 3. Private business corporation A private business corporation is an enterprise which can be formed by one or more persons but the membership must not exceed 20. Unlike sole trading business or partnership, the private business corporation, on registration becomes a juristic person distinct from its members. However, though it acquires a corporate status, there is no need to appoint directors or to have the founding documents like the memorandum and articles of association. There is a statement called incorporation statement. In fact, on registration, the business becomes a corporate body with all the powers of a natural person without limitation of liability as is normally set out in the Companies memorandum and articles of association. Unlike sole trading business and partnership which do not have their own Act, the private business corporation is regulated by the Private Business Corporation Act Chapter 24.11 which requires those participating as members to complete an incorporation statement. This is different from a sole trader who does not need to comply with any formalities. Equally, a private

business corporation can only operate if the Registrar of Companies is satisfied that the name of the private business corporation is appropriate. This is according to s.14 of the Act. Section 23(3) of Private Business Corporation Act disqualifies, an un-rehabilitated insolvent from being a member of the corporation, any person who has been convicted in Zimbabwe or elsewhere of theft, fraud, forgery and has been sentenced to imprisonment without the option of a fine and any person who is the subject of any court order and disqualified by the Companies Act from being a director. However, these restrictions do not apply to a sole trader or partnership. The liability of members of the private business corporation is in general limited to the amount they agreed to contribute. However, in cases where they have been reckless in dealing or in the disposal of assets to members, when the co-operation is unable to meet its debts the court will declare any member who took part in such activity to be personally liable for the debt. This is not the case with sole trading business and partnership where there is no limitation of liability. Partners and sole traders are wholly liable for the debts they have incurred during the operation of their business concerns. On the other hand, with limited liability companies, be they private or public, a members liability is limited to the amount that remains unpaid on his shares. If his shares are fully paid the limitation of liability clause protects the shareholder from liability for debts incurred by the company. Naturally the law makes provision for exceptions to the limitation of liability where the concept of the separateness of the company is being abused.

Distinction between Private and Public company Section 33 of the Companies Act (Chapter 24:03) summarises the major differences between a private limited company and a public company. Some of the major differences are as follows: (i) Membership Whilst the minimum membership for both private and public companies is one (s.7 Companies Act), the maximum number of members for private companies is 50 persons. As for public companies there is no maximum, it can be infi nite depending on what the articles of association say.

(b) Transfer of shares A private company restricts the right to transfer its shares whereas a public company, particularly a listed one, has freely transferable and tradable shares. (c) Share/Debenture invitation A private company prohibits any invitation to the public to subscribe for any shares or debentures of the company. On the other hand with a public company, the issuance of shares, and or debentures, is probably the most obvious and popular way of raising capital for the company. (d) Commencement of business With a private company, business may commence as soon as the company is registered and receives its certifi cate of incorporation. On the other hand, with a public company apart from the registration formalities there is an additional requirement that the company shall not commence any business, or exercise any borrowing powers unless the Registrar has certifi ed that the company is entitled to commence the business in terms of s.114 of the Companies Act (Chapter 24:03). (e) Statutory meetings Statutory meetings are not necessary for private companies whereas with public companies, the Companies Act (Chapter 24:03) specifi cally enjoins the holding of a statutory meeting for members of the company within a period of not less than one month nor more than three months from the date at which the company is entitled to commence business s.124 Companies Act. Appointment of Auditors In many instances, a private company may be exempted from appointing an auditor as per s.150 Companies Act whereas no such special dispensation is given to a public company.

Ultra vires doctrine The objects clause is one of the most important organs of the memorandum of association. It defines the parameters within which the company may engage in business and anyone dealing with the company can verify and ascertain the legality or otherwise of a particular contract by looking at the companys object clause. Prior to 1993 the ultra vires doctrine in relation to the contents of the memorandum of association was strictly applied by our courts. A contract that was outside the scope of the memorandum of association was regarded as null and void and therefore unenforceable. Suppliers to such a contract could breach the contract with impunity, in as much as the company itself could refuse to perform a contractual obligation that was in violation of its objects clause. Basically the purpose of the ultra vires doctrine was two fold, namely: (a) to protect investors so that they might know the objects for which their money was to be employed; (b) to protect creditors of the company by insuring that its funds to which alone they could look for payment in the case of a limited liability company would not be dissipated in unauthorised ventures. Ashbury Railway Carriage and Iron Company v Riche (1875). The memorandum gave the company the power to make and sell railway carriages. The directors entered into a contract to purchase a concession for constructing a railway line in Belgium. The question was whether this contract was valid or not, whether it could be ratified by the shareholders. The court emphatically ruled that the new activity was ultra vires the objects clause and therefore the contract was illegal. Presently s.10 Companies Act, which was introduced as an amendment in 1993, introduces a number of far reaching and fundamental changes. The major change is to severely restrict the operation and effect of the ultra vires doctrine. A contract cannot be invalidated or avoidable on the basis that it exceeds the objects of the company. The company and the other party cannot rely on the ultra vires doctrine in order to escape liability for contracts earnestly entered into. However, the ultra vires doctrine has not been discarded by s.10 since it permits the following exceptions, namely: (i) any member or debenture holder may, prior to the event, apply to court for and may obtain an interdict restraining the company from making or entering into any transaction which exceeds its objects; (ii) in the event that a specific transaction exceeds the objects clause and the company suffers losses as a result of that transaction, any member or debenture holder may claim, on behalf of the company, compensation for such loss from any officer of the company who took part in the transaction concerned. The net effect of these two exceptions is that the ultra vires doctrine, in relation to the objects clause, has not been completely abolished. It is still applicable in a watered down form and through the back door.

Alteration of the Memorandum In terms of s.20 Companies Act (Chapter 24:03), a company may, by special resolution, alter its articles and any alteration or addition so made in the articles shall be as valid as if originally contained therein and be subject in like manner to alteration by special resolution. The articles of association of a company can be altered in a variety of ways: (a) by deleting an article (b) by deleting and replacing an article (c) by inserting a new article. It should be noted that the alterations to be effected must be consistent with the companys memorandum. If there is a conflict between any part of the altered articles and a provision in the memorandum, the articles are to that extent void. See Ashbury v Watson (1985). It was once believed that articles could be altered only if they relate to the companys management and that fundamental provisions, which formed part of the companys constitution, such as the right of its shareholders, were unalterable. See Atutton v Scarborough Cliff Hotel Co B (1865). The division of articles into fundamental and alterable has long been held to be baseless. See Andrews v Gas Meter Co (1887). In terms of the Companies Act there is no such distinction. As a result, companies have been held entitled to alter their articles to facilitate the issue of preference shares having priority for both dividend and repayment of capital in a winding up over existing shares, to impose a lien or equitable charge in favour of the company on its existing partly-paid shares for debts owed to it by its shareholders. A company can alter its articles in a way as to alter the voting and other rights given by the articles to a particular class of shareholders. This is subject to the provision of s.91 Companies Act, requiring the consent of the shareholders concerned. In the case of Allen v Gold Leaf of West Africa Ltd (1900), Lindley MR said that the statutory power given to shareholders to amend their companys articles must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole. In the case of Shattleworth v Cox Bros Ltd (1927), a company altered its articles to provide that any director ceases to hold office if requested to resign by all other directors. The original articles did not enable a director to be dismissed for misconduct and the admitted purpose of the alteration was to facilitate the dismissal of the plaintiff, who was suspected of misconduct by his fellow directors. The court upheld the alteration of the articles of association. The alteration of a companys articles of association can only be effected once a special resolution to that effect has been passed. The special resolution passed for this purpose must be lodged with the Registrar of Companies within one month after being passed. The requirement for a special resolution is meant to ensure a high threshold of consensus within the company over the proposed amendments. Section 133 Companies Act (Chapter 24:03) defines a special resolution as one which has been passed by a majority of not less than three quarters of such members entitled to vote as are present in person or by proxy at a general meeting of which not less than 21 days notice has been given. The notice must specify the intention to propose the resolution as a special resolution and the terms of the resolution at which members holding in the

aggregate not less than one fourth of the total votes of the company are present in person or by proxy. Company records Every registered company is obliged by law to file certain documents and correspondence relating to its state of affairs. These special, documents may be in the form of statutory books, records and returns. The two main books that are to be kept by the company are the memorandum and articles of association. A memorandum of association is a prerequisite document, which is fundamental to the existence and activity of a company. It is the constitution of the company by virtue of which the company is brought into existence. If the memorandum is not filed with the Registrar of Companies, he will refuse to register the company. Section 21 of the Companies Act (Chapter 24:03) requires the delivery of the memorandum to the Registrar of companies otherwise the company will not come into existence. The same is well supported by s.22(1) of the Act, which requires the Registrar to certify under his hand that the company is incorporated if the memorandum is registered. Articles of Association It is a statutory requirement that articles of association be registered with the memorandum of association. The articles of association are the regulations which govern the internal affairs and conduct of the company, see Salomon v Quinn and Axtens (1909). Section 17 of the Companies Act (Chapter 24:03) provides that the articles should be signed by the subscribers to the memorandum of association. Section 21 requires the delivery of the articles to the Registrar of Companies for registration to be effected. The articles deal with such issues as share capital, variation of rights, transfer of shares, transmission of shares, forfeiture of shares, alteration of capital, general meetings, notice of general meetings, proceedings at general meetings, votes of members, directors and their powers and duties, dividends, etc. The articles constitute the internal regulatory framework through which the governance of the company is effected. Annual Returns In addition to the documents, which are required by law to be delivered to the Registrar of Companies, is the annual return. According to s.123(1) of the Companies Act (Chapter 24:03), every company shall make and file with the Registrar an Annual Return specifying the following particulars: all such particulars with respect to the persons who at the date of the return are the directors of the company and any person who at that date is secretary of the company as are by this Act required to be contained with respect to directors and the secretary, respectively, in the register of directors and secretaries, of a company and the name and address of every person appointed as an auditor of the company; the situation of the registered office of the company; the place where the register of members is kept if, under the provisions of this Act, it is not kept at the registered office of the company;

the amount of the share capital of the company, and the number of the shares into which it is divided; the number of shares taken from the date of incorporation of the company up to the date of the return; the number of shares issued for cash; the number of shares issued as fully or partly paid up otherwise than in cash and the nature of the consideration given for such shares; the amount called up on each share; the total amount of calls unpaid; the total amount of the sums, if any, paid by way of commission in respect of any shares or debentures, or allowed by way of discount in respect of any debentures, since the date of the last return; the total number of shares forfeited; the discount allowed on the issue of any shares issued at a discount or so much of that discount as has not been written off at the date on which the return is made.

Books of Accounts At the same time, every company is obliged in terms of the law to keep proper books of accounts. As per s.140 of the Companies Act (Chapter 24:03), every company shall cause to be kept in the English language proper books of account with respect to: (a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place; (b) all sales and purchases of goods by the company; (c) the assets and liabilities of the company.

Profit and Loss Account and Balance Sheet It is important to make special mention of these two important books of accounts. These are required by s.141(1) of the Companies Act (Chapter 24:03). Directors Report to be Attached to Balance Sheet Coupled with the companys books of accounts is the directors report, an important document prepared by the directors of the company showing the state of the company on a number of crucial issues. This, too, is required by s.147 of the Act. Auditors Report In terms of s.150 Companies Act, every company is obliged by the law to appoint an auditor. The auditor in terms of s.153 is under strict legal duty to provide a report on the financial activities of the company. It can therefore be inferred as a statutory obligation binding on companies that they keep and file an auditors report providing as accurately as possible the financial state of the company. Minutes of Proceedings of Meetings of Company or Directors or Managers In terms of s.138(1) Companies Act, the company is also obliged to keep a record of all the minutes and proceedings of the meetings of the company, or directors, or managers. Statutory Meeting and Statutory Report In terms of s.124(1) and s.124(2) Companies Act, every company shall keep and provide what is termed the statutory report. According to these sections, (1) Save in the case of a private company, every company shall, within a period of not less than one month nor more than three months from the date at which it is entitled to commence business, hold a general meeting of its members which shall be called the statutory meeting. (2) The directors shall, at least fourteen days before the day on which the meeting is held, forward a certified report, in this Act referred to as the statutory report, to every member of the company: Provided that if the statutory report is forwarded later than is required by this subsection it shall, notwithstanding that fact, be deemed to have been duly forwarded if it is so agreed by all the members entitled to attend and vote at the meeting. Register of Directors Shareholdings The Companies Act further specifies the keeping of a register containing matters pertaining to the directors shareholding, according to s.182(1). Registration and Copies of Special Resolution Section 136(1) Companies Act imposes another statutory obligation on companies in relation to special resolutions. The section provides that within one month after the passing of any special resolution a copy of that resolution shall be transmitted to the Registrar who shall, subject to

subsection (2), register that resolution and that resolution shall be of no force or effect until it is so registered. Register and Index of Members It is common cause that a company is made up of various members with varying shareholding in the company. The law however proceeds to impose an onerous duty on companies to provide and keep at all material times a register and index of such members, in terms of s.115(1). As has been highlighted earlier, these are amongst the various statutory books, records and returns which every company is obliged at law to keep and file or lodge with the Registrar of Companies. Directors Executive and non executive directors Although a company has a separate legal personality Salomon v Salomon (1897) it has no mind of its own and cannot transact its business by itself. It thus acts through the agency of some natural persons who are called directors and who are bound to it in a legal relationship. The directors run the company and are divided into executive and non-executive directors. They form the board of directors, which is the controlling body of the company. Differences abound between executive and non-executive directors and below is an illustration of such differences. In addition to their basic role as directors, executive directors constitute the management of the company. An executive director is thus an officer of the company or an employee, so to speak, with a service contract and obliged to work full time. In Stevenson Jordan and Harrison Ltd v McDonald & Evans (1952) it was pointed out that the contract for such a director is one of services and not for services, meaning that he is not an independent contractor. On the other hand, non-executive directors do not form part of the management of a company. They only play a modest role in its activities which include attending and voting at board meetings and any committees that may be established. They are not full-time employees, not servants of the company and do not have separate service contracts, but their relationship with the company is only regulated by the articles of association. The controlling stake that these directors have in relation to the company accordingly accounts for one of the major differences between them. This position should, however, not be overstated as in small private companies this distinction is blurred and at times even non-existent. It is normal for some small private companies to only have in their ranks the mandatory two directors who virtually own the enterprise. Both of the directors are normally the managers i.e. are executive and one does not usually see nonexecutive directors in such concerns. The difference is, however, properly maintained in big private companies and in public companies. As the above differences in involvement, non-executive directors are usually full-time employees elsewhere and only come to the company to perform their board tasks. As a result, they rely heavily on the expertise and knowledge of executive directors who are full-time employees and are acquainted with all the goings on. It is thus not an overstatement to say that in board meetings, executives have a larger controlling stake than non-executives except in exceptional

circumstances. Non-executives only concentrate on broad issues such as the policy framework but the detailed implementation belongs to the executives. It should also be noted that as executives are engaged by the board, the non-executives have a say in the appointment of the executives but the reverse is not always true see R v Mall & Others (1959). This is by virtue of the fact that the articles of association make provision for the appointment of all directors and it is under them that non-executives assume office. Thus, there is this further distinction that all directors will invariably have a say in the appointment of executives but the reverse is not normally the case. A further difference comes in the area of remuneration. As the executives are virtually employees, they are entitled to be remunerated unless the articles or the separate contract under which they are engaged expressly provide to the contrary. Thus, they are usually salaried employees who are paid competitive salaries, taking into account what other executives in other companies get. The only caveat is that the quantum of their salaries should not be unrealistically high as to constitute an erosion into possible dividends. The non-executives do not, on the other hand, receive salaries but only fees. These fees are either a fixed annual sum or based on attendances and are as pegged by the company in a general meeting. This level of remuneration is consistent with their modest role. The only exception, however, is that if the further duties of a director go outside these modest parameters, he is entitled to additional fair and reasonable emoluments. Such further duties may be conferred upon him by the board of directors e.g. consultancy work. The office of the executive director is also not a legal pre-requisite i.e. it is not legally essential R v Mall (supra). The position is not defined by law and is a question of fact i.e. an evaluation of what the executive is and the functions he performs. On the other hand, it is mandatory to have non-executive directors by virtue of the fact that they are drawn from the collective board of directors who are themselves a mandatory institution. Even if all the directors of a company are executive, they would have assumed their office by virtue of them having been on the board in the first place. Thus one is a prerequisite for the other but the reverse is not necessarily true. There is, however, a downside to the above discussion which in its presented state mirrors the broad and rigid distinctions between the two groups. It appears the non-executive director of the modern company now undertakes considerably more detailed administration than his conventional office. This is seen more in that policies are now made and implemented at board level. The implementation part brings non-executives very close to the overall administration of the company. However, different outcomes will depend on different situations and in particular the provisions of the articles of association. The above constitutes a survey of the differences that exist between executive and nonexecutive directors. The differences are pronounced in practice but a lot depends on individual cases which include the size of the concern and the provisions of the companies governing instruments.

As executive directors are full-time employees of the company, they are liable to be governed by the ordinary labour laws and disciplinary regime pertinent to their industry or trade, whereas non-executives are only governed by their service agreement with the company.

Control of directors Directors are agents of the company. As agents they stand in a fiduciary relationship to their principal, the company. The office of a director can be compared to that of a trustee. The duty of the trustees of a fund or settlement is to be cautious and to avoid risks to the trust fund. However, the managers of a business concern and their directors, must necessarily take risks in an attempt to earn profits for the company and its members. The duties of directors are discussed below. It should be noted that the authority of the directors to bind the company as its agents normally depends on their acting collectively as a board of directors. Their duties of good faith are owed by each director individually. It is also argued that fiduciary duties are owed to the company and to the company alone. Most authorities argue that the directors owe no duties to the individual members as such or to a person who has not yet become a member, for instance, a potential purchaser of shares in a company. See Percival v Wright (1902). Acting in Good Faith Directors are required to act bona fide in what they consider is in the best interest of the company. This duty requires a director to display good faith. However, the question whether what a director has done is in the best interest of the company is always left open. See Kent KeW and M. Roth Ltd (1967). This is also confirmed in the case of Charterbridge Corporation v Lloyds Bank (1970), where the directors of a company forming part of a group had considered the benefit of the group as a whole without giving separate considerations to that of the company alone.

As one of their duties, directors should not exercise their powers for a purpose other than those for which they were conferred. Often the purpose will be to further the directors own interests or to preserve their own control, in which event, it will be a breach of the duty to act honestly and for the benefi t of the company as a whole. Conflict of Duty and Interest As fi duciaries, directors must not place themselves in a position in which there is a confl ict between their duties to the company and their personal interests or duties to others. Good faith must not only be done but must manifestly be seen to be done. In the case of Aberdeen Railway Co v Blaikie Brothers (1854). In terms of the s.186 of the Companies Act (Chapter 24:03) it is a statutory duty to declare interests in contracts. A director needs to comply with this proviso. If he fails to, he shall be guilty of an offence and liable to a fi ne in terms of s.18b(4) of Act. Clearly this statutory obligation is merely a reaffi rmation of the common law obligations and duties of a director. In the case of Aberdeen Rail Co v Blaikie Brothers (1854) the defendant company entered into a contract to purchase a quantity of chairs from the plaintiff partnership. At the time that the contract was concluded, a director of the company was a member of the partnership. The court held that the company was entitled to avoid the contract. It made the observation that a director as an agent has duties to discharge of a fi duciary character towards his principal. It is a rule of universal application that no one having such duties to discharge shall be allowed to enter into engagements in which he has or can have a personal interest confl icting or which possibly may confl ict with the interests of those he is bound to protect. So strictly is this principle adhered to that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into. See the case of Imperial Mercantile Credit Association v Coleman (1871). Whilst the older generation of cases were more stringent in placing an embargo on either direct or indirect dealings between a director and the company on whose board the director sits s.186(2) makes clear the nature of information he must provide when declaring his interest in a proposed contract with the company. The concerned director is enjoined by the law to give a general notice to his fellow board members. The notice would be to the effect that he is a member of a specifi ed company or fi rm and is to be regarded as interested in any contract which may after the date of the notice be made with that company. In the declaration of interest it is essential for the director who is giving the notice to state the nature and extent of the interest of the said director in such company or fi rm. Related to this duty, is the act of competing with the company. A situation which might give rise to a confl ict between directors interests and his duties is where a director is associated with a business competing with the company. See Thomas Manhatt (Exporters) Ltd v Gunle (1978).

It is also one of the duties of a director not to use corporate property, opportunity or information for his own benefi t.

There are many other statutory duties and responsibilities placed upon a director by the Companies Act. In terms of s.189, in the exercise of their duties and functions, directors may have regard to the interests and welfare of the companys employees and the dependants of the employees as well as the interests of the companys members. In terms of s.318 of the Act, it is the responsibility of directors to see that at any time the company business is not being carried out recklessly, with gross negligence or with intent to defraud any person or for any fraudulent purpose. Breach of this obligation would result in action of misfeasance against the concerned director. Directors, as stewards of an enterprises performance and assets, are accountable to the shareholders. In terms of the Companies Act (Chapter 24:03), they are responsible for maintaining proper accounting records and for preparing fi nancial statements, which give a true and fair view of the state of affairs and of the profi t or loss of the company and which comply with the Companies Act. Directors are responsible for making available to the auditors, as and when required, all of the companys accounting records and related information, including minutes of directors and shareholders meeting and all relevant management meetings. In R v Milne and Erleigh (1950) the court ruled that where a Managing Director is in charge of the affairs of the company . a duty is thrown upon him to see that the books are properly kept and the entries in them in respect of substantial matters are correct. In conclusion it can be said that both the common law and statutory law (in particular the Companies Act [Chapter 24:03] have in place a number of provisions that are meant to control and regulate the activities of directors. Company secretary Section 169 (2) Companies Act (24;03) identifies the company secretary as an indispensible officer of the company. The same section stipulates that they should be ordinarily resident in Zimbabwe. The secretary is, unless the articles of association provide otherwise, appointed by the board of directors. The modern secretary, unlike their old counterpart, is not a mere servant of the company (Panaroma Developments (Guilford) Ltd v Fidelis Furnishing Fabrics Ltd (1971)), but is one of its officials. The duties of a secretary are not universal but they appear in every concern as the chief administrative officer. The secretary is responsible for keeping the statutory books, submitting the annual returns to the Registrar, and ensuring compliance with any various administrative regulations which may be made in terms of the Companies Act. In this regard, the register of the members of the company, that of directors and officers of the company, the register of directors and officers interests, that of allotments, the one of debentures if any is available and the minute books of all meetings fall under the custody and care of the secretary. The secretary also attends to the preparation of allotment letters, letters of regret and share certificates, opinion certificates and renounceable letters of allocation amongst others. This is done if there has been any rights offer or capitalisation issue. The duty to submit the annual returns is usually undertaken subject to the unavailability of an accountant who is answerable

to the secretary. It clearly appears in this regard that the secretary ought to be knowledgeable in the law and meticulous in the execution of their duties. The other common duty of the secretary is linked to the public nature of their office in relation to the state. In this regard, they are usually seen as the public officer of the company in its dealings with the receiver of revenue and generally in all areas of intercourse between Government departments and the company. This function entails that they submit returns to the receiver of revenue for income tax purposes so that the company discharges its liabilities. With regard to workers compensation schemes and insurance, they are required to submit the necessary monthly and annual returns so that all the companys employees remain covered. The duty to comply with the Labour Act in relation to the period of work of workers and their leave days is also reposed upon the company secretary. He thus constitutes the necessary link between the company and the outside world and has a supervisory role over the company and its activities. The secretary is the public face of the company. Quite a sizeable part of the secretarys duties and responsibilities are concerned with the convening and holding of meetings such as board meetings, Annual General Meetings and other such meetings that should lawfully be held. As the chief administrative officer, the secretary draws up the agenda for the meetings and ensures that relevant reports and documents of reference are placed before the directors. The idea is simply that they have to oversee the smooth running of the meeting. In notifying the concerned parties of the meeting it is their duty to see that all the necessary proxy forms are attached and after they have been completed see to it that they are duly completed and signed. At the meeting they ensure that the attendance register is signed by those in attendance or in the case of a general meeting they may arrange for admission cards to be collected at the door. Should there arise any area which needs clarification especially procedural and legal matters, they act as the chairpersons adviser during the meeting. The minuting of the proceedings is also their duty. Finally, if any resolutions are made at the meeting, it is their duty to see to it that there has been an implementation of those resolutions. With regard to the running of the entity, the secretary is the senior administrative officer responsible for its running in terms of the actual carrying out of the work. Basically the secretary ensures that adequate contact is maintained between the directors, executives on the one hand and employees on the other hand. As the secretary is effectively the senior employee, they are required to ensure the boards policy is consistently and correctly implemented in every department of the business that is affected by such policy. Thus in small concerns, they exercise a direct supervisory role in that regard. In larger entities, however, departmental heads can be appointed who in turn report to the secretary. The secretary is thus normally an administrator responsible for ensuring that the everyday routine activities of the company are properly carried out. They effectively, thus, require the characteristics expected of a manager and executive. In relation to the board, the secretary assumes the function of the right hand of directors. This function is discharged in two major respects. In the first place, the secretary works effectively as a legal and financial adviser to the directors. As a secretary must be knowledgeable in the law, there are situations when that knowledge is required, such as when they have to remind

the directors of their legal obligations or to warn them on the illegality of some proposed courses of action. They can also be called upon to provide ingenuous financial advice based on their knowledge of the way the concern or some other concerns in the same business are operating. In the second place the secretary also provides relevant information to management and the board on which wise decisions may be based. The board clearly has to be kept informed by an official who is always in touch with the activities of the business. Thus, before any policy may be formulated or resolutions made, it is the duty of the secretary to bring the boards attention to the information available to him which may tend to affect the decisions to be taken. With regard to the companys relations with the shareholders and the outside world generally, the secretary assumes the function of the companys voice. The secretary in this regard should seek to keep open the channels of communication between the board on the one hand and the companys customers and shareholders, the investing public and the outside world in general on the other. They will keep in close contact with the more important institutional investors in his company and must be at all times conversant with the policy of the company on whose behalf he speaks. In all these areas, the secretary is the voice of the company both by word of mouth and also the written word in correspondence. The idea is to make it their aim to project and promote the most accurate and favourable image of the company as much as possible. The secretary has a host of other functions. It is their duty to comply with the legal requirements regarding directors, secretaries and auditors. It is also their duty to issue, transfer and keep a record of shares and stock, the duty to arrange a public issue or offer for sale of shares and the duty to declare and pay dividends. To summarise, the secretarys office is the nerve centre of the companys activities.

Capital Types of shares Shares are basically divided into four different classes, namely ordinary shares, preference shares, redeemable preference shares and deferred shares. Ordinary shares Ordinary shares, as the name implies, constitute the residuary class in which everything is vested after the special rights of other classes, if any, have been satisfi ed. They confer a right to the equity of the company. As a form of company security, ordinary shares are the riskiest and it is for this reason that they are referred to as equities or risk capital. Ordinary shareholders bear the risk that payment is postponed until a dividend is declared and after the payment of preference shareholders. This remains the same even when regarding the repayment of capital.

Ordinary shares are not fi xed and where the company is doing well they may be paid the residuary distributable profi t, divided proportionally by ordinary shareholders dividend percentage. This is the same with the repayment of capital or where the company is distributing the remaining capital or assets.

However, this is only possible where preference shareholders do not have a right to participate in the surplus assets. Ordinary shareholders normally comprise the bulk of the companys shares. In most cases, they are the majority and participate in most of the decision-making within the company and are better placed in exercising their right to vote. They overally have control over the running of the company. It is usually spelt out in the companys articles of association that whenever a fresh issue of shares is made, these should be offered to ordinary shareholders, usually at a lower price than outsiders.

3 Preference shares These confer on holders, preference over other classes of shareholders in respect of either dividends, repayment of capital or both. Preference shares include a right to receive dividends of specifi ed, or of a fi xed rate of dividend. An example would be 10% of their nominal value of profi ts each year before any dividend may be paid out to holders of ordinary shares. Preference shares are cumulative unless the articles or terms of issue state otherwise. This means that if the company cannot pay a dividend in one year the arrears must be carried forward to future years. If preference shares are non-cumulative and the company cannot pay the dividend, the arrears are not carried forward and so the preference shareholders will not receive a dividend for that year. Preference shareholders have a right to sue for payment of dividends from the available profi ts where the articles of association specifi cally confer this right and this would be contractually binding. Unless the articles provide to the contrary, preference shares carry the same voting rights as other shares. However, preference shareholders voting rights are usually restricted to specifi ed circumstances, which directly affect them, for example, when the rights of preference shareholders are being varied. In liquidation, preference shareholders do not automatically have a right to prior return of their capital. If the articles are silent, preference shareholders and ordinary shareholders rank equally. The usual preferences given are: Payment of dividend and, Return of capital on winding up of the company.

The shares may also be subject to restrictions on voting rights. In Webb v Earle (1875), the directors in accordance with the articles and with the consent of a general meeting issued 10% preference shares. It was however held that if the profi ts of one year could not meet the dividend in full, the defi ciency could be paid out of subsequent profi ts. In Will v United Lankat Plantations Company Ltd (1912), a claim by holders of 10% preference shares that they were entitled to dividends equally with ordinary shareholders after provision for a 10% cumulative dividend on the preference shares was rejected by the Court of Appeal and the House of Lords. (c) Redeemable preference shares Section 76(1) Companies Act (Chapter 24:03) gives the company power to issue redeemable shares of any class provided that the articles so allow and also provided that the shares are fully paid for. Redemption of shares must be effected out of the profi ts of the company, which would otherwise be available for a dividend, or out of proceeds of the fresh issue of shares for the purposes of redemption.

In most cases, the terms of redemption of redeemable shares must be prescribed by the articles or to be determined as provided in those articles i.e. how the company would buy back its own shares. Where the company is being wound up, the redemption or purchase may be enforced against the company unless the redemption or purchase was for a date later than that of commencement of winding up or the company could not, before the winding up is completed have lawfully paid a dividend to shareholders of an amount equal to that of the costs of the redemption or purchase. In a case where the company is being wound up, all other creditors must be paid fi rst and then shareholders who hold preferential shares before payment of amounts which are liable to be paid out for a redemption purchase of shares: per s.110 of the Insolvency Act (Chapter 6:04). (d) Deferred shares/Founders shares These are shares, which the holders rights are deferred until the claims of other classes of shares are satisfi ed. Sometimes the sellers or vendors of business as part consideration for the sale accept this class of shares. Deferred/founders shares have the same relationship with ordinary shares that ordinary shares have with preference shares. A signifi cant amount of risk is attached to these shares given that they rank lower than ordinary shares. However, this risky investment is often rewarded by a large share of surplus profi ts assets after the ordinary shareholders have been paid their minimum dividend or repaid their capital on a winding-up, or a reduction of share capital. Such shareholders often enjoy disproportionably large voting rights as compared to ordinary shareholders. It should be noted however, that the rights, which may be enjoyed by these shareholders, is a matter to be determined from the document under which the shares are issued.

Altertion of Class rights Shares are usually divided into different classes with their own class rights. However, it is also possible that, depending on what the articles of association have prescribed, the shares in a company may be exactly alike, i.e. they may carry the same rights to attend and vote at company meetings and to dividends. If the company has different types with varying rights as is often the case, the company is said to have different classes of shares and the rights attached to the different classes are called class rights.

Class rights refer to those rights which relate to voting, dividends and the return of capital particularly when the company is in liquidation. For class rights to be in existence the share capital must be divided into separate classes. If the shares are exactly alike then the usual practice is that the rights attached to those shares are specified in the articles. This means that they can be altered in the same way as any other clause in the articles that is by special resolution. Section 20 Companies Act, Chapter 24:03 says that: subject to the conditions contained in its memorandum a company may by special resolution alter or add to its articles and any alteration or addition so made in the articles shall be as valid as if originally contained therein and subject in like manner to alteration by special resolution. Section 20 has to be read in tandem with s.16 which reads as follows: a company may by special resolution alter any condition in its memorandum which could lawfully have been contained in articles of association provided that this paragraph shall not apply where the memorandum itself provides for or prohibits the alteration of all or any of the said conditions and shall not authorise any variation or abrogation of the special rights or any class of members Whilst as a general rule a special resolution is required to change a provision specified in the articles (including variation of class rights). Sections 16 and 20 will not apply if the memorandum itself stipulates a different method of alteration or variation and this would mean that the method so stipulated must be followed. It is also interesting to note that article 4 of Table A states that class rights can be altered with the written consent of the holders of threequarters of the issued shares of the class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of the class. Guidance in the passing of a special resolution is provided for under s.133 Companies Act, Chapter 24:03. Issue of shares at a premium The issue of shares at a premium is governed by s.74 Companies Act (Chapter 24:03). It reads as follows: (a) If a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account called the share premium account, and provisions of this Act relating to the reduction of a companys share capital shall apply as if the share premium account were part of its paid up share capital. It is quite clear from the above that a company may sell its shares at a premium either for cash or otherwise. For example, a company may purchase a piece of immovable property which is worth $250,000 and in return the company then issues shares worth $200,000 to the seller of the immovable property as consideration for the property. In that event, the company

effectively would have sold shares at a profit and a sum in the amount of $50,000 would have to be appropriated to the share premium account. The company is not at liberty to use the share premium account anyhow. It (the company) may apply its share premium account: (a) in paying up unissued shares to be allotted to its members, directors or employees or to trustees for such persons as fully paid bonus shares or (b) in writing off the companys preliminary expenses .. (c) in providing for the premium payable, if any, on redemption of any redeemable preference shares or of any debentures of the company. From the foregoing it is quite clear that the use of the share premium account can only be done in terms of what s.74 prescribes Debentures A debenture means a document, which either creates a debt, or acknowledges it, and any document which fulfils either of these conditions is a debenture. Debentures are defined as loan capital given to a company at a specified rate of interest. Debenture holders are entitled to their specified interest on the due date, whether or not the company has made any profits. Debentures arguably offer the safest form of investment as the fluctuations on the company profits do not affect their repayment or the payment of interest due on them. Where a company is to be liquidated or wound up, debenture holders are entitled to first payment and to recovery of their capital contribution and interest therefrom before shareholders or other members of the company are paid out. Debentures can either be secured (for example through a mortgage bond) or unsecured.

At the same time, debentures may be redeemable at the option of the company or irredeemable. At common law, when a debenture was redeemed or transferred to the company, the debt was discharged and the debenture ceased to exist. In general terms, a company may not issue shares at a discount unless the memorandum or articles permit it. Indeed they are usually issued at a discount in the case of large scale issues by public companies. However, it is not possible to use convertible debentures to avoid the rule applicable to shares. Thus, in Mosely v Koffyforntein Mines Limited (1904), a debenture issued at a discount provided for immediate conversion into fully paid shares equal to par. It was held to be objectionable and inadmissible. Distinction between shares and debentures Shares and debentures differ from one another in the following respects:

(i) shareholders are members of the company while debenture holders are creditors. (ii) the return to shareholders consists of dividends payable out of profits (only if there are any); the return to a debenture holder is interest which is payable whether or not profits are made. (iii) dividends, where these are declared, are debited to the appropriation account while debenture interest is debited to the profit and loss account and is an allowable deduction for taxation purposes. (iv)except in very limited circumstances, share capital may not be repaid; debentures however usually provide for their repayments on a fixed date or over a specified period of time. (v) although shares and stock must always be fully paid, debentures and debenture stock may, and frequently are, issued as partly paid, the balance being due at certain stated intervals. (vi)while no trustee is appointed on behalf of shareholders since directors fulfill this function, it is the usual practice for one or more trustees to be appointed for debenture holders. Debentures may be secured by a mortgage over property of the company, in which case they may be called mortgage or secured debentures; on the other hand there may be no charge over the companys assets in which case they are described as naked or unsecured debentures. Meetings As the company is an artificial person with no physical existence, it needs the services of human beings to act on its behalf. Salomon v Salomon and Co (1987). The powers concerning the companys control and management may, for purposes of convenience, be divided among three authorities, that is: (a) the managing director (if there is one) (b) the directors (collectively) and (c) the members themselves. Members are often scattered all over the country and it is difficult for them to be involved in the daily management of the company business. Collective decisions, however, have to be made at some point. This can be done by calling a general meeting of the members. The general meeting is the ultimate organ of corporate control. There are three kinds of meetings namely: 1. Statutory meetings of a public company. 2. The annual general meeting which has to be called in each year. The extraordinary meeting which may be convened at any time during the year There may be a fourth meeting if a company has more than one class of shares; a class meeting. Every member of that class may attend to speak and vote. The resolutions there bind

only members of the class concerned. Class meetings also consider alterations in the rights of the class under provisions to that effect in the memorandum or articles of association and comprises of arrangements affecting the class. In the absence of express provision, such meetings are governed by the provisions of the Companies Act concerning general meetings.

(a) Statutory meetings s.124 The object of the statutory meeting, which is usually the first general meeting in the case of a new company, is to afford members of a new company an opportunity of discussing its affairs as soon as possible. The business of the meeting is to discuss any matter relating to the companys formation or arising out of the Statutory Report. This report is forwarded to every member by the Director at least 14 clear days before the meeting, s.124(2). This report must be certified by at least two directors and by the auditors, if any, of the company, s.124(4). A copy of this report is also filed with the Registrar of Companies, s.124(5). The report must give the details required or specified in s.124(3)(ae). At the meeting, the directors must produce a list showing the names, descriptions and addresses of the members of the company and the number of shares held by them respectively. This must be kept open for any members during the continuance of the meeting, s.124(6). Members are free to discuss any matters relating to the formation of the company or arising out of the Statutory Report, s.124(7). Only business left unfinished at one meeting can be dealt with at an adjourned meeting, but in terms of s.124(8) the members can introduce new business at the adjourned meeting. Failure to hold the statutory meeting or file the statutory reports are grounds for winding up of the company by the Court, s.206(6). Instead of making a winding up order, the court may direct that the report shall be delivered or the meeting held and order the costs to be paid by any persons who, in the opinion of the court, were responsible for the default s.210(3)(a). (b) Annual general meeting (AGM) s.102/Table A, Article 47 The AGM shall be held at such time and place as the directors decide. Section 125 requires every company to hold an AGM within 18 months of incorporation except in the year of its incorporation. The businesses which may be transacted at the AGM may be ordinary or special. In terms of s.132(6) there is no requirement or limitation placed on the type of business which may be conducted at an AGM. Section 175(7) stipulates the penalties imposed on a company for failure to hold an AGM. Business that is transacted at the AGM includes the appointment of directors, appointment of auditors, declaration of dividends, remuneration of directors and auditors and consideration of the companys accounts. (c) Extraordinary general meeting (EGM) These are general meetings of a company which are not AGMs Article 48 Table A. The purpose of these meetings is to provide members or directors an opportunity to deal with urgent matters which must be attended to in between AGMs Article 49. Some of the more

urgent issues that may be discussed at an EGM might very well include such matters as changes to the memorandum and articles of association, removal of errant and non-performing directors before the expiry of their contracts, results of merger and de-merger talks, etc. Ordinary resolution An ordinary resolution is one that is passed by a majority of persons present at a general meeting. The resolution is passed in the ordinary way by a simple majority of votes cast in person or by proxy and entered in the minute book by the company secretary on behalf of the chairman. On the other hand, a special resolution is a resolution which has been passed by not less than three-fourths of such members entitled to vote as are present in person or by proxy at a general meeting of which not less than 21 days notice has been given, specifying the intention to propose the resolution as a special resolution and the reasons for it and at which members holding in aggregate not less than one-fourth of the total votes of the company are present in person or by proxy (s.133 Companies Act, Chapter 24:03). The declaration by the chairman that an ordinary or special resolution has been carried is conclusive unless a poll is demanded. Special resolutions Special resolutions are necessary for the following purposes, among others: change of the companys name (s.25). to alter the articles of the company (s.20.) to alter the memorandum (s.20). to reduce the share capital of the company with the leave of the court (s.92). to increase the share capital of the company (s.87). voluntary winding up of the company (s.242(b)). winding up of the company by the court (compulsory) (s.206(a)).

Auditors In terms of s.140 of the Companies Act (Chapter 24:03), every company is obliged to keep accounting records of all financial transactions entered into by the company during a particular financial year. Each company is therefore obliged by law to appoint auditors in terms of s.150 of the Companies Act, whose duties are to review and inspect a companys financial statements and records and ensure that all financial reporting is accurate. There are a number of ways by which auditors may be appointed. The provisions in the Companies Act relating to the appointment of auditors provide in terms of s.150(1) that the first auditors of a public company shall be appointed by the directors within one month of the issue of the certificate that the company is entitled to commence business or within one month of the issue of the certificate of incorporation in the case of a private company. Accordingly in terms of the Act, such an auditor shall hold office until the conclusion of the first annual general meeting provided that the company may at a general meeting remove any such

auditor and appoint in his place any other person who has by special notice been nominated for appointment by any member of the company.

If the directors fail to appoint an auditor, the company may in the general meeting appoint one in terms of s.150 (1) (ii) of the Act. Alternatively, if neither the directors nor the company appoint an auditor as provided by law, the Minister as provided in s.150 (1)(iii) may appoint one for the company upon the application of any member of the company to do so. In terms of s.150 (3), the Minister may also reappoint a person to serve as auditor where at an annual general meeting of a company, no auditor is appointed or reappointed. In another provision, s.150(5), directors of a company may also fill in any casual vacancy in the office of auditor. Where an auditor, during the course of the year, tenders in his resignation to the company or becomes disqualified by death, insanity or other causes set out in s.152 of the Act, the directors may appoint a substitute auditor to fill in the vacuum created by the formers departure.

Duties of an auditor These duties include to include in his report statements which in his opinion are necessary if he has not obtained all the information and explanations which to the best of his knowledge were necessary for the purposes of his audit; to attend any general meeting of the company. To this end an auditor is entitled to receive notices of company meetings. To make a report on accounts audited by him or her

2 The common law duties of an auditor include the duty: to act honestly and with reasonable skill, diligence and care and caution. In re Kingstone Cotton Mill Company (1896) the court made the following observation:

It is the duty of an auditor to bring to bear on the work he has to perform that skill, care and caution which a reasonably competent, careful and cautious auditor would use to show the companys true financial position as shown by the books Tonkwane Sawmill Company Ltd v Filmalter (1975); to make sure that the amount of stock stated to exist is a reasonably probable figure, but the auditor has no duty to take stock unless there are suspicious circumstances; to act as a watchdog but not a bloodhound.

Removal of auditors According to the Companies Act (Chapter 24:03), a company also reserves the right and power to remove any such persons appointed as auditors for the company in terms of s.150 of the Act. In terms of proviso (i) to s.150 (1), a company may at a general meeting remove an auditor and appoint in his stead any person who has by special notice been nominated for appointment by any member of the company. As provided by this proviso therefore, a company may at its general meeting remove any such person(s) they would have earlier appointed as auditor(s) prior to the general meeting.

By giving effect to the provisions of s.150(2) of the Act, where the company does not reappoint a person to serve another term as auditor, such a person would be effectively removed in office as the section specifically provides that every company shall at each annual general meeting appoint an auditor. As well, if a person in some way becomes disqualified from or incapacitated to hold office as provided by s.152 of the Act, he shall be held to be automatically removed from office and dismissed. If he continues to hold office despite the disqualifications laid out in s.152, he shall be guilty of an offence and his office shall be null and void in terms of s.152(3) of the Act.

Capital Maintenance The doctrine of capital maintenance is essentially a clear statement by the law, that the central pool of funds contributed by shareholders (or creditors) should not be unlawfully diminished. That pool of funds known as capital, is the heart and soul of the company and forms the only guarantee to creditors that in the event of failure of the enterprise, they may recover what they are owed. This is especially pertinent given the separate personality of a company and the limited liability of its members. So, allowing unchecked reductions to capital would be disadvantageous for the creditor who knows full well that he cannot recover from the members of the company. The principle is that a company must maintain its capital and shareholders contributions cannot be given back to them. Any return of the companys reserve funds is generally unlawful reduction of capital and is proscribed by law. The rules which are meant to protect the share capital structure of the company broadly can be stated as follows: (a) Restrictions on the payment of Commissions involving the sale of shares. Section 72 of the Companies Act, Chapter 24.03, allows payment of commissions to anyone as consideration for subscribing or agreeing to subscribe for its shares. The restrictions thereunder are that (i) articles must allow it, (ii) commission is under 5% of price of single share or such rate authorised by the articles, whichever is less (iii) this rate must be stated in the prospectus or in statement in lieu thereof. Underwriting commission is also allowed, and may be paid from the share premium account, if any. Save for the above, s.72(2) prohibits applying any share or capital money to direct or indirect payment of commission, discount or allowances in consideration of subscription or agreement thereof, or procuring or agreeing to procure subscriptions of shares, regardless of manner of payment. In Oregum Gold Mining Company of India v Roper (1892), it was held that a company which issued preference shares of 1 each with 15s of the price credited as paid had exceeded its powers. Thus the rule prohibits selling shares at a discount because this leads to an unlawful erosion of the share capital of the company.

(b) Prohibition of assistance by a company of the purchase of its own shares or in its holding company. The primary capitalisation method of a company is the sale of shares. If it were to purchase its own shares, capital would not increase neither would it do so if it assisted a buyer in purchasing its own shares. Thus s.73 prohibits a company from financing the purchase of its own shares or those of its holding company. Such assistance would amount to a back door reduction of share capital without following acceptable rules as set out in s.9296. The competing interests recognised by the legislature are the need to allow companies more freedom of action while protecting creditors interests in the security of share capital. However under exceptional circumstances the law allows a company to provide assistance towards the purchase of its own shares. Briefly stated, s.73 says that it shall be unlawful for a company to give whether directly or indirectly, and whether by means of a loan or guarantee or some such other form of security any financial assistance for the purpose of purchasing the companys shares unless (i) such assistance is given in accordance with a special resolution of the company and (ii) immediately after such assistance is given on a fair valuation of the assets of the company the assets exceed the liabilities and the company is in a position to pay its debts. Equally if the companys main business is the provision of funding for projects (for example a bank or finance house) then it can lawfully lend money for the purchase of its own shares in the course of carrying out its own business activities. (f) Prohibitions of loans to directors s.177 Section 177 generally prohibits loans to directors, though subject to certain exceptions. The major exception again is that if the companys core business is the lending of money, then directors can be considered for loans along with everyone else. (g) Company purchasing its own shares The rule that a company cannot buy its own shares enunciated in Trevor v Whitworth (1887) has been reversed by statute, namely s.78, provided the purchase is authorised by articles and a general meeting resolution. Further this purchase can only be made by funds which would otherwise be available for a dividend s.82.

(h) Dividends paid out of profit Both the common law and statute law are very clear on the issue of the payment of dividends, that it can only be done out of profits and not capital. Article 116 says no dividend shall be paid otherwise than out of profits. To do otherwise would amount to an unauthorised reduction in share capital and this would be strictly contrary to the provisions of the law. (i) Application of share premiums

If a company issues shares at a premium whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account called the share premium account. In terms of Zimbabwean law, the share premium account cannot be used anyhow notwithstanding the fact that the company has made profits on the sale of shares. The account is primarily used (i) in paying up unissued shares to be allotted to directors, members or employees as fully paid bonus shares and (ii) in writing off preliminary expenses associated with the formation of the company. In summary it is quite clear that there are several provisions in the Companys Act (Chapter 24:03) which are designed to protect the integrity of the share capital structure of the company. Ultimately the rules are meant to prohibit or prevent the illicit or unauthorised reduction of share capital. What has been stated above are the major provisions or talking points but these are not exhaustive in any way.

Insolvency Judicial management A company which is experiencing difficulties may either be wound up or at the discretion of the court be placed under judicial management. Judicial management has thus been referred to as a halfway house between the life and death of a company. The purpose of judicial management is to save the life of a company which is in financial jeopardy. Thus even if a petitioner proves a case for winding up, the court can, if moved to do so, grant an order for judicial management if it is of the opinion that the company is able to recover from its difficulties and that it has an opportunity to do so. Judicial management is the substitution by the court of the old management with a new management in order to inject life into the company. It will be granted where winding up would cause financial prejudice to the creditors as the concern may still be viable but only badly run. A judicial management order can either be provisional or final. A final order is made when the probabilities are against the company surviving. There are quite a number of circumstances under which judicial management may be granted. Firstly, it can be granted when the company is unable to pay its debts. Thus in Rosenback and Co (Pty) Ltd v Singhs Bazaar (Pty) Ltd (1962) it was granted when the company failed to pay a trade debt. If a petitioner can prove that there has been mismanagement of a company as in Reich v Horthon Syndicate (Pty) Ltd (1930), it will also be granted. The other ground for its granting is when it is improbable for the company to meet its obligations. Obligations under these circumstances are broader than debts. If the company is for any reason prevented from being a successful concern, judicial management may be granted.

The order can also be granted when there is some other cause. Thus in Leaning & Another v Orestein and Koppel (SA) Ltd (1940) where in war time, the bulk of the companys employees were held as alien enemies, the company was placed under judicial management. Finally if the court considers it just and equitable it will place the company under judicial management. An application for such an order can be made by any creditor(s) or contributories or any of those parties together. Thus such classes of persons can apply directly for an order for judicial management. Judicial management can also be granted when the above parties apply to court for liquidation and the court in the exercise of its discretion grants judicial management instead. The Master of the High Court plays an integral part in such applications.

If a provisional judicial management order is granted, the Master will then appoint a provisional judicial manager. The manager has a host of duties, mainly that he should endeavour to run the company transparently and competently. This appointment is made in the interim and when the matter goes back to court, if the circumstances so permit, a final judicial manager will be appointed. The order for such an appointment is made if it appears to the court that there is a reasonable probability that the company may succeed.

A judicial management order can be cancelled. This will happen if it appears to the court that the purpose of the final judicial management order has been fulfilled or that for any reason it is undesirable that the order should remain in force. If the judicial order is cancelled, the company shifts from the judicial managers hands back to the companys management. This reflects the curative or intended curative nature and effect of the mechanisms. Section 300 of the Companies Act (Chapter 24:03) provides that the court may grant a provisional judicial management order in respect of a company if it appears to the court: (iii) that by reason of mismanagement or for any other cause the company is unable to pay its debts or is probably unable to pay its debts and has not become or is prevented from becoming a successful concern; and (iv)that there is a reasonable probability that if the company is placed under judicial management it will be enabled to pay its debts or meet its obligations and become a successful concern, and (v) that it would be just and equitable to do so. In summation it can be said that a winding up order in its nature is intended to bring about the dissolution of the company whereas the purpose of a judicial management order is to save the company from dissolution. A judicial management order on the other hand usually provides a moratorium in respect of the companys debt in the hope that it will lead ultimately to the payment of all creditors and the resumption by it of normal trading.

Winding Up Difference between voluntary and compulsory winding up A company can either be wound up voluntarily or compulsorily. Differences abound in these methods of liquidation and we will only deal with the major ones. There are differences in the nature, circumstances, procedure, its commencement and effect. A brief rundown of these follows: The first major distinction lies in the nature of the liquidation. Voluntary liquidation is voluntary. It is a product of a consensus of the requisite majority of the shareholders. A special resolution is therefore passed to the effect that the company be wound up. On the other hand compulsory liquidation is involuntary and takes place the express wishes to the contrary of the

shareholders notwithstanding. It is a process that is imposed upon a company which the shareholders may be and are usually not comfortable with and is done by the court. The other distinction lies in the circumstances under which liquidation can be done. By s.206 of the Companies Act (Chapter 24:03) compulsory liquidation can only be done under the following circumstances. If default is made in lodging the statutory report.

If the company does not commence its business within a year of incorporation or suspends its business for a year. If the company ceases to have any members. If 75% of the paid up share capital has been lost or becomes useless. If the company is unable to pay its debts. If the company has by special resolution resolved that it be compulsorily wound up and If liquidation appears to the court to be just and equitable.

On the other hand, voluntary winding up can only be done under circumstances spelt out in s.242 and these are: If the period fixed for the duration of the company expires or such event occurs the occurrence of which the articles provide that the company be dissolved and a special resolution enabling that is passed and If the company resolves that it be wound up voluntarily.

The other difference lies in the procedure for liquidation. In compulsory liquidation, the procedure is set out in s.207 which provides that a petition shall be made to the court. This is because the liquidation is done by the court. In voluntary liquidation the procedure follows the normal procedure for a meeting where a special resolution is made. A notice to that effect is made and the shareholders vote in its favour. This reflects the fact that such liquidation lies in the hands of the shareholders and happens at their pleasure. In relation to commencement, s.210 provides that compulsory winding up commences at the time of the passing of the special resolution if the compulsory winding up is at the instance of the company. In any other instances, it commences at the time of the presentation of the petition before the courts. As relates to voluntary winding up, s.244 provides that it commences at the time of the passing of the special resolution for the winding up. Shareholders are absolutely in control of the commencement of the winding up in cases of voluntary liquidation. The effect/consequences of involuntary winding up is set out in s.212. An order for winding up operates in favour of all the creditors and contributories of the company including those that did not present the petition. This is because the winding up would have been meant to meet their interests in the first place. The consequences of a voluntary winding up are set out in s.256 and are the following:

The net property of the company becomes available for distribution amongst the shareholders. The liquidator may meet the interests of the contributories.

Corporate Governance The term corporate governance relates to the code of ethics and good practice that regulates the conduct of those who govern and control corporate or business institutions. Corporate governance involves the development of systems and structures, which set out good methods and practices of how best to run and manage businesses both in the public and private sector, not only economically, but socially and environmentally. Companies have many stakeholders ranging from directors, employees, to shareholders and third parties like trading partners, government and foreign investors. These stakeholders have a direct interest in how companies and their affairs are run. They therefore demand that there be an internal system in the company encompassing policies, processes and principles, which serves their needs and protects their investments in the company. The main reason for corporate governance is therefore shareholder and stakeholder protection. The corporate governance system attempts to achieve this by directing and controlling management activities in the best interests of the company. In most cases, it sets out a number of best practice guidelines and codes to assist companies to function in a manner that optimises the companys performance. In a nutshell, corporate governance as a concept is meant to enhance the shareholder value in the company. The essence of corporate governance subsists in the curbing and prevention of business malpractices such as mismanagement, bad company practices, corruption, nepotism, abuse of company property, insider dealing among many others. Put simply therefore, corporate governance is the system by which companies and fi nancial institutions are governed. Good corporate governance alludes therefore to the best practices aimed at ensuring that those in charge of companies conduct themselves in a proper manner.

In Zimbabwe, emphasis has been put on good corporate governance after a series of corporate scandals plagued the business fraternity. In the 1990s, the United Merchant Bank suffered liquidation as a result of poor and inadequate managerial and board supervision of the companys activities. Reports of abuse of power by one of the banks directors led to the loss of depositor funds and ultimately the total collapse of the bank. In another recent case, a variety of fi nancial institutions such as ENG Capital Management, Trust Bank Corporation, Time Bank, Royal Bank and their subsidiaries suffered fi nancial ruin as a result of fraudulent, improper and at times illegal management behaviour by the company directors. Charges and allegations of externalisation, insider trading, corruption and abuse of fi duciary duties saw the collapse of these once esteemed companies. Corporate governance advocates sound business practices rooted in business ethics and integrity. It promotes more responsible management of company affairs and discourages unethical business behaviour. The good corporate governance regime seeks to balance the competing interests of the investing public against those of company directors and the entire management. Corporate governance is merely advisory and persuasive in nature. It is not itself law, but gives a framework to allow legislative bodies to devise laws and other measures to encourage best practices that assist companies to function and protect shareholders rights. There are certain basic elements that have come to be accepted as the international standards of good governance. These include openness, integrity, and accountability. Openness focuses mainly on transparency in the conduct of business affairs by the company directors. The same principle is enshrined in statute law, especially the Companies Act (Chapter 24:03) which provides in s.318 and s.186 that company directors are under a duty to disclose their interests in contracts entered into by the company and that they will be held liable for the fraudulent conduct of the companys business. Together with statute law, corporate governance acts as a parameter in determining liability of directors in the different sets of relationships which every company inevitably has, i.e. between management, shareholders and stakeholders. Corporate governance provides the structure through which the objectives of the company are set, the means of attaining those objectives and how to monitor the performance of those tasked with achieving this. Another important aspect of corporate governance is integrity and business ethics. This amounts to good administrative behaviour from company directors and employees. It therefore advances the best interests of the company and projects an image of good governance. Company affairs involve close trading with third parties other than the company members. As a result, the conduct of business demands that business leaders have a sense of integrity that will assure third parties dealing with the company that it is safe to do so and fosters investor confi dence. Section 173 of the Companies Act (Chapter 24:03) provides against the appointment of certain persons to the position of director. These are persons whose sense of integrity is questionable and include:

except with the leave of the court, any person who has at any time been adjudged or otherwise declared insolvent or bankrupt under a law in force in Zimbabwe or any other country, and has not been rehabilitated or discharged; (d) save with the leave of the court, any person who has at any time been convicted, whether in Zimbabwe or elsewhere, of theft, fraud, forgery or uttering a forged document or perjury and has been sentenced therefore to serve a term of imprisonment without the option of a fine or to a fine exceeding level five In the case of Oliver John Tengende v Registrar of Companies (1988), the court upheld the general view that company directors should be people of integrity who can be trusted to conduct company affairs in an effi cient and ethical manner. The applicant John Tengende had been convicted of fraud several times earlier on and the Registrar of companies refused that he be appointed as director of a company he had shares in. The third aspect of corporate governance revolves around accountability. In recent years, lack of accountability led to the fi nancial collapse and ruin of numerous business ventures both at home and abroad. The current economic global crisis was precipitated by lack of accountability in relation to the conduct of business affairs. Locally, companies such as ENG Capital Asset Management collapsed due to errant behaviour by the company directors and the lack of adequate measures to ensure directors accountability in their conduct of business. From the above, it can be seen that the objective of corporate governance is the protection of the company as a whole and the protection of shareholders interests. In the Tengende case (supra), Justice Manyarara in upholding the disqualification of Tengende as a director emphasised that the possible negative consequences of unethical business conduct to shareholders and the general public must be kept in view at all times. He reiterated that the management of companies should not be left in the hands of unscrupulous or disreputable businessmen. In Ex parte Harold In Re Gilbert (1953), the court dismissed Gilberts appointment to the board of Gilberts Distilleries Pvt Ltd on the grounds that company affairs should be left in the care of honest hands. A person who had been convicted of fraud as was the case with Gilbert could therefore not be trusted with business affairs. Honesty and the best interests of the company are therefore some of the pillars on which corporate governance is predicated. As it is a broad and all encompassing topic, all elements related to sound business and ethical practice naturally form a part of good corporate governance.

Fraudulent behavior Money Laundering Money laundering is a serious offence and is largely regulated by the Serious Offences (Confiscation of Profits) Act Chapter (9:17) and the Bank Use Promotion and Suppression of Money Laundering Act Chapter (24:24). The statutes referred to above contain various provisions which define and seek to counter and combat money laundering. The controls range from administrative mechanisms to those that are part of the criminal justice system. In terms of s.63 of the Serious Offences Act, money laundering is committed when there is either: 1 removal into or from Zimbabwe money or other property which is the proceeds of a crime and/or 2 when a person receives, possesses, conceals, disposes of, brings into or removes from Zimbabwe money or property which is the proceeds of a crime. Money laundering thus finds expression in the dealing with money or property which has not been legally made. In S v Mlambo (1995) the court noted that the definition under s.68 is wide and all encompassing. It not only covers a person who launders money coming from the illegal activities of another but also launders money from the illegal activities which he was party to. By their nature, financial institutions play a midwife role in money laundering although it is common to have cases that bypass them. Thus when money illegally obtained is cleaned, for example through being deposited into the formal banking market as proceeds from a legitimate business transaction, money laundering is committed. It is also committed when dirty money is deposited into an ordinarily clean account in order to give the impression that it is clean money. The essence of the offence therefore consists in the legitimation of illegal proceeds, breaking the law to make money as it were and trying to hold oneself as having made the money cleanly and legitimately. Various controls are in place to combat money laundering in Zimbabwe. In terms of the Bank Use Promotion and Suppression of Money Laundering Act, a unit which is under the Central Bank is established to deal with cases of money laundering. Its

functions are to receive and act upon reports and also monitor compliance with the provisions of the Act designed to combat this crime. An advisory committee is also established whose functions are inter alia to formulate and implement national policy on money laundering and also to issue guidelines to financial institutions. Part IV of the Act contains direct provisions on suppression of money laundering. Under s.24 designated institutions are mandated to verify the true identity of their customers, the so called know your customer policy. This enables them to query extraordinarily huge and suspicious deposits. In terms of s.25 the financial institution must establish and maintain customer records. These records should contain personal and business details, transactions, and the amounts involved. Section 26 casts an obligation on the institutions to report suspicious transactions. In that respect, they should prepare and forward the reports within three days of the arising of the suspicion. Section 27 mandates them to establish and maintain internal procedures for the reporting of suspicious transactions by employees and shields them from civil liability in the event of such reporting. By s.29, the director of the unit can issue disclosure orders as against financial institutions in a bid to have them disclose criminal activities. In terms of s.30 compliance orders can be issued where the director believes that the designated institution has not complied with a disclosure order or any provision of the Act. By s.31 inspectors and police officers have the power to request an institution to suspend a transaction so that they can come in and investigate it fully and s.32 provides various offences for failure to comply with these suppressive mechanisms. The Serious Offences Act on the other hand contains general provisions for the suppression of serious offences, which provisions are also applicable to money laundering. There is provision for search powers, interdicts, seizure of cash, confiscation, forfeiture where there is money laundering. Further various obligations are cast upon financial institutions. Under s.60 they should retain and maintain records of customers and their transactions. Further they should report any suspicious or underhand activities to the concerned enforcement authorities. There are also penalty provisions found in the statute. Section 63 specifically criminalises money laundering. Section 64 also prohibits dealing in tainted property which measure is aimed at curbing the continued use of proceeds from money laundering. The penalties imposed on offenders are heavy and deterrent, although there is still room for improvement.

The above constitutes a brief summary of what money laundering is and the main controls laid out for its suppression. As it continues to evolve, it is foreseeable that it will find expression in less orthodox but more sophisticated forms, more so in view of the cyber season that the modern world is in. Due to the interdependence of the worlds economies some of the more devastating forms of money laundering occur transnationally and extra-territorially. Fragile economies such as Zimbabwes are very vulnerable to money laundering activities be they domestic or extra-territorial. Insider dealing Corporate governance assumes a vital importance on the modern corporate agenda. It has as one of its aims the combating of evils such as insider dealing. Insider dealing is very much alive in Zimbabwe as the Cottco, First Mutual Life and Southampton Life scandals in recent years have shown. Companies act through directors who have access to information which is not possessed by most ordinary citizens in relation to the trading of the company. Such information has an important impact on the market. The trading on that information for personal gain is what is called insider dealing/trading. Some directors manipulate such sensitive and unavailable information before the whole world becomes otherwise aware of any developments. This usually relates to the sale of shares on the stock market. A case in point is the Cottco Scandal where there was a massive sale of shares a few weeks before the company released extraordinarily good results. The above has the effect of distorting the market by influencing increases and decreases which might at times be artificial. The people who are involved in the activities are called insiders. Insiders are usually directors, executive officers, analysts and members of the stock exchange. However, anyone who acquires such valuable information beforehand becomes an insider. Insider dealing adversely affects the market by creating distortions. Ultimately this leads to a decline in investor confidence. Besides, it is inherently unfair on the legitimate players in the field and constitutes an abuse of office by those whom the public has entrusted with the duty to direct companies. It is an unethical business practice which, through manipulation, distorts the market.