DIVISION: IN THE HIGH COURT, ACCRA
DATE: 17TH APRIL, 1961
BEFORE: OLLENNU, J.
CASES REFERRED TO
(1) London, Chatham & Dover Rly. v. South-East Railway (1885) 53 L.T. 109.
(2) Everett v. Ribbands [1952] 2 Q.B. 198; [1952] 1 All E.R. 823.
(3) Salomon v. Salomon & Co. [1897] A.C. 22, H.L.
(4) Lee v. Lee’s Air Farming Ltd. [I 960] 3 W.L.R. 758.
(5) Donoghue v. Stevenson [1932] A.C. 562; 147 L.T. 281.
(6) Grant v. Australian Knitting Mills [1936] A.C. 85; 154 L.T. 18.
(7) Flitcroft’s case; Re Exchange Banking Co. (1882) 21 Ch.D. 519, C.A.
(8) Re Faure Electric Accumulators Co. (1888) 40 Ch.D. 141.
(9) Gramophone & Typewriter Ltd. v. Stanley [1908] 2. K.B. 89, C.A.
(10) Woods v. Martins Bank, Ltd. [1959] 1 Q.B. 55; [1958] 3 All E.R.166.
(11) Foss v. Harbottle (1843) 2 Hare 461 ; 67 E.R. 189.
(12) Edwards v. Halliwell [1950] W.N. 537; [1950] 2 All E.R. 1064.
(13) Brown v. Menzies Bay Timber Co. (1917) 34 D.L.R. 452 (Canadian case).
(14) Hambrook v. Stokes Bros. [1925] 1 K.B. 141; 94 L.J.K.B. 435.
(15) Le Lievre v. Gould [1893] 1 Q. B. 491.
(16) Old Gate Estates, Ltd. v. Toplis and Harding and Russell [1939] 3 All E.R. 209; 161 L.T. 227.
(17) Heskell v. Continental Express Ltd. [1950] 1 All E.R. 1033; 94 S.J. 339.
(18) Candler v. Crane, Christmas & Co. [1951] 2. K.B. 164; [1951] 1 All E.R. 426.
NATURE OF PROCEEDINGS
ACTION by shareholders of company for damages suffered as a result of negligent financial advice given by defendant bankers to company. Ruling on application by defendants that suit be dismissed because plaintiffs have no cause of action. The facts are more fully set out in the judgment.
COUNSEL
J. C. Armah (with him Odoi Annan) for plaintiffs.
Victor Owusu for defendants.
JUDGMENT OF OLLENNU J.
This case came before the court on the 7th March, 1961, on summons for directions. After some discussions on the pleadings eight points were agreed upon as the issues for trial raised upon the pleadings, six of them upon suggestion by counsel for the plaintiffs and two upon suggestion by counsel for the defendants. The fifth, seventh and eighth issues so settled for trial are: “5. whether or not the 1st Defendant Bank owed a duty to the Plaintiffs,
7. whether the writ and the pleadings disclose any cause of action in the Plaintiffs and
[p.198] of [1961] GLR 196
8. whether the Plaintiffs can maintain an action for wrong if any, done to Mpotimma Ltd.” Each of these three issues is a question of law, which the court can determine, after hearing
submissions of counsel.
Mr. Owusu, counsel for the defendants asked the court to hear and dispose of these issues first as a decision on them would, if in favour of the defendants dispose of the whole suit and render protracted evidence with consequent heavy costs unnecessary.
Mr. Annan, counsel for the plaintiffs, relying upon Order 25 rule 4,1(1) which gives the court power to strike out pleading whether it be statement of claim or of defence, on the grounds that it discloses no reasonable cause of action or answer, and thereupon stay or dismiss the action or enter such
judgment as may be just, submitted that this case does not come within the scope of that rule, that, in the language of the White Book “It is only in plain and obvious cases that recourse should be had to the summary process under this Rule.” In making this submission learned counsel for the plaintiffs misconceived the procedure which his learned friend took. It appears that he was misled by the wording of the seventh issue set down for trial, i.e. “whether the writ or action and the pleadings
disclose any cause of action.” In fact the rule under which Mr. Owusu asked the court to proceed is Order 25, rule 2 which says:
“Any party shall be entitled to raise by his pleadings any point of law, and any points so raised shall be disposed of by the Judge who tries the cause at or after the trial, provided that by consent of the parties, or by order of the Court or a Judge on the application of either party, the same may be set down for hearing and disposed of at any time before the trial.”
