Court name
Supreme Court of Zimbabwe
Case number
SC 13 of 2007
Civil Appeal 149 of 2006
Case name
Ngatibataneyi (Pvt) Ltd. v Moyo and Another (49/06)
Law report citations
Media neutral citation
[2007] ZWSC 13


REPORTABLE ZLR (8)


















Judgment No. SC 13/07



Civil Appeal No. 149/06








NGATIBATANEYI
(PRIVATE) LIMITED v (1) TOBIAS VENGANAYI MOYO
(2) THE REGISTRAR OF DEEDS
N.O.








SUPREME
COURT OF ZIMBABWE


SANDURA JA, ZIYAMBI JA
& MALABA JA


HARARE, MARCH 5 &
MAY 29, 2007









U Sakhe, for the appellant


C. Kwaramba, for
the first respondent


No appearance for the
second respondent





MALABA JA: This is an appeal
from an order of the High Court dated 29 May 2006 granted with costs
directing the appellant company
to have all necessary documents
signed on its behalf to effect transfer of stand 579 Bluff Hill
Township 11 of Lot 1 of Lot 8A Bluff
Hill into the first respondent’s
name, failing which the Deputy Sheriff be authorized and directed to
sign all such documents and
do all such things as are necessary to
effect transfer of the said property to the first respondent.





The appellant is a
limited liability company incorporated on 7 April 1989 in terms of
the laws of Zimbabwe. It has two shareholders
who are its directors.
These are Florence Hlatywayo and Judith Paradzai, who is currently
ordinarily resident in the United States
of America where she is
pursuing her studies. Florence Hlatywayo has been the active
director of the company. She is also its Secretary.





The appellant owns
stand 579 Bluff Hill Township 11 of Lot 1 of lot 8A Bluff Hill which
is a vacant piece of land (“the stand”).
The stand is the only
asset of the appellant as it does not seem to have carried on any
business since incorporation.





On 8 March 2005, and
apparently without the consent of the other shareholder, Florence
Hlatywayo signed a mandate instructing Foresthill
Real Estate (“the
Estate agent”) to sell the stand on behalf of the appellant. On 20
April 2005 whilst purporting to be representing
the appellant she
signed an agreement of sale in terms of which the appellant purported
to sell the stand to the first respondent
for $125 million payable
upon transfer by means of a loan obtained from Intermarket Building
Society (“the Building Society”)
against a first mortgage bond on
the property.





The agreement of sale
indicated that the seller of the stand was the appellant, represented
by F. Hlatywayo in her capacity as secretary.
Words to the effect
that she was “being duly authorized hereto by resolution of an
extraordinary board meeting of Directors of
the said company held at
Harare on 8th March 2005” followed.





The first respondent
successfully applied to the building society for the loan. Before
transfer could take place, Florence Hlatywayo
wrote to the estate
agent on 15 September canceling the agreement of sale on the ground
that, when she purported to enter into the
agreement on behalf of the
appellant, she had not obtained the consent of the co-shareholder who
had since refused to grant the consent
to have the stand sold.





The first respondent
rejected the repudiation of the contract by the appellant. On 11
November 2005 he made an application to the
High Court for an order
directing the appellant to transfer the stand into his name against
tender of the purchase price and transfer
fees. He indicated in the
founding affidavit that Florence Hlatywayo had, as a director of the
appellant and its secretary represented
to him that she had the
authority to sell the stand on behalf of the company. He made
specific reference to the words in the agreement
of sale to the
effect that she had been “duly authorized hereto by resolution of
an extraordinary board meeting of Directors of
the said company held
at Harare on 8th March 2005”. He said that he had acted
on the representation of authority to sell by the director of the
company. The appellant
was therefore estopped from denying that
Florence Hlatywayo had authority to sell the stand on its behalf.





He relied on s 12(a) of
the Companies Act [Cap. 24:03] (“the Act”)
which provides that:



“12 Presumption of regularity





Any person having
dealings with a company or with someone deriving title from a company
shall be entitled to make the following assumptions,
and the company
and anyone deriving title from it shall be estopped from denying
their truth –







(a) that the company’s internal regulations have been duly complied
with.”







The appellant opposed the application. It relied on the affidavits
of the two shareholders. Florence Hlatywayo averred in the opposing
affidavit that, at the time she signed the agreement of sale, she had
not been authorized by the company in a general meeting by
a
resolution to sale the stand. She said no general meeting of
shareholders had taken place. No meeting of the board of directors
took place on 8March 2005. She said she did not know
where the person who drafted the agreement of sale got the idea that
she had been authorized
by a resolution of a meeting of the board of
directors to sell the stand.





Judith Paradzai, in the
supporting affidavit, denied ever attending a general meeting of
shareholders where approval of the proposed
sale was granted to
Florence Hlatywayo by a resolution to sell the stand to the first
respondent. She averred that she did not want
the stand sold.





The appellant relied on
s 183 of the Act which provides that:



“183 Prohibition of allotment of shares to directors save on
same terms as to all members, and restriction on sale of undertakings
by directors






(1) Notwithstanding
anything in the articles, the directors of a company shall not be
empowered, without the approval of the company
in general meeting –







  1. …







  1. to
    dispose of the undertaking of the company or of the whole or the
    greater part of the assets of the company.








(2) No resolution of the company shall be effective as approving …
of a disposal in terms of paragraph (b) of subsection (1) unless
it
authorizes, in terms, the specific transaction proposed by the
directors.”










