WORLDWIDE SHIPPING AND AGENCIES (GH) LTD vs. DARKO [2001-2002] 2 GLR 488

CASES REFERRED TO:

(1) Salomon v Salomon and Co Ltd [1897] AC 22, HL.

(2) Morkor v Kuma [1998-99]SCGLR 620.

[p.492] of [2001-2002] 2 GLR 488

(3) Chellaram & Sons (Ghana) Ltd v Halabi [1963] 1 GLR 214,SC.

(4) United States v Milwaukee Refrigeration Transit Co, (1905) 142 Fed 247.

APPEAL against the decision of the High Court, Tema lifting the veil of incorporation of the appellant company and allowing the operators behind the company to be held liable for money had and received from the respondent. The facts are sufficiently set out in the judgment of Brobbey JA.

B B Mensah for the appellant.

Osei Anto Bonsu for the respondent.

Brobbey JA. This is an appeal from a decision of the High Court, Tema by which judgment was entered in favour of the plaintiff-respondent.

The original claim in the High Court arose out of the following facts; some goods were ordered from Canada in a container. They appeared to have been cars. The respondent came to the scene after the goods had arrived in the Republic of Benin. He averred that he entered into an agreement with the appellants that he should pay the freight charges so that the goods would be shipped to Ghana. For that purpose, he paid to the appellants a total of $5,200. The appellants issued receipts for the payments. After the payments, neither the container nor the goods were shipped from Benin. After repeated demands, he instituted the instant action to claim the $5,200 together with interest at the prevailing bank rate.

The initial action was brought against the company called Worldwide Shipping and Agencies Ghana Ltd, Tema. The writ was filed on 4 May 1999. It was not until 14 July, 1999 that the defendant company was served. On 21 July 1999, a firm of solicitors, acting per lawyer Michael Owusu Awuah, entered conditional appearance on behalf of the company. No steps were taken to pursue the conditional appearance. No defence was filed.

Having entered appearance on behalf of the company, the same lawyer wrote on 18 August 1999 that one E B Mensah on whom processes in respect of the case had been served had resigned as a director and therefore service on him was improper. He returned the court processes to the court.

The plaintiff however filed a motion on notice for judgment in default of defence on 3 November 1999. That motion was served on

[p.493] of [2001-2002] 2 GLR 488 the lawyer on 4 November 1999. On 15 November 1999, the lawyer wrote to the court that he had withdrawn his representation for the defendant, the limited liability company. The plaintiff nevertheless proceeded to serve hearing notice, presumably of the motion for judgment, on the company through the said E B Mensah who happened to be a director at the time the money was paid. The service was effected on 22 November 1999. The plaintiff took judgment on 4 December 1999.

When the plaintiff was about to go into execution against the said director, the same lawyer, purporting to act as a solicitor for the director, wrote to the court to rectify the processes served on the director for the reason that he had resigned as director. That was on 9 February 2000.

On 1 March 2000 the plaintiff filed a motion on notice against E B Mensah and one Byron Oku in their capacities as managing director and deputy managing director, respectively of the defendant company. The motion was to lift the veil of incorporation and to proceed against them personally for the reliefs claimed in the writ. On behalf of himself and Byron Oku, E B Mensah filed an affidavit in opposition against the motion.

Up to this stage, the lawyer had merely written two letters as a solicitor for the two directors. He had not formally entered appearance as a solicitor for them in the case, neither had any notice of appointment of a solicitor been filed. Nevertheless, when the motion was heard, he appeared and argued the case for them. Since he had withdrawn his representation for the original defendant, he could not appear in the case to argue the defence on behalf of that defendant and he did not purport to have done that. Since he had entered no appearance for the two directors, and they too had not filed notice of appointment of a solicitor in the person of that lawyer, he could not properly argue the motion on their behalf as a solicitor.

The way counsel conducted his affairs in respect of the case was rather difficult to understand. In the first place, the rules on the withdrawal of a solicitor from a case are clearly set out in the High Court (Civil Procedure) Rules, 1954 (LN 140A), Order 7, r 4(1) which reads as follows:

“4. (1) Where a solicitor who has acted for a party in the cause or matter has ceased so to act and the party has not given notice of change in accordance with the provisions of rule 2 of this Order, the solicitor may on notice to be served on the party personally or by prepaid post letter addressed to his last-known place of address, unless the court or Judge otherwise directs, apply to the court or

[p.494] of [2001-2002] 2 GLR 488

Judge for an order to the effect that the solicitor has ceased to be the solicitor acting for the party in the cause or matter and the court or Judge may make an order accordingly:

Provided that unless and until the solicitor has—

(a) served on every party to the cause or matter (not being a party in default as to entry of appearance) a copy of the said order; and

(b) procured the order to be entered in the Registry of the appropriate court; and (c) left at the said office a certificate signed by him that the order has been duly served as aforesaid; he shall (subject to the provisions of rules 2 and 3 of this Order) be considered the solicitor of the party to the final conclusion of the cause or matter.”

In very simple terms, the procedure to be followed by a lawyer who desire to withdraw from a case is as follows:

“(i) A notice of withdrawal should be served personally on the party whom he had hitherto been representing or by post to his last known place of address.

(ii) The lawyer should next apply to the court or judge for an order to the effect that he has ceased to be the solicitor for the party in that particular case.

