Analyses: The Turquand Rule, Irregular appointments and Bypassing the disciplinary process

JurisdictionSouth Africa
Published date20 August 2019
AuthorTumo Charles Maloka
Date20 August 2019
University of Venda
The extent to which the Turquand rule (or the ‘indoor management
rule’ as it is sometimes termed) operates to bar a company from lawfully
resiling from a contract on the ground that some internal requirements
were not observed, is a familiar problem encountered in seminal
company law cases. (See Royal British Bank v Turquand 1856 (6)E&B
37, 1843–60 All ER 435; Morris v Kanssen 1946 AC 459, 1946 (1) All ER
586 (HL); Hely-Hutchison v Brayhead Ltd 1968 (1) QB 549; Northside
Developments Pty Ltd v Registrar-General 1990 64 ALJR 427; Bayhold
Financial Corporation Ltd v Clarkson Company Ltd 1990 CanLII 4134
(NSSC); Glofinco v Absa Bank t/a United Bank 2002 (6) 470 (SCA);
Farren v Sun Service SA Photo Trip Management (Pty) Ltd 2004 (2) SA
146 (C); Nieuwoudt v Vrystaat Mielies (Edms) Bpk 2004 (3) SA 486
(SCA); One Stop Services (Pty) Ltd v Neffesaan Ontwikkelings (Pty) Ltd
2015 (4) SA 623 (WCC).) It has surfaced recently in decision-making
processes with profound employment and labour law ramif‌ications.
Among the most intriguing questions emerging from case law are
whether the Turquand rule may be invoked: to enforce employment
contracts concluded in breach of internal formalities and a standing
moratorium on appointments of new employees; or to validate a
settlement agreement entered into by an employee who has pleaded
guilty to dishonesty during the course of a disciplinary hearing; or to an
outgoing municipal manager ostensibly to circumvent a disciplinary
process. The issues that arose tell an intricate tale of Byzantine twists and
turns, from which neither those who acted ultra vires, nor the litigating
employees emerged unscathed. In this regard, a trilogy of judgments –
Blue IQ Investment Holdings Ltd v Southgate 2014 (35) ILJ 3326 (LAC);
Hudson v SA Airways Soc Ltd 2015 (36) ILJ 2574 (LAC); and Saldanha
Bay Municipality v SAMWU obo Wilschut 2015 (36) ILJ 1003 (LC) –
provide ample opportunity for discussion of the pragmatic and logistical
*BA LLB, LLM (UCT). Senior Lecturer, School of Law, University of Venda.
(2017) 29 SA Merc LJ 527
© Juta and Company (Pty) Ltd
diff‌iculties experienced by employees who resort to the Turquand rule
and estoppel to hold the employer bound to irregular appointments, or a
settlement agreement concluded during an on-going disciplinary hear-
ing. Each case in its own right brings home the practical realities of
dishonesty, malfeasance, and impropriety at the highest level of any
organisation, that will invariably impact negatively on the culture of
probity within the organisation.
It is important to this discussion that the contours of the Turquand rule
and doctrine of estoppel are clearly outlined as they impact on one
another. There is strong authority for the proposition that the Turquand
rule ought to be treated no differently from estoppel, namely that the
claim of an innocent contracting party to enforce a contract cannot
make an ultra vires act by a state off‌icial intra vires (TEB Properties CC v
MEC Department of Health & Social Development, NW 2012 JOL 28203
(SCA) paras 32–33; Mbana v Mnquma Municipality 2003 JOL 12106
(Tk) paras 26–27; One Stop Services paras 23–29).
The indoor-management rule postulates that bona f‌ide third parties
should not be prejudiced by a company’s non-compliance with its
internal formalities and procedures, because to require third parties to
inquire into the company’s arcane internal affairs is impractical, if not
plain risky. The Turquand rule, in substance, prevents a company from
escaping liability under an otherwise valid contract solely on the basis
that an internal procedure was not adhered to. The rule is intended for
the protection of outsiders who have no means of establishing whether
the necessary formalities and procedures under the company’s constitu-
tion have been met (s 20(7) of the Companies Act 71 of 2008; see also
LAWSA vol 4 Part 2: ‘Companies’ para 184 at 331–332; Cassim et al,
Contemporary Company Law 2 ed (Juta 2012) 183; Delport, ‘Companies
Act 71 of 2008 and the ‘‘Turquand’’ rule’ 2011 THRHR 132; Sealy,
‘Companies – agency and Turquand’ 1991 Cambridge Law Journal 47;
Krawitz ‘Protecting outsiders to corporate contracts in Australia’ 2002
Murdock University Electronic Law Journal 22). If a person invoking the
Turquand rule knew that the off‌icial in question was acting beyond his
or her capacity, or if the factual circumstances are such as to put the
party dealing with the company on inquiry, there can be no further
question of applying the Turquand rule (Quintessence Opportunities Ltd
v BLRT Investments 2007 (6) SA 523 (C) 532F; FPW Engineering
Solutions (Pty) Ltd v Technicon Pretoria 2004 (1) All SA 204 (T) paras
(2017) 29 SA MERC LJ
© Juta and Company (Pty) Ltd

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT