Contract Of Employment

DEFINITION OF EMPLOYMENT CONTRACT

It is a reciprocal agreement in terms of which the employee makes available his services for a
determined period and usually for remuneration under the authority of the employer.

EMPLOYER
Is a person or body who exercises authority over an employee in terms of an employment contract where
the employee has made available his services to the employer for a determined period and usually for
remuneration

EMPLOYEE
Is a person who in terms of the employment contract makes available to the employer his
services usually for remuneration and for a determined period under the authority of the
employer

ELEMENTS OF EMPLOYMENT CONTRACT

1. Voluntary agreement between the parties

Forced labour and slavery are prohibited. A clear and unequivocal offer and acceptance must
exist

2. Services are rendered in respect of a subordinate relationship

This means that there is control and supervision when the services are rendered. The employer
also provides guidance during the rendering of the services

3. Remuneration of employee
In the absence of agreement, remuneration is payable after services have been rendered.
Remuneration is usually agreed in the contract. If not agreed then a reasonable remuneration is
paid to the employee

EMPLOYMENT CONTRACT DISTINGUSHED FROM RELATED CONTRACTS

It is distinguished from mandate, agency, independent contracting and so forth. It is important to

distinguish the employment contract from other legal contracts for purposes of
a)determining whether the labour relations Act applies or not
b)determining the vicarious liability of the employer
c) determining whether wage regulating measures are applicable to certain employees or not.

CRITERIA FOR DISTINGUISHING BETWEEN EMPLOYMENT CONTRACT AND OTHER

RELATED CONTRACTS

1. Organisational test
The test is whether the person concerned was part of the organisational structure of business or
company and whether his functions formed an integral part of the business
2. Supervision and control test
It is the essence of a contract of a master and servant that the servant should submit to the
direction of his employer and obey his employer’s instructions not only in the things he has to do
but as to the time and manner in which he has to do them.

3. Dominant impression test, multiple test or composite test

This is the test favoured by the courts. Under this test, one looks at the various factors that
traditionally revealed a contract of employment viz those showing a contract for the independent
contractor, weigh up these multiple factors to come with the dominant impression, namely the
person is an independent contractor or employee

SOUTHAMPTON ASSURANCE COMPANY V MUTUMA 1990 (1) ZLR 12

The employer had dismissed the employees without an approval of the minister arguing that they
were contractors. The court weighed up factors which they believed were part of a contract of
employment eg

1.were given list of customers

2.provided office space
3.were members of the company’s medical aid scheme
4.were not allowed to work for another insurance company
5.they worked under a hierarchy of managers
on the other hand, factors that demonstrated they were independent contractors
1. they were described as independent contractors
2.had flexible working hours
3.paid by commission

The court ruled that the dominant impression test showed that they were independent contractors.
The decision was criticised.

IN CHIWORESE V RIXI TAXI SERVICES

A taxi driver had flexible working hours, Was paid by commission, was described as an
independent contractor and the court ruled that he was an employee.

DUTIES OF THE EMPLOYER

Duties of the employer are derived from:

Common law
Constitution
Labour relations Act
International labour treaties
Employment contract
1. CONSTITUTION

a. Refrain from forced labour or slavery sec 14

b. Refrain from inhuman and degrading treatment of employees sec 15. A penalty like whipping
would be unlawful
c. Adi alterum partem rule sec 18
d. Refrain from unlawful discrimination sec 19&23
e. Not to violate employee’s freedom of association, assembly, movement and expression

2. DUTIES UNDER THE ACT

a. duty to respect employees entitlement to membership of trade union

b. duty to refrain from forced labour
c. duty to refrain from unlawful discrimination
grounds of discrimination:
gender, tribe, HIV, race, marital status, and disability

d. Duty to adhere to fundamental fair labour standards

e. Duty to adhere to prescribed maximum working conditions. Maximum of 8 hours a day and 40
hours a week
f. Duty to provide safe and healthy working conditions. Worker also has to exercise due care.
Workers in inherently dangerous environments are assumed at common law as voluntarily
assumed risk of reasonably foreseen dangers. Employer not liable if he took reasonable steps

g. Duty to pay remuneration

h. Duty not to commit unfair labour practices
i. Duty not to commit sexual harassment
j. Duty to grant sick leave
Sick leave is 90 days per year on full pay. Additional 90 days on half salary after providing a
certificate from the doctor

k. Duty to provide vacation leave:- 30 days a year;

l. Duty to provide special leave :- 12 days a year;
m. Maternity leave and benefits :- 90 days.

VICARIOUS LIABILITY OF THE EMPLOYER

The general rule is that the employer is liable for any delictual conduct committed by his
employee during the course and scope of his employment

REQUIREMENTS FOR VICARIOUS LIABILITY

1. Existence of employment contract

2. Commission of a wrongful act
3. Employment must have acted in the course and scope of his employment.
The test for whether the employee is acting within the scope of his or her employment is not
whether the employee is acting within the scope of his or her employment at the time but
whether his/her act or omissions constituted negligent performance of the work entrusted to him
or her. This is highlighted in the case of Nott v ZANU (PF) (1984).

In the present case Robert Moyo’s main duty was to deliver goods with a van to various
customers in Harare and then to return the vehicle to his place of work in Graniteside. Although
Robert drove to Mabvuku, 25 km away from his place of work and spent two hours, Nelion
Dube is still liable vicariously for the accident caused by his employee. The facts of this case are
at par with those in the Zimbabwean case of National Social Security Authority v Dobropoulos
& Sons (Private) Limited (2002) where the Supreme Court held the employer to be liable for the
delicts committed by the employees.

There are similarities between the facts given and this case. Both the drivers were employed to
effect deliveries. Both were in the process of returning their respective vehicles to the employer.s
premises when they were involved in collisions. Both deviated from their routes. In the National
Social Security case the accident occurred some five and half to six hours late but nonetheless
the court found the employer liable. It should be noted that the given facts bear very striking
resemblance to the facts of the National Social Security Authority (supra) and Feldman (Pvt) Ltd
v Mall (1945). In both cases the court held the employer vicariously liable.

In Hendricks v Cutting (1947), 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 and the employer was held liable. And 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 employer was held liable. Sometimes, considerations of social justice have led
courts to adopt the approach that the degree of deviation from the master’s instructions has to be
to a major extent before they will decide that the servant was not acting in the course of his
employment. For example, where the employee is partially promoting the interests of the
employer and partially his own, the employer will also be liable.

In Feldman v Mall (1945) the employee had to deliver goods and return immediately to his place
of work. On the way back he deviated from the route to partake of a drink with his friends. Later
on his way back to his place of work, he knocked down and killed someone. The court decided
that he had left his work only partially to promote his interests. He was, however, still promoting
the interests of the employer because he retained control of the vehicle and took it back to work
later. The employer was liable.

FAWCETT SECURITY OPERATIONS V ROSE

The court held that the employer of a security guard who had stolen goods entrusted to him to
guard was not liable because the guard had acted outside his mandate. This decision was
criticised greatly.

Criticism
Employers are held liable not because of any morally irreprehensible conduct on their part but
for a number of reasons including that they’re the ones who have created the risk that has
resulted in the harm to innocent third parties.
Employers are in a much better position to compensate the third parties than the employees. The
scope of employment may include acts done after hours or outside the mandate instructed by the
employer

BITI V MINISTER OF STATE SECURITY

Involved a driver who was not actively on duty, but who was on call and required to look after a
company vehicle overnight as well as to collect some employees in the morning. On the occasion
in question, the worker, possibly drunk, rammed into another car causing serious injury to the
driver of that car

It was held that the employer by entrusting a motor vehicle to a relatively low paid employee
overnight had placed an enormous temptation in the driver’s way.

DUTIES OF THE EMPLOYEE

To provide service
Duty of competence and efficiency
Duty of subordination
Duty of good faith

UNFAIR DISMISSAL

Dismissal must be substantively and procedurally fair. Any dismissal that is not procedurally and
substantively fair is unfair. Substantive fairness means there must be a reason for dismissal.
Termination must be a sanction of last resort. Procedural fairness requires that all procedures
have to be complied with in terms of the Act, code or any other regulations.

TERMINATION OF CONTRACT OF EMPLOYMENT

1. By agreement through:
a. Effluxion of time
b. Notice of termination
2. Impossibility of performance, death of employer or employee, insolvency of the employer.
3. Cancellation of employment because of misconduct
4. Retrenchment of employees

VICARIOUS LIABILITY

The principle of vicarious liability entails that a master is liable for the actions of his servant. The
doctrine entails that an employer/master is variously liable for all delicts committed by his
employee within the scope and course of his employment with the employer. For vicarious
liability to attach to the Master, the delict committed by the employee should have been
committed when the servant was within the scope and course of his employment with the Master.
However, it should be noted that it is not sufficient that the employee committed an act during
his ordinary working hours. If he does something entirely for his own purposes or benefit which
does not form part of his duties as a servant then the master would not be held liable. In other
words the Master could repudiate liability where the agent is on a frolic. of his own.
Consequently, tests have been applied by the courts in trying to define what the meaning of the
phrase .course and scope of employment is.

However, it has been held in some cases that the fact that the employee deviates from the
course of employment will not necessarily mean that there is no vicarious liability. Sometimes
considerations of social justice have led courts to adopt the approach that the degree of deviation
from employment has to be a major extent before they will decide that the servant was not acting
within the course of his employment. The question that would be asked is. Was the deviation of
such a degree in terms of time and distance that it cannot be reasonably said he was still
exercising the functions he was employed for? It is the degree of the servant’s deviation that lies
at the heart of the question of the Master’s liability for the delictual acts of the servant.

This is highlighted in the case of Nott v ZANU (PF) (1984).

In the present case Robert Moyo’s main duty was to deliver goods with a van to various
customers in Harare and then to return the vehicle to his place of work in Graniteside. Although
Robert drove to Mabvuku, 25 km away from his place of work and spent two hours, Nelion
Dube is still liable vicariously for the accident caused by his employee. The facts of this case are
at par with those in the Zimbabwean case of National Social Security Authority v Dobropoulos
& Sons (Private) Limited (2002) where the Supreme Court held the employer to be liable for the
delicts committed by the employees. There are similarities between the facts given and this case.
Both the drivers were employed to effect deliveries. Both were in the process of returning their
respective vehicles to the employer.s premises when they were involved in collisions. Both
deviated from their routes. In the National Social Security case the accident occurred some five
and half to six hours late but nonetheless the court found the employer liable. It should be noted
that the given facts bear very striking resemblance to the facts of the National Social Security
Authority (supra) and Feldman (Pvt) Ltd v Mall (1945). In both cases the court held the
employer vicariously liable.

Employment delicts and employers responsibilities

In our law, an employer is as a rule liable to third parties for delicts committed by the employee
within the scope of his employment.
In order to hold the employer liable for the delicts of his employee the following requirements
must be present:
(a) The agent should be a servant and not an independent contractor. He should be subject to
the employer’s control and direction as to what to do and the manner in which he carries out his
work. If the employer has a right to issue commands to the employee and to exercise control over
him it will serve as a prima facie proof of the existence of a contract in which the agent is a
servant rather than an independent contractor.

(b) The acts should have been committed when the servant was within the scope of his
employment. It is not sufficient that the employee committed an act during his ordinary working
hours. If he does something entirely for his own or benefit which doesn.t form part of his duties
as a servant, then the master would not be held liable. In other words the master could easily
repudiate liability where the agent is on a .frolic of his own. Whether an action falls in the course
of the employee’s service or not is a question of fact and depends on the particular circumstances
of each case.
If the employee is acting within the scope of his employment whether during or after working
hours the employer will be liable for any delict committed.

In Hendricks v Cutting (1947), 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 and the employer was held liable. And 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 employer was held liable. Sometimes, considerations of social justice have led
courts to adopt the approach that the degree of deviation from the master’s instructions has to be
to a major extent before they will decide that the servant was not acting in the course of his
employment. For example, where the employee is partially promoting the interests of the
employer and partially his own, the employer will also be liable.

In Feldman v Mall (1945) the employee had to deliver goods and return immediately to his place
of work. On the way back he deviated from the route to partake of a drink with his friends. Later
on his way back to his place of work, he knocked down and killed someone. The court decided
that he had left his work only partially to promote his interests. He was, however, still promoting
the interests of the employer because he retained control of the vehicle and took it back to work
later. The employer was liable.

Ultra Vires Doctrine

According to Tett and Chadwick on :-
Zimbabwe Company law: the result of the ultra vires rule ... is that if a contract is made, which is
ultra vires the object clause, it is void and cannot be ratified even if all the members agree
thereto. Hence the fact that Eldorado Enterprises (Pvt) Ltd (EE)’s directors would not have
sanctioned such purchase if they had been aware of it, is legally irrelevant according to the case
of Ashbury power to carry on business as mechanical engineers and general contractors. The
directors entered into a contract for the financing of a certain railway in Belgium and it was
argued that the words .general contractors embraced such activity. It was held that the contract
was ultra vires the memorandum and even if every member had agreed or endorsed it, was void
and unenforceable. However the doctrine of ultra vires has largely been abolished in
Zimbabwean company law through S.10 of the Companies Act [Chapter 24:03] i.e. (effect of a
statement of objects) which essentially provides that the effect of a statement of the objects of the
company in its memorandum or elsewhere, shall not be to invalidate any transaction which
exceeds those
objects and which was made by the company or entered into by the company with any other
person.

It should also be noted, however, that a distinction exists between those actions which are ultra-
vires the company’s powers and those ultra vires the powers of a director, but within the powers
of a company as the situation in the case of Royal British Bank v Turquand (1856). Note should
also be taken to the fact that ss.11 and 12 of the Companies Act are quite relevant to the given
set of facts.

Section 11 clearly crystalizes the position at common law. This section clearly does away with
the issue of constructive notice of all company documents to the public and even some of the
company officials and employees.

Section 12 constitutes a presumption that any person having dealings with a company or with
someone deriving from a company shall be entitled to assume among other things, that every
person described in the company’s register of directors and secretaries, or in any return
delivered to the Registrar by the company has authority to exercise the functions customarily
exercised by a director, manager or secretary of a company carrying on business of the kind

ADHERENCE TO THE ULTRA VIRES RULE

Prior to the amendment of the Company’s Act in 1993 the courts adopted a fairly strict approach
in interpreting the objects clause. The company could not do anything outside the powers given
in the memorandum . Anything so done was ultra vires. Any act done by the directors which was
ultra vires (beyond the powers) of the company, would be void and the company could not make
it valid, even if every member assented to it. Ashbury Railway Carriage Company v Riche
(1875) The position is somewhat different now and this is captured by section 10(1) of the Act
(incorporating amendment act No. 6 of 1993) which reads as follows:

The effect of a statement of the objects of a company, whether in its memorandum or elsewhere,
shall not be to invalidate any transaction which exceeds those objects and which was made by
the company or entered into by the company with any other person, notwithstanding that the
other person was aware of the statement of the objects. Although the position of the courts
towards agreements which exceed the objects clause has now considerably softened in the light
of section 10(1) of the Act, the remedy which Messrs Toughtalk and Roughlife, the two
aggrieved shareholders, desire to get (interdict) is provided for under section 10(2)(a) which
reads:

“without derogation from any remedy that may be available to the person concerned. (a) any
member or debenture holder of a company may, prior to the event, apply to court and may
obtain an interdict restraining the company from making or entering into any transaction which
exceeds its objects, whether stated in its memorandum or elsewhere ..”
Although the ultra vires doctrine has been abolished some of its residual effects are still being
felt.

BUSINESS ORGANIZATIONS
Key objectives of this lecture include:

1. Introductory remarks on the forms of business organization.

2. Differentiate between sole traders, partnerships, private business corporations, companies and
statutory corporations.
3. Examine characteristics of companies in greater detail.
4. Examine the legal nature of companies as business entities.

1. INTRODUCTION
In Zimbabwe several there are several forms of business enterprises. They Range from sole
trader to public limited liability company. The Degree of regulation applicable to each differ, the
higher the degree of public involvement, the higher the intensity of regulation. Regulation
achieved through registration of entity and publicity requirements.

TYPES OF BUSINESS ENTITIES

a. Sole trader
Sole trader is individual run business for own benefit.
Proprietor provides own capital retains all profits and accepts all losses of business. He is
personally liable. He is not answerable to no one but self-provided he pays taxes to the state.
Large percentage belongs to the informal sector. The Main advantage is flexibility; business is
not tied by agreement or memorandum and articles. Main disadvantage is shortage of capital to
finance operations and growth possibly exacerbated by poor creditworthiness. It is virtually
impossible to source loans from financial institutions. Lending institutions require collateral
before advancing loan facilities. Sole trader may lack this. Large sums of money generated in
this sector but taxation is a nightmare. Income taxed as if that of the owner. A Great deal is said
about transforming informal sector through such ill-conceived and poorly defined concepts as
indigenisation but thus far these have proved a failure. The amounts set aside to achieve these
aims over the years have not achieved their aim due to lack of proper planning, transparency and
corruption.

b. Partnerships
Partnership consists of between 2 and 20 persons. In designated professions it may consist of
more than 20 persons. Formed by agreement between the parties. No requirement that it must be
in writing. It Can be inferred from behaviour of the parties.
Working definition- a Partnership is a legal relationship between 2 or more persons [not
exceeding 20, with certain statutory exceptions] in terms of which each contributes something to
a lawful undertaking with the view to making profit subsequently dividing such profit among
themselves.

For partnership to be legally constituted the following elements are essential:

a. Agreement;
b. Contribution of something [of commercial value, money, labour, skill, property, licence,
expertise etc.] by each partner;
c. Undertaking for joint benefit of all the partners;
d. Aim must be to make a profit.

In the absence of agreement on profit sharing ratios assumed partners entitled to equal shares.
Advantage of partnership over sole trader pooling of capital labour and skills places more
resources at the disposal of the partnership.
In the event of failure of the partnership enterprise all assets of the business are sold first. If
insufficient to cover debts, property of individual partners may be attached and sold to satisfy
demands of creditors.

Partnership [as with sole trader] does not create a separate legal entity [persona], nor does it
enjoy perpetual succession. For procedural reasons and simplicity the Magistrate's Court [Civil}
Rules provide that a summons against a partnership may cite [i.e. be issued against a partnership
in its own name] as if it were an entity. This does not apply to an action in the High Court. Any
change in the membership of a partnership dissolves [terminates] it. If the remaining partners
continue in business a new partnership is constituted [See Standard Bank v Wentzel & Lombard
1904 SA]
In Zimbabwe, [except with regard to a few exceptional matters in specific statutes] there is no
statute that regulates partnerships. The law is therefore embodied in the common law.
Partnership largely governed by the law of agency. In Divine, Gates & Co v African Clothing
Factory 1930 SA it was observed: "Partners are often styled agents of each other. They certainly
have powers of agents and the broad principles of law applicable to agents apply to this extent to
partners".

A partner acting without consultation can bind his partners to a transaction, which forms part of
or is incidental to the partnership business.

Partnership can be formed by conduct [See Festus v Worcester Municipality 1945 SA]: F and
wife married out of community of property. They Bought 3 cows for milking from which
prosperous dairy business developed. They both contributed labour and money. Following a
dispute between F and wife over business involving municipality the court after reviewing the
facts held that a partnership existed between F and his wife. Hence the assets and liabilities of
this partnership were to be shared along partnership lines.

No legal personality-partnership cannot be the registered owner of property in its own name.
Property registered in the names of partners in shares as described in the deed. This does not
prevent one of the partners from disposing and transferring ownership of the property without the
authority of the other partner. Nor with the exception mentioned above can it sue or be sued in its
own name. The personal liability of some partners can be limited viz a viz outsiders.

Partnership may be terminated by:

a. Agreement [express or implied]
b. Unilateral action by one of the partners;
c. Insolvency of the partnership or one of its members;
d. Death of one of the partners;
e. Illegality of the partnership objects.

c. Private Business Corporations {PBC}

These entities can exist because of provisions of Private Business Corporations Act [Chapter
24:11]
Attempts by legislature to give scope for the formalisation of the informal sector by exempting
such business from the rigorous requirements of the Companies Act, PBC's incorporate features
of both partnership companies.

S. 4 of the Act 1 or more persons not exceeding 20 may form PBC by subscribing their names to
an incorporation statement.

S. 5 prescribes that Incorporation Statement shall be in the prescribed form and state:
i] Name of PBC words "Private Business Corporation " at end.
ii] Postal address of the business.
iii] Physical address of the business.
iv] Full names and National Registration number of each member.
v] Percentage of each members interest in the business.
vi] The amount of each member's contribution.
vii] The name and address of the address of the accounting officer to whom the members
intent to submit their financial statements in terms of S. 47.
viii] The date of the end of the financial year of the business.

S. 9 provides that members of PBC not liable for debts of business. Concept of separate
personality borrowed from company law. There’s a Clear distinction between PBC and members
who formed it.

By S. 12 members may agree to limit objects of the business.

Also borrowed from company law but in this case it is optional.

S. 37 imports agency principle by providing every member not a minor agent for business acts
bind business, provided:
aa] authorised expressly or implied by business or ratified subsequently by it.
bb] done for purpose of carrying on business in usual way unless member acting had no
authority and person with whom dealing knew or ought to have known had no authority.

S. 51 voluntary winding up of PBC by resolution of members.

S. 52 winding up by court if:

a] Members more than half vote resolve that be wound up.
b] Not commenced operations within 1 year of registration.
c] PBC unable to pay debts.
d] Failed to comply with order to change name i.t.o. S 14.
e] Appears to court just and equitable PBC be wound up.

S. 53 PBC unable to pay debts if:

a] creditor is owed $200 or more served letter of demand on PBC and has failed to pay or
take other measures to pay within 21 days.
b] Writ of execution in favour of the creditor is returned by Deputy Sheriff or Messenger of
Court that there are Insufficient assets to satisfy.
c] Proved to satisfaction of court that PBC is unable to pay debts.
Despite simplicity of rules governing PBC's still rare in Zimbabwe because people not familiar
with them.

d. Limited Liability Companies

Form a large and important part of business community more will be said about them later.
Suffice to say at this stage that company law originated in the United Kingdom and it requires a
knowledge of the history of company law and its subsequent development in an attempt to reign
in the artifices of the less scrupulous persons who would seek to use them as engines to relieve
ignorant, unsophisticated or simply unwary members of the public of their worldly wealth
acquiring it for themselves.

In Zimbabwe all limited liability companies are regulated by the Companies Act [Chapter 23:03]

e. Public Corporations
Public corporations are each creatures of their own statute. They were originally considered to be
public service entities providing necessary service requiring considerable investment in
infrastructure for very small returns, which were not considered commercially viable. These
services required public subsidisation at their inception. They were normally established as
monopolies. These are represented by such unfortunate bodies as the National Railways of
Zimbabwe, Air Zimbabwe, Tel/One, Net One and of course the Zimbabwe Broadcasting
Corporation.
The present debate regarding them is whether the nation can really afford these bloated,
inefficient edifices of the heyday of independence euphoria or whether they should be allowed to
go the way of all outmoded, outdated monstrosities of a bygone era by facing them with open
market competition. To allow to be or not to allow to be seems to be the question.

3. INTRODUCTION TO COMPANIES AND THEIR LEGAL NATURE

Registered company regarded by law as a person distinct from members. Can indulge in
activities which natural person can. Can enter into contracts, own property and sue or be sued in
its own name. Companies Act provides that on incorporation company shall have the capacity
and powers of a natural person of full capacity in so far as body corporate is capable of
exercising such powers.

Company in Zimbabwean law refers to those entities registered under the Companies Act
[Chapter 24:03] Member of a company may, but need not, be a shareholder.
Company is an artificial person. Cannot act for itself only acts through human agents. Agents of
Co. called directors formulate policies, steer Co. toward achieving its objectives.
Leading case on separate legal personality of Co. Salomon v Salomon & Co. [1897 All E R [HL].
S carried on profitable business as a sole trader as a boot and shoe manufacturer. The business's
assets exceeded its liabilities. S decided to form a Co. to which he transferred the business as a
going concern. Held virtually all shares except on each transferred to his wife, daughter and four
sons. He caused the Co. to issue debentures to himself in respect of the purchase price of the
business. On liquidation the Co. had assets worth 6 000 but owed 7 000 to unsecured creditors
and 10 000 in debentures. If debentures are valid, debenture holders would take whole amount
realised from the sale of the assets leaving the unsecured creditor with nothing. They, through
the liquidator, claimed that debentures are invalid because:
a] Co was S in another form;
b] Co. did not have members independent and unconnected with ea. other.
Court of Appeal found in favour of unsecured creditor. House of Lords reversed the decision of
the court of Appeal and held: Once the Company is registered has legal existence and separate
from those who formed it. Co. could not be Salomon in another form as argued. Co's transactions
valid and the debentures were valid.

4. CHARACTERISTICS OF COMPANIES

a. Separate legal personality.

Although Co. has no physical existence, but a legal fiction, it has the same powers and rights of a
natural person. Property of the Co. is not owned by members although they own the business. In
Macaura v Northern Assurance Association [1925], M was a sole trader formed a limited
liability Co. to which he transferred all his business interests and property. M was the sole
shareholder of the Co. Among the property transferred was a consignment of timber. This
timber insured against risk of destruction or damage by fire in the name of M. The timber was
destroyed by fire and M claimed compensation from the insurer i.t.o. the policy. Insurers refused
to meet claim arguing that M had no insurable interest in the timber at the time the event giving
rise to the destruction occurred. M sued the insurers and lost. The court holding that since the
timber was Co. property the right person to insure the timber was the Co. itself and not M. M's
insurable interest had terminated with his transfer of the timer to the Co. This decision based
solely on the concept of the Co's separate legal personality.

b. Limited Liability
The word limited that appears in the name of every Co. serves to give notice to all who deal with
it that the liability of the shareholders to the creditor of the Co. is limited. For Co's. with share
capital members cannot be required to contribute more than the amount outstanding on their
shares. Key difference between limited liability Co's. and partnerships and sole traders.

c. Transferability of shares
Shares in Co. are property and can be transferred, pledged, mortgaged, sold etc. Extent to which
shares can be dealt with depends on the type of Co. and it's Articles of Association. Private
limited liability Co's. are obliged to restrict transferability of their shares by S. 33 of the Act.
Shares in public Co's are generally freely transferable.

d. Perpetual succession
Co's. life only terminated by judicial process called winding up or liquidation. Unless wound up
or liquidated, Co. continues to exist no matter what changes take place in its membership, except
for the statutory limitations on the lowest number of members, directors and officers a Co. may
have. As separate legal entity it has a life separate from its members. It has perpetual succession.
The death of a member does not terminate the existence of the Co. as is the case with
partnerships.

e. Capital
When Co. is registered the amount of its share capital must be disclosed in its Memorandum of
Association. The Registrar must be notified of subsequent alterations to the capital clause in the
Memorandum. Capital may consist of different classes of shares, namely: ordinary shares;
preference shares, etc. Differ as to their rights to dividends and voting power.

f. Objects
The object for which the Co. is formed disclosing the business it will become involved in set out
in Objects clause in Memorandum of Association. No Co. can be registered with vague and
uncertain objects. Amendment to the objects clause in the Memorandum requires specific
procedures.

g. Management
Co. as an artificial person cannot manage itself, it acts through human agents directors. Directors
have legal responsibility to formulate Co. policies manage it in the best interest of shareholders
and other stakeholders. Directors are answerable to the Co. in general meetings
Shareholders have power to appoint and remove directors.

5. TYPES OF COMPANIES

There are 2 broad categories, Co's. Limited by shares and those limited by guarantee.
Co's limited by shares raise capital through issue of shares. Such Co's. further divided into 2
categories, namely: Private and Public Companies.

Private Co. apart from having the words "Private Limited" in their names, restrict the
transferability of their shares and may not have less than 2 or more than 50 members [excluding
employees] in terms of S.7 of the Act. Usually the restriction on the transferability of shares in
Private Co's. takes the form of pre-emption rights in favour of remaining shareholders to whom
the shares are first offered by the shareholder wishing to sell the shares.

Public Co. generally do not restrict the transfer of their shares and in whom the public at large
are invited to purchase shares. It may not have less than 7 members but no maximum number is
prescribed by the Act. Only a public Co. can apply for listing on the Stock Exchange and if,
successful the Stock Exchange rules require that its shareholders be increased to at least 300. A
Public Co. [unlike a Private Co.] is required by S. 124 of the Act to hold a statutory meeting
prior to the commencement of business.

Co's. Limited by guarantee do not issue shares but members undertake to contribute a certain
amount of money to the Co. In event of liquidation members' liabilities limited to the amount
guaranteed.

Every Co. registered to conduct business in Zimbabwe must have at least 2 directors, one of
whom must be ordinarily resident in Zimbabwe. The liability of its shareholders is always
limited unless it chooses to operate with unlimited liability, or it falls foul of the provisions of
the Act in terms of which the limits on its liability is forfeited.

ULTRA VIRES DOCTRINE

According to Tett and Chadwick on

Zimbabwe Company law: the result of the ultra vires rule ... is that if a contract is made, which is
ultra vires the object clause, it is void and cannot be ratified even if all the members agree
thereto. Hence the fact that Eldorado Enterprises (Pvt) Ltd (EE)’s directors would not have
sanctioned such purchase if they had been aware of it, is legally irrelevant according to the case
of Ashbury power to carry on business as mechanical engineers and general contractors. The
directors entered into a contract for the financing of a certain railway in Belgium and it was
argued that the words .general contractors embraced such activity. It was held that the contract
was ultra vires the memorandum and even if every member had agreed or endorsed it, was void
and unenforceable. However the doctrine of ultra vires has largely been abolished in
Zimbabwean company law through s.10 of the Companies Act [Chapter 24:03] i.e. (effect of a
statement of objects) which essentially provides that the effect of a statement of the objects of the
company in its memorandum or elsewhere, shall not be to invalidate any transaction which
exceeds those
objects and which was made by the company or entered into by the company with any other
person.

It should also be noted, however, that a distinction exists between those actions which are ultra-
vires the company’s powers and those ultra vires the powers of a director, but within the powers
of a company as the situation in the case of Royal British Bank v Turquand (1856). Note should
also be taken to the fact that ss.11 and 12 of the Companies Act are quite relevant to the given set
of facts.

Section 11 clearly crystalizes the position at common law. This section clearly does away with
the issue of constructive notice of all company documents to the public and even some of the
company officials and employees.

Section 12 constitutes a presumption that any person having dealings with a company or with
someone deriving from a company shall be entitled to assume among other things, that every
person described in the company’s register of directors and secretaries, or in any return
delivered to the Registrar by the company has authority to exercise the functions customarily
exercised by a director, manager or secretary of a company carrying on business of the kind

ADHERENCE TO THE ULTRA VIRES RULE

Prior to the amendment of the Company’s Act in 1993 the courts adopted a fairly strict approach
in interpreting the objects clause. The company could not do anything outside the powers given
in the memorandum . Anything so done was ultra vires. Any act done by the directors which was
ultra vires (beyond the powers) of the company, would be void and the company could not make
it valid, even if every member assented to it. Ashbury Railway Carriage Company v Riche
(1875) The position is somewhat different now and this is captured by section 10(1) of the Act
(incorporating amendment act No. 6 of 1993) which reads as follows:
The effect of a statement of the objects of a company, whether in its memorandum or elsewhere,
shall not be to invalidate any transaction which exceeds those objects and which was made by
the company or entered into by the company with any other person, notwithstanding that the
other person was aware of the statement of the objects. Although the position of the courts
towards agreements which exceed the objects clause has now considerably softened in the light
of section 10(1) of the Act, the remedy which Messrs Toughtalk and Roughlife, the two
aggrieved shareholders, desire to get (interdict) is provided for under section 10(2)(a) which
reads:

“without derogation from any remedy that may be available to the person concerned. (a) any
member or debenture holder of a company may, prior to the event, apply to court and may
obtain an interdict restraining the company from making or entering into any transaction which
exceeds its objects, whether stated in its memorandum or elsewhere ..”
Although the ultra vires doctrine has been abolished some of its residual effects are still being
felt.