Answers
Fundamentals Level – Skills Module, Paper F4 (LSO)
Corporate and Business Law (Lesotho)
1
December 2008 Answers
This question asks candidates to explain how the Roman–Dutch law was introduced in Lesotho.
Lesotho sought the protection of Britain and became a British colony on 12 March 1868. On 12 February 1869, Britain signed
the Convention of Aliwal North on behalf of Basutoland (as Lesotho was then called) giving away a sizeable Basutoland territory
that the Afrikaners had seized earlier. The boundaries laid down by this Convention constitute the present day boundaries of
Lesotho.
Between 1871 and February 1884, Britain annexed Basutoland to the Cape Colony, now a part of South Africa. This period was
marked by the Gun War of 1880–81, at the end of which the Cape Government requested Britain to administer Basutoland directly.
Direct rule was resumed by Britain on 2 February 1884 and continued until independence on 4 October 1966.
It was during the period between 1871 and 1884, when Basutoland was administered by the Cape colonial government on behalf
of Britain, that the Roman–Dutch law was first introduced. Following the disannexation of Basutoland from the Cape Colony on
2 February 1884, Britain proclaimed that all laws in force in Basutoland at that time should continue to be in force until repealed
or replaced by a Proclamation of their High Commissioner. Some four months later, on 29 May 1884, the General Law
Proclamation was issued. Section 2 of Proclamation 2B of 1884, which continues to be of great significance even today, provided
that:
… … in all suits, actions, or proceedings, civil or criminal, the law to be administered shall as nearly as the circumstances
of the country will permit be the same as the law for the time being in force in the Colony of Cape of Good Hope: Provided
however, that in all suits, actions or proceedings in any court to which all the parties are Africans and in all suits, actions or
proceedings whatsoever before any Basotho Court, African Law may be administered ...
Section 2 of Proclamation 2B is still valid. It was adopted by the Constitution of Lesotho after independence in 1966 and again
by the present 1993 Constitution [s.156(1)]. All ‘existing laws’ including s.2 of Proclamation 2B ‘continue in force and effect ...
as if they had been made in pursuance of (the 1993) Constitution.’ It could not have been otherwise in view of the numerous
transactions that had taken place and continue to take place in accordance with the principles of the ‘received law’. The law of
Cape Colony which was ‘received’ in Lesotho in terms of the Proclamation is loosely referred to as the Roman–Dutch law. The
Roman–Dutch law remains the common law of Lesotho. Taoli Lesetla v Matlhoriso Matsoso (2002).
2
This question requires candidates to explain tacit terms.
Tacit terms are unexpressed terms which are derived from the common intention of parties, as inferred by the court from the express
terms of the contract and the surrounding circumstances. The phrase ‘common intention’ of the parties comprehends not only the
actual intention but also an imputed intention. The court implies not only the terms which the parties must actually have had in
their mind but did not take the trouble to express, but also terms which the parties may not have had in mind but would have
expressed had their attention been drawn to them.
A tacit term cannot be imported into a contract in respect of any matter to which the parties have applied their minds and for which
they have made express provision in the contract.
Secondly, there are three tests that the courts apply to infer if a tacit term forms part of a contract. They are based on the English
law and have been approved by our courts.
The first test is whether the tacit term is necessary in the business sense to give efficacy to the contract. Rapp and Maister v
Aronovsky (1943) could be taken as an example. Aronovsky gave Rapp and Maister an option to buy all the shares in two
companies. The price at which the shares were to be purchased was to be determined by Aronovsky based on the cost of building
two blocks of flats for the companies. The flats were completed. Rapp and Maister claimed that there was a tacit term which
entitled them to ask for complete accounting details of the cost of the two flats to enable them to decide whether to exercise their
option. It was held that it would indeed be highly reasonable and convenient for them to have these details but they were not
necessary in the business sense to give efficacy to the option contract. The option as it stood was a perfectly good and valid
business offer.
The second test, often known as the bystander test, is taken from Scrutton LJ’s judgment in the English case of Reigate v Union
Manufacturing Co (Ramsbottom) (1981). The test is whether it can confidently be said that if, at the time the contract was being
negotiated, someone had said to the parties: ‘What will happen in such a case?’ they would both have replied: ‘Of course so and
so will happen; we did not trouble to say that; it is too clear’. Let us apply this test to the Rapp and Maister case.
If the parties had been asked, at the time the contract was being negotiated, whether Rapp and Maister would be entitled to an
account in advance of the option date, Aronovsky might have replied: ‘This is something which must be considered. We must
consider it and decide it.’ Or he might have said: ‘Here is my offer, I shall give no information. Take it or leave it.’ The bystander
test was clearly not fulfilled.
The third test is whether the term is capable of clear and exact formulation. If there is difficulty in formulating the term, or a doubt
as to how it should be formulated, then it cannot be said that there is a term which the parties must obviously have intended to
agree upon. The term must be capable of being formulated substantially in only one way. If there is difficulty in formulating the
term precisely or doubt as to its ambit, it cannot be implied as a tacit term. The tacit term claimed by Rapp and Maister failed this
test as well; it could not be formulated substantially in only one way.
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Lastly, the proof of a tacit term is no easier and no more difficult than proof of a tacit contract. In order to establish a tacit term it
is necessary to prove, by the preponderance of probabilities, conduct and circumstances which are so unequivocal that, if the
question had been brought to the attention of the parties, they would have been satisfied beyond reasonable doubt that they were
in agreement on the tacit term. If the court is satisfied on the preponderance of probabilities that the parties would have expressed
their agreement in that manner it may find the tacit term established.
3
This question asks candidates to explain the doctrine of fictional fulfilment.
The fulfilment of a condition depends upon the happening of a future event which may or may not happen. In certain
circumstances, it may be possible for the conditional debtor to prevent its happening. The doctrine of fictional fulfilment applies in
these circumstances. A condition is deemed fulfilled as against a person who deliberately prevents its fulfilment with a view to
avoid the contractual obligation.
In MacDuff & Co v Johannesburg Consolidated Investment Co Ltd (1924), JCI contracted with the MacDuff company to invest in
a new company, subject to a suspensive condition that MacDuff’s shareholders should pass certain special resolutions. When JCI
found it had made a bad bargain it bought enough shares in MacDuff to block the special resolutions. MacDuff went into liquidation
and the liquidator claimed damages against JCI on the basis that the suspensive condition must be taken to have been fulfilled
and JCI should, therefore, have invested in the new company. It was held that a condition is deemed to have been fulfilled as
against a person who would, subject to its fulfilment, be bound by an obligation, and who has designedly prevented its fulfilment,
unless the nature of the contract or the circumstances show an absence of dolus on his part. The liquidator was, therefore, entitled
to damages for the benefit of MacDuff’s creditors.
Dolus, in this context, does not mean fraud or bad faith as in delict but merely the intention of preventing the fulfilment of the
condition. This was settled in Koenig v Johnson & Co Ltd (1935).
Koenig sold his shares in the Contex company to Johnson & Co on the condition precedent (that is suspensive condition) that the
last instalment of the purchase price would be payable when Koenig delivered to Johnson & Co certain letters patent which Contex
would have to apply. Johnson & Co genuinely believed, on legal advice, that Contex’s application would be improper because it
would infringe existing patent rights of third parties. Johnson & Co, therefore, used its controlling interest in Contex to prevent it
from making the application. Koenig claimed the last instalment of the purchase price on the basis that the condition precedent
must be taken to have been fulfilled.
It was held that the term dolus was used in the Macduff case in its widest sense, not in the narrow sense of fraud or want of good
faith. If Johnson & Co deliberately frustrated Koenig from delivering the ‘patent', their opinion and motive are immaterial. The
doctrine of fictional fulfilment was therefore applied against Johnson & Co.
In Gowan v Bowern (1924), it was considered whether the doctrine of fictional fulfilment will apply when the conditional debtor
has negligently, not intentionally, prevented the fulfilment of the condition. The court said it would not, because there is no general
duty to be careful to ensure that a condition is fulfilled, so if the parties want to impose such a duty on each other they must include
a term to that effect in the contract. The remedy for negligent prevention of the condition will then be an action for breach of the
contract.