This rule 2 of Order 25 must be read together with rule 3 of the same Order which is as follows:
“If, in the opinion of the Court or a Judge, the decision of such point of law substantially disposes of the
whole action, or of any distinct cause of action, ground of defence, set-off, counterclaim, or reply therein, the Court or Judge may thereupon dismiss the action or make such other order therein as may be just.”
Order 25 and the rules thereof as contained in our procedure rules are identical with Order 25 of the Rules of the Supreme Court in England; under the English rules the procedure provided by rules 2 and 3 apply where the question of law taken, if decided in favour of the party taking it, would dispense with any further trial or at any rate with some substantial issue in the action, see London, Chatham
and Dover Railway v. South East Railway2(2). Romer, L.J. in the case of Everett v. Ribbands3(3), stated the principle which should guide the court in deciding whether or not to apply the combined rules 2 and 3 of the said Order 25; he said “Where there is a point of law which, if decided in one
way, is going to be decisive of litigation, advantage ought to be taken of the facilities afforded by the rules of court to have it disposed of at the close of the pleadings or very shortly afterward4(4).
[p.199] of [1961] GLR 196
As bases for the application of these rules there must be facts pleaded which are admitted by the party raising the point of law, or which for the purposes of the objection are assumed to be true. If the facts relied upon by a plaintiff are such that even in the absence of a defence the court would not make a decree in his favour the rules must be applied. For example A sues B for specific performance or in the alternative for damages for breach of contract to sell a motor car to him; A pleads that B
purchased a new car a year ago, and promised orally to sell the same to him, A, after he had used it for one year; B used the car for a year but has refused to fix a price for the car and to sell it to him. B in answer denies having promised to sell the car to A, and further that even if he did make the oral promise, that bare oral promise does not constitute a contract known to the law. Upon that alternative plea of B, the court will have first of all, to decide whether the promise if made constitutes an enforceable contract, for if it does not, what purpose would there be in hearing a whole host of witnesses to decide whether or not the promise was given. It is in cases of that nature, that rules 2 and 3 of Order 25 must be applied. But very often the facts pleaded upon which the point of law is taken are far more complicated than those given in the example.
In this case the facts pleaded by the plaintiffs which for the purposes of the points of law taken must be assumed to be true are as follows:
(1) the plaintiffs are members, i.e. shareholders, of Mpotimma Ltd;
(2) the defendants who are bankers gave advice on financial matters to Mpotimma Ltd.;
(3) the advice was given negligently;
(4) Mpotimma Ltd. suffered damages in consequence of that advice, the damage being £G47,000
commission Mpotimma Ltd. paid to the defendants’ Bank and to the Ghana Commercial Bank, and £G100,000 general damages suffered by Mpotimma Ltd.; and
(5) Mpotimma Ltd. has been wound up and its shareholders have lost their business interests and yearly profits and dividends.
It was submitted on behalf of the defendants that:
(i) as shareholders of Mpotimma Ltd., the plaintiffs are not entitled in law to sue for any tortious acts committed against the company;
(ii) the general damages of £G100,000 and the special damages of £G47,000 claimed as suffered by the company, which form the bases of the plaintiffs’ claim, cannot support a claim for
negligence brought by the plaintiffs in their own behalf; and
(iii) the negligence is not actionable since the plaintiffs have not suffered any physical damage or any damage to their property.
