Answers

Fundamentals Level – Skills Module, Paper F4 (BWA)

Corporate and Business Law (Botswana) December 2010 Answers

1 (a) This question asks candidates to explain both what delegated legislation is and its importance in the contemporary legal
system. It specifically requires a consideration of the way in which the courts seek to control it.

Within Botswana, Parliament has the sole power to make law by creating legislation. Parliament, however, can pass on, or
delegate, its law making power to some other body or individual. Delegated legislation is of particular importance in the
contemporary legal context. Instead of general and definitive Acts of Parliament, which attempt to lay down detailed
provisions, the modern form of legislation tends to be of the enabling type, which simply states the general purpose and aims
of the Act. Such Acts merely lay down a broad framework, whilst delegating to ministers of state the power to produce detailed
provisions designed to achieve those general aims. Thus delegated legislation is law made by some person, or body, to whom
Parliament has delegated its general law making power. The output of delegated legislation in any year greatly exceeds the
output of Acts of Parliament and, therefore, at least statistically it could be argued that delegated legislation is actually more
significant than primary Acts of Parliament.
There are various types of delegated legislation. Examples include:
(i) Statutory Instruments are the means through which Government ministers introduce particular regulations under powers
delegated to them by Parliament in enabling legislation.
(ii) Bye-laws are the means through which local authorities and other public bodies can make legally binding rules and may
be made under such enabling legislation. A very good example of such a body is the Gaborone City Council.
(iii) Court Rule Committees are empowered to make the rules, which govern procedure in the particular courts over which
they have delegated authority under such Acts as the Magistrates’ Courts Act (No. 20 of 1974).
(iv) Professional regulations governing particular occupations may be given the force of law under provisions delegating
legislative authority to certain professional bodies. An example is the power given to the Botswana Law Society, under
the Legal Practitioners Act (No. 13 of 1996) to control the conduct of practising attorneys.
The use of delegated legislation has the following advantages:
(i) Time-saving. Delegated legislation can be introduced quickly where necessary in particular cases and permits rules to
be changed in response to emergencies or unforeseen problems. The use of delegated legislation also saves
Parliamentary time generally. It is generally considered better for Parliament to spend its time in a thorough consideration
of the principles of enabling legislation, leaving the appropriate minister, or body, to establish the working detail under
their authority.
(ii) Access to particular expertise. Given the highly specialised and extremely technical nature of many of the regulations
that are introduced through delegated legislation, the majority of Members of Parliament simply do not have sufficient
expertise to consider such provisions effectively. It is necessary therefore, that those authorised to introduce delegated
legislation should have access to the external expertise required to make appropriate regulations. In regard to bye-laws,
local knowledge should give rise to more appropriate rules than general Acts of Parliament.
(iii) Flexibility. The use of delegated legislation permits ministers to respond on an ad hoc basis to particular problems as
and when they arise.
There are, however, some disadvantages in the prevalence of delegated legislation:
(i) Accountability. A key issue involved in the use of delegated legislation concerns the question of accountability. Parliament
is presumed to be the source of statute law, but with respect to delegated legislation government ministers, and the civil
servants, who work under them to produce the detailed provisions, are the real source of the legislation. As a
consequence, it is sometimes suggested that the delegated legislation procedure gives more power than might be
thought appropriate to such un-elected individuals.
(ii) Bulk. Given the sheer mass of such legislation, both Members of Parliament, and the general public, face difficulty in
keeping abreast of delegated legislation.

(b) The potential shortcomings in the use of delegated legislation considered above are, at least to a degree, mitigated by the fact
that the courts have the ability to oversee and challenge such laws as are made in the form of delegated legislation.
Judicial control of delegated legislation
A validly enacted piece of delegated legislation has the same legal force and effect as the Act of Parliament under which it is
enacted; but equally it only has effected to the extent that its enabling Act authorises it. Consequently, it is possible for
delegated legislation to be challenged, through the procedure of judicial review, on the basis that the person or body to whom
Parliament has delegated its authority has acted in a way that exceeds the limited powers delegated to them or has failed to
follow the appropriate procedure set down in the enabling legislation. Any provision in this way is said to be ultra vires and
is void.

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2 This question invites the candidates to explain the concept of intention to create legal relations which is one of the essential
requirements for the formation of a valid contract.

The simplest possible definition of a contract is a legally binding agreement. However, although all contracts are the outcome of
agreements, not all agreements are contracts; that is, not all agreements are legally enforceable. In order to limit the number of
cases that might otherwise be brought, the courts will only enforce those agreements which the parties intended to have legal
effect. Although expressed in terms of the parties’ intentions, the test for the presence of such intention is an objective, rather than
a subjective one and will be decided on the basis of particular presumptions operated by the courts. Agreements can be divided
into two categories, in which different presumptions apply.
Domestic and social agreements
In domestic and social agreements, there is a presumption that the parties do not intend to create legal relations. Thus in Balfour
v Balfour (1919), a husband returned to Ceylon to take up his employment and he promised his wife, who could not return with
him due to health problems, that he would pay her £30 per month as maintenance. When the marriage later ended in divorce,
the wife sued for the promised maintenance. It was held that the parties had not intended the original promise to be binding in
law and therefore it was not legally enforceable. Similarly in Jones v Pandavatton (1969) a mother’s promise to finance her
daughter’s legal studies was held not to be enforceable on the basis that, as it was a family matter, it was to be presumed that it
was not intended that it should be open to the determination and enforcement of the courts.
The intention not to create legal relations in family and social relationships is only a presumption and, as with all presumptions,
it may be rebutted by the actual facts and circumstances of a particular case. Thus in Merritt v Merritt (1970), after a husband
had left the matrimonial home, he met his wife and promised to pay her £40 per month, from which she undertook to pay the
outstanding mortgage on their house. The husband, at the wife’s insistence, signed a note agreeing to transfer the house into the
wife’s sole name when the mortgage had been paid off. However, when the wife eventually paid off the mortgage the husband
refused to complete the transfer of the house. In spite of the fact that the agreement had been entered into whilst the couple were
still married and therefore could be seen as being similar to Balfour v Balfour, the court, nonetheless, held that the agreement was
enforceable. In the circumstances the parties had intended to enter into a legally enforceable agreement and the usual
presumptions was clearly rebutted. The normal presumption was also successfully rebutted in Simpkins v Pays (1955). In this
latter case a group of people, who shared a house, jointly took part in a competition, although it was only entered into in the name
of one of them. In spite of this fact the court held that there was a clear contractual intention that all of those participating should
benefit collectively from any prize won.
Commercial agreements
In commercial situations, the strong presumption is that the parties intend to enter into a legally binding relationship in
consequence of their dealings.
In Edwards v Skyways (1964), employers undertook to make an ex gratia payment to an employee whom they had made
redundant. It was held that in such a situation the use of the term ex gratia was not sufficient to rebut the presumption that the
establishment of legal relations had been intended. The former employee, therefore, was entitled to the payment promised.
As with the contrary presumption applying in social relationships, this one is also open to rebuttal. In commercial situations,
however, the presumption is so strong that it will usually take express wording to the contrary to avoid its operation. Thus in Rose
& Frank Co v Crompton Bros (1925), it was held that an express clause stating that no legal relations were to be created by a
business transaction was sufficiently clear as to be effective. In Jones v Vernons Pools Ltd (1938), the plaintiff claimed to have
submitted a correct pools forecast, but the defendants denied receiving it and relied on a clause in the coupon which stated that
the transaction was binding in honour only. Under such circumstances, it was held that the plaintiff had no cause for an action in
contract as no legal relations had been created.

3 This question requires candidates to explain one of the ways of discharging a contract, namely anticipatory breach together with
the remedies available to innocent parties when they suffer as a consequence of anticipatory breach of contract.

Anticipatory breach
Breach of contract occurs when one of the parties to the contract fails to perform their part of the agreement, either fully or partially.
Usually breach of contract only becomes apparent at, or after, the time set for the performance of the contract. Anticipatory breach,
however, occurs before the due date of performance. It occurs where one of the parties shows a clear intention not to be bound
by their agreement and indicates that they will not perform their contractual obligations on the actual due date of performance.
The intention not to fulfil the contract can be either express or implied.
Express anticipatory breach occurs where one of the parties declares, before the due date of performance, that they have no
intention of complying with the terms of the contractual agreement. An example of this may be seen in Hochster v De La Tour
(1853). In April, De La Tour engaged Hochster to act as his courier on his European tour, starting on 1 June. On
11 May De La Tour wrote to Hochster stating that he would no longer be needing his services. The plaintiff started proceedings
for damages in breach of contract on 22 May, and the defendant claimed that there could be no cause of action until 1 June. It
was held, however, that the plaintiff was entitled to start his action as soon as the anticipatory breach occurred, i.e., when De La
Tour stated he would not need Hochster’s services.

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 Implied anticipatory breach does not arise from any direct indication from either of the parties that they will not perform their
contractual agreement, but results from the situation where one of the parties does something which makes subsequent
performance of their contractual undertaking impossible. An example of this may be seen in Omnium D’Enterprises v Sutherland
(1919). In this case the defendant had agreed to let a ship to the plaintiff, but before the actual time for performance, he actually
sold the ship to another party. It was held that the sale of the ship amounted to a clear repudiation of the contract and that the
plaintiff could sue for breach of contract from that date, without having to wait until the actual date of performance of the contract.
As has been stated, in this situation of anticipatory breach, the innocent party can sue for damages immediately they are made
aware of the breach. However, they are not required to take immediate action. They can, if they so choose, wait until the actual
time for performance before taking action. If they do elect to wait until the set time for performance, then they are entitled to make
preparations for performance of their part of the contract; and claim the agreed contract price. In White & Carter (Councils) v
McGregor (1961), McGregor contracted with the plaintiffs to have advertisements placed on their litter bins which were supplied
to local authorities. The defendant wrote to the plaintiffs asking them to cancel the contract. The plaintiffs refused to cancel, and
produced, and displayed, the adverts as required under the contract. They then claimed payment. It was held that the plaintiffs
were not obliged to accept the defendant’s repudiation, but could perform the contract and claim the agreed price.
The effect of White & Carter (Councils) v McGregor apparently runs contrary to the duty to mitigate losses, as it involves the party
in breach paying for more than the mere profit of the contract. There is, however, an element of danger in not accepting the
repudiation of the contract when it first becomes apparent. For example, where the innocent party elects to wait for the time of
performance, they take the risk of the contract being discharged for some other reason, such as frustration, and thus of losing their
right to sue on the basis of the breach of contract (Avery v Bowden (1955)).

4 This question requires candidates to explain how a close company can be bound in contract.

The common law requirements for a juristic person to be bound by a contract on its behalf are that (a) the juristic person must
have the necessary capacity and powers to perform the particular act; and (b) the juristic person’s representative must have the
necessary authority to bind the juristic person in respect of the particular contract.
The ultra vires doctrine and the doctrine of constructive notice do not apply to close companies. A close company has the capacity
to carry on any lawful business (s.249 (3) of the Companies Act 2003). For this reason the doctrine of ultra vires has no
application in respect of close companies. The statement of the principal business of the corporation in the constitution does not
affect the company’s capacity and powers. There is no constructive notice of any particulars stated in a founding statement (See
s.27, Companies Act 2003).
For most practical purposes the legal capacity of a close company is unlimited and does not form any hindrance to its participation
in business. Those having dealings with a close company do not run any risk of finding the validity of transactions being affected
by internal limitations on the company’s legal capacity. This does not, however, imply that a close company’s capacity and powers
are completely unlimited for all purposes. A close company is incapable of acts normally associated with the physical being of
natural persons such as contracting a marriage or making a will. There are also various restrictions on close companies. A close
company cannot, for example, be established for or carry on the business of banking, or insurance (Companies Act 2003,
s.249 (3)).
The power of members to bind the company is set out in s.27 of the Companies Act 2003. This section provides that, as far as
bona fide third parties dealing with the corporation are concerned, every member is an agent of the company. The act of a member
binds the company to such third parties dealing with the company, whether or not the member performed the act for the carrying
on of the business of the company. If a member’s power to represent the company is restricted or excluded, the member will still
bind the company in respect of an outsider, unless the outsider has, or ought reasonably to have, knowledge of the fact that the
member has no power to act for the company in the particular matter (s.27 (1) read with s.249 (4)).
A company may furthermore be bound to a contract falling outside its scope of business even if it was not actually or ostensibly
authorised or ratified by the company. This will, however, only be the case if the outsider did not have, or ought reasonably to have
had, knowledge of the member’s lack of authority. It should be kept in mind that no person is deemed to be acquainted with the
contents of the company’s public documents, including its association agreement, merely because such documents are registered
by the Registrar or lodged with the Registrar, or are kept at the registered office of the company. This exclusion of constructive notice
provides even further protection to an outsider dealing with the company.
Since there is no constructive notice of the provisions of an association agreement, knowledge of internal restrictions on members’
powers contained therein is not imputed to outsiders. They are entitled to assume that each member has the necessary authority
to act on behalf of the company in a transaction, whether or not the particular transaction was entered into by the member for the
carrying on of the business of the company.
It is trite law that a close company may authorise a person, who is not a member, to act as its agent. Based on the general
principles of representation, the close corporation will be bound by an agreement entered into on its behalf by such non-member
if the non-member had the express or implied authority from the close company to enter into the agreement on the close company’s
behalf.

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5 This question requires the candidates to discuss the essentials of a partnership.

The essentials of a partnership are: (a) contract; (b) two to twenty persons; (c) contribution to a common stock; (d) the carrying
on of business with the object of making a profit; and (e) joint benefit.
(a) Contract
There must be a valid contract between the parties: Karstein v Moribe & Ors (1982). The contract could be formal or informal.
It could be in writing or oral. It could be implied from the conduct of the parties: Fink v Fink (1945).
(b) Two to twenty persons
A partnership requires an association of a minimum of two people. This means that there can never exist a partnership of
one person. Section 6 of the Companies Act prohibits the formation of a partnership consisting of more than 20 persons
unless it is registered as a company. Consequently, a partnership that exceeds that number is illegal and void.
(c) Contribution to stock
There must be a common stock to which each partner must contribute. Contribution could be in the form of money, labour,
industry, skill or property. These contributions make the common fund. A partner who contributes money is not a creditor of
the partnership for that sum. But a partner may independently lend money to the partnership. There must be co-ownership
of the partnership property. The contributions of the parties form the basis of the partnership property, and property acquired
subsequently falls into it. Movable property vests in the joint ownership of the partners by operation of law. Immovable
property becomes jointly owned by the members of the partnership only by formal transfer.
(d) The carrying on of Business with the Object of Making Profit
The partners must be carrying on a business together with the purpose of making a profit. Business is anything that occupies
the time and attention and labour of a man for the purpose of profit: Smith v Anderson (1880). Once it is established that
there is a business, it must be shown that the partners have got a common interest and that they are carrying it out themselves
or through agents: Wulfsohn v Taylor (1928). By virtue of the common interest in the carrying on of business, each partner
is the agent of the other to carry on the business and to incur liability on behalf of all the partners. This implied authority of
a partner to act as agent for and to bind the partnership extends only to transactions which fall within the scope of the
partnership business. The business must be carried on with the object of making a profit.
(e) Joint Benefit
The partners must share the profits and losses between them. As a general rule, they share the profits in proportions expressly
agreed between them. In the absence of any agreement to that effect they share the profits in the same proportions as the
value of their contributions to the common stock. Where it is impossible to say that one partner has contributed more than
another, the profits are shared equally: Fink v Fink (1945).

6 This question deals with directors’ duty of care and skill. This duty is a reflection of the directors’ position as agents. It is not very
burdensome and the standard of care is not very high. The propositions governing directors’ duties were laid down in Re City
Equitable Fire Insurance Co Ltd (1925) as follows:
(i) A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a
person of his knowledge and expertise. This is the standard of skill expected of directors. The test is partly objective (the
standard of the reasonable man), and partly subjective (the reasonable man is deemed to have the knowledge of the particular
director). A greater degree of skill than indicated by the court in Re City Equitable must be shown by executive directors. It
should also be pointed out that the duties vary according to the nature of the company and its business: the responsibilities
of directors of small private companies consisting of only two members differ from the responsibilities of directors of a large
public company (see Fisheries Development Corporation of SA Ltd v Jorgensen (1980)).
(ii) A director is not bound to give continuous attention to the affairs of his company. His duties are of intermittent nature to be
performed at periodical board meetings. He is not, however, bound to attend all such meetings though he ought to attend
whenever in the circumstances, he is reasonably able to do so. It must be pointed out, however, that greater diligence is
required for example from an executive director such as the managing director whose contract of service requires him to work
full-time for the company (see Fisheries Development Corporation of SA Ltd v Jorgensen (1980)).
(iii) In respect of all duties which may be properly left to some other official, a director is, in the absence of grounds of suspicion,
justified in trusting that official to perform such duties honestly. In Dovey v Cory (1901), the defendant was one of the
directors of the plaintiff banking company. The company paid out dividends out of capital. The defendant assented to these
payments. He also assented to advances on improper security. In all of this he relied on the information and advice of the
chairman and general manager of the company. The case against the defendant was that he did not pay enough attention to
the affairs of the company and was therefore negligent. It was held that the reliance was reasonable. The defendant was not
negligent. He was not expected to turn himself into an auditor, managing director, and chairman all at the same time.

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 The directors’ duty of care and skill is now codified in s.130 (1) (d) Companies Act 2003, which provides that it is the duty of
directors of a company to exercise the degree of care, diligence and skill required by s.158. Section 158 in turn provides that every
officer of a company must exercise the powers and discharge the duties of his office honesty, in good faith and in the best interests
of the company (s.158 (1) (a)); and the degree of care, diligence and skill that a reasonable, prudent person would exercise in
comparable circumstances (s.158 (1) (b)). Furthermore, where a director of a public company also holds office as an executive
director, he must exercise that degree of care, diligence and skill which a reasonable, prudent and competent executive in that
position would exercise (s.158 (2)). It can be seen that even under statute the test is still partly objective and partly subjective.

7 This question requires the candidates to explain the concept of remoteness of damage in the law of delict.

Even where someone has been held to owe a duty of care to another person and to have breached that duty in such a way as to
cause them to sustain loss or injury it does not follow as a matter of course that the person so responsible will be liable to provide
recompense for all the loss sustained. Just as in contract law, the position in negligence is that the person ultimately liable in
damages is only responsible to the extent that the loss sustained was considered not to be too remote. This was not always the
case as may be seen in Re Polemis and Furness, Withy and Co (1921), in which it was held that the defendants were liable for
the loss of a ship, even though the circumstances under which it was lost were unforeseen. It was held that as the fire, which
destroyed the ship, was the direct result of a breach of duty, the defendant was liable for the full extent of the damage, in spite of
the fact that the manner in which it took place was unforeseen. The English Court of Appeal held that as damage would result
from the act of negligence, the party responsible was liable for the whole extent of the damage, even though they could not have
been aware of the extent of the damage that was actually caused.
However, the Re Polemis test has been replaced by a less draconian test involving an assessment of the remoteness of the damage
actually sustained. The current test was established in The Wagon Mound (No 1) (1961). As the facts will demonstrate, the way
in which the current doctrine operates will be set out in more detail than is usual. The defendants negligently allowed furnace oil
to spill from a ship into Sydney harbour. The oil spread and came to lie beneath a wharf, which was owned by the plaintiffs. The
plaintiffs had been carrying out welding operations and, on seeing the oil, they stopped welding in order to ascertain whether it
was safe. They were assured that the oil would not catch fire, and so resumed welding. Cotton waste, which had fallen into the
oil, caught fire. This in turn ignited the oil and a fire spread to the plaintiff’s wharf. It was held that the defendants were in breach
of duty. However, they were only liable for the damage caused to the wharf and slipway through the fouling of the oil. They were
not liable for the damage caused by fire because damage by fire was at that time unforeseeable. This particular oil had a high
ignition point and it could not be foreseen that it would ignite on water. The Privy Council refused to apply the rule in Re Polemis
and its formulation of the rules of causation and remoteness has prevailed since then. The test of reasonable foresight arising out
of The Wagon Mound clearly takes into account such things as scientific knowledge at the time of the negligent act. The question
to be asked in determining the extent of liability is, ‘is the damage of such a kind as the reasonable man should have foreseen?’.
This does not mean that the defendant should have foreseen precisely the sequence or nature of the events. Lord Denning in
Stewart v West African Air Terminals (1964) said:
‘It is not necessary that the precise concatenation of circumstances should be envisaged. If the consequence was one which was
within the general range which any reasonable person might foresee (and was not of an entirely different kind which no one would
anticipate), then it is within the rule that a person who has been guilty of negligence is liable for the consequences.’

This is illustrated in the case of Hughes v Lord Advocate (1963), where employees of the Post Office, who were working down a
manhole, left it without a cover but with a tent over it and lamps around it. A child picked up a lamp and went into the tent. He
tripped over the lamp, knocking it into the hole. An explosion occurred and the child was burned. The risk of the child being burned
by the lamp was foreseeable. However, the vapourisation of the paraffin in the lamp and its ignition were not foreseeable. It was
held that the defendants were liable for the injury to the plaintiff. It was foreseeable that the child might be burned and it was
immaterial that neither the extent of his injury nor the precise chain of events leading to it was foreseeable.
The test of remoteness is not easy to apply. The cases themselves highlight the uncertainty of the courts. For example, in Doughty
v Turner Manufacturing Co Ltd (1964), an asbestos cover was knocked into a bath of molten metal. This led to a chemical reaction,
which was at that time unforeseeable. The molten metal erupted and burned the plaintiff, who was standing nearby. It was held
that only burning by splashing was foreseeable and that burning by an unforeseen chemical reaction was not a variant on this. It
could be argued that the proper question in this case should have been, ‘was burning foreseeable?’, as this was the question asked
in Hughes.

8 This question requires the candidates to resolve the issues involved by applying the principles that govern directors’ fiduciary duties
with specific reference to the rule that a director must not use corporate information, property or opportunity to make a secret profit.

The general legal position is that directors in the performance of their duties stand in a fiduciary relationship to the company:
Robinson v Randfontein Estate Gold Mining Co Ltd (1921). This means that, except with the knowledge and consent of the
company, a director should not obtain from his position any personal profit. It also prohibits him – except with the company’s
consent – from making any arrangement in which his personal interests are in conflict with those of the company: Aberdeen
Railway Co v Blackie Bros (1854).

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 The rejection of Joba’s offer by the directors in first instance was, on the face of it, for valid reasons and does not conflict with the
fiduciary duty outlined above. However, the directors’ subsequent action in forming a new company to take up the offer does
suggest such a conflict.
Where a director obtains some profit or advantage to himself, he is liable to account for it to the company unless the company
agrees that he may retain it: Regal (Hastings) Ltd v Gulliver (1942). In this case the House of Lords held that it was immaterial
that the company had no means of obtaining the profit for itself; the directors had made a profit from an opportunity which came
to them as directors and so must account for it. It should be noted that the courts do not prevent directors from making profits,
only secret profits. The directors should therefore have disclosed the facts to the members in a general meeting.
It has been argued that the courts should make a distinction between a director obtaining profit under a contract which the
company is unable to perform (such as in Robinson v Randfontein Estates Gold Mining Co Ltd (1921) and Industrial Development
Consultants v Cooley (1972)) and a situation where the company declines to perform it. In Peso Silver Mines Ltd v Cropper
(1966), the company was approached about a particular transaction. The company rejected the proposal after a bona fide
consideration. The respondent director joined a syndicate, which accepted the proposal. The syndicate formed a company for this
particular purpose. The issue was whether the respondent was accountable to the appellant company for the shares he obtained
in the new company. It was held that he held those shares on his own behalf and was not bound to account. The company had
bona fide rejected the opportunity and he had taken it up privately. Peso is a Canadian case. Although it is not binding in Botswana,
it is highly persuasive.
Another case which is relevant in this context is Island Export Finance Ltd v Umunna (1986). In this case a managing director
resigned from a company due to general dissatisfaction and then pursued and obtained a contract with a party with whom he had
previously contracted on behalf of the company. It was held that he was not in breach of a fiduciary duty because he was not
actively pursuing a contract when he worked for his company and did not resign in order to exploit the business opportunity for
himself (contrast with Industrial Development Consultants v Cooley (1972)). The facts of this case can, however, be distinguished
from the present scenario. The formation of Madikwe was clearly for the purpose of exploiting the opportunity which had been
offered to the company.
It follows from the above that the directors of Madikwe Ltd were under an obligation to disclose the profit to the company. Having
failed to do so, they are accountable for it to the company.

9 This question requires candidates to consider the inter-related rules governing partnership and agency law.

Bothepha
The first thing to establish is the status of Bothepha. Although the question states that she is a sleeping partner, it has to be stated
that the law does not recognise any such category. A dormant or sleeping partner is a person who merely invests money in a
partnership enterprise but, apart from receiving a return on capital invested, takes no active part in the day-to-day running of the
business. The essential point that has to be emphasised with regard to Bothepha is that she has placed herself at great risk. The
law considers her in the same way as it does a general partner in the enterprise and consequently she will be held personally and
fully liable for the debts of the partnership to the extent of her ability to pay. By remaining outside the day-to-day operation of the
business, Bothepha has merely surrendered her personal unlimited liability into the control of the active parties in the partnership.
Gorata
The rules relating to the residual responsibility of retired partners for partnership debts depend on when the debts were contracted
and the action taken by the former partner to announce their retirement from the business.
A retired partner remains liable for any debts or obligations incurred by the partnership prior to retirement. Thus the date of any
contract determines responsibility: if the person was a partner when the contract was entered into, then they are responsible, even
if the contract is completed after their retirement. It is possible for the retiring partner to be discharged from existing liability though
as a consequence of a contract of novation. Novation is essentially a tripartite contract involving the retiring partner, the remaining
members of the continuing partnership and the existing creditors. Under such an agreement any liability of the retiring partner is
passed to the remaining partners. As creditors effectively give up rights against the retiring partner, their approval is required. Such
approval may be express or it may be implied from the course of dealing between the creditor and the firm.
Where someone deals with a partnership after a change in membership, they are entitled to treat all the apparent members of the
old firm as still being members until they receive notice of any change in the membership. In order to avoid liability for future
contracts, a retiring partner must ensure that individual notice is given to existing customers of the partnership; and advertise the
retirement in the newspapers circulating in Botswana. This serves as general notice to people who were not customers of the firm
prior to the partner’s retirement, but knew that that person had been a partner in the business. Such an advertisement is effective
whether or not it comes to the attention of third parties.
As regards new customers, a retired partner owes no responsibility to someone who had no previous dealings with the partnership
nor previous knowledge of their membership (Tower Cabinet Co Ltd v Ingram (1949)). It follows from this that Gorata could be
liable for any debts towards the longstanding customer Robert, unless he has taken steps to notify Robert of his retirement from
the partnership, which does not appear likely. However, Gorata has no liability as regards any partnership debts to Othata who had
never dealt with the partnership when Gorata was a member.

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 Onneile
She is the last remaining active partner in the business and has full responsibility for any partnerships debts.
Tumelo
Having established that the three members of the original partnership may have potential liability with respect to partnership debts
it remains to establish whether Tumelo had the authority to create partnership debts. This issue can be considered from two distinct
perspectives. Firstly, Tumelo had let it be known generally that he was a partner and if, as would appear likely, the other partners
knew about Tumelo’s claim and did nothing to deny it, then they would be estopped subsequently from insisting on the true nature
of affairs (Freeman and Lockyer v Buckhurst Park Properties Ltd (1964)). Tumelo would therefore be seen as a partner with the
authority to bind the partnership to the two transactions in question. However, the partners would be liable for the contracts even
if the other partners were not aware of Tumelo’s claim to be a partner. The question states that Onneile left much of the
day-to-day running of the business to Tumelo and it can be seen that, on that basis alone he had the authority to manage the
business irrespective of the question as to whether he was a member of the partnership or not. Third parties are entitled to assume
that agents holding a particular position have all the powers that are usually provided to such an agent. This is referred to as implied
actual authority and means that, without actual knowledge to the contrary, outsiders may safely assume that an agent has the
usual authority that goes with their position (Watteau v Fenwick (1893)). Entering into ordinary trading contracts such as those
he entered into with Robert and Simon would come within Tumelo’s implied actual authority as the business manager.
As for Tumelo’s liability, anyone who represents themselves, or knowingly permits themselves to be represented, as a partner is
liable to any person who gives the partnership credit on the basis of that representation. In other words, just as the partners would
be estopped from denying Tumelo’s membership if they knew of his claim to be a partner, so Tumelo would be estopped from
denying that he was a partner. Tumelo therefore would also be liable for the debts.
Partners are jointly and severally liable for the partnership debts. This means that as regards Robert’s debt Bothepha, Gorata,
Onneile and Tumelo are all personally responsible for any shortfall and he may take action against any one of them. The one against
whom the action is taken will be able to claim a proportionate indemnity from the others. In the case of Simon’s debt, Gorata would
not be liable and hence the loss would be borne by Bothepha, Onneile and Tumelo proportionally.

10 This question tests the candidates’ understanding of the difference between a contract of service and a contract for services in
Employment Law.

(a) Employees are people working under a contract of service. Those who work under a contact for services are independent
contractors. They are not employees, but are self-employed. If Ame has a problem with her car, she might take it to a large
garage and have one of its mechanics look at the car. That mechanic would be an employee of the garage and would work
under a contract of service with his employers. Ame’s contract would not be with the mechanic but with his employer, the
garage. Alternatively, Ame might take the car to a freelance mechanic and get that person to look at the car. In that situation
the mechanic is self-employed and Ame and the mechanic would be entering into a contract for services.
It is essential to distinguish the two categories clearly, because important legal consequences follow from the placing of a
person in one or other of the categories. For example, although employees are protected by various common law and statutory
rights in relation to their employment, no such widescale protection is offered to the self-employed. In the example above, in
the first instance the mechanic’s employers, the garage, are responsible for the consequence of his actions whilst acting in
their employment; whereas in the second case, the mechanic alone is responsible for any liabilities that arise from his work.
Given the importance of the distinction, and the allocation of essential statutory rights that follow from it, it is perhaps
somewhat surprising that no clear statutory definition of the distinction has been provided. It has been left to the courts to
develop tests for distinguishing the employee from the self-employed.

(b) The first test to be applied by the courts was known as the control test. In using this test the key elements is the degree of
control exercised by one party over the other. The question to be determined is the degree to which the person who is using
the other’s services actually controls, not only what they do, but how they do it. An example of the use of the test can be
seen in Walker v Crystal Palace Football Club (1910) in which it was held that a professional football player was an employee
of his club, on the ground that he was subject to control in relation to his training, discipline and method of payment. Thus
to revert to the example given at the start of this answer the first mechanic, the employee, can be told what to do and how
to do, whereas the second, the self-employed mechanic, takes all such decisions as those in his own right.
The control test looks back to and reflects previous master/servant relationships of employment, but its main shortcoming lay
in its lack of any degree of subtlety. Highly skilled professionals, such as surgeons, by necessity have a high level of control
over how they perform their day-to-day work, and under the control test, they were deemed to be self-employed rather than
employees. Consequently, patients who had suffered as a consequence of negligence would only be able to sue the doctor,
rather than the Health Authority which used their services. Such weakness in the control test led to the courts developing a
more subtle test.
The integration test shifted the emphasis from the degree of control exercised of an individual to the extent to which the
individual was integrated into the business of their putative employer. An example of the application of the integration test
may be seen in Whittaker v Minister of Pensions and National Insurance (1967) in which the court found that the degree
to which a circus trapeze artist was required to do other general tasks in relation to the operation of the circus in which she
appeared, indicated that she was an employee rather than self-employed. As a consequence, she was entitled to claim
compensation for injuries sustained in the course of her employment. However, even the integration test was not without

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 problems, as some employers attempted to give the impression of using a self-employed workforce whilst effectively still
controlling what that workforce did.
The response on the part of the courts was the development of the multiple, or economic reality (dominant impression), test.
Rather than relying on one single factor, this test uses a more general assessment of the circumstances of any particular case
in order to decide whether someone is an employee. In so deciding, the courts will not be bound by how the parties
themselves describe the relationship. Thus it is immaterial that the agreement between the parties states that someone is to
be self-employed; if the indications are otherwise then the person will be recognised, and treated, as an employee (Market
Investigations v Minister of Social Security (1969)).
The economic reality (dominant impression) test was first established in Ready Mixed Concrete (South East) Ltd v Minister
of Pensions and National Insurance (1968) in which it was held that there were three conditions supporting the existence
of a contract of employment:
(i) the employee agrees to provide his own work and skill in return for a wage;
(ii) the employee agrees, either expressly or impliedly, that they will be subject to a degree of control, exercisable by the
employer; and
(iii) the other provisions of the contract are consistent with its being a contract of employment.
In deciding whether or not there is a contract of employment the courts tend to focus on such issues as whether wages are
paid regularly or by way of a single lumpsum; whether the person receives holiday pay; and on who pays the income tax.
However, there can be no definitive list of tests as the whole point of the test is that it examines all aspects of the situation
in order to reach a determination. For example in Nethermere (St Neots) v Gardiner & Taverna (1984), a group of home
workers, i.e., people who carried out paid work in their own homes, were held to be employees on the grounds that they
were subject to an irreducible minimum obligation to work for their employer. The economic reality (dominant impression)
test has been applied in Botswana in cases such as Michael Jordaan v Tamlac (Pty) Ltd (2001).

(c) Applying the dominant impression test to the present facts, it is more than likely that Refilwe would be treated as an employee
but Basetsana would be treated as self-employed. It is true that they were both described as self-employed but it should be
recognised that the label applied does not by itself define the relationship (Michael Jordaan v Tamlac (Pty) Ltd (2001)).
Looking at the circumstances, it can be seen that the manner in which they paid tax might indicate that they were
self-employed, but the fact that Angelina provided them with their equipment suggests that they were employees. In the final
analysis the most significant factor would appear to be the degree to which Angelina controlled them. Refilwe had to work
for Angelina only and on her premises, whereas Basetsana not only was allowed to work for others but, most importantly,
she was also allowed to use others to do her work for Angelina. This suggests clearly that Basetsana was not employed by
Angelina as an employee, although Refilwe was.

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Fundamentals Level – Skills Module, Paper F4 (BWA)
Corporate and Business Law (Botswana) December 2010 Marking Scheme

1 This question asks candidates to explain what delegated legislation is and its importance in the contemporary legal system. It
specifically requires a consideration of the way in which the courts seek to control it.

6–10 A thorough answer which explains the meaning of delegated legislation and how it is introduced. The perceived advantages
and disadvantages should be considered and all aspects of control should be mentioned.
0–5 A less complete answer, perhaps lacking in detail or unbalanced in that it does not deal with some aspects of the question.

2 This question requires candidates to deal with the ‘intention to create legal relations’ in the law of contract. It requires an
explanation of the different presumptions applied in domestic and social situations as opposed to business situations and also the
ways in which such presumptions may be rebutted.

6–10 A good to complete answer explaining the presumptions applied in both situations and the way in which those
presumptions may be rebutted. Marks will be awarded for cases or examples.
0–5 An unbalanced answer, perhaps only dealing with one of the situations, or not explaining the rebuttal of the presumptions.

3 This question requires candidates to explain what is meant by anticipatory breach together with remedies that may be available to
innocent parties when they suffer as a consequence of anticipatory breach of contract.

5–10 Thorough to complete answers, showing a detailed understanding of the question together with the remedies available in
relation to anticipatory breach. Marks will be reduced as candidates’ knowledge lessens.
0–4 Some knowledge, although perhaps unbalanced or not clearly expressed, or implied in its knowledge and understanding
of the various aspects of the question.

4 This question requires candidates to explain how a close company is bound in contract.

6–10 Candidates must not only show an understanding of the capacity of a close company but also be able to describe how a
member can bind the close company in contract.
0–5 This level of answer will be unbalanced, or may not deal with all the required aspects of the topic. Alternatively the answer
will demonstrate very little understanding of how a close company is bound in contract.

5 6–10 Full and accurate identification of the essentials of a partnership. Thorough discussion of these essentials with accurate
statement of the legal principles and appropriate reference to the relevant case law.
0–5 Incomplete or inaccurate. Possible major errors or omissions.

6 6–10 Answers in this band will deal thoroughly with the directors’ duty of care and skill and will refer to the relevant case law.
0–5 Answers in this band will show some knowledge but with little detail or analysis. Extremely poor answers will show either
no or very little knowledge of the area.

7 This question refers to the issue of remoteness of damage in the law of delict.

8–10 A thorough understanding of the issues involved. It is likely that the best answers will focus on the cases, although
examples might be used.
5–7 A clear understanding of the topics but perhaps lacking in detail.
2–4 Some, but limited, understanding of the issue, perhaps not referring to any cases to support the explanation.
0–1 Little or no knowledge of the topic.

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8 This question tests the candidates’ understanding of director’s fiduciary duties with particular reference to the director’s duty not
to make secret profit from corporate information, property or opportunity.

8–10 Full and accurate identification of the issues in the problem and correct application of the relevant legal principles. Good
use of cases or examples to support the answer.
5–7 Correct identification of the major issues in the problem and a sound attempt to apply legal principles to those issues.
Some use of cases or examples to support the answer.
4–6 Identification of the major issues in the problem and an attempt to apply legal principles to these issues. Perhaps major
gaps, omissions or inaccuracies and little or no attempt to apply cases or examples.
0–3 Very weak answer with little understanding of the issues. No application of cases or examples.

9 This question requires candidates to analyse a problem scenario that raises issues relating mainly to partnerships but which also
involves agency law.

8–10 Clear analysis of the problem scenario – recognition of the issues raised and a convincing application of the legal principles
to the facts. Appropriate case authorities may be cited, but are not necessary if the principles are understood.
5–7 Sound analysis of the problem – recognition of the major principles involved and a fair attempt at applying them. Perhaps
sound in knowledge but lacking in analysis and application.
4–6 Unbalanced answer, perhaps showing some appropriate knowledge but weak in analysis or application.
0–3 Very weak answer showing little analysis, appropriate knowledge or application.

10 This question is divided into three sections carrying 3, 5, and 2 marks respectively. Answers at the top of each of these bands will
show a thorough treatment of all the rules, perhaps placing them in their historical context but certainly providing case support.
Weak answers at the bottom of the bands will show little or no analysis or knowledge of the subject of the question.

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