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This question asks candidates to explain briefly the principle of causation in the law of delict.
In delict, a wrongdoer is liable only for the consequences he has legally caused. Causation has two elements: factual causation
and legal causation. There must be a factual causal link between the act of the defendant and the harmful consequence which
the plaintiff complains of. However, a single act can in theory give rise to an endless chain of harmful events. Consequently, it is
necessary to determine which events should in law give rise to liability for the damage that has been caused to the plaintiff. This
is known as the legal causation.
Factual causation is determined by applying conditio sine qua non theory. This is also known as the ‘but for’ test. For example,
suppose Thabo suffers brain injury due to a car accident in which he was a passenger. The accident was caused because of the
carelessness of the driver. One can conclude, therefore, that but for the carelessness of the driver, Thabo would not have suffered
the injury. The driver is obviously liable in delict to compensate Thabo for his medical bills. Now suppose Thabo suffers from manic
depression as a result of the injury and is given a medicine called parstellin, which is the standard drug for this condition. According
to medical knowledge at the time, parstellin is a safe drug. However, one day Thabo eats cheese immediately after taking parstellin
and suffers a stroke for which he has to spend R10,000. Obviously, if there was no car accident, there would have been no brain
injury and no manic depression. If there was no depression, Thabo would not be taking parstellin. Therefore, there is a factual
causation between the second stroke and the motor car accident. The question is whether the careless driver is also liable to
compensate Thabo for the medical bills of the second stroke. This is determined by finding out if there is a legal causation.
Legal causation is established by finding out if there is a sufficiently close relationship between the wrongdoer’s conduct and its
consequence keeping in mind the policy considerations based on reasonableness, fairness and justice. Often, courts apply legal
causation by finding out if the damage suffered is a direct consequence or adequate cause of the wrongdoer’s conduct, or if it was
reasonably foreseeable by the defendant. Courts, in recent years, seem to lean towards the view that no single test or technique
may be useful in determining legal causation. Instead, they seem to be saying that determining legal causation is a complex
exercise in which numerous factors have to be weighed in and only then can it be determined if there was a sufficiently close
connection between the defendant’s conduct and the injury to the plaintiff. In our example above, the driver probably would not
be liable as the second stroke was not a foreseeable result of his carelessness.
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5
This question tests candidates’ understanding regarding constructive dismissal in employment law.
Labour Code does not use the words ‘constructive dismissal’ but provides in s.68(c) that dismissal includes a resignation by an
employee ‘in circumstances involving such unreasonable conduct by the employer as would entitle the employee to terminate the
contract of employment without notice, by reason of the employer’s breach of a term of the contract’. The section essentially affirms
the common law position.
Constructive dismissal occurs where the employer repudiates the contract by committing a breach which goes to the root of the
contract. In a constructive dismissal, the employer is willing to continue the employment but the employee is not. Examples of
constructive dismissal are: unilateral reduction in pay of the employee: See Industrial Rubber Products v Gillon (1977); complete
change in the nature of the job, such as a demotion: See Ford v Milthorn Toleman Ltd (1980); change in the employee’s place of
work, when the contract of employment does not give the employer the right to make this change.
The employee has to establish that a repudiatory breach occurred, that he left because of it and did not waive the breach, for
example, by remaining in the employment for too long. Constructive dismissal requires proof that there indeed has been a
repudiatory breach going to the root of the contract. This is not easy to prove. South African courts have held that a constructive
dismissal is not ‘inherently unfair.’ Furthermore, the remedy of reinstatement is usually denied in cases of constructive dismissal
unless the employer is a large company which can place the employee in a different position.
In Lesotho where the incidence of unemployment is very high, resigning a job because of the unreasonable conduct of the employer
is far from a practical solution. Employees in such conditions would put up with unreasonable conduct of the employer rather than
risk leaving the job and then sue in a labour court for damages on the ground that the resignation was provoked by the
unreasonable conduct of the employer. Not every unreasonable conduct attracts s.68(c) of the Labour Code; the nature of the
unreasonable conduct must be such as to amount to a repudiatory breach of the employment contract to the satisfaction of the
court.
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This question asks candidates if companies in Lesotho could issue shares at a discount.
Courts have held that a company cannot be allowed to issue shares at a discount. In Ooregum Gold Mining Co v Roper (1892),
the company was in need of money and its original shares stood at a discount. Therefore, it was not practicable for the company
to ask the public to subscribe to its shares at the nominal value. The directors and the shareholders passed a resolution to issue
preference shares of £1 each at only £0·25 each and to credit the balance of £0·75 as paid up. The transaction was bona fide
and thought to be the best way to raise further funds for the company. Nevertheless it was held by the House of Lords that it was
beyond the power of the company to issue the shares at a discount. The holders were, thus, liable for the full nominal amount of
the shares.
Lord Halsbury pointed out that the companies have limited liability. They have to provide in their memorandum the amount of
capital they propose to register with and divide that share capital into shares of a certain fixed amount. The shareholders’ liability
is limited by the amount unpaid upon the shares. This makes it impossible for a company to depart from the rule and any expedient
that is used to absolve the shareholders from the amount unpaid on their shares will be contrary to the law.
However, s.56(1)(b) of the Companies Act 1967, recognises that a company could issue shares for consideration other than cash.
In Salomon’s case, for example, shares were issued to Salomon in consideration of his business. In Re Wragg Ltd (1897), it was
observed that provided a company does so honestly and not colourably, an agreement to pay for property or services in paid-up
shares is valid and binding on it. Since the vendor may sell his property or his services at a profit, it may be possible to ‘water’ the
shares by accepting in payment something actually worth less than their normal value. However, if the ‘consideration given by way
of payment is a mere blind or clearly colourable or illusory’, it would be ineffectual. Section 56(1)(b) of the Act requires that the
consideration must be disclosed and the contract of sale, as well as the contract allocating the shares signed by both the parties,
filed with the Registrar. The company’s valuation of consideration is accepted as conclusive. In Salomon’s case, the liquidator had
reported that the business was sold for £7,800 more than what it was worth, but it was found to be legal.
The Companies Act 1967, provides that the prospectus or statement in lieu of prospectus of a public company must disclose the
number and the amount of shares or debentures which were issued within the previous two years, or agreed to be issued, otherwise
than in cash. The extent to which they are paid up, and the consideration for which they were issued or proposed or intended to
be issued should also be disclosed. The substance of the contract has to be disclosed as well.
Section 57 of the Companies Act 1967, which deals with the payment of underwriting commission, i.e. commission to ensure
that if the public did not take up the shares offered, the underwriters would do so, also tends to weaken the rule that shares cannot
be issued at a discount. Section 57 allows payment of an underwriting commission,
(a)
(b)
(c)
(d)
(e)
if authorised by articles;
to any person;
in consideration of his subscribing or procuring subscription for any shares;
not exceeding 5% of the price at which shares are issued, provided the payment is disclosed in the prospectus or statement
in lieu of prospectus; and,
the number of shares agreed to be taken for the commission is also disclosed.
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7
This question asks candidates to explain how the decision-making power is divided between the shareholders in a general meeting
and the board of directors.
In the Companies Act 1967, article 79 of Table A states that the business of the company shall be managed by the directors who
may exercise all such powers of the company as are required to be exercised by the company in a general meeting. However, the
exercise of these powers is subject to the provisions of the Companies Act, the articles of the company, and ‘to such regulations
being not inconsistent with the (articles) ... as may be prescribed by the company in general meeting ... but no (such) regulation
shall invalidate any prior act of directors which would have been valid if that regulation was not made’.
The meaning of the last restriction, namely regulations ‘as may be prescribed by the company in general meeting’ is not clear.
Could prescribed regulations refer to resolutions passed by the shareholders in a general meeting and any directions that may be
contained in such resolutions? However, to be valid such resolutions must not be inconsistent with the existing articles. Since
articles are already covered, the third restriction has no practical significance and, in practice, can be ignored.
It is now well established that where article 79 of Table A is employed, the general meeting cannot interfere with a decision of the
directors unless they are acting contrary to the provisions of the Act or articles. In Shaw & Sons (Salford) Ltd v Shaw (1935), it
was pointed out that if powers of management are vested in the directors, they and they alone can exercise these powers. The only
way in which the general body of the shareholders can control the exercise of the powers vested by the articles in the directors is
by altering their articles, or, if opportunity arises under the articles, by refusing to re-elect the directors of whose actions they
disapprove. They cannot themselves usurp the powers which are vested by the articles in the directors any more than the directors
can usurp powers vested by the articles in the general body of shareholders.
Under Table A articles, only directors are responsible for the management of the company. Shareholders in a general meeting
cannot direct how the company’s affairs are to be managed, nor can they overrule any decision taken by the directors in the conduct
of its business. This way both the general meeting and the board of directors are regarded as organs, rather than the agents of the
company.
However, if the board cannot, or will not, exercise the powers vested in them, the general meeting may do so. Thus, action by the
general meeting has been held effective where there was a deadlock on the board, where there were no directors or an effective
quorum could not be obtained, where the directors were disqualified from voting or, more obviously, where the directors have
purported to borrow in excess of the amount authorised by the articles. It has also been held that the general meeting can authorise
the commencement of proceedings or ratify unauthorised proceedings already commenced, on behalf of the company if the
directors fail to do so. Thus, normally there must be a failure by the directors to exercise their discretion; only then will their
discretionary powers revert to the members: See Barron v Potter (1914).
The general meeting may exercise a degree of control over their directors in the following ways:
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(a)
Under s.146 of the Companies Act 1967, a director can be removed by an ordinary resolution at any time. This is so
notwithstanding anything contained in the articles or in any agreement between a company and the director.
(b)
The articles of a company usually provide for the retirement and re-election of the directors. For example article 88 of Table
A provides that at the first annual general meeting of the company all the directors shall retire from office and at every
subsequent annual general meeting one-third of the directors, or the number nearest to one-third, shall retire from office. By
article 90 retiring directors are eligible for re-election. It provides an opportunity for the shareholders in a general meeting not
to re-elect those they did not like.
(c)
By s.17 of the Companies Act 1967, articles can be amended to regulate the power of the directors and provide for a more
restrictive article than article 79 discussed above. Articles can also be inserted which would reserve certain matters to a
general meeting. For example articles may provide that the directors would be bound to carry out the resolutions of the general
meeting if they are contained in a special resolution.
Lesotho Builders are in breach of contract by failing to complete the work within the agreed period and are, therefore, liable to pay
damages to the laundry. The amount of damages they would be required to pay is determined by reference to the case of Hadley
v Baxendale (1854).
In that case, the crankshaft of a mill broke and had to be taken to the manufacturer as a pattern for a new one. The defendant
was a carrier who agreed to deliver it to them. He broke this contract by taking an unreasonable length of time to deliver the
crankshaft. As a result there was a long delay before the new crankshaft was ready and the mill was out of use for a long period
of time. The owner of the mill sued the carrier for the profits he had lost during the period of the delay.
The court laid down two rules for determining the quantum of damages for breach of a contract: The first rule states that the
defaulter is liable for the loss which arises in the ordinary course of things, that is, which flows naturally from the breach. They
are often described as general damages. In Hadley’s case the miller’s loss did not flow naturally. The court found on evidence that
most millers used to have one or two spare crankshafts. The fact that the miller did not have one was not a result of the breach
of contract. Since the stoppage of the mill was not a natural consequence of the breach no general damages could be awarded.
The second rule states that the defaulter is also liable for the loss which, though it did not flow naturally, nevertheless was within
the reasonable contemplation of the parties when they made their contract. Damages awarded under this rule are often called
special damages because they have to be specially claimed and the special circumstances proved. In Hadley’s case, the court did
not award special damages either since the carrier had no knowledge of the peculiar circumstance that the miller had only one
crankshaft and the mill would be out of use if he did not perform his obligation promptly. However if he had been told this he
would have had to pay special damages for the loss of profit.
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The special damages rule has been further modified by Lavery & Co Ltd v Jungheinrich (1931), a South African case. It was held
in that case that to succeed in a claim for special damages, a plaintiff must prove that: (a) the damages must have been in the
contemplation of the parties at the time of the contract, and not merely at the time of the breach; (b) the contract must have been
entered into ‘on the basis of’ or ‘in view of’ the special circumstances establishing that the damages were in the parties’
contemplation; and (c) the defendant must have contracted to pay damages of the type claimed if he breached the contract.
Scholars have pointed out that these requirements need to be reconsidered because they make it very difficult for any plaintiff to
claim special damages.
Applying these rules to the facts at hand, Lesotho Builders should be advised that they are bound to compensate the laundry for
the loss of normal profits caused by the delay in the completion of the work under the first rule of Hadley v Baxendale (1854).
As regards the loss of a particularly valuable contract which the laundry could not accept because its machines were out of action
on account of the delay in the completion of the work, the laundry could only claim them provided, (a) such loss was in the
contemplation of both the parties when they entered into the contract, and (b) the parties agreed that loss in respect of any such
valuable contract which the laundry may lose as a result of the delay in construction would be compensated by Lesotho Builders.
Since it is unlikely that the laundry would be able to establish them, Lesotho Builders should be advised that they are not likely to
be liable for the loss of the particularly valuable contract which the laundry lost because its machines were out of action.
9
This question requires candidates to advise the directors of Dundas Ltd whether they are bound by the agreement with Farm
Machinery Ltd and Superb Cars Ltd and whether Dundas Ltd has any claim on the commission paid to John.
Dealing first with the contract worth R200,000 with Farm Machinery Ltd to buy some agricultural machinery, such a transaction
requires approval in a general meeting by virtue of the articles. This would normally be done by passing an ordinary resolution and
authorising the managing director. This was not done. So the essential issue here is whether under the circumstances, Dundas Ltd
are bound by the contract.
Under the indoor management rule, third parties dealing with companies enjoy a considerable measure of protection, particularly
when they deal with the managing director of a company. The indoor management rule was laid down in the case of Royal British
Bank v Turquand (1856). It dealt with the issue of the difference between what the directors can apparently do, under the objects
clause of the memorandum, and what they are actually permitted to do under the articles. In Royal British Bank v Turquand the
directors were only entitled to issue bonds for sums of money borrowed under the constitution of the company if duly authorised
to do so by a general resolution of the company. The directors borrowed and issued a bond to the Royal British Bank without a
resolution having been passed by the members. The court held that because the bank had no right to inspect the resolution of the
members and because the transaction was clearly within the powers of the company, it was entitled to assume that a resolution
authorising the borrowing had been passed.
A number of exceptions to this rule have been worked out and the outsider is not protected where, for example, there are suspicious
circumstances which put the outsider on notice and he fails to make enquiries, or where the agent of the company purports to
exercise an authority which is outside the scope of the usual authority of such an agent and the outsider seeks to rely on the
contents of the memorandum and the articles without being aware of their contents at the time of making the contract, or where
the outsider dealing with the company is aware of the lack of authority of the director.
In the problem scenario, there are no suspicious circumstances that would require Farm Machinery Ltd to make inquiries. The
indoor management rule will protect Farm Machinery Ltd because they were not aware that the requisite authority had not been
obtained from the shareholders. Table A allows the board to delegate any of their powers to the managing director and Farm
Machinery Ltd was not aware that this had not been done either. Under the circumstances, Farm Machinery Ltd will be protected
and Dundas Ltd will be bound by the contract.
The second element of the question involves a consideration of the right of the company to claim commission which was paid to
John by Farm Machinery Ltd.
Directors owe a duty of loyalty to the company and as such they owe fiduciary duties to the company not to allow conflicts of
interest to arise and not to make secret profits. As a matter of practice, whenever there is an apparent conflict, or even the possibility
of a conflict of interest, directors should always disclose it. One of the fundamental principles of company law is that directors may
not make secret profits out of their connection with the company: See Regal (Hastings) Ltd v Gulliver (1967).
It is possible for a breach of a fiduciary duty to be subsequently approved and ratified by the company in a general meeting,
provided that the breach does not constitute a fraud on the minority shareholders and is not perpetrated in bad faith. Ratification
is by ordinary resolution (unless the breach goes beyond the powers given in the company’s memorandum of association, in which
case a special resolution is required: see Hogg v Cramphorn Ltd (1967)). If the defaulting director controls the voting of the general
meeting, then even an ordinary resolution could be regarded as a fraud on the minority. The facts of the present case disclose that
John held only 1% of the issued shares, so this issue does not arise.
If Dundas Ltd does not ratify the breach of fiduciary duty by John, he is liable to pay the commission he received to the company
in full.
Next is to consider the liability of Dundas Ltd on the contract entered into by Smart, the company secretary, with Superb Cars Ltd.
Generally speaking the company secretary will be appointed by the directors of the company and the authority of a secretary within
a company is a matter of internal management of the company. Usually a company secretary will be generally authorised by the
board to enter into contracts of an administrative nature. Lord Justice Salmon said in Panorama Developments (Guildford) Ltd v
Fidelis Furnishing Fabrics Ltd (1971) that there can be no doubt that the secretary is the chief administrative officer of the company.
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So far as matters concerned with administration are concerned, the secretary has ostensible authority to sign contracts on behalf
of the company. Lord Denning said in the same case that the company secretary may be regarded as held out by the company as
having authority to sign contracts connected with the administrative side of a company’s affairs, such as employing staff and
ordering cars, and so forth.
On the facts of the problem, in the present case, there is little difficulty in reaching the conclusion that Dundas Ltd is liable on the
contract with Superb Cars Ltd for the payment of the rental fee for the car. The main base on which that liability rests is the
ostensible authority of such an officer of the company to enter into a contract of the kind dealt with in this case.
10 Unlike the United Kingdom, our Partnership Proclamation, 1957, does not provide that partners are agents of each other. In
Lesotho law, one of the consequences of a partnership is that each partner, in law, is an agent of every other partner for the purpose
of the business of the partnership. Consequently, every partner has implied authority to enter into transactions within the scope of
partnership business and to bind his co-partners in this regard unless the person with whom he dealt knew that the partner had
no actual authority. It is assumed that in each of the three contracts, the seller/supplier did not know of the internal limitation that
Samuel did not have the actual authority to enter into the contract.
In Braker & Co v Deiner (1934) it was pointed out that the implied authority of partners extends to all matters necessary for
carrying on the business of the firm in the usual way in which businesses of a like kind are carried on. But it only extends to
transactions in the usual course of the partnership. In an ordinary trading partnership, every partner has implied authority to
purchase on credit such goods as are, or may be, necessary for carrying on its business in the usual way.
The first question to answer, therefore, is whether Samuel was acting within the usual course of the partnership business. Since
the firm carries on the business of wholesale food distributors, it has to buy and sell goods. It is, therefore, a trading partnership,
as opposed to a non-trading partnership such as a firm of accountants, which provides services. The law, therefore, clothes Samuel
with certain implied powers to buy and sell goods on behalf of the firm.
The purchase of a consignment of tinned fruits certainly seems to be within Samuel’s implied power and Arthur and Dhondy should
be advised that their firm is liable on this contract.
As regards the purchase of office equipment, it is less obviously within the implied authority of Samuel. However, a firm of
wholesale food distributors would certainly use office equipment in their business and, therefore, the purchase of office equipment
can be regarded as incidental to the partnership’s business. In that case, Arthur and Dhondy should be advised that prima facie
their firm is liable on this contract as well.
The purchase of an expensive car is neither within Samuel’s usual nor implied authority and the only way the partnership could
be made liable for the price of the car is if Samuel had been given actual authority to purchase such a car for the partnership. As
this is not the case, Arthur and Dhondy should be advised that their partnership is not liable on this contract.
Lastly, though the partnership is liable on the contract for the tinned fruits and the office furniture, Arthur and Dhondy may be able
to claim from Samuel because he entered into these two contracts in breach of the partnership agreement.
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Fundamentals Level – Skills Module, Paper F4 (LSO)
Corporate and Business Law (Lesotho)
December 2008 Marking Scheme
This marking scheme is given only as a guide to markers in the context of suggested answers. Scope is given to markers to award marks
for alternative approaches to a question, including relevant comment, and where well reasoned answers are provided. This is particularly
the case for essay type questions where there may often be more than one way to write an answer.
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This question asks candidates to explain how the Roman–Dutch law was introduced in Lesotho.
6–10
Answers in this band will provide a good to complete answer demonstrating a clear understanding of how the
Roman–Dutch law was introduced in Lesotho.
0–5
A less complete answer, providing some but limited understanding of the topic. Lower band answers would show little or
no understanding.
This question requires candidates to explain tacit terms.
6–10
A good to complete answer dealing with most if not all of the tests required to determine tacit terms. It is expected that
cases or examples will be provided in the higher band answers and these will be rewarded.
0–5
A less detailed answer, perhaps recognising what the question relates to but lacking in detailed knowledge of the rules.
Lower band answers would show little or no knowledge of the topic.
This question asks candidates to explain the doctrine of fictional fulfilment.
6–10
A good explanation of the operation of the doctrine. It is expected that cases or examples will be provided and these will
be credited.
3–5
Some awareness of the area but lacking in detailed knowledge.
0–2
Little or no knowledge of the area.
This question asks candidates to explain the principle of causation in the law of delict.
6–10
A good explanation of the operation of the principle of causation. It is expected that cases or examples will be provided
and these will be credited.
3–5
Some awareness of the area but lacking in detailed knowledge.
0–2
Little or no knowledge of the area.
This question tests candidates’ understanding regarding constructive dismissal in employment law.
8–10
A thorough to complete answer explaining the principles that underlie the notion of constructive dismissal and its operation
in Lesotho.
5–7
Reasonable treatment of the area generally.
0–4
Very unbalanced answer, lacking in understanding of the question as a whole.
This question asks candidates if companies in Lesotho could issue shares at a discount.
8–10
A thorough to complete answer explaining the legal principles and reference to relevant cases.
5–7
A clear understanding of the general principles but perhaps lacking in detail or unbalanced in only dealing with some
issues.
0–4
Very unbalanced answer, lacking in understanding of the question as a whole.
This question asks candidates to explain how the decision-making power is divided between the shareholders in a general meeting
and the board of directors.
6–10
Thorough to good treatment of the topic, clearly setting out the legal principles referring to relevant decisions of the courts.
0–5
Reasonable to weak answer, perhaps showing some knowledge but incomplete understanding of the topic generally. Lower
band answers will be unbalanced and will show very little or no understanding.
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8
9
This question requires candidates to analyse a problem scenario from the perspective of the law of contract and to apply that law
appropriately. Given the fact that there are only 10 marks available candidates will gain no marks for irrelevant material.
8–10
A thorough analysis of the scenario focusing on the appropriate rules of law and applying them accurately. It is extremely
likely that cases will be cited in support of the analysis and/or application.
5–7
A fairly accurate recognition of the problems inherent in the question, together with an attempt to apply the appropriate
legal rules to the situation.
2–4
An ability to recognise some, although not all, of the key issues and suggest appropriate legal responses to them. Or, a
recognition of the area of law but no attempt to apply that law.
0–1
Very weak answer showing no, or very little, understanding of the question.
This question focuses on a number of issues in company law. As with the other questions in this section, it requires candidates to
analyse the problem scenario and to apply that law appropriately.
8–10
A complete answer, highlighting and dealing with all the relevant issues presented in the problem scenario. It is most likely
that the cases will be referred to, and will be credited.
5–7
An accurate recognition of the problems inherent in the question, together with an attempt to apply the appropriate legal
rules to the situation in the law of agency.
2–4
An ability to recognise some, although not all, of the key issues and suggest appropriate legal responses to them. A
recognition of the area of law but no attempt to apply that law.
0–1
Very weak answer showing no, or very little, understanding of the question.
10 This question requires candidates to analyse a problem scenario from the perspective of the law of partnership and to apply that
law appropriately.
8–10
A good analysis of all the three scenarios with a clear application of the legal rules.
5–7
Some understanding of the legal rules applicable to scenarios but perhaps lacking in detail.
0–4
Weak answer lacking in knowledge or application, with little or no reference to the legal rules.
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