Legal capacity and r epr ese ntation of the company/e x te r nal r e lations

T he legal capacity of a company

The act states that a company should not be restricted to the outdated idea that a business may only
conduct specific business activities, and instead have the same legal capacity as an individual – unless
the MOI states otherwise. This allows the company to do almost everything a natural person can do,
the limit of course being those that are exclusive to natural persons. There are also statutory restrictions
that apply to certain activities.

The Act, in providing that a company has all the legal powers and capacity of an individual, follows the
approach adopted in other common law jurisdictions and also in the Close Corporations Act 69 of
1984.
Section 19(1)(b) of the Act provides that a company has all of the legal powers and capacity of an
individual, except to the extent that (i) a juristic person is incapable of exercising any such power, or
having any such capacity; or (ii) the company’s Memorandum of Incorporation provides otherwise.

Equally importantly, it is no longer mandatory in terms of the Act for a company to have an objects
clause in its Memorandum of Incorporation. This alone removes much of the legal complexity
surrounding the determination of the main object of the company.

At common law for a contract to be binding the company must have had the legal capacity to enter
into the contract and the directors must have had the authority to enter into the contract (Agency)

Under the Companies Act of 1973 the legal capacity of a company was determined by the objects
clause - s52 (1) (b). A company only had capacity for contracts falling in / related to its main object.

L E GAL
C A PACITY

CONTRACTS

CAPACITY – Legal
competency/
Powers

AUTHORITY OF
AGENTS –
Director/Officer-
acts with
delegated power

T he ultr a vir es doctr ine:

T he ultr a vir es doctr ine (common law):
The object of this doctrine was twofold; first to protect the investors and shareholders, and second to
protect the creditors of the company.
An ultra vires act denotes some act or transaction entered into by the company which is beyond the
legitimate powers / capacity of the company as defined by its objects clause
Externally between the company and the other party to the ultra vires contract, the contract was null and
void; internally between the company, its directors and shareholders, directors were held liable
Companies developed various methods to easily circumvent the ultra vires doctrine and to render it
ineffective.

For example, Cos would ask their legal teams to include clauses which broadened the ambit of all
manner of possible business activity/interests
English case law- cos allowed to insert a clause which extended the capacity to do any trade or
business ancillary to what was provided in the objects clause (see Bell House Ltd v City Wall Properties
Ltd [1966] 1 WLR 1323 (CA).
English courts narrowed the scope of the ultra vires doctrine. In Cotman v Brougham [1918] AC 514
Lord Wrenbury described this practise as a pernicious practice whose function was no longer ‘not to
specify, not to disclose, but to bury beneath a mass of words the real object or objects of the company
with the intent that every conceivable form of activity shall be found included somewhere within its
terms’.
Instead of revealing the company’s main business, the objects clause instead concealed it

T he doctr ine of constr uctive notice:

According to the common law, when a person deals with a company, they are immediately assumed to
be aware of the contents of the constitution and the public documents of the company that have been
lodged with the Registrar of Companies – this was whether they have read the documents or not.
Ernest v Nicholls (1857) 6 HL Cas 401

The act has since abolished this (s 19(4)) as it was deemed to not be fair to have this expectation of the
persons (Mine Workers ’Union v J J Prinsloo, Mine Workers’ Union v J P Prinsloo, Mine Workers’ Union
v Greyling 1948 (3) SA 831 (A) at 848). This resulted in a person having no legal grounds for
complaint if the transaction entered into is held not to be binding on the company because it patently
conflicts with the company’s requirements as laid down in the company’s public documents, regardless
of whether that person has in fact inspected those documents and became aware of those
requirements. This was a negative doctrine that was in favour of the company and not the third party -
Houghton & Co v Nothard, Lowe &Wills Ltd [1927] 1 KB 246 (CA) at 266 aff ord [1928]AC 1; [1927]
All ER 97 (HL).

