REPUBLIC vs. HIGH COURT, ACCRA; EX PARTE BRENYA AND ANOTHER [2001-2002] 1 GLR 483

CASES REFERRED TO:

(1) Dolphyne (No 3) v Speedline Stevedoring Co Ltd [1996-97] SCGLR 514.

(2) Asiama v Adjabeng [1971] 2 GLR 171, CA.

(3) Northumberland Avenue Hotel Co, In re (1886) 33 ChD16; 54 LT 777, CA.

APPLICATION for an order of certiorari to quash the orders of the High Court, Accra in favour of the respondent, granting his claim for, inter alia, a declaration that he is a member, shareholder and a director of a company registered under the Companies Code, 1963 (Act 179). The facts are sufficiently stated in the judgment of Acquah JSC.

Sam Okudzeto for the applicant.

Dr Ekow Daniels for the respondent.

Acquah JSC. Delivered the judgment of the court. On 29 May 2001 we unanimously granted the applicant’s prayer for certiorari and consequently quashed the proceedings and orders of the High Court, Accra (Benin JA) dated 12 May 2000 and 19 January 2001. We reserved our reasons which we now proceed to deliver.

Towards the latter part of the 1980s, John K Dolphyne took out a writ of summons at the Circuit Court, Sekondi against Speedline Stevedoring Co Ltd and S E Brenya seeking damages for fraud, and a declaration that he is a member and director of Speedline Stevedoring Co Ltd. In the accompanying statement of claim, Dolphyne averred that sometime in October 1976, he and three other named persons agreed to establish the Speedline Stevedoring Co Ltd (hereinafter referred to as the company). They invited Mrs Brenya to attend a company meeting but she designated her husband, Mr Brenya, to attend instead. At that meeting, Mr Brenya was appointed company secretary. The four founders were appointed the company’s directors/shareholders. He averred further that he paid ¢15,000 for the company’s [p.487] of [2001-2002] 1 GLR 483 licence. The registration of the company was entrusted to Mr Brenya. It was averred that Mr Brenya failed to carry out these instructions and rather fraudulently registered the company without the inclusion of Mr Dolphyne’s name as a shareholder. Besides, he fraudulently put down the names of only himself and his wife as the directors of the company. He, Dolphyne, was appointed to oversee the company’s operation in Takoradi. It turned out that when he discovered the fraud committed by Mr Brenya, two of the company’s founders, namely Messrs Oduro and Arthur made a report to the Registrar General who set up the one man Ntrakwah Committee. This committee confirmed MrBrenya’s fraud. Hence the circuit court writ and the reliefs sought.

The circuit court gave him judgment. There was an appeal to the Court of Appeal, and finally to the Supreme Court, which on 29 January 1997 set aside the reliefs for a director and membership of the company on the grounds that a circuit court had no jurisdiction to deal in company matters. The Supreme Court however confirmed the damages of ¢3 million for fraud.

Thereafter Dolphyne adding the company as the second plaintiff in Misc No 768/97 issued a writ at the High Court, Accra against Mr Brenya as the first defendant and Mrs Brenya as the second defendant. Speedline Stevedoring Co Ltd which was the second plaintiff in this suit was removed and made the third defendant. The reliefs claimed by Mr Dolphyne were:

“(i) A declaration that the plaintiff is the director/shareholder of Speedline Stevedoring Co Ltd, a company for which the plaintiff paid ¢15,000 for its licence.

(ii) A declaration that the resolution of the board of directors of the said company purporting to dissociate the plaintiff from direct or indirect connection with the same is null and void.

(iii) Perpetual injunction restraining the defendants, their servants, agents, privies, grantees and assigns from interfering with the affairs of Speedline Stevedoring Co Ltd until the determination of the suit herein, and for an order for the appointment of a receiver and manager of the said company.”

In the following year, that was 1998, Mrs Brenya and the company in suit No CS 180/98 filed at the High Court, Accra against Mr Dolphyne and Mr Brenya claimed several reliefs including:

“(i) A declaration that by the copy of the regulations of the company duly registered at the office of the Registrar

[p.488] of [2001-2002] 1 GLR 483

General, the first plaintiff has never been and is not a director or shareholder of the company and has no capacity to be recognised or hold himself as such.

