HIGH COURT, ACCRA
DATE:26TH JANUARY, 1962
BEFORE: OLLENNU, J.
CASES REFERRED TO
(1) George v. Howard (1819) 7 Price 647; 146 E.R. 1089
(2) Rochefoucauld v. Boustead [1897] 1 Ch. 196, C.A.
(3) Aveling v. Knipe (1815) 19 Ves. 441; 34 E.R. 580
(4) Regal (Hastings) Ltd. v. Gulliver [1942] 1 All E.R. 378, H.L.
NATURE OF PROCEEDINGS
ACTION for declaration that defendant is a trustee holding 2,000 shares in trust for the plaintiff-company and an order for the transfer of the said shares to the plaintiff-company.
COUNSEL
J. B. Quashie-Idun for the plaintiff-company.
Nii Odoi Annan for the defendant.
JUDGMENT OF OLLENNU J.
The plaintiffs claim a declaration that they are owners of 2,000 shares held by the defendant in the Coconut Palm Ltd., and that defendant is a trustee holding the said shares in trust for them; they also claim an order for transfer of the said shares to them. Their case is that the Coconut Palm Ltd. was incorporated and established with moneys provided by them, and was managed by them as their property up to some time in July, 1961, the date of the incidents which culminated in the present suit.
The defendant on the contrary contended that he holds the said shares in his own right as the beneficial owner thereof, that he appointed the plaintiffs managers of the Coconut Palm Ltd., of which he is the chairman and majority shareholder, and further that he has since July, 1961, terminated the appointment of the plaintiff-company as managers of the said Coconut Palm Ltd.
The evidence in the case has been rather lengthy due firstly to the fact that the plaintiffs were obliged to give strict proof of certain facts which were later admitted by the defendant but at a very late stage, and secondly, to the fact that each side had to bring in a lot of collateral matters and issues as circumstantial evidence aimed at proving some of the main facts they alleged. It is expedient that some of those collateral
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facts should not receive any direct comments in this judgment either because each could be the subject of separate judicial proceedings and it would be improper to make any observations on them which might be interpreted as prejudging them, or because comments upon them may have some unexpected repercussions. I have, however, given careful consideration to the evidential value of each of those matters before arriving at the conclusions I have reached.
It evolved from the voluminous evidence that the most important facts affecting this case are admitted by both sides. Among these are the following:
The defendant is a non-shareholder director of the plaintiff-company. The Coconut Palm Limited was incorporated in November, 1959; there are only four shareholders in that company, namely the defendant who holds 2,000 shares, one Mr. Hickie who holds 500 shares, a Mr. Simpson who holds 500 shares, and a Mr. Martin, P.W. 1, who holds 500 shares. All these four shareholders are directors of the plaintiff-company, and the board of directors consists of two persons namely the defendant who is chairman thereof, and Mr. Hickie who is the chairman of the board of directors of the plaintiff-company.
The Coconut Palm Ltd. runs a day and night club called the Coconut Grove. The defendant arranged for the tenancy of the premises in which the club is run, and he deals direct with the landlady. The latter has asked for tenancy agreement direct with the club but that has not been done up to date. The defendant wrote some letters, prima facie in his personal capacity in connection with the Coconut Palm Ltd., for example letter exhibit 3 dated the 17th September, 1959, to the Electricity Department for the supply of electricity to the club premises; letter exhibit 7 dated the 19th December, 1959, to the secretary of the Coconut Palm Ltd. applying for 2,000 shares in the company. He got his nephew, one Mr. Lokko, an architect to replan the premises for the club, and procured Messrs. Brun Ltd. to carry out the conversion of the premises for the club as planned by Mr. Lokko. He also arranged for an electrical engineer to plan the electrical installations.
Almost all the initial expenses for the establishment of the club, the cost of the conversion including fees charged by Mr. Lokko, the contract price agreed with Messrs. Brun Ltd., the fees charged by the electrical engineer, and the fees charged for the installation of electricity were paid for by the plaintiff-company.
Again all the 3,500 shares in the Coconut Palm Ltd. held by the company’s only four shareholders were paid for by the plaintiff-company, this they did with one cheque, exhibit B, dated the 14th December, 1959, drawn in favour of the Coconut Palm Ltd. In addition the plaintiff-company managed the Coconut Palm Ltd. with their own funds from the date of its incorporation up to June, 1961, when the incidents occurred which led to this suit.
The plaintiffs say that the four shareholders of the Coconut Palm Ltd. are their nominees each holding the shares in his name on trust for them, and that it was upon a suggestion by the defendant that in view of Ghana’s independence the club would flourish much better if it were made to appear that it was Ghanaian owned, that they allowed the defendant, a director of their company, to hold the majority of the shares and be chairman of the Coconut Palm Ltd., while the other three directors
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of the plaintiff-company took and hold minor shares, again as nominees of the company. The plaintiffs say that it is by reason of the fact that they own the shares in it that they spent moneys for the establishment of the Coconut Palm Ltd. and managed its club, the Coconut Grove, with their moneys. They said they made their chairman Mr. Hickie and the defendant subscribe to exhibit A, the Memorandum of Articles of Association of the Coconut Palm Ltd., and form the board of directors.
The defendant on the other hand, said that the idea of establishing a day and night club was his; that long before he left this country to study medicine in the United Kingdom he used to run a night club at the Sea View Hotel, and that upon his return home in 1958, finding the Sea View Hotel unsuitable for running a first class day and night club, he contacted people in Ghana and elsewhere including the directors of the plaintiff-company to get them interested, but the Ghanaian friends he contacted could not raise the money, and in the end it was only his friends, the other directors of the plaintiff-company, who offered to take shares.
He said that upon incorporation of the Coconut Palm Ltd. he applied in his personal capacity by letter, exhibit 7, for the 2,000 shares now in dispute; Mr. Hickie, Mr. Simpson and Mr. Martin, he said, each applied for 500 shares; that all the applications came before the board of directors of the Coconut Palm Ltd., consisting of himself and Mr. Hickie, and the board made the allotments accordingly; he therefore received the letter exhibit 8 from the secretary of the Coconut Palm Ltd. advising him of the allotment of the 2,000 shares to him. On the question of payment for the shares the defendant has pleaded that he paid cash for the 2,000 shares.
But at the close of the hearing on the 20th December, 1961, the hearing date before the close of the plaintiff’s case, he amended his said defence to say that he kept a current account with the plaintiffs for salaries, commissions and expenses and so he requested the then director and general manager of the plaintiff-company “to credit his said account with the cost of the said shares”. I suppose he intended his said amendment to read that he requested the then managing director and general manager to pay for the said shares on his behalf and to debit the amount so paid to his said current account. In pursuance of the amended pleas the defendant deposed that upon signing his letter of application, exhibit 7, he took his cheque book out to issue a cheque for the amount and to send the same along with exhibit 7 and he asked Mr. Hickie who was then with him whether he had got his own cheque ready, and upon Mr. Hickie replying that he had not: “I suggested that we might arrange with the plaintiffs to pay the amount of the shares for us, my share, with my commission.”
It was admitted for the plaintiffs that the practice with companies is to make a nominee shareholder sign a blank transfer for the share he holds, and that neither of the other three people holding the shares in the Coconut Palm Limited paid for by the plaintiff-company, signed a blank transfer for the shares he held. Upon that fact it was submitted that the only reason there could be why the defendant was not made to sign a blank transfer is that he is the beneficial owner of the shares and not a nominee holder thereof.
Again the amount of £G2,000, paid by the plaintiff-company for the said shares is shown in the ledger, exhibit Q, in the personal account of the defendant debited and then reversed. The entry in the personal account, it was submitted showed that the amount was lent by the company
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to the defendant, and it was only when differences began to arise between the defendant and some officers of the plaintiff-company that the reversal was made. It must be noted in passing that the said entries, the debit and the reversal, were both made as the plaintiffs say on the same date, namely the
30th September, 1960. According to the defendant, he appointed the plaintiffs to manage the Coconut Palm Limited but, he said, a large debt has arisen due to their mismanagement, in consequence of which he terminated his appointment of the plaintiffs and appointed a committee of management, and that it is because of his said action that the plaintiffs are now claiming the shares as their property.
Now the oral evidence of the defendant as to how the plaintiffs came to pay for the shares is not borne out by the documentary evidence. There is no dispute that the cheque, exhibit B, by which the plaintiffs paid for all the 3,500 shares, was issued on the 14th December, 1959, the date appearing on it. Exhibit 7, the defendant’s application for the shares, is dated the 19th December, 1959. Since it was on the said date that he decided to make the request to the plaintiffs to pay for the shares for him, that request could only have been made on or after that date, the 19th December, 1959. But exhibit B shows that the plaintiffs had issued a cheque covering the value of all the shares to be taken, five full days before the earliest date on which the defendant could have requested them to pay for him and debit his current account with it.
Again the defendant stated in his application, exhibit 7, that he was sending a cheque along with it, and according to his evidence the cheque exhibit B issued by the company, went along with his said application and possibly with that of Mr. Hickie; one would have expected that he, the chairman of the board of directors of Coconut Palm Limited would have instructed the secretary of his company not only to acknowledge the applications for shares, and to advise the applicants including himself of the allotment of shares to them, but also to acknowledge receipt of the amount paid for the shares and forward the shares or certificate thereof to the applicant. Contrary to that, the secretary’s letter exhibit 8 is completely silent on payment of the amount, and apart from giving the serial numbers of the shares allotted, gives no indication as to the transmission of the shares or any certificate thereof to
him.
On the question of the defendant not signing a blank transfer for the shares to show that he is a nominee, D.W.1, Mr. Martin, gave evidence which I believe that neither he nor any of the other shareholders signed a blank transfer, and that irrespective of that fact he is a nominee of the plaintiff-company for the 500 shares he holds. I cannot see why the plaintiff-company should have treated the defendant who is also a director of their company otherwise. The defendant, however, said that unlike Mr. Martin he was in receipt of a salary and commission and that in 1959 he had a large commission transferred from London to his account with the plaintiffs out of which the plaintiffs were to pay for the shares. According to him the commission so transferred was £G8,000. As against that contention there is exhibit T, the statement of account signed by him, which covers the period the 1st October, 1959, to the 29th February, 1960. If the defendant had arranged with the plaintiffs on or after the 19th December, 1959, that they should pay £G2,000 on his account and debit the same to his personal account, which account
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included a credit of the £G8,000, why should he have claimed and received an amount of £G695 as credit balance to him on the 29th February, 1960, when the £G2,000 still stands against him? To me it is incredible.
In my opinion the debit of £G2,000 in the ledger exhibit Q and the reversal thereof made on one and the same day, the 30th September, 1960, does not help the defendant, and that is particularly so in view of the entry at page 122 of the said ledger under the heading “Investment Account – C.P.L.” i.e. Coconut Palm Limited, of the same date the 30th September, 1960, showing the various shares in the Coconut Palm Limited against the names of the four directors of the plaintiff-company.
The defendant, though a medical practitioner, showed himself in the witness box as an acute business man. I cannot see him as a non-shareholder director of the plaintiff-company handing over the entire management and control of his business to the plaintiff-company without any written agreement, without some note or memorandum showing the said appointment, and without agreed fees to be paid to them for such undertaking by the plaintiffs. He said the plaintiffs were to receive some fees for their services in that regard, what those fees are, he has not been able to state. Would he as a business man pay just any fees which the plaintiffs might demand? If his story were true would he not have agreed with the plaintiffs on the fees? I think he would.
As further emphasis of his ownership of the Coconut Palm Limited the defendant said that Mr. Martin had to fly to Ghana specially to be present at the opening of the club, the Coconut Grove. One wonders why Mr. Martin had to come all the way specially. Again why was it necessary for the defendant in the course of his speech at the opening to make Mr. Hickie and Mr. Martin stand up, and then after mentioning that they had helped to make the arrangements for the establishment of the club, emphasise to that august assembly that the club was a purely Ghanaian affair? In my opinion the speech made by the defendant on the night of the opening of the club and the other incidents afford collaboration for the evidence led on behalf of the plaintiffs that the plaintiffs were the purchasers of the shares and that it was upon the advice of the defendant, a director of their company that they had them allotted to the defendant.
It was submitted on behalf of the defendant that the amount of £G2,000, the value of the said shares, was a loan given by the plaintiffs to the defendant; it was further submitted that payment of the value of the shares cannot in law create a resulting trust in favour of the payer, the company, because, for the creation of such a trust the person who pays the money for a transfer of a chattel to be made to another person, must make the payment in the capacity of a purchaser, otherwise no trust will arise, but the relationship which would result would be that of lender and borrower. Counsel referred to Lewin on Trusts, (15th ed.) pp. 39, 144 and 147 on that point, and cited George v. Howard,1(1) Rochefoucauld v. Boustead,2(2) and Aveling v. Knipe3(3) in support.