The doctrine ‘operates against the person [dealing with a company] who has failed to inquire, but does
not operate in his favour’ (per Slade J in Rama Corp Ltd v Proved Tin & General Investments Ltd [1952]
2 QB 147 at 149; [1952] 1 All ER 554 at 556).

In Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2QB 480, Diplock LJ
said at 504:
‘It [DCN] operates to prevent the contractor from saying that he did not know that the constitution of
the corporation rendered a particular act or a particular delegation of authority ultra vires the
corporation. It does not entitle him to say that he relied on some unusual provision in the constitution of
the corporation if he did not in fact so rely.’

They have introduced a muted version (s19(5)) that can only apply in two circumstances. The first
instance is that they are presumed to have knowledge if attention has been brought to it and its
location and the expression RF (ring-fenced) has been suffixed to the name of the company.
The second instance is in the case of personal liability company. These persons who deal with personal
liability companies are deemed to be aware of the effect of the directors’ and former directors’ joint
and several liability for debts and liabilities of the company ‘contracted’ during their periods of office .

T he Act– S 1 9 (4 ) & (5 )
Section 19(4) and 19(5) provide:
‘(4) Subject to subsection (5), a person must not be regarded as having received notice or knowledge of
the contents of any document relating to a company merely because the document—
(a) has been filed; or
(b) is accessible for inspection at an office of the company.’
(5) A person must be regarded as having notice and knowledge of—
(a) any provision of a company’s Memorandum of Incorporation contemplated
in section 15(2)(b) or (c) if the company’s name includes the element ‘‘RF’’ as contemplated in section
11(3)(b), and the company’s Notice of Incorporation or a subsequent Notice of Amendment has drawn
attention to the relevant provision, as contemplated in section 13(3); and
(b) the effect of subsection (3) on a personal liability company.’

T he Act & DCN

Authors such as Cassim and Jooste are of the belief that s19(4) abolished the DCN.
To be precise, s19 (4) says that a person is not to be regarded as having notice or knowledge of the
contents of any document relating to a company merely because that document has been filed or is
accessible through office of the co. The exceptions are the following:
– the memorandum of incorporation contains restrictive conditions applicable to the company;
– the company’s name includes the element ‘‘RF’’ (see also s 11(3)(b)); and
– the company’s Notice of Incorporation or a subsequent Notice of
– Amendment has drawn attention to the restrictive conditions.

T he Companies Act of 1 9 7 3 (section 3 6 )

Section 36 of the Companies Act of 1973 reformed the ultra vires doctrine by:
Abolishing the doctrine externally
Preserving the doctrine internally (as a form of shareholder protection & protection for the company).
If directors entered into Ultra vires act, co would still be liable to third party, but director liable to
company for losses

T he Companies Act of 2 0 0 8 (section 2 0 )

Under section 19(1)(b) of the Companies Act of 2008 a company has the legal capacity and the
powers of an individual except to the extent that:
• A juristic person is incapable of exercising any such power
• The Memorandum of Incorporation provides otherwise

No act of a company is void merely because the company did not have capacity to perform an act (see
s20(1)(a)). No longer mandatory for the Memorandum of Incorporation to have an objects clause
setting out the main object of the company. But the Memorandum of Incorporation may impose
restrictions on the legal capacity of a company on an optional basis. (RF Company) –s20 (1) – (2).

S 2 0 (1 ) (a) – INT ERP RET AT ION: RES T RICT ING CO’s CAP ACIT Y
20. Validity of company actions. —
(1) If a company’s Memorandum of Incorporation limits, restricts or qualifies the purposes, powers or
activities of that company, as contemplated in section 19 (1) (b) (ii)—
(a) no action of the company is void by reason only that—
(ii) the action was prohibited by that limitation, restriction or qualification; or
(ii) as a consequence of that limitation, restriction or qualification, the directors had no
authority to authorise the action by the company;
Though companies now can have unrestricted capacity (restricting objects restricts the purposes for
which a company’s powers may be exercised), the MOI may restrict capacity on an optional basis
Companies’ powers thus may not be exercised for a purpose that conflicts with restrictions imposed.
Doing so would be ultra vires & beyond authority of the directors

S UBST ANCE OF S2 0 (1 )(a)

Admittedly, there are conceptual difficulties in interpreting s20(1) (a), e.g., is the action that of the co. if
the contract is inconsistent with the MOI and any restrictions imposed therein? Acts of the board and
shareholders in general meeting as acts of the co. per Rolled Steel Products (Holdings) Ltd v British Steel
Corporation (1985) 3 All ER 52 (ChD)

“Action” – Meaning wider than just a transaction: section applies to company contracts plus unilateral
non-commercial activities e.g., donation to a charity and as Cassim et al adds, even to a political party
– perhaps contrary to case law – see Re Halt Garage (1964) Ltd [1982] 3 All 1016 (ChD) 1024 –
gratuitous disposition of company assets ruled to be not a transaction

The fact that an action of a company is ultra vires does not invalidate the contract between the
company and a bona fide third party
Effect of the section – is to deprive the directors of the requisite authority to conclude a contract on
behalf of the co which is inconsistent with the restrictions

An ultra vires action entitles shareholders to restrain the company from proceeding with the contract,
transaction or action

Inter nal Consequences of the ultr a vir e s act – s2 0 (1 ) (b)

S 20 (1) (b) (i) & (ii) preserves the internal consequence of an ultra vires contract
Meaning = it permits issue of capacity to be raised in proceedings between (a) the company and its
shareholder, directors, officers or (b) shareholders and directors or prescribed officers of the company
Insights into s20(1) (b)

Section includes prescribed officers (a prescribed officer is a person who, although he may not be
‘director’, exercises general executive control and management over a portion of the company’s
business and its activities (Reg 38 of the Companies Regulations).
Wording of s20(1)(b)(i) implicitly refers to derivative action, in the sense that firstly, shareholders can
institute action for this remedy against miscreant directors for breach of a fiduciary duty to the
company.
Secondly, shareholders, directors or prescribed officers may restrain the company from acting in
contravention of the constitutional restriction to its capacity (s20(1) (b) (i)).
s20 (1) (b) (ii) implies that the shareholders can institute action (personal action to restrain directors and
officers from carrying out any act in contravention of the limitation, restriction or qualification in the
company’s MOI

The effect of s20(1)(b) is that the subsection preserves the internal consequences of an ultra vires action
If a contract conflicts with restrictions contained in the Memorandum of Incorporation:
• The contract remains valid and binding on the company and the other party to the contract
• A third party who deals with the company in good faith (other than a director, prescribed officer or
shareholder) is entitled to presume that the co has complied with all its internal formal and
procedural requirements, unless the person knew or ought to have known of the co’s failure to
comply with any such requirements.
• Shareholders may ratify by special resolution an act of the directors that is inconsistent with
restrictions in the Memorandum of Incorporation (s20(2)) – It is remarked by Cassim et al that this
overrules the rule in Ashbury Railway Carriage and Iron Co v Riche (1875) LR 7 HL 653, which laid
down the rule that since an ultra vires action is a nullity, it could not be ratified even by the
 unanimous assent of all the shareholders of the company. If the act in question contravenes the
Companies Act, ratification is not permissible (s20(3)).
• If ratified, the liability of the directors for breach of fiduciary duty falls away, Co bound to contract
• If not ratified the directors will be liable under section 77(2) or section 77(3)(a) of the Companies
Act for breach of fiduciary duty.

Rights of inter nal stakeholder s to r estr ain a company – s2 0 (4 ) & (5 )

Section 20(4) – one or more shareholders, directors or prescribed officers of a company, or a trade
union may apply to the High Court to restrain the company from doing something inconsistent with the
Act

Section 20(5) - one or more shareholders, directors or prescribed officers may apply to High Court to
restrain the co or its directors from doing anything inconsistent with the limitation, restriction or
qualification contemplated in s20(2). However, such proceedings are without prejudice to the rights to
damages of a third party who (a) obtained the rights in good faith and (b) did not have actual
knowledge of the limit, restriction or qualification

See your text book on 223 -228 for an important commentary on these rights and especially the
protection of a bona fide third party and requirements of good faith and actual knowledge in terms of
s20(5). This is not to be conflated with s20(7) – (8)

Shar eholder s’ Claim for Damages – s2 0 (6 )

Section 20(6) provides for shareholder remedy to claim for damages against any person who
intentionally, fraudulently or due to gross negligence causes a company to do anything inconsistent
with (a) the Companies Act 2008 or (b) a limitation, restriction or qualification contemplated in s20
unless it has been ratified by the shareholders by special resolution in terms of s20(2)
Shareholder must have incurred damages

Ratification referred to is ratification of the actions of the company or its directors, and this may exclude
actions of the prescribed officers – or does it? If ratified, shareholders’ remedy will be excluded

Wording of s20(6) has proven to be problematic as exemplified in De Bruyn v Steinhoff International

Holdings NV (29290/2018) [2020] ZAGPJHC 145 (26 June 2020). Meaning of “any person” should
imply, in terms of enduring company law principles, that s20(6) imposes liability on those who manage
the business of the company (the board as fiduciaries) and the recipient of those rights should be the
company. The court misdirected itself by conferring on shareholders, a right to claim for damages
suffered by the company, instead of the shareholders claiming for damages which they personally
suffered. Alternatively, the court should have directed that the purpose of s20(6) could be served by
s165 – derivative actions

T he T ur quand r ule
This rule was designed to mitigate the effects of the doctrine of constructive notice. It protects the bona
fie third party who are not aware of any of the internal irregularities that will have an affect on the
validity of their contracts with the company. A third party acting in good faith is under no duty to
enquire whether the company has complied with its internal formalities and procedural requirements.

The basis of the Turquand rule is that bona fide third parties should not be prejudiced by a company’s
failure to comply with its own internal procedures and formal requirements.
The practical effect of the Turquand rule is that it prevents a company from escaping liability under an
otherwise valid contract solely on the grounds that some internal formality or procedure was not
complied with. Proof by the company that it has failed to fulfil its own internal formalities is not a
sufficient basis for escaping liability under the contract.
According to the common law Turquand Rule a bona fide third party is entitled to assume that the
company has complied with its internal formalities and procedures as specified in its constitution unless
the third party knows for a fact that these internal formalities and procedures had not been complied
with or suspects that they were not complied with but has deliberately and wilfully shut his or her eyes to
the irregularity by not making any further inquiry

Royal British Bank v Turquand (1856) 6 El. & Bl. 327; 119 ER 886
The articles of association of the Turquand company allowed its board of directors to borrow money,
provided the board obtained the prior approval of the shareholders of the company. The directors
borrowed money from Royal British Bank without getting the approval of the shareholders. Royal British
Bank were unaware that the directors needed the approval of the shareholders before borrowing
money. The court held that even though the directors did not get the approval of the shareholders, this
was an internal formality of which Royal British Bank had no knowledge. Royal British Bank had acted
in good faith and were entitled to assume that the internal formality had been complied with. The
company was therefore bound by the loan it had obtained from Royal British Bank.

T ur quand r ule:
Practical effect of Turquand Rule: A company cannot escape liability under an otherwise valid contract
on the ground that some internal formality or procedure was not complied with
The Turquand Rule does not protect:
 Directors, prescribed officers or shareholders
 A third party who has relied on a forged document

Section 20(7) of the Companies Act of 2008 encapsulates the Turquand Rule but goes further than the
common law in excluding a third party who reasonably ought to have known of non-compliance with
the formality.

NB:
If no restrictions are imposed on the company’s capacity in the Memorandum of Incorporation, then
the ultra vires doctrine does not apply to the company. Co has full capacity and can enter into any
contracts
Section 20 (Ultra Vires and Turquand Rule) only applies to RF companies!!

S 2 0 (7 ) & (8 )
(7) A person dealing with the company in good faith, other than a director, prescribed officer or
shareholder of the company, is entitled to presume that the company, making any decision in the
exercise of its powers, has complied with all of the formal and procedural requirements in terms of this
Act, its Memorandum of Incorporation and any rules of the company unless, in the circumstances , the
person knew or reasonably ought to have known of any failure by the company to comply with any
such requirement

(8) Subsection (7) must be construed concurrently with, and not in substitution for, any relevant
common law principle relating to the presumed validity of the actions of a company in the exercise of
its powers.

REP RESENT AT ION AND AUT HORIT Y OF DIRECT ORS – ACT UAL & OS T ENS IBLE
A company is an artificial person, a separate egal personality. It can only act through its directors and
officers, which means the law of agency is applicable.
In this respect, s 66(1) of the Act provides that the business and affairs of a company must be managed
by or under the direction of its board, which has the authority to exercise all the powers and perform
any of the functions of the company, except to the extent that the Act or the company’s Memorandum
of Incorporation provides otherwise. This provision imposes, subject to the company’s Memorandum of
Incorporation and the Act, a mandatory duty on the board of directors to manage the business of the
company. It also confers on the board the authority to exercise all the powers of the company subject to
the company’s Memorandum of Incorporation.

The board of directors is likely in practice to delegate its powers to manage the business of the
company to individual directors and officers of the company (s72(1)(b)), and particularly to the
managing director of the company. If such persons enter into contracts on behalf of the company,
whether or not the company will be bound by such contracts must depend on the principles of agency
law, which require such individuals to have authority to contract on behalf of the company. Authority is
a concept of agency law. It is also the nub of the law of agency.

According to agency law, if an agent contracts with a third party on behalf of the company, the contract
will bind the third party and the principal (the company) as if concluded personally between them. The
agent is a mere intermediary or conduit. He or she acquires no rights and incurs no liability under the
contract unless the contrary is agreed upon by the parties. Once the contract with the third party is
concluded, the agent falls out of the picture. An agent who contracts with a third party without any
authority will not only fail to bind the principal to the contract, but will also incur liability to compensate
a third party who suffers loss in consequence thereof for breach of warranty of authority, or in
appropriate circumstances, for misrepresentation. The same principles apply to a director who contracts
on behalf of the company.

This authority can be actual or ostensible.

In Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd (1915 AC 705), Lord Richard Burdon Haldane
described a co as an abstraction - “A corporation is an abstraction. It has no mind of its own any more
than it has a body of its own; its active and directing will must consequently be sought in the person of
somebody who for some purposes may be called an agent, but who is really the directing mind and
will of the corporation, the very ego and center of the personality of the corporation…”

Actual Author ity

This is authority that is given expressly or impliedly.
Express authority – given in so many words, either orally or in writing
Implied authority is that authority that is necessary or reasonably incidental to the performance of the
agent’s express authority – it is given not in so many words, but arises as a reasonable inference from
conduct of the principal

Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 1 Al ER 630 (CA) 644F defines
actual authority as- a legal relationship between principal and agent created by a consensual
agreement to which they alone are parties…Nevertheless if the agent does enter into a contract
pursuant to the ‘actual’ authority, it does create contractual rights and liabilities between the principal
and the contractor

Other impor tant cases on Actual Author ity

In the English case of Hely–Hutchinson v Brayhead Ltd [1968] 1 QB 549 (CA) 583 (Hely–Hutchinson),
Lord Denning MR said this about actual authority at para 48:
(A)ctual authority may be express or implied. It is express when it is given by express words, such as
when a board of directors pass a resolution which authorises two of their number to sign cheques. It is
implied when it is inferred from the conduct of the parties and the circumstances of the case, such as
when the board of directors appoint one of their number to be managing director. They thereby
impliedly authorise him to do all such things as fall within the usual scope of that office. Actual
authority, express or implied, is binding as between the company and the agent, and also as between
the company and others, whether they are within the company or outside it.
Makate v Vodacom (Pty) Ltd [2016] ZACC 13 at para 45 - If an agent wishes to perform a juristic act
on behalf of a principal, the agent requires authority to do so, for the act to bind the principal – and
where there is express or implied authority, the agent is taken to have actual authority