(ii) A declaration that the first plaintiff was not a party in the High Court, Accra suit No 662/79 taken by the two former directors/shareholders and could not use the settlement as res judicata or estoppel against the defendants or rely on the settlement reached by the parties to the said suit to the detriment of the defendants.

(iii) A declaration that the first plaintiff was not part of the complaint made by the two former directors/shareholders Messrs Oduro and F N Arthur to the office of the Registrar-General and could not use the report as res judicata or estoppel by judgment against the defendants herein.”

These two High Court suits were consolidated, and the proceedings, judgments and orders in those suits are the subject matter of the certiorari application which we granted on 29 May 2000.

Now, the facts grounding Mr Dolphyne’s 1997 suit were the very facts on which he launched his circuit court case which resulted in his being awarded ¢3 million damages for fraud. As the trial High Court judge observed in his judgment of 12 May 2000:

“The material facts relied upon by the parties were not significantly different from those in the earlier suit … It appears that Mr Dolphyne was prepared to rest his case on the various court judgments put in evidence in the action he took against Mr Brenya. His attorney made this clear in cross-examination.”

Thereafter the High Court began by referring to the Supreme Court’s judgment which accepted the finding of fraud committed by Mr Brenya against Dolphyne, and held that this fraud:

“relates to the formation, and more particularly the registration of the company’s shareholders and directors. So the decision of the circuit court was that Mr Dolphyne was entitled to be registered as director and shareholder but was fraudulently left out by Mr Brenya who was entrusted with that responsibility.”

The trial High Court then took the view that in the circumstances all that was left for him to do was to examine the findings of the circuit court, especially as the proceedings and judgment of that court were all that the plaintiff relied on before him. Accordingly, he said:

[p.489] of [2001-2002] 1 GLR 483

“Let me now turn to the relevant findings of fact made by the circuit court. I will quote some of these findings in order to save time. I shall refer to other findings as and when it becomes necessary.”

Thereafter the court pronounced its decisions on the two consolidated suits as follows: “In suit No 768/97, relief (1) is allowed to this extent that Dolphyne is declared to own 25 per cent shares in the company; he is also declared to be a director of the company along with Mrs Brenya. Reliefs (2) and (3) of the said suit are dismissed. A final decision on relief (4) will be put off for the moment . . . The counterclaim by the company in the said suit is disallowed … So too is the counterclaim by Mr and Mrs Brenya in the said suit also dismissed. The entire claim by Mrs Brenya in CS 180/98 is without merit and is dismissed, except for what I have adjudged to be her entitlements in the company.”

He then adjourned the case for six weeks for the parties to sit down “and talk about the future of the company before any final orders may be made. They should take into account the overall interest of the company, and in the process a buy out may be considered if that will help them if they cannot co-operate to let the company operate successfully. They may also discuss the question of accounts, always bearing in mind the overriding interest of the company, so the parties should approach this exercise with an open mind if they truly have the interest of the company at heart.”

On the next sitting of the court which was 19 January 2001 the court made the following orders: “It is ordered that Mr Antonio Casto Barcom and Mr J K Dolphyne should take over the management of the company from he receivers and managers. The receivers and managers will, however, continue to sign the company’s cheques and notify the two named persons up to the end of January 2001. With effect from 1 February 2001 these two persons, Dolphyne and Antonio, will be signatories to the company’s cheques. This order is to be dawn up by the registrar, and signed by the judge himself and copies sent to all the appropriate agencies including the banks with which the company does business . . . The receivers and mnagers are to meet with Messrs Antonio and Dolphyne next

[p.490] of [2001-2002] 1 GLR 483 Tuesday, 23 January and introduce them to the relevant agencies and persons in and around Accra-Tema. A similar exercise is to be embarked upon in Takoradi on Friday, 26 January 2001.”

After this, the judge went on to make an order for the payment of ¢20 million to each of the lawyers of the parties as settlement of their legal fees. He ordered:

“. . . the receivers and managers are to issue a cheque of ¢20 million to each of the three lawyers, namely Dr Seth Twum, Dr Ekow Daniels and Mr Marful-Sau as part of their fees. The rest of their fees, if any, is to be settled by the parties themselves.”

What happens if the lawyer’s fees were less than ¢20 million, one may ask? These orders are certainly far beyond the scope of the reliefs sought by the parties. The judge completely reorganised the affairs and administration of the company regardless of what is set down in the company’s regulations, registered with the Registrar of Companies. Not surprisingly, therefore, the applicants sought certiorari to quash the judgment and these orders as perverse and made without jurisdiction.

