| |
UTTA, J. A.
[1] The appellant company (which expression I shall use to include its
predecessor Dodhia Plastica International Limited) employed the respondent
on the terms set in a letter dated 5th October, 1965 (hereinafter referred
to as "the contract").
[2] These terms were that the appellant company ,would .pay the respondent a
salary of £3,000 per annum, house rent in excess of shs.800/= per mensem,
medical expenses (including those of the respondent's wife), a bonus at the
end of each year (at the discretion of the appallant ); in addition the
respondent was entitled to local leave of three weeks per annum and overseas
leave of one month for each year of service with passages paid to the U.K
and to payment of £1,000 on termination of service and a monthly retirement
benefit of shs.3,500/...
[3] The respondent was required to work for the entire Dodhia Group of
Companies but in fact worked only for the appellant company, the contract
commencing on' the 5th October, 1965, and was to last for a minimum period
of 5 years with a proviso that either party was entitled to terminate it by
giving 12 months' notice in writing. On the 26th May, 1968 the appellant
company's Managing Director wrote to the respondent terminating his services
with effect from 31st May, 1968. The letter stated, inter alia _,
"It is with deep sorrow and very great regret that we have to inform you
that the company ¬Board of Directors decided during the last Board meeting
to close the Nairobi offices, which has resulted in the necessity of
advising you of the termination of your services, effective from 31st May,
1968 ..."
[4] The respondent, on 27th May 1968, wrote to the Managing Director in
reply stating, inter alia,
"An important omission in your letter is any refer6nce to the contract of
employment between Freeberne and Dodhia Plastica International Limited, a
copy of which is in your possession and the terms of which are well known to
you. “
[5] The appellant company did not reply to this letter and on the 13th June,
1968 the respondent wrote again to the Managing Director of the appellant
company stating, inter alia_,
"This is to remind you that up to the time of writing I have not received my
reply to the letter of 27th May regarding the termination of the employment
with Dodhia Plastica International Limited by 5 days' notice and in complete
dis¬regard of my contract of employment. I now request you to make payment
to me forthwith in full satisfaction of the terms of my contract of
employment."
[6] There was again no reply to this letter and it appears that the
res¬pondent took no further action until the 17th March, 1969 when his
advocates, Messrs Archer and Wilcock wrote to the appellant company claiming
loss of salary in the sum of £10,033 in respect of unexpired period of 3
years, four months and 4 days at the rate of £3,000 per annum, £1,000
terminal bonus, medical expenses incurred by the respondent until 4th
October, 1971, £30 a month for the use of the company car until 4th October,
1971, £496 being the minimum of one return passage to the U.K. for the
respondent and his wife, and the sum of £15,750 for 7 years at the rate of
£2,100 per annum by way of pension.
[7] Messrs J.J. Patel and Co. advocates replied to the letter from Messrs
Archer and Wilcock expressing surprise at the contents of the latter's
letter and stating further that their clients had not been aware of the
alleged contract.
[8] The respondent on 28th August, 1969 filed his plaint claiming damages
for breach of the contract. The total amount claimed was £27,866 10sThe
appellant company filed a defence in February 1970 denying liability for
breach of the contract and alleged that Mr. Dhanani was not Managing
Director of the appellant company and had no authority or power to make an
offer on behalf of the appellant company in terms of the contract.
[9] The appellant company also alleged that the respondent as Secretary of
the appellant company knew that Mr, Dhanani Rid not have authority to make
an offer to him as stated in the contract. The learned judge held that Mr.
Dhanani had the authority as Managing Director of the appellant company and
had the authority not only just to offer to the respondent these terms and
conditions of appointment contained in the contract but also had power to
enter into contract on behalf of the appellant company, and he awarded to
the respondent £9,058 and £298 in respect of two air tickets from Kenya to
the United Kingdom. The appellant company appealed against that decision to
this Court and the grounds of appeal were inter alia that the learned judge
erred in law in holding that Mr. Dhanani had authority to enter into the
contract on behalf of the appellant.
[10] Mr. Georgiadis for the appellant company argued that the respondent was
acting as the company secretary throughout the material period and was paid
a salary but they had no knowledge of the contract, and that in any case Mr.
Dhanani did not have the authority and powers to enter into such a contract
on behalf of the appellant company.