Ostensible Author ity in SA befor e Makate v Vodacom

It is apparent authority/agency by estoppel – an oxymoron (as per NBS Bank Ltd v Cape Produce Co
(Pty) 2002 (1) SA 396 (SCA)para 25. This case was considered authority for a long time befor e Makate
v Vodacom

Per the NBS Bank case, ostensible authority arises where a principal/person (in this case, a juristic
person) has by words or through conduct created an impression or makes a ‘representation’ that
someone is its/his/her duly authorised agent

This happens when a company ‘promotes’ the impression that a director has authority in certain
circumstances to contract on behalf of the company – when he/she in fact lacks actual authority -
Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd.

Impression (by principal & not only by the agent) must have the effect of inducing an innocent 3rd party
to deal with the ‘agent’ in that capacity – principal’s consent not a sine qua non of ostensible authority
If an innocent 3 rd party reasonably relies on the representation, the principal will be estopped from
denying the authority of the agent

Ostensible author ity as under stood in S A be for e 2 0 1 6

A representation must have been made to the 3 rd party that the agent has authority to enter into a
contract of the kind sought to be enforced

Representation must have been made by a person/persons with actual authority to manage the
company’s business affairs or matters related to the contract –

NB. Though agent may make a representation that he/she has authority, it is not the agent’s
representation that gives rise to ostensible authority. Thus, a 3 rd party cannot rely on agent’s own
representation – Big Dutch (SA) (Pty) Ltd v Barclays National Bank Ltd 1979 (3) SA 267 (W)

3rd party must have been induced by the representation to enter into a contract; must have relied on it;
it must have been the proximate cause of 3 rd party entering into contract -NBS Bank Ltd

Makate v Vodacom (Pty) L td [2 0 1 6 ] ZACC 1 3

Why are we focusing on this case to this extent? Because it is a precedent setting case, having been
decided by the Constitutional Court (CC) after the NBS Bank case and other cases before it (such as
Northern Metropolitan Local Council v Company Unique Finance (Pty) Ltd 2012 5 SA 323 (SCA); South
African Broadcasting Corporation v Coop 2006 2 SA 217 (SCA); Glofinco v Absa Bank 2002 6 SA 470
(SCA)

FACTS OF THE CASE (adapted from Sharrock RD "Authority by Representation –

A New Form of Authority?" PER / PELJ 2016(19) - DOI
The applicant (Makate), who was employed by the respondent (Vodacom) as a trainee accountant, at
the time, devised an idea for enabling a cellphone user who has no airtime to send a request to
another cellphone user with airtime to call him or her. Realising that his idea had commercial potential,
Makate incorporated it into a written memorandum and sent the memorandum to his immediate line
manager (Muchenje), with copies to the Chief Executive Officer (CEO) of the Vodacom Group (Knott–
Craig) and other senior executives. Makate explained to Muchenje that he wished to be remunerated
for the idea and, if Vodacom was not interested, he would take the idea to a competitor. Muchenje
undertook to discuss the idea with the Director of Product Development and Management (Geissler).
When the latter responded favorably, Makate sent the written memorandum to him. After the
Department of Product Development and Management had discovered how to make Makate's idea
technically feasible, Makate and Geissler met and agreed that if Vodacom launched a product in
accordance with Makate's idea and the product was a commercial success, Makate would be paid a
share of the revenue generated. Makate indicated that he wanted 15% of this revenue, but the parties
agreed to defer to a later date their negotiations on the amount that he was to receive. They also
agreed that if they could not reach consensus on the amount to be paid, the question of remuneration
would be referred to Vodacom's CEO for determination

Based on Makate's idea, Vodacom developed a new service called "Please Call Me". This enabled a
prepaid cellphone user with no airtime to send a text message to another cellphone user, asking the
latter to call him or her. In an email addressed to staff and in an internal newsletter, Vodacom
acknowledged that Makate was the inventor of the idea behind the product and praised him for
conceiving of the idea, when his job was not related to product development. The product was
immediately popular with customers and, in due course, generated billions of rands in revenue for
Vodacom. Despite this, Vodacom did not negotiate with Makate on the amount of compensation to be
paid to him for his idea. Instead, Knott–Craig and Geissler dishonestly credited Knott–Craig with the
idea.

The legal issues for determination by the CC

First, the CC as the apex court, it had to decide whether the applicant had proved that the CC had
jurisdiction to hear the matter; whether was in the interests of justice to grant Makate the leave which
he was sadly denied by both the trial court and the SCA – the CC ruled in the affirmative, see para 30
Second, there were two main issues for the CC to determine.

1. Whether the ostensible authority relied on by the applicant was established, that is properly pleaded
and common law ought to be developed in present circumstances – para 31
2. Whether applicant’s claim had prescribed and whether the trial court’s interpretation section 10(1) of
the Prescription Act 68 of 1969 read with sections 11(d), 12(1) and 12(3) accorded with with section
39(2) of the Constitution

Outcome of the case

By now we know that the CC ruled as follows:
1. Leave to appeal was granted.
2. The appeal was upheld.
3. The order of the Gauteng Local Division of the High Court, Johannesburg, was set aside and
replaced with the following order:

“(a) It is declared that Vodacom (Pty) Limited is bound by the agreement concluded by Mr Kenneth
Nkosana Makate and Mr Philip Geissler.
(b) Vodacom is ordered to commence negotiations in good faith with Mr Kenneth Nkosana Makate for
determining a reasonable compensation payable to him in terms of the agreement.
(c) In the event of the parties failing to agree on the reasonable compensation, the matter must be
submitted to Vodacom’s Chief Executive Officer for determination of the amount within a reasonable
time.
(d) Vodacom is ordered to pay the costs of the action, including the costs of two counsel, if applicable,
and the costs of the expert, Mr Zatkovich.”

4. The negotiations mentioned in 3(b), per the court’s order, were to commence within 30 calendar
days from the date of the court’s order.
5. Vodacom was ordered to pay the applicant’s costs in the CC and in the Supreme Court of Appeal,
which include costs of two counsel, where applicable
Requir ements for ostensible author ity:
In Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd, Diplock LJ stated:
An ‘apparent’ or ‘ostensible’ authority, on the other hand, is a legal relationship between the principal
and the contractor, created by a representation, made by the principal to the contractor, intended to
be, and in fact acted on by the contractor that the agent has authority to enter on behalf of the
principal into a contract of a kind within the scope of the ‘apparent’ authority, so as to render the
principal liable to perform any obligation imposed on him by such contract.

Three requirements, according to Freeman, must be fulfilled for ostensible authority:

i. First, a representation must have been made to the third party that the agent has authority to
enter into a contract of the kind sought to be enforced.
ii. Second, such representation must have been made by a person/persons who have actual
authority to manage the company’s business either generally or in respect of the matters to
which the contract relates. A third party cannot rely on the agent’s own representation that he or
she has authority. The agent would also represent that he or she has authority but it is not the
agent’s representation that gives rise to ostensible authority.
iii. Third, the third party must have been induced by the representation to enter into the contract,
i.e., he or she must in fact have relied on it. The representation must have been the proximate
cause of the third party entering into the contract.

In NBS Bank Ltd v Cape Produce Co (Pty) Ltd the court, in approving of Freeman, laid down six
requirements for ostensible authority as opposed to the three requirements set out in Freeman, namely
i. a representation, whether by words or by conduct;
ii. made by the principal (i.e., someone with actual authority);
iii. in a form such that the principal should reasonably have expected that outsiders would act on
the strength of the representation;
iv. that was relied on by the third party;
v. such reliance being reasonable; and
vi. resulting in prejudice to the third party.
The onus of establishing these requirements lies on the third party.