On the first point Mr. Owusu submitted that a limited liability company is a corporation having a
separate existence from its shareholders; therefore no shareholder or number of shareholders can bring an action
[p.200] of [1961] GLR 196
for a wrong committed against the company either by a complete stranger to the company or by any
or some of its shareholders, unless the shareholders who sue can bring themselves within the exceptions laid down by law. One such exception is where the wrong is against the individual rights of the shareholders as distinct from the corporate rights of the company. In support of that submission counsel mentioned Salomon v. salomon5(5) and Lee v. Lee’s Air Farming Ltd.6(6) which affirmed the decision in Salomon v. Salomon, supra.
Counsel for the plaintiff conceded the principle that shareholders cannot sue in respect of wrong done to the company but submitted that the wrong in this case is as much against the individual rights of the shareholders of Mpotimma Ltd. as it is against Mpotimma Ltd. Now the tort complained of in this case is negligence; an essential element of that tort is the duty to take care owed to the person who claims to have suffered from the negligent act or omission of his neighbour. In the case of Donoghue v. Stevenson7(7), Lord Atkin said “there must be, and is, some
general conception of relations giving rise to a duty of care8(8),” and in the case of Grant v. Australian Knitting Mills9(9), the Privy Council, in effect, adopted the views of Professor Winfield on the subject when he said:
“Negligence in the law of torts has a double meaning—it may signify (i) a definite tort, which consists in
the breach of a legal duty to advert to the circumstances or the consequences (or both) of an act or omission which causes damage to another; the standard of this legal duty is that of a reasonable man, so
far as advertence to the circumstances of the act or omission is concerned, and that of directness with respect to the consequence; (ii) merely inadvertence to a legal duty, which inadvertence is a possible mental element in the commission of some other (but by no means all) tort”10(10)
As pointed by the learned authors of Clerk and Lindsell, (11th ed.), at page 344, para. 561, that description of negligence deals with two aspects of negligence as a tort, i.e. negligence by itself and negligence as an element in the commission of other torts; that brings in Lord Atkin’s famous question in Donoghue v. Stevenson, “Who, then, in law is my neighbour?” and his answer “persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question.”11(11) Upon that principle are the plaintiffs in this case in law neighbours to the defendants, do the defendants owe a duty of care to the plaintiffs? The transaction relied upon by the plaintiffs are set out in paragraphs 2, 3, 4, 5, 6 and 7 of their statement of claim and may be summarised as follows: In September, 1957, Mpotimma Ltd. had no funds at the bank; their
[p.201] of [1961] GLR 196
directors approached the defendants to negotiate a secured loan; the defendants thereupon advised the
directors to pursue a course of action, i.e. drawing cheques upon the defendant bank payable to the
company’s accounts at the Ghana Commercial Bank and reversing the process. In giving the advice the defendants negligently omitted to point out to the directors that by the said transaction they would become liable to pay large sums of money to both the defendants and the Ghana Commercial Bank. In fact the company on the whole paid £G47,000 commission to the two banks.
In law the company is a separate legal personality quite apart from its members; the members are not even collectively the company; see Flitcroft’s case.12(12) The company is not an agent either of its members: Salomon v. Salomon & Company,13(13) see also Halsbury’s Laws of England, (3rd ed.). Vol. 6 page 420, para. 812. But the directors of the company are agents of the company: Re Faure
Electric Accumulators Company.14(14) They are, however, not agents of the shareholders: Gramophone & Typewriter, Ltd. v. Stanley,15(15) see also Halsbury’s Laws of England (3rd ed.) Vol. 6 page 293 para. 596. Therefore in the transaction with the directors, the only person who in law
could be a neighbour entitled to a duty of care from the defendants is that legal entity, Mpotimma Ltd., and not the members thereof or any of them.