(iii) The court or judge may make an order accordingly.”

After all these had been complied with, the lawyer will remain the solicitor for that party until:

“(a) he or she has caused copies of the order to be served on every party to the case;

(b) he or she has procured the order to be entered in the registry of the appropriate court; and (c) he or she has signed a certificate to the effect that the order has been duly served as indicated in the rule.”

This rule requires that the solicitor may by notice, apply for a court order of withdrawal. This obviously means that an order from the court or judge is mandatory in order to make the withdrawal competent. One can understand the judge suo motu making the order on sighting the notice on the court docket or someone moving the court on behalf of the withdrawing lawyer for the said order. There is however no provision to the effect that the case should travel up to a certain extent before the withdrawal can be as formalised as detailed here. On the

[p.495] of [2001-2002] 2 GLR 488 face of Order 7, r 2(4) of LN 140A, once a lawyer has appeared or given notice that he represents a party in a case and has been served with a single process on behalf of that party, he becomes officially the known solicitor for that party and he or she can only withdraw effectively and competently if he or she complies with Order 7, r 2(4) of LN 140A.

The rule uses the term “may” which sounds permissive. If the rule is not complied with on the withdrawal of counsel from a case, the party he originally represented may not know the position with regard to his legal representation in court; additionally, the court may not be in position to determine the lawyer to be served with processes of the court until some attempt is made at serving the withdrawn lawyer with another process at a rather belated stage. Notwithstanding the use of the permissive “may”, any lawyer worth his salt who is to be credited with any decent law practice at the bar should regard it as obligatory and must comply with it for the two reasons just stated.

It is significant to point out that withdrawal by mere letter to the court or the party is not sanctioned by Order 7, r 2(4) of LN 140A and therefore cannot be a competent mode for a solicitor to withdraw from a case. In the instant case, the solicitor who entered appearance for the company and later attempted to withdraw his representation merely wrote a letter to the registrar of the court that he had withdrawn from the case. There is no record that he obtained any order from the court or judge to withdraw from the case, neither did he comply with the processes contained in Order 7, r 2(4). It follows therefore that the purported withdrawal of representation for the company was incompetent. In the terms of Order 7, r 2(4) of LN 140A, the lawyer remained the solicitor for the company throughout the proceedings up to the end of the trial. He however filed no defence of any type on behalf of the defendant company. The judgment in default of defence entered against the company was consequently in order. That judgment still stands because no appeal has been filed on behalf of the company.

Secondly, where a party is sued in his personal capacity and he engages a lawyer, he is required under Order 7, r 2(3) of LN 140A to give notice of his intention to proceed by the solicitor and give an address for service. That notice is described in the marginal notes of the rule as notice of appointment of a solicitor.

Order 7, r 2(3) of LN 140A reads as follows:

“(3) Where a party, after having sued or defended in person, appoints a solicitor to act in the cause or matter on his behalf, he may give notice of the appointment, and the provisions of this rule relating to a notice of change of solicitor shall apply to a notice of

[p.496] of [2001-2002] 2 GLR 488 appointment of solicitor with the necessary modifications.”

The two directors did not comply with this rule by filing notice of appointment of that lawyer as their solicitor. The lawyer too did not file any change of solicitors to indicate that he no longer acted for the company alone but for the two directors as well or that he had been appointed as a solicitor for the two directors. In fact he did not file any notice that he was acting for the two directors at all. All he did was to write letters on their behalf and thereafter to get up in court to argue the motion for them. He did not stop there. Without taking steps to regularise his representation, he took up the appeal on behalf of the two directors by filing their statement of case in this court. He also filed a reply to the submissions of the respondent’s counsel.

Counsel claimed to have been cut short by the trial judge while he was in the middle of arguing the case for the two directors. Indeed, he had not conducted himself in such manner as to compel the trial judge to have heard him. The trial judge should not have heard him at all on his arguments for the two directors since there was nothing on the record to show that he had been appointed as a solicitor to act for the directors. His complaint that he was cut short in his arguments on behalf of the directors was without merit.

This judgment may have far-reaching consequences on the lawyers who practice their profession around the courts by accepting dock briefs of all types and just appearing for parties. They are popularly described as “nim tree” or “mangoase” lawyers or “car bonnet” lawyers. The informal and ex tempore nature of their practice hardly allows them time to comply with court rules, especially Order 7 of LN 140A discussed above. That can in no way be described as the ideal practice and therefore if the judgment affects their practice, so be it. One can understand an initial appearance for a party when the lawyer has just been consulted and so did not have enough time to file the relevant notice of appointment of solicitor or as counsel. This laxity may be excusable particularly where a person has been charged with a criminal case. Barring that kind of exception or an initial first or second appearance, the court has no obligation to give audience to a lawyer who will not comply with the rules by which he practices his profession. A lawyer like the one involved in the instant case who had all the time in the world from the moment he wrote the letters on behalf of the two directors to have complied with the rules but failed to do so did not have to be heard at the trial court in his capacity as a solicitor for the party.

It is arguable that different rules may apply where the lawyer appears as a barrister for a party. In this country where the professions

[p.497] of [2001-2002] 2 GLR 488 of solicitor and barrister have long been fused, it will be difficult to draw the line between the lawyer appearing as a solicