VAMBARIS vs. ALTUNA AND ANOTHER [1973] 2 GLR 41

CASES REFERRED TO

(1) Goody v. Baring [1956] 1 W.L.R. 448; 100 S.J. 320; [1956] 2 All E.R. 11.

(2) In re Jermyn Street Turkish Baths Ltd. [1970] 1 W.L.R. 1194; 114 S.J. 583; [1970] 3 All E.R. 57.

NATURE OF PROCEEDINGS

APPLICATION brought under section 218 of the Companies Code, 196 (Act 179), for an order to declare inter alia the second respondent’s appointment as a director null and void.

COUNSEL

Ahenkora for the first applicant.

Mrs. Cobbina for the first respondent.

Second respondent in person

JUDGMENT OF HAYFRON-BENJAMIN J.

This is an application under section 218 of the Companies Code, 1963 (Act 179). With the withdrawal of the second applicant, the application is pursued only by the first applicant, a shareholder of the company known as Altuna Brothers Ltd.

The company was originally incorporated with the applicant, Jesus Altuna, and one A. C. Kuma as the sole shareholders and their holdings were 2,000 to 2,500 and 500 shares respectively. The company was engaged in fishing. The respondent Okudjeto was the secretary and the solicitor to the company. In these proceedings, Vambaris is the first applicant, and will in this judgment be referred to as such. A. C. Kuma will be referred to as the second applicant. Jesus Altuna will be referred to as the first respondent and Samuel Awuku Okudjeto would be referred to as the second respondent. The first applicant and the first respondent are expatriates with little or no command of the English language. The hearing of these proceedings has been delayed partly because of the difficulty experienced by the first applicant in making himself clearly understood. His spoken English is not clear and articulate. Mercifully the first respondent did not give oral evidence.

[p.43] of [1973] 2 GLR 41-47 The second applicant and the second respondent are both lawyers. At the time the company was formed, they practised in the same chambers, the second respondent being the junior of the second applicant. The second respondent subsequently became a member of the dissolved Parliament under the Constitution of the Second Republic of Ghana. The applicant’s complaints seem to be primarily in respect of the activities of the second respondent who later became a director and also a shareholder. The complaints against the first respondent seem mainly to arise from the support he is said to have given to the second respondent in his several schemes in running the company.

I must state quite clearly that on the evidence 1 do not think most of the complaints levelled against the respondents have been made out. The only important complaint worth considering is about the manner in which the second respondent got himself made a director, and also the manner of the acquisition of the shares by him. The first applicant states “that in pursuit of his schemes the second respondent procured himself to become a director of the company without any general meeting having been convened for that purpose, much less a resolution of a general meeting being passed.” The first applicant further states that the second respondent at a meeting of the board of directors insisted that the shares should be redistributed and that his (the first applicant’s) shares were reduced from 2,000 to 1,000. He claims that this redistribution is invalid. The second respondent’s answer to this is that he was invited by the three directors to become a director so that Ghanaian representation on the board could help the image of the company. He states further that the redistribution of the shares was at the suggestion of the second applicant and was agreed to by the first applicant who persuaded the first respondent to agree so that the company could enjoy a real Ghanaian status. The first applicant states categorically that the second respondent paid nothing for the shares, and this is not denied by the second respondent.

The first point for consideration is whether the appointment of the second respondent as a director and the acquisition of the shares by him were proper in view of the professional relationship existing between him and the other parties and the company, and also in view of the circumstances of this case. I do not see anything wrong for a shareholder to appoint as a director, his solicitor or legal adviser, even at a fee, if he thinks that that would advance his interests and protect his investment in the company. In fact in many instances the best protection of shareholders lies in having on the board persons acquainted with the provisions of the Companies Code, 1963 (Act 179). Where the company’s regulations require a minimum shareholding qualification, the shareholders may even transfer such shares to the solicitor to enable him to take his seat as a director of the company. This however is far away from what happened in this case. Here the second respondent himself says in his affidavit that some time in 1966 while in law practice as a junior partner to the second applicant, they were approached professionally by the first applicant and the first