To begin with, the judgment and orders in question, as the trial judge expressly stated, were founded on the findings made in the circuit court case which ended up at the Supreme Court. He was emboldened to rely on the said findings because of his view that both Brenya and the company were parties to the said suit and are therefore bound by the findings made therein. Thus, after holding that Mr Brenya was a part and therefore bound by the findings, he said of the company:

“As for the company it was a party to the circuit court case and O was fully aware of the nature of the case made against Mr Brenya which directly affected the structure of the company’s shareholding and directorship. If it chose not to assist Mr Brenya it cannot claim not to be affected by the decision made.”

Now, for a judgment to operate as res judicata, the said judgment must be valid and subsisting. In other words, it must be a final judgment delivered by a court of competent jurisdiction. Othewise that judgment cannot operate as res judicata to bind the partiesto it. Thus, in Spencer-Bower and Turner’s Res Judicata (2nd ed), p 9 para 9, the plea is thus explained:

“Where a final decision has been pronounced by a. . . a judicial tribunal of competent jurisdiction, any party or privy to such litigation, as against any other party or privy thereto, . . . is

[p.491] of [2001-2002] 1 GLR 483 estopped in any subsequent litigation from disputing or questioning such decision on the merits whether it be used as the foundation of an action or relied upon as a bar to any claim.”

(The emphasis is mine.)

In the instant case, although it is true that Mr Brenya and the company were parties to the circuit court judgment, and that the said circuit court entered judgment for Dolphyne for ¢3 million damages for fraud, and declared Dolphyne a shareholder and director of the said company, yet the Supreme Court upheld only the ¢3 million damages for fraud and set aside the declaration that Dolphyne was a shareholder and director of the company.

Thus, in Dolphyne (No 3) v Speedline Stevedoring Co Ltd [1996-97] SCGLR 514 at 519, the Supreme Court stated:

“Reference to section 32 of Act 372 shows quite clearly that the circuit court does not have jurisdiction in matters concerned with the Companies Code, 1963 (Act 179). Indeed by section 2, Schedule 1 thereof unless the context so requires, a court means the High Court. Therefore, unless an applicant or party to an action or application in respect of matters coming within the ambit of the Companies Code, 1963 can demonstrate that there is some other law or even in the Companies Code itself which specifically confers jurisdiction on the lower court, there will be no jurisdiction to entertain the matter. In the present appeal nothing in the record demonstrates that there was jurisdiction in the circuit court, and that part of the action should have been dismissed.”

Accordingly, the Supreme Court dismissed claims (b) and (c) dealing with membership and shareholdership of the company and set aside the circuit court’s decisions on these reliefs. All the findings made by the circuit court in connection with those reliefs similarly stood quashed. And the High Court cannot therefore rely on them to enter judgment that Dolphyne is a shareholder and director of the company. In Asiama v Adjabeng [1971] 2 GLR 171, CA, holding (1) of the head-note reads: “. . . there can be no estoppel per rem judicatam or by conduct where the judgment pleaded has been overruled or where the subject matter of the dispute is not covered by the judgment.”

Such glaring error committed by the High Court is sufficient to

[p.492] of [2001-2002] 1 GLR 483 vitiate the judgment and orders of 12 May 2000 and 19 January 2001.

Now, what did the company per se do to justify Mr Dolphyne’s action against it? Now, the case of Dolphyne at the Circuit Court, Sekondi and in the High Court suit Misc No 768/97 as set out earlier, was that in 1976 he and three others decided to establish a stevedoring company. At a meeting to discuss the formation of this company, it was agreed that he and the three founders were to be made shareholders and directors, and Mr Brenya secretary, and Mr Brenya was entrusted with the responsibility of registering the company. But Brenya did not register him as a shareholder and director. Hence his claim for damages for fraud against Brenya, and a declaration that he is a director/shareholder of the company. Clearly then, Mr Dolphyne’s complaint relates to a contract or a transaction which happened before the incorporation of Speedline Stevedoring Co Ltd and therefore governed by the law on pre-incorporation contracts.

The common law rules on this are the same both for public and private companies. No legal person, natural or artificial, can contract before he or it exists. Therefore, a contract made by a promoter on behalf of the company before incorporation never binds the company, because the company is not yet formed. It has no legal existence. Even if the parties act on the contract, it will not bind the company: see Re Northumberland Avenue Hotel Co (1886) 33 ChD 16, CA.

