MENSAH AND OTHERS v. ADU AND OTHERS [1965] 1 GLR 198

DIVISION: SUPREME COURT

DATE: 22 MARCH 1965

BEFORE: MILLS-ODOI, OLLENNU AND SIRIBOE JJ.S.C.

CASES REFERRED TO

(1) British Homes Assurance Corporation, Ltd. v. Paterson [1902] 2 Ch. 404; 71 L.J.Ch. 872; 86 L.T.

826; 50 W.R. 612; 18 T.L.R. 676.

(2) Green v. Beesley (1835) 2 Bing. N.C. 108; 132 E.R. 43. (3) Pooley v. Driver (1876) 5 Ch.D. 458; 46 L.J. Ch. 466; 36 L.T. 79; 25 W.R. 162.

(4) R.v. Special Commissioners of Income Tax [1922] 2 K.B. 729.

NATURE OF PROCEEDINGS

APPEAL from a judgment of the High Court in which the plaintiffs-appellants’ action was dismissed. The facts of the case are fully set out in the judgment of Ollennu J.S.C.

COUNSEL

Victor Owusu for the appellants.

S. K. K. Sotomey for the respondents.

JUDGMENT OF OLLENNU J.S.C,

Ollennu J.S.C. delivered the judgment of the court. The appellants, plaintiffs in the court below, claimed against the two defendants: (a) an order decreeing dissolution of a timber business known as the Nkwanta

Industrial Corporation; (b) an order for accounts of the said partnership and payment to them of any sum which may be found due to them; (c) appointment of a receiver and manager for the business of the said partnership pending final winding up of the same; and (d) an order for injunction restraining all parties save

[p.201] of [1965] 1 GLR 198 such as may be receivers and managers from interfering with the business of the said firm. They pleaded that the firm, the Nkwanta Industrial Corporation, is a partnership formed originally by the first two plaintiffs, the two defendants and one Kwaku Banin, now deceased, and that after the death of the said

Kwaku Banin, the three plaintiffs and the two defendants together carried on a partnership business in the same name. They further pleaded that the defendants had, without their, the plaintiff’s consent, registered their names under the Registration of Business Names Ordinance,1 as the sole proprietors of and partners in the said business, and were denying the interest of the plaintiffs in the said partnership. The defendants admitted that the business known as Nkwanta Industrial Corporation is a partnership business, they however pleaded that they, the two defendants, are the proprietors of and the sole partners in the said partnership, and were therefore justified in registering their names as they did under the Registration of

Business Names Ordinance (supra) without seeking the consent of the plaintiffs and without informing them either.

The plaintiffs and the defendants are all members of Duayaw-Nkwanta State Council. Some time in June

1955 the said state council, upon the motion of the first defendant, passed a resolution to embark upon a timber industry, and appointed the first two plaintiffs, the two defendants and Kwaku Banin, to initiate negotiations with the local council of the area to revoke all timber felling agreements which the local council had entered into with companies and other persons engaged in the industry and to grant to the state council exclusive timber felling rights over all lands in the state. At its meeting in July 1955, one of its members, a Mr. J. H. Gambrah, informed the state council that commercial and industrial undertakings were not within the competency of either the state council or the local council; whereupon the council abandoned the idea; they, however, decided that “in view of the fact that neither the state nor the local council could embark upon the timber business, any well-organised body or company of persons who could transact such duties for the interest of the state at large should be encouraged and permitted to embark upon it for and on behalf of the Duayaw-Nkwanta State Council.” Pursuant to this decision, the state council encouraged the five persons, namely, the first two plaintiffs, the two defendants and the said

Kwaku Banin to form the Nwanta Industrial Corporation and to be its board of directors with the first defendant as managing director. The council also lent them an amount of £G120, which they used as initial capital to start the business. None

[p.202] of [1965] 1 GLR 198 of the five persons who started the business made any cash contributions to the initial capital. There was an understanding that out of their profits, the firm would give financial assistance to the state council from time to time, and would also do such things as the award of scholarships to deserving young persons in the state for the general good and welfare of the state. In due time when the books of the council were audited the loan which the council had given to the firm was discovered; the auditor queried the same as ultra vires the council, and advised the council to call for immediate repayment; in consequence of that query and demand, the amount was refunded to the council.

Some time in 1957 differences arose between the plaintiffs and the said Kwaku Banin on the one hand, and the two defendants on the other; the cause of the differences was the award of a scholarship made by the defendants without the knowledge of the other three, the two defendants contending that they were the only persons who had supervised the management of the firm, and that the other three had been dormant or sleeping partners. The defendants contended therefore that the partnership had become their private and separate property. The state council intervened and settled the differences, and thereafter the five persons worked as a board of directors, holding board meetings and directing the operations of the partnership. Among other things they formally appointed the first defendant the managing director of the firm with a salary of £G600 per annum with certain allowances; they also appointed other full-time officers and fixed their salaries; they also fixed fees of five pounds (£G5) a month for sleeping partners, and made a grant of entertainment allowance of ten pounds (£G10) a month to the Omanhene of the state.

At one time the said board of directors made arrangements with a firm, African Woods Ltd., to pay certain debts on their behalf, and to reimburse the said company with the supply of timber. And at another time the firm raised a loan for the state upon personal covenants of the five persons in it, and upon the security of a house which they had purchased for the state council. The transactions of the board of directors of the firm are shown in the minutes of the board and in other documents. Kwaku Banin died some time in 1958, and upon recommendations of the state council the third plaintiff took his place on the board of directors.

Some time early in 1959, the plaintiffs discovered that the defendants had registered the business in their sole names, and were still claiming the firm as their exclusive property, hence the present action.

When the plaintiffs had only one more witness to call to close their case, the co-defendant, the Omanhene of Duayaw-Nkwanta, applied and was joined as a party against vehement opposition by the

[p.203] of [1965] 1 GLR 198 plaintiffs. Having been so joined, the co-defendant filed a defence and pleaded that the plaintiffs and the defendants managed the firm as trustees or agents of the state council, that neither the plaintiffs nor the defendants or any of them was entitled to any beneficial interest in the business, and therefore the plaintiffs were not entitled to any of the reliefs they sought. After the co-defendant had been joined, the defendants abandoned their defence and adopted the defence filed by the co-defendant.

The trial judge held (i) that the partnership business belonged to the state council, that the plaintiffs and the defendants were mere agents or trustees of the state council, and as such equity would not permit them or any of them to benefit from the trust property; (ii) that since the partnership was started with a loan from the state council the profit which was subsequently realised by the partnership belonged to the moneylender, the state council; and (iii) that the association of the five persons could not be a partnership because there was no evidence that since the death of Kwaku Banin a new business had been set up as new partnership.

Many important grounds of appeal were filed but it is only necessary to deal with three of them, each of which by itself completely disposes of the appeal. Those three grounds are:

“The learned trial judge failed completely to consider the legal relationship if any that existed between the corporation and the state council; if he had he would have discovered that neither agent and principal nor trustee and beneficiary had been established.

The evidence in support of a partnership was overwhelming both oral and documentary and learned trial judge erred in saying there was not a shred of evidence in support of partnership.

Upon the defendants’ acceptance of the case of the co-defendant that there was a corporation of all the plaintiffs and defendants but that it was a creature of the state council formed to work solely for the state council the simple issue which arose for determination was whether the relationship between the state council and the corporation was one capable of legal recognition; whether for example the state council could be held liable for debts of the corporation and this the judge failed to determine. If he had, the answer clearly would have been in the negative.”

These grounds of appeal raise the question of the powers of the state council to create the five persons its agents or trustees to carry

[p.204] of [1965] 1 GLR 198 on trade or industry. It is trite law that a person cannot do by his agent an act which he is, in law, not capable to do himself. In other words, what is ultra vires a principal is ultra vires his agent or his trustee.

The principle is stated in Halsbury’s Laws of England (3rd ed.), Vol.1, p. 147 as follows: “It may be stated as a general proposition that whatever a person has power to do himself he may do by means of an agent. The converse proposition similarly holds good that what a person cannot do himself he cannot do by means of an agent.” For the same reason a person cannot create a trust to do something which he cannot do himself.

The crucial question in this case therefore is, is the state council entitled under the State Councils

(Ashanti) Ordinance,2 or the Local Government Ordinance to engage in trade and industry? Learned counsel for the defendants and the co-defendant has conceded that trade and industry were ultra vires the state council. It is the awareness of its incompetency brought to its knowledge firstly by one of its councillors, and later by the auditor, which made the state council abandon the project and encourage any person or company which is legally competent to undertake the same to undertake it. Therefore counsel for the defendants and co-defendant conceded that in law the learned trial judge erred in holding that the partnership business was vested in the state council, or that the state council constituted the plaintiffs and defendants its agents or trustees to do on its behalf what it could not in law do by itself. And that completely disposes of the appeal in so far as the defence of the co-defendant is concerned.

The view of the learned judge that the profits of the business were held by the plaintiffs and defendants as trustees for the council on the ground that the business was started with money borrowed from the council is also erroneous, because in the first place the lending of the money is ultra vires the council, and therefore illegal, and the council cannot benefit from its illegal act. Secondly, even where a moneylender lends money lawfully to someone to start business he would not be a beneficiary of the profits of the business run by the borrower; his right in law is limited to a refund of his capital and to interest thereon if interest is payable. Now having abandoned their defence and adopted the defence of the co-defendant, and the defence of the co-defendant having proved to be untenable in law, the legal position is that the defendants have no defence to the plaintiffs’ claim, and judgment should have been entered for the plaintiffs on their claim against both the

[p.205] of [1965] 1 GLR 198 defendants and the co-defendant. Counsel for the defendants and co-defendant conceded this position but contended that the learned judge was right in dismissing the plaintiffs’ claim because there was no proof that the five persons who carried on the business of the firm agreed to share profits from the business, and therefore the association is not a partnership.

He supported his submission with the definition of partnership as contained in section 1 of the Partnership

Act, 1890,3 which is as follows: “the relation which subsists between persons carrying on a business in common with a view of profit.” Though the Act is subsequent to 1874, yet this definition is applicable to

Ghana, for as Farewell J. points out in British Homes Assurance Corporation, Ltd. v. Paterson,4 it is merely declaratory, and states the common law position of partnership, see for example Green v.

Beesley5 and Pooley v. Driver.6 This definition does not mean that a combination of persons doing business together for profit cannot be a partnership in law unless they were to share the profits for their individual personal benefit. The learned authors of Lindley on Partnership (12th ed.), p.14, commenting on the definition with respect to profits said:

“It is apprehended that even before the Act of 1890 persons who carried on a business in all other respects as partners, but with the object of applying the profits towards some charitable purpose, instead of dividing them among themselves would have been partners,” and referred to the trust in the case of R.v. Special Commissioners of Income Tax,7 as an example where a partnership business may be carried out with the object of applying the profits therefrom to charity.

In the present case there is clear evidence that the original five persons came together to carry on business, and that after the death of Kwaku Banin the plaintiffs and the defendants came together to do business and albeit their coming together in each case was initially upon nomination or appointment by the Nkwanta State Council, it is also clear that they agreed to do the business together with a view of profit which they would employ for the welfare of the state; there is the further evidence that they made themselves liable for losses which occurred or may occur from the said business; and no good reason has been shown either in law or fact why they

[p.206] of [1965] 1 GLR 198 should be liable for losses arising out of the business but not to be entitled to profits. That first association of the five persons up to 1958, the date of the death of Kwaku Banin, and the subsequent association of four of the former five and the third plaintiff which began in 1958 answer the legal definition of a partnership, and the partners thereof are bound by all the legal implications of a partnership. The awards of scholarships made to members of the state, the acquisition of a building for the use of the Omanhene, i.e. the state, and financial grants made to the state from the profits of the business appear to be in accord with the objects of the partnership and the moral obligation undertaken by the partners, and the expenditure in that regard can be properly met from accounts in the transaction of the business.

Having misdirected himself as to the status of the state vis-a-vis the business, the learned judge failed to consider the legal position of the association of the five persons and their relationship inter se with respect to their said association and the business carried on by them. Consequently he erred in holding that the plaintiffs failed to establish the existence of any partnership, and consequently he erred in concluding that the plaintiffs are not entitled to any of the reliefs they claim.

Death of one partner brings a partnership to an end, and subject to agreement between the partners, the personal representative of the deceased partner cannot join the survivors to keep the partnership alive. But upon such dissolution the surviving partners are entitled either by themselves or together with other person or persons to form a new partnership and call it by the same name as the former; but the accounts of the new partnership are to be kept separate from those of the former.

Now to the relief sought by the plaintiffs for an order decreeing dissolution of the partnership, it should be observed that the partnership between the first two plaintiffs, the defendants and Kwaku Banin became dissolved by operation of law upon the death of Kwaku Banin in 1958; therefore all the relief that the plaintiffs can be entitled to in respect thereof is an order for accounts. The partnership between the plaintiffs and the defendants, on the other hand, still subsists. But it will be most unfortunate both for the parties to it, and for the state which is shown to be benefiting so much from it, that such a useful business should be determined; it would appear that a conditional order for dissolution to take effect upon the expiration of twelve months from the date hereof will meet the justice of the case, and would give all parties concerned an opportunity

[p.207] of [1965] 1 GLR 198 to reconcile their differences for the common good of all, and come together to re-organise the business on a firmer basis.

The other reliefs claimed are in accord with the conditional order for dissolution; those other reliefs are; order for accounts to be taken, the appointment of receivers and managers who should include those of the parties who, in the terms of the last claim, i.e. the relief for injunction, are persons so versed in the operation of the business that it would be detrimental to the partnership to exclude them.

For the reasons given above, the appeal is allowed, the judgment of the court below is set aside including the order as to costs, any costs paid to be refunded. For the judgment of the High Court the following is substituted:

There will be judgment for the plaintiffs for:

(a) accounts to be taken of the partnership which was dissolved in 1958 by the death of Kwaku Banin and for payment to the plaintiffs of whatever may be found due to them;

(b) an interim order for dissolution of the subsisting partnership, the Nkwanta Industrial Corporation, to take effect after the expiration of twelve months from date hereof unless the parties sooner settled their differences;

(c) accounts to be taken of the subsisting partnership up to date of judgment;

(d) appointment of receivers and managers to manage and operate the business of the partnership until final winding up; and

(e) injunction restraining all parties to the suit save those appointed receivers and managers from interfering with the management and control of the business until final winding up.

The appellants will have their costs in this court against the first two respondents, J. H. Adu and A. S.

Akom, fixed at £G98 6s. and against the second respondent, Nana Sakyi Amanado II, fixed at £G49 3s.; they will also have their costs in the court below assessed as follows: against the first two respondents

150 guineas and against the second respondent 100 guineas. Court below to carry out.

DECISION Appeal allowed.

Order accordingly.

S. K. D.-B.