[p.44] of [1973] 2 GLR 41-47

respondent in respect of an agreement to be entered into with the Osudoku Fisheries Co-operative Ltd. for the salvage of a ship. After the said salvage operation, he, the second respondent in consultation with his senior partner, advised that the lien on the salvage boat under the contract should be exercised, and this was done. The first respondent states that it was on the advice of the second respondent that a limited liability company was formed and that all steps necessary for registration were taken by the second respondent who was appointed secretary and solicitor to the company. According to the second respondent, “knowing that the parties had no money and desirous of helping them I agreed to do the work and submitted no bills to them for services rendered.” He goes on, “(15) That I have been so acting until May 1968 when both applicants transferred one hundred shares each to me.” According to him a second vessel was salvaged by the first respondent, and he the second respondent negotiated successfully with the State Insurance Corporation for the sale of the boat to the company. The second respondent goes on:

“(19) That some time in 1969, the three directors asked if I will agree to become a director so that Ghanaian representation on the board could help the image of the company.

(20) That I did agree and was made a director.

(21) That even though I became a director of the company in November 1969, I did not become a signatory to the company’s cheques until 1 July 1971, when I was requested to submit new signature list to the company.

(22) That I have never requested a redistribution of shares nor demanded any shares from any member.

(23) That the redistribution was suggested by the second applicant and agreed to by the first applicant who persuaded the first respondent to agree so that the company could enjoy a real Ghanaian status.

(24) That even though I explained that it may be more convenient for the shares to be transferred rather

than redistributed the second applicant insisted on the former method and this was done.”

The court is aware of the general purposeful drive of the Ghanaianisation of business enterprises in the country; but even Parliament under the old regime did not expect or contemplate a bonanza. Parliament passed the Ghanaian Business (Promotion) Act, 1970 (Act 334), to assist Ghanaians financially to take over alien business. No one demanded that aliens or expatriates should gratuitously divest themselves of ownership in business enterprises or transfer gratis and for no consideration their investment to Ghanaians solely for the purpose of creating a Ghanaian image or status for their companies. Where therefore there has been such a transfer or other transaction between an alien and his Ghanaian legal advisers, this court will scrutinize the transaction and uphold it only if it is satisfied that the transaction was at arm’s length.

[p.45] of [1973] 2 GLR 41-47

“The relationship existing between a solicitor and his client is recognised in equity as a fiduciary one imposing on the solicitor special obligations. In his dealings with his client the solicitor must exercise the utmost good faith, and in any financial transaction with his client (save as to costs for work done) there will be a presumption that such transaction should not be upheld unless the solicitor can establish that it was affected by free exercise of the client’s will and without any influence on the part of the solicitor.”

See Cordery on Solicitors (5th ed.) at p. 118. The same author at the same page says that:

“Where the transaction is in substance a gift by the client to his solicitor a stricter rule applies than in transactions of purchase and sale.

As a consequence of these rules, transactions which between a solicitor and a stranger would be unobjectionable, may, between a solicitor and his client, be neither enforceable by the solicitor nor, subject to considerations of delay and confirmation, sustainable by him when impeached by the client.”

In this case, on the affidavit of the second respondent himself, the advice to redistribute the shares was given by his senior partner in law practice, who had also got himself on the board of directors.

“Although there is perhaps no absolute rule that a gift or sale by a client to his solicitor cannot be upheld if the client was not separately advised, yet the solicitor should require the client to employ an independent solicitor to give him such advice, for upon failure to do so he may, in the circumstances of the case, be deemed to have failed in his duty to his client.

See Cordery on Solicitors (5th ed.) at p. 119 and Goody v. Baring [1956] 2 All E.R. 11. I do not consider advice given by a senior partner in law practice to a client of a junior partner such independent advice as to protect such financial transactions. The decision to appoint the second respondent as a director of the company, the decision to pay him as a director, the fixing of his fees as a secretary and as solicitor, and the transfer of the shares to the second respondent were all influenced, on the second respondent’s own showing, by his senior partner in law practice. I have made reference to passages in his own affidavit to that effect. I need only add a reference to paragraph (27) of his affidavit where he says, “That the allowances were fixed at a board meeting held on 3 August 1971, and that of myself as solicitor and secretary was fixed by Mr. A.

C. Kuma and that cheques paid to me were signed by the applicant.”

I am satisfied that in this case the relation of solicitor and client cannot be said to have been finally determined. It is said that,

[p.46] of [1973] 2 GLR 41-47

“to constitute the relation of solicitor and client it is sufficient that a party has no other solicitor to whom he is in the habit of resorting for advice, and that the relationship between them is such that the solicitor is the person to whom the person concerned naturally looks for legal advice.”

See Cordery on Solicitors (5th ed.) at p. 120. In this case I am satisfied that the first applicant and the first respondent approached the second respondent and his senior partner for legal advice, and that the relationship of solicitor and client was established between them, and that this relationship persisted throughout the period covered by these transactions. The appointment of the second respondent as the solicitor to the company did not terminate this relationship. If anything it made it even more important and necessary that the first respondent should have insisted on independent advice for the lay directors in matters in which he stood to derive personal gain. In the circumstances I do not think the appointment of the second respondent as a director of the company involving as it did financial advantage and the free acquisition of the shares by himself should be allowed to stand. The senior partner in law practice started as a party to this suit, but dropped out in the course of the proceedings before he could be cross-examined at any great length. It is not clear whether he paid for his shares or not.

The circumstances under which he became a director at the outset of the formation of the company have not been scrutinized because no complaint or claim has been made against his directorship or his shareholdings. I shall therefore make no order in these proceedings in respect of him. The lay shareholders are free if so advised to pursue any remedies if any be available to them in respect of him. However during the course of these proceedings he purported to sell his shares to the company for a sum of upwards of ¢14,000.00. The sum paid to him was by an order of my brother Francois J. to be deposited into court pending the hearing and determination of this case. I order that this sum if deposited should be refunded to the company. If not deposited, the company to be at liberty to go into execution to enforce payment. The circumstances under which these shares were valued for purposes of the sale have not been shown to have been above board.

The only question remaining is whether this court can make an order setting aside an improper appointment as a director or an invalid acquisition of shares on an application made under section 218 of the Companies Code, 1963 (Act 179), or this can only be made in an action. The section gives the court wide judicial discretion to make such order as it thinks fit with a view to bringing to an end the matters complained of Pennycuick J. in In re Jermyn Street Turkish Baths Ltd. [1970] 1 W.L.R. 1194 at p. 1208 said the judicial discretion given in a similar

[p.47] of [1973] 2 GLR 41-47

section under the English Companies Act, 1948 (11 & 12 Geo. 6, c. 38), is unlimited. Our Code definitely gives power to the court to direct or prohibit any act or cancel or vary any transaction or resolution: see section 218 (2).

In the circumstances I declare the acquisition of the shares by the second respondent Mr. Okudjeto improper and set it aside. I also declare that being the solicitor to the parties and to the company he should not have become a director in the circumstances since it was his own senior partner in law practice who suggested him for the directorship. He is therefore ordered to file an account of all sums he has received as a director of the company, and any sum he has received by way of dividends within two weeks from today. I shall dismiss the application in respect of the first respondent Jesus Altuna. Mr. Okudjeto will pay the costs of the application to the first applicant which I assess at ¢300.00. The first applicant will also pay the costs of the first respondent Jesus Altuna which I assess at ¢300.00. The sum found to have been obtained by Mr. Okudjeto as a result of his directorship and shareholding to be paid by him to the company.

DECISION

Application granted.

S. O.