The court a quo proceeded on the basis that it was common
cause that there was no resolution passed by the appellant at a
general meeting authorizing
the sale of the stand to the first
respondent on the terms stipulated in the agreement, as required by s
183 of the Act. The arguments
before the court a quo centred
on the question whether s 12(a) of the Act, which embodies the common
law principles of estoppel enunciated in the case of
Royal British
Bank v Turquand
1856) 119 E.R. 886 (generally known as the
Turquand Rule), governed the determination whether the transaction
had legal effect and
was enforceable. The contention advanced on
behalf of the first respondent was that s 12(a) was applicable to the
determination
of the validity and enforceability of the transaction.
It was argued that s 183 was a part of the internal regulations of
the company.
It was contended on behalf of the appellant that s 183
was not part of the internal regulations of the company. Its
requirements
override those in s 12(a) where the transaction involved
the sale of the whole or a greater part of the assets of a company.
The
argument was that s 183 governed the determination of the issue
whether the purported sale of the stand to the first respondent by
one of the appellant’s directors was valid. As it was common cause
that no resolution was passed by the company in a general meeting
approving the disposal of the stand in terms of the purported
agreement, the transaction was of no legal effect as it was concluded
in contravention of s 183 of the Act.





The learned Judge
accepted the argument that s 183 was part of the internal regulations
of the company. He held that s 12(a) was
intended to protect the
rights of third parties dealing with companies. He also found as a
fact that Florence Hlatywayo, in her
capacity as a director and
secretary of the company had made the representation to the first
respondent through the statement recorded
in the agreement of sale to
the effect that she had been authorized by a meeting of a board of
directors on 8 March 2005 to dispose
of the stand on behalf of the
appellant. The first respondent was on the basis of s 12(a) of the
Act, entitled to assume that the
company had granted her the
authority to sell the stand. He determined that the transaction was
valid and enforceable.





The first question to
be decided on appeal is whether the learned Judge was correct in
holding that s 183 is part of the internal
regulations of the company
subservient to s 12(a) of the Act. The learned Judge misdirected
himself on this point. If s 183 formed
part of the internal
regulations of the company giving rise to the inference under s 12(a)
of the Act by anyone dealing with the
company, that its requirements
had been complied with, there would have been no need for the
legislature to open its provisions with
the words, “notwithstanding
anything in the articles…”. The words can only mean that,
notwithstanding the authority given
to directors of a company by
articles of association which ordinarily contain the internal
regulations of a company the directors
would have no power to dispose
of the whole or greater part of the assets of the company without
first complying with the mandatory
requirements of s 183. In other
words, the disposal of the whole or the greater parts of the assets
of a company is not a function
falling within the authority
customarily given to directors under internal regulations. That
authority can only be obtained from
a general meeting of the company
in the form of a resolution approving in its terms the specific
transaction.




The
intention behind s 183 was to protect the assets of a company from
disposal by directors without the knowledge and consent of
the
shareholders. Section 183 takes the disposal by directors without
the knowledge and consent of the shareholders. Section 183
places
the disposal of the whole or greater part of the assets of the
company outside the ambit of the application of the Turquand
rule
embodied in s 12 of the Act. I accept the submission by Mr Sakhe
for the appellant that a construction which renders s 183 part of the
internal regulations of a company and therefore subservient
to s
12(a) of the Act would defeat the object of the legislature in
enacting s 183 and promote illegal transactions in cases where
the
express authority of shareholders at a general meeting required to
have been given to directors in the specific form prescribed
in s 183
had not been obtained. The effect of upholding the application of s
12(a) in the circumstances would be to render enforceable
that which
s 183 has in the public interest declared illegal or invalid.





In this case it was
common cause that no general meeting of the shareholders was held at
which a resolution authorizing Florence Hlatywayo
to dispose of the
stand to the first respondent in the terms of the agreement of sale
was passed. The other shareholder was in the
United States of
America at the time the transaction was entered into between Florence
Hlatywayo purportedly representing the appellant
and the first
respondent. As the subject matter of the transaction was the
disposal of the whole asset of the appellant in the form
of the stand
it was obligatory for Florence Hlatywayo to obtain the approval of
the other shareholder. There was no approval by
the other
shareholder of the transaction before it was entered into by Florence
Hlatywayo nor was there a ratification of it after
it had been
entered into. Even if it were accepted by the learned Judge that
Florence Hlatywayo represented in the statement recorded
in the
agreement of sale that she had been authorized by a board of
directors at a meeting of 8 March 2005 to sell the property on
behalf
of the appellant, that decision would not constitute valid authority
for the purposes of s 183. There was no suggestion that
Judith
Paradzai was present at that meeting.





It is clear to me that
the agreement entered into by Florence Hlatywayo on behalf of the
appellant with the first respondent was in
contravention of s 183 of
the Act. It had no legal effect. Section 12(a) of the Act could not
save the transaction. See Farren v The Sun Service SA Photo Trip
Management (Pty) Ltd [2003] ALL SA 406 (C).



The appeal succeeds with costs. The judgment of the court a quo
is set aside and in its place substituted the following order -



“It is ordered that the application be dismissed with costs.”










SANDURA JA: I agree.








CHEDA JA: I agree.













Kantor & Immerman, appellant’s legal practitioners


Mbidzo, Muchadehama
& Makoni
, first respondent’s legal practitioners