“The Honorary Treasurer acknowledged that he had no authority to do so and took “full responsibility” of the mistake. Once the statement was duly retracted, its validity and enforceability necessarily fell away. The communication made by the Honorary Treasurer could not bind the respondent neither could it be enforced against it.”
Categories: Turquand Rule
The dispute turned on whether an undertaking to offer certain benefits on separation would bind a company if such an undertaking was made by someone who did not have the requisite authority. Organisations are juristic persons. They function through officials appointed to run such organisations. Not all officials in an organisation have the authority to make decisions on behalf of the organisation.
From a company law perspective, people dealing with organisations are protected against prejudice in case someone without the requisite authority decides or purports to make a decision which binds the company. As mentioned, this is a company law principle but also affects labour law to the extent discussed in this case. Its origin can be traced back to an old case between Royal British Bank v Turquand (1856) hence the rule has become known as the Turquand rule.
The applicant was the respondent’s Secretary-General for years. The national governing council for the respondent expressed concern over her performance. It gave her the option of resigning or face a suspension pending investigations into her conduct. She opted to resign on the 3rd of June 2012. In acknowledging her resignation, the Acting President of the organisation set out what the applicant was entitled to as benefits on separation. This included a Toyota Prado. On the 6th of June 2012, the Honorary Treasurer wrote to the appellant that the respondent will bear the costs of transferring the vehicle.
On 2 March 2013, the treasurer was reprimanded by the council for issuing communication without its mandate. The Honorary Treasurer wrote to the appellant retracting the statement regarding the pronouncement that the respondent will bear the costs of transferring the vehicle into the hands of the appellant.
Aggrieved, the appellant lodged a complaint with a labour officer demanding a sum of USD 17500 being the costs for the transfer of the vehicle. Conciliation failed and an arbitrator ruled that the respondent had to honour the commitment made by its treasurer. The respondent was not happy with the finding and appealed to the LC. The LC ruled that the turquand rule did not apply and that the employee was not entitled to the claim. The appellant employee was not satisfied thus lodging the current SC appeal.
The Courts Reasoning
Among other findings, the court noted that the fact that someone holds an important position in an organisation does not mean that such a person has the authority to make decisions on behalf of the organisation.
It also further noted that when the treasurer, in this case, retracted the statement binding the respondent company the appellant could not rely on the same statement as its enforceability fell away. This was compounded by the fact that the appellant knew how the organisation functioned including that the treasurer had no authority to produce such a binding statement.
The SC relied on the matter between Victoria Falls Steam Train Co (Pvt) Ltd v Wankie Colliery Co Ltd, HH-03-04. In this case, the court had explained the turquand rule and how it would apply. This court had come to the following conclusion:
“The rule in Royal British Bank v Turquand (1856) 6 E & B 327, 119 ER 886, which prevents a corporation from relying on non-compliance with its internal procedures to avoid contractual liabilities towards a third party, applies only where the third party was a genuine outsider acting in good faith, and where the transaction was carried out in good faith and was a legitimate one within the powers of the corporation though lacking completeness in terms of the corporation’s internal arrangements. The rule does not apply in cases where there has been a forgery, nor should it apply in the analogous case where the transaction has been carried out in deliberate violation of the internal procedures of the corporation.”
The SC argued that the appellant could not be protected in terms of this rule. The communication was made in breach of internal processes. The treasurer did not have the mandate to act in the way he did. The binding nature of the communication immediately fell away as a result thereof.
As a result of the above, the labour courts decision was confirmed by the SC.
The basic principles outlined in this case are of great importance. The company could not be bound by a communication made by someone who did not have the authority to make such communication on its behalf. It followed that the appellant couldn’t be protected by the rule that she sought to invoke and rely on. We submit that the important lesson from this case it that ex-employees who are aware of the processes in organisations they separate with cannot be protected by the Turquand rule.