[11] However, Mr. Georgiadis conceded that it is possible that the Board of
Directors had approved the respondent's appointment and left the details of
the contract to be worked out by Mr. Dhanani. He submitted however that this
contract was so unusually generous as to require the approval of the Board
of Directors, and that the respondent as Secretary of the appellant company
had full knowledge of Article 14 of the Articles of association and its
limitation and restrictions and as such was fixed with notice of the powers
of directors and should consequently, have known that Mr. Dhanani did not
have authority to enter into such a contract on behalf of the appellant
company.
[12] He further submitted that the respondent having been fixed with notice
of powers and of the limitation and restrictions thereon imposed by the said
Article 14, cannot hold the appellant company responsible for breach of the
contract as the fixing of contractual terms was a responsibility of the
Board of Directors.
[13] He contended that as the respondent was an insider, with full knowledge
of the Articles of Association and an officer of the appellant company, the
rule in the Royal British Bank v. Turquand - 6 F & B 327 did not apply to
this case.
[14] He further contended that the cases of Rama Corporation Ltd v. Proved
Tin General Investments Ltd. - 1952 1 All E.R. 554 and Freeman and Lockyer
v. Buckhurst Park Properties (Mangal) Ltd. - 1964 1 ALL E.R. 630 were
distinguishable from the present case in that in both the latter cases those
concerned were outsiders and third party outsiders respectively whereas in
the present case it was an insider who was concerned and that it was actual
knowledge of the irregularities rather than the status of the respondent
which should have put the respondent on inquiry, in the absence of
ratification of the contract by the Board of Directors.
[15] Mr. Salter, for the respondent, contended that the contract was
genuine, valid and enforceable as the terms thereof had been discussed
before the first meeting and that either the other directors knew that some
terms had been agreed or they were not interested in the matter as they had
left the management of the day to day business of the appellant company to
Mr. Dhanani who had authority to manage the general business of the
appellant company and that Mr. Dhanani was the person on whom the respondent
was entitled to rely, whether he was an insider or outsider. Mr. Salter
submitted that there was a strong inference that Mr. Dhanani wss the main
person through whom the appellant company acted during the initial period
and as such he had authority to enter into the contract on behalf of the
appellant company, and that every¬ thing he did would have been within his
ostensible authority as agent of the appellant company.
[16] He submitted further that so long as the respondent was satisfied that
his contract had been discussed by the Board of Directors, whether outside
or within, at a meeting of the Board, it was immaterial whether he was an
outsider or an insider. He relied on the case of Hely - Hutchinson v.
Braymead - 1967 3 All E.R. 98.
[17] It seems to me that the question to be determined here is whether Mr.
Dhanani had actual or ostensible authority to enter into the contract with
the respondent and on behalf of the appellant company. Article 1 of the
Articles of association of the appellant company incor¬porates regulations
contained in Part II of Table 1 in the First Schedule to the Companies Act -
(Cap.486).
[18] Regulation 1 of Part II provides that regulations contained in Part I
of Table A shall apply, with the exception of regulations 24 and 53.
Regulations 80 – 106 inclusive of Part I deal with the powers and duties of
directors and regulation 110 deals with appointment of the Secretary.
[19] A meeting of subscribers to the memorandum and Articles of Association
of the appellant company was held on 1st October, 1965. At this meeting Mr.
Dhanani was appointed Chairman of the appellant company "until otherwise
resolved" and the respondent was appointed Secretary "of the company to hold
that office until otherwise resolved". The position then was that on 1st
October, 1965 the subscribers to the Memorandum and Articles of Association
and the directors of the appellant company by a resolution appointed the
respondent as Secretary.
[20] They did not, in that resolution, specify the terms and conditions of
the appointment. There is no resolution specifically giving Mr. Dhanani
authority to enter into an agreement with the respondent on the terms
contained in the contract. In its Articles of Association no specific power
or authority is conferred on the Chairman or director in regard to the
transa¬ction of the business of the appellant company. There was thus no
actual authority on the part of Mr. Dhananias Chairman, or director, to
offer the respondent those terms.
[21] However, the learned judge made findings of fact as follows:¬-
(a) that the contract having been typed on the appellant company's letter
head and the appellant company's name appearing "immediately above Mr.
Dhanani's signature" sufficiently in¬dicated that the contract was intended
to be entered into on behalf of the appellant company;
(b) that the making of contracts of service was the responsibility of Mr.
Dhanani or in his absence his alternate director; and
(c) that Mr. Dhanani having been appointed chairman was regarded by the
board of directors as "Managing Director" and as such was the person "more
likely" to sign contracts of service.
[22] The learned judge held, in effect, that Mr. Dhanani had implied or
ostensible authority to enter into the contract on behalf of the appellant
company. The basis of this would appear to be that the appellant company
held out Mr. Dhanani as the person who was managing its day to day business
and therefore had authority to enter, on its behalf, into a contract with
the respondent.
[23] In my view, the learned judge's decision, on the facts of this case,
was correct. Several acts of Mr. Dhanani suggest that the appellant company
knew of Mr. Dhanani holding himself out as acting on the appellant company's
behalf thus impliedly representing that he had authority to do so.
[24] He was appointed Chairman of the appellant company on 1st October 1965;
someone had to represent the appellant company in the conduct of its
business, particularly at the initial period, and such person must surely
have authority to bind the appellant company.
[25] Thus a third party dealing with the appellant company was entitled to
assume that there was authority on the part of that person to bind the
appellant company. The question as to whether or not the Articles of
Asso¬ciation or a resolution of the board empowered the Chairman or any
other director to enter into a contract binding the appellant company was
not a matter into which a third party should have inquired as long as he
acted on a representation that the Chairman or director had authority to
bind the appellant company.
[26] In my view, it is immaterial whether Mr. Dhanani had authority to enter
into the contract.
The appellant company cannot repudiate the actions of the Chairman/director
done within the scope of this ostensible authority.
[27] The management and conduct of the business of the appellant company
throughout the material period was in the hands of Mr. Dhanani. The board of
directors by their conduct helped to create this im¬pression or belief in
the mind of the respondent, and, indeed, in the minds of other persons who
dealt with the appellant company.
[28] The respondent thus reasonably believed that Mr. Dhanani had authority
to enter into the contract, as this matter, that is, entering into contracts
was a matter which was within the Articles of Association and powers of the
board of directors.
[29] It is submitted by Mr. Georgiadis that the respondent was an insider
and therefore was put on inquiry in regard to the powers of directors,
par¬ticularly Mr. Dhanani's authority to enter into the contract; that the
respondent should have known that Mr. Dhanani did not have power to offer
the terms in the contract; that the board of directors had no knowledge of
the contract and therefore by reason of the irregularity in his appointment
the contract is not binding on the appellant company.
[30] Regulation 80 in Part I of Table A provides that "the business of the
company shall be managed by the director and who may exercise all such
powers of the company as are not…required to be exercised by the company in
general meeting ...".
[31] Regulation 102 gives power to the directors to delegate any of their
powers to a committee.
[32] Thus under the Articles of Association the board of directors had
actual authority to appoint the respondent, or rather, could act on behalf
of the appellant company in a matter of appointment of its officers.
[33] Mr. Dhanani was Chairman of the appellant company and managed its
affairs with full knowledge of the board of directors, that is, he performed
the functions of the managing director, and as the contract was a contract
of service, which a person performing the functions of the managing director
would have power to enter into on the company's behalf, the respondent Was
not, even though he was an insider, obliged to inquire whether or not the
Articles of Association had been complied with before entering into the
contract.
[34] The respondent, in my view, was entitled to infer that the directors
held out Mr. Dhanani as authorised to enter into the contract on behalf of
the appellant company.
[35] The appellant company had to have someone conduct correspondence on its
behalf; such person surely must have authority to bind the company by
letters written on its behalf.
[36] Entering into a contract is a matter in which normally a managing
director would have power to act. Mr. Dhanani being a director and Chairman
and having been held out as the person managing the day to day business
affairs of the company, the respondent was entitled to rely on his dots (Mr.
Dhanani’s) as being those of the appellant company, and the latter must be
responsible for those acts in respect of which they have held him out as
having power or authority to perform.
[37] In my opinion the learned judge came to the right conclusion when he
held that the respondent, being Secretary of the company, was not placed in
a position different from that of an outsider, who is entitled to assume in
the absence of knowledge to the contrary, that a director signing a contract
has authority to do so.
[38] In my view the appellant company cannot dispute Mr. Dhanani's authority
to enter into the contract, whether or not they actually conferred on him
authority to do so. For these reasons I would dismiss this appeal with
costs.