Counsel for the plaintiffs submitted that when a banker gives advice he holds himself out as having a special skill to advise on financial matters, and he therefore owes a duty of care to anyone who suffers damage in consequence of any advice which he gives negligently, even though the person who suffers the damage may not be a customer to the bank. He also cited the case of Woods v. Martins Bank, Ltd.16(16) which he said is on all fours with the present case on this and on other points. The facts in
Woods v. Martins Bank Ltd. are briefly as follows: —Woods who was not a customer of the Martins Bank approached the Martins Bank, sought and was given advice as to where he should invest his money. Acting upon that advice he invested his money in a certain business concern. Sometime after that he became a customer of the Martins Bank, and thereafter he made a second investment in the same business. In making the second investment he acted upon the advice already given him by the bank; he did not take fresh advice. The bank was negligent in giving the advice with the result that Woods lost the moneys he invested in the said business. He sued the bank jointly with its manager
who gave the advice on behalf of the company. For the defendants, it was contended that since Woods made the second investment without fresh advice from the bank, the bank was not answerable to him for the loss he sustained upon the second investment. It was held that the second investment related
back to the [p.202] of [1961] GLR 196
advice which induced Woods to make the first investment and that the bank having failed in their duty towards Woods to exercise care were liable. The submission of counsel for the plaintiffs in the present case that the ratio decidendi in Woods v. Martins Bank Ltd.17(17) is that the bank and its manager were held liable to Woods even though Woods was not a customer of the bank at the date when the advice was given is a mistake. The relationship of banker and customer did not come into the question. That case was decided upon the principle that the relationship in which the bank stood to Woods at the date they gave him the advice was the same as that of a solicitor and his client, the
solicitor or the bank, possessing special skill in the particular subject of the advice, owed a duty of care to the client and were liable to the client, for injury the client suffered in consequence of all steps he took pursuant to the advice negligently given by the solicitor or the bank. The decision in Woods v. Martins Bank Ltd.18(18) is therefore no authority for the submissions of counsel for the plaintiffs.
Again on the principle laid down in Foss v. Harbottle19(19) and Edwards v. Halliwell20(20) that to redress a wrong done to a company or to recover money or damages due to it the action must be brought by the company itself, counsel for the plaintiffs submitted that in this case the corporate wrong has affected the individual rights of shareholders and therefore comes within the exceptions to the general principle. In support of that submission counsel cited the Canadian case of Brown v. Menzies Bay Timber Co.21(21) referred to in Vol. 9, English and Empire Digest, (1955 ed.) page 716, para. 2094. The note on the case in the English and Empire Digest reads: “A shareholder cannot maintain an action to redress a wrong done to a Co., except where the acts complained of are of a fraudulent character or beyond the powers of the Co., though he may have a cause of action to enforce his own individual right, which has been invaded by the directors or others”. As to the exception to the general principle, see Halsbury’s Laws of England, (3rd. ed.) Vol. 6 pages 418 and 445. The invasion of individual rights of shareholders relied upon is set out in paragraph 12 of the statement of claim and is as follows:
“12. Acting on the advice of an inducement of the 1st Defendants, the Company and the shareholders
have suffered damage and loss in that the Company had to go into liquidation and the
shareholders have lost their business interests and their yearly profits and dividends.”
Now an individual right the invasion of which will give a shareholder a l cause of action for wrong
done to the corporate body, must be a legal right, a right which is enforceable at law. It is true that the
purpose with which a shareholder invests his money in a company is that the company should be a going concern and be able to declare profits and pay dividends.
[p.203] of [1961] GLR 196
But a shareholder has no legal right that a company should always be a going concern. If the company
should make profits and pay dividends good luck to him, if it should declare loss and be unable to pay dividends then that’s just too bad, he cannot sue anyone to compel profits to be declared where nonenhas been made. On the other hand where profits have been declared he has a legal right that he shouldnbe paid a share of it proportionate with his investment, and he can enforce payment of that share to him. It follows from this that loss of business interests and yearly profits and dividends do not constitute an invasion of any legal rights of the plaintiffs, shareholders of Mpotimma Ltd. Therefore the plaintiffs do not come within the exception to the general principle; they have no claim.
The second and third points made by counsel for the defence may be taken together. They are that in the tort of negligence, unlike the tort of trespass or libel, the wrong is not actionable without damages:
Hambrook v. Stokes Brothers22(22); see also Clerk and Lindsell on Torts, (11th ed.) pages 53 and 179, where the subject is dealt with. The damage which gives the cause of action is special as distinct from general damages. The particulars of the special damages upon which this suit is founded are given in the writ of summons as follows: — “£47,000 Bank Cheques, Commission and other expenses paid to Ghana Commercial Bank and 1st Defendant Bank” and is further explained in paragraph 7 of the statement of claim as follows:
“That each of the two Banks charged fees of two shillings (2s.) for every one hundred pounds (£G100) worth of cheques issued; thus a daily fee of two hundred pounds (£200) was charged for one hundred thousand pounds (£G100,000) worth of cheques drawn by the Company upon both Banks. For a period of Eighteen (18) months the charges of the two Banks rose to the astronomical figure of forty-seven
thousand pounds (£G47,000)”
Those particulars show that the special damages which are made the bases of the action were suffered
by the corporate Mpotimma Ltd., not by the plaintiffs. Upon those facts the plaintiffs’ claim has no foundation and must fail. But as pointed out earlier the plaintiffs pleaded in paragraph 12 of their statement of claim that they as shareholders suffered loss of “their business interest and their yearly
profits and dividends”.
Counsel for the plaintiffs submitted that that loss is a financial loss which is sufficient damage to support a claim in the tort of negligence. That leads me to the third submission of counsel for the defendants, that upon the authorities pecuniary damage cannot support a claim in negligence and that
the damage which can found an action in negligence is restricted to physical damage to the person or to property. This principle is based upon the principle of the duty of care which one man owes to his neighbour, that his acts and omissions should not cause damage to his neighbour’s person or property.
[p.204] of [1961] GLR 196
There is a long list of cases on the point, all the leading ones have been discussed and carefully explained in Clerk and Lindsell on Torts, (11th ed.), paragraphs 344 to 353. Among them the following may be mentioned: Le Lievre v. Gould,23(23) Donoghue v. Stevenson,24(24) Old Gate Estates, Ltd. v. Toplis & Ors,25(25) Heskell v. Continental Express Ltd.26(26) and Candler v. Crane, Christmas & Company.27(27) In Lievre v. Gould.28(28) a surveyor negligently issued an untrue progress certificate to a builder knowing that it would be shown to a mortgagee. It was shown to the mortgagee who advanced money upon the strength of that certificate, and as a result suffered loss. An
action by the mortgagee against the surveyor failed on the ground that “unless he intended to deceive, the law does not, in the absence of contract, hold him responsible for drawing his certificate carelessly”29(29)
In Old Gate Estates Ltd. v. Toplis,30(30) a surveyor who negligently made valuation of property for promoters of a company was held not liable to the company for loss they suffered from purchasing the property in reliance on the certificate, on the ground that the negligence had not resulted in damage to life, limb, health or property; and in the case of Candler v. Crane, Christmas & Company,31(31) the defendants, a firm of accountants carelessly prepared accounts which gave a wholly misleading picture of a company. The accounts were prepared purposely for the plaintiff who was contemplating investing in the company. In consequence of those accounts the plaintiff invested in the company. The company was not sound, it was wound up in a year, and the plaintiff lost his money. The plaintiff therefore sued the accountants for damages for their negligence. It was held that the accountants owed no duty of care to the plaintiff and that the pecuniary loss could not support his claim in negligence.
In Clerk and Lindsell, (11th ed.), para. 575 the learned author gave a summary of the principle discussed in the leading cases as follows:
“Duty to take care limited to physical damage. The general duty laid down above is restricted to physical
damage to person or property. There is no duty not to cause pecuniary damage which is not physical in its incidence.”
Shortly put the principle may be stated as follows: In the absence of contractual or fiduciary relationship or the absence of intent to deceive or defraud, pecuniary damage which is not physical in its incidence cannot give cause for action in negligence, and so for that third reason also, the claim of the plaintiffs must fail. [p.205] of [1961] GLR 196
Thus each of the three points of law raised by the defence is fatal to the plaintiffs’ claim.
In the result the plaintiffs’ claim is dismissed and judgment entered thereon for the defendants.
DECISION
Action dismissed.