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This submission made by learned counsel for the defendant is sound in principle; for a trust to arise in the case of a sale and transfer of a chattel, where one person pays money and the chattel is delivered by the vendor to another, the payer must make the payment in the capacity of a purchaser and not as a messenger or agent of the party to whom delivery is made. But in my opinion that submission cannot assist the defendant in this case for three reasons:
Firstly, the payment was made by cheque exhibit B not by cash, and the said cheque was drawn in favour of the Coconut Palm Limited not on the defendant and endorsed by him for payment to the Coconut Palm Limited. It is not money given by the plaintiffs to the defendant to be paid to the Coconut Palm Limited, it implies a direct transaction between the plaintiff-company and the Coconut Palm Limited as the drawer of the cheque is identifiable. It would be otherwise in the case of payment by cash. There being no reference to that cheque exhibit B, no receipt could be issued by the vendors to the defendant unless the plaintiffs who issued the cheque specifically requested that to be done; and that accounts for the absence of any acknowledgement or reference in the letter exhibit 8 to payment or receipt of any cheque in payment for the shares. And that leads to the next point. From the manner of the payment by the cheque exhibit B, the only persons to whom the payee, the Coconut Palm
Limited could issue receipt as the purchaser of the shares are the plaintiffs. Therefore the plaintiffs made the payment in the capacity of purchasers, not as agents of the defendant, or even a conduit pipe for the transmission of the money from a purchaser to the vendors. As has previously been observed, the company issued the cheque some time before the defendant wrote his application for the shares implying that the plaintiffs took independent decision to pay for the 3,500 shares and issued their cheque for the payment therefor, and so they could not have issued it on behalf of or as agents of the defendant.
Secondly, the said principle as to resulting trusts applies only to persons between whom there is no fiduciary relationship, it has no application where there is fiduciary relationship such as exists between a director and his company. The defendant as a director cannot be given a loan by the company unless (1) the company is an exempt private company, (for a definition of an exempt private company, see Halsbury, Laws of England (3rd ed.) Vol. 6, p. 357, para. 701; (2) the loan is made by a subsidiary company of which he is not a director; (3) the loan is made to provide him with funds to meet expenditure incurred or to be incurred by him for the purposes of the company or for the purposes of enabling him properly to perform his duties as an officer of the company, and (4) the ordinary business of the company includes lending of money, in which case the proper procedure for lending would be followed: see Halsbury, (3rd ed.) Vol. 6, p. 303, para. 610. None of these exceptions apply to the defendant and the plaintiff-company. Therefore, in law the money paid could only have been paid by the plaintiffs for the shares to be allotted to the use of themselves not unto and to the use of a director of their company.
Thirdly, as emphasized on behalf of the defendant, no resolution was passed by the board of directors of the plaintiff-company to show either that they were making the defendant a nominee, or that they were lending him money. In the absence of any such resolution and in the absence of anything to the contrary, the presumption is that any moneys
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paid by the company must be for the benefit of the company, and not for the personal benefit of a director.
From all the circumstances of the case I accept the evidence of the plaintiffs that the shares were purchased by them and they made the defendant their nominee majority shareholder and that they did so as a matter of discretion and in compliance with the advice given to them by the defendant. It is, therefore, understandable that they would be alarmed when the defendant threatened them that if they failed to carry out his wishes they would be out of Ghana within six months.
But apart altogether from the conclusions which I have arrived at on the facts, there are certain legal principles which govern this case and which must be dealt with. The first is that as a director of the plaintiff-company, the defendant is a trustee of the property of the company, standing in a fiduciary relationship to the plaintiff-company as earlier stated, and so he cannot use the company’s moneys to invest in another company except as a trustee for the company: Halsbury, Laws of England (3rd ed.) Vol. 6, p. 299, para. 604; secondly, upon the principles of equity, all benefits from use by a trustee or a person in a fiduciary position of the trust property accrue to the trust property. Thus in Regal (Hastings) Ltd. v. Gulliver and Others,4(4) where directors of a company took certain shares in a company which was to be subsidiary to their company, and later sold those shares at profit, it was
held the directors stood in a fiduciary relationship to the company, and were therefore liable to pay to the company all profits they made on the sale of their shares in the subsidiary company. The principle applied in that case applies equally to this case.
There will be judgment for the plaintiffs for (1) declaration that the 2,000 shares held by the defendant in the Coconut Palm Ltd. is held by him as trustee for the benefit and use of the plaintiffs, and (2) an order upon the defendant to transfer the said 2,000 shares to the plaintiffs.
DECISION
Judgment for the plaintiffs.