Section 13 of the Companies Code, 1963 (Act 179) dealing with pre-incorporation contracts, provides:

“13. (1) Any contract or other transaction purporting to be entered into by a company prior to its formation or by any person on behalf of the company prior to its formation may be ratified by the company after its formation; and thereupon the company shall become bound by and entitled to the benefit thereof as if it had been in existence at the date of such contract or other transaction and had been a party thereto.

(2) Prior to ratification by a company the person or persons who purported to act in the name or on behalf of the company shall, in the absence of express agreement to the contrary, be personally bound by the contract or other transaction and shall be entitled to the benefit thereof.”

Thus, unless it is established that the company ratified the pre-incorporation agreement to have Dolphyne as director and shareholder, the company cannot be sued to enforce the terms of that agreement. Consequently, the action against the company is misconceived and [p.493] of [2001-2002] 1 GLR 483 misdirected.

Speedline Stevedoring Co Ltd, from the records, is a private company registered under Act 179, and therefore subject to the provisions of Act 179. Act 179 regulates, inter alia, how the membership, directorship and shareholdings of a private company can be effected. Section 30 of Act 179 states that one becomes a member of a company by subscribing to its regulations. And that in the case of a company with shares each member shall hold at least one share. Then section 30(5) of Act 179 provides:

“(5) Membership of a company with shares shall continue until a valid transfer of all the shares held by the member is registered by the company, or until all such shares are transmitted by operation of law to another person or forfeited for non-payment of calls under a provision in the Regulations, or until the member dies.”

It is indeed interesting to imagine how in the case of a private company like the Speedline Stevedoring Co Ltd, someone who has not subscribed to the regulations of that company, has not taken shares, and has not consented in writing to be a director, may be imposed on that company as a shareholder and director simply because the one who processed the registration of that company refused to register him as a shareholder and director. And the situation becomes absurd when one appreciates that the complainant had, for the refusal to register him as such, already been awarded ¢3 million damages.

The alleged fraudulent behaviour of Mr Brenya was between Dolphyne and this Brenya, and the award of damages ended the matter. The company was not a party, neither was Mrs Brenya a party to the fraud. The claim for a shareholdership and directorship of the company, based on the fraudulent behaviour of Mr Brenya, cannot therefore be justified either at common law or in the face of section 13 of Act 179.

Now, the High Court having improperly made Dolphyne a shareholder, when Dolphyne has no share in the company, proceeded illegally to allot 25 per cent of the shares of Mrs Brenya to Dolphyne. Section 95 of the Code prohibits the transfer of shares without the consent of the shareholder. Section 42(1) and 45 dealing with payment of shares provide:

“42. (1) Except on a capitalisation issue pursuant to subsection (1) of section 74 of this Code, shares shall not be issued otherwise than for valuable consideration paid or payable to the

[p.494] of [2001-2002] 1 GLR 483 company and unless otherwise agreed shares shall be paid for in cash …

45. Shares shall not be deemed to have been paid for in cash except to the extent that the company shall actually have received cash therefor at the time of, or subsequently to, the agreement to issue the shares; and where shares are issued to a person who has sold or agreed to sell property or rendered or agreed to render services to the company or to persons nominated by him the amount of any payment made for the property or services shall be deducted from the amount of any cash payment made for the shares and only the balance, if any, shall be treated as having been paid in cash for such shares notwithstanding any exchange of cheques or other securities for money.”

The orders of the High Court clearly fell foul of these and other provisions of Act 179.

We are accordingly satisfied that once the Circuit Court, Sekondi had no jurisdiction to deal with matters affecting companies registered under Act 179, the findings of that court cannot be relied upon to ground a judgment for Dolphyne. Furthermore, since the matters complained of took place before the registration of the company, the company cannot be held responsible in the absence of express ratification of that transaction. The orders of 19 January 2001 were in flagrant violation of the provisions of Act 179. For a High Court can appoint receivers and managers to manage the affairs of a company but the court cannot, after revoking their appointment, purport to appoint directors and determine which particular directors should sign the cheques of the company. The code does not give a High Court such jurisdiction. Hence, our unanimous decision quashing the judgment and orders of the High Court dated 12 May 2000 and 19 January 2001.

Application for certiorari granted.

JNNO