[39] I would grant certificate for two advocates.
LAW,JA
[40] I have read the judgment prepared by Lutta J.A. in which the facts are
fully set out. The respondent Mr. Freeberne was appointed secretary of the
appellant company at the first meeting of the company held on 1st October,
1965, which he attended by invitation.
[41] Nothing was decided at that meeting as regards the respondent’s
emoluments and terms of service. Clearly it was not intended that he should
work without remuneration. It is common ground that the two American
directors only came to Kenya to attend board meetings, and that the
day-to-day management of the company was left in the hands of Mr. Dhanani.
[42] Mr. Dhanani was appointed Chairman of the Board at the first meeting.
He does not appear ever formally to have been appointed Managing Director,
but he resigned from that position at a board meeting held on 15th January,
1968, so that the inference is inescapable, to my mind, that his
fellow-directors considered him to have been the Managing Director since the
company's inception, and held him out as such, or they would not have
accepted his resignation from that position.
[43] It is clearly within the ostensible authority of a Managing Director to
negotiate a contract of service with an employee of the company. Mr.
Georgiadis for the appellant company has submitted that the negotiation of a
contract of service of the unusually generous type offered to the respondent
was "the business of the board", within the meaning of Article 14 of the
company's Articles of Association, and as such required the approval of a
quorum of the directors, and that it was the duty of Mr. Dhandni and of the
respondent to ensure that the contract was placed before the Board for its
approval.
[44] It should be noted that it was originally pleaded that the contract was
the outcome of fraudulent collusion between Mr. Dhanani and the respondent.
[45] This allegation was unreservedly withdrawn at the trial. The position
was thus that the respondent was appointed secretary at the first board
meeting. A few days later he received a letter setting out the terms and
conditions of his appointment, signed on behalf of the company by the
director to whom, to the respondent's knowledge, the management of the
company had been entrusted.
[46] The respondent accepted those terms. In my opinion, he was entitled in
those circumstances to look upon the letter as emanating from the Board,
which had appointed him but left his conditions of service unspecified.
[47] I agree with Lutta and Mustafa JJA. that Mr. Dhanani had ostensible
authority to make the offer, and that the company is bound by it.
[48] In these circumstances, whether the respondent was an insider or
outsider in relation to the company, he was under no duty to refer the
contract to the Board for approval.
[49] I agree that this appeal fails. There will be an order in the terms
proposed by Lutta JA.
MUSTAFA,J.A.
[50] I have had the opportunity of reading the judgment of Lutta, J.A. in
draft and I agree with him that the appeal must be dismissed.
[51] I would only add a few words. The respondent was appointed secretary of
the appellant company by the board of directors at its first meeting on 1st
October, 1965.
[52] The Chairman of the board of directors, Mr. Dhanani, on 5th October,
1965 wrote a letter on behalf of the board of directors offering a contract
of service to the respondent which the respondent accepted.
[53] The contract contained some generous terms, especially the provision
relating to pension rights. Before the contract period expired the
respondent's services were terminated by the appellant company which
resulted in the action for loss of benefits and damages.
[54] In its defence the appellant company had inter alia alleged fraud and
collusion between the respondent and Mr. Dhanani in relation to the contract
of service.
[55] These allegations of fraud and collusion were then unreservedly
withdrawn in the course of the trial. The appellant company then relied on
its alternative defence which was based on the alleged breach of duty on the
part of the respondent in failing to have his contract of service brought
before the board of directors for ratification or express approval.
[56] It seems to me that once the allegations of fraud and collusion were
withdrawn the main basis of the defence fell away.
[57] It may be that the appellant company would be entitled to seek some
explanation from Mr Dhanani for having offered comparatively generous and
unusual terms to the respondent, but that cannot affect the rights of the
respondent.
[58] In the absence of collusion or fraud there was no valid reason for the
respondent, albeit the appellant company's secretary, to place the contract
of service before the board of directors.
[59] As the trial judge has rightly found, Mr. Dhanani in effect had
ostensible authority to act for the appellant company in offering the
contract of service to the respondent. There was no evidence adduced to
indicate that the respondent knew or ought to have known that he was not
entitled to rely on the contract of service offered him by Mr. Dhanani; in
fact the evidence points the other way. The appeal fails. I concur with the
order proposed by Lutta, J.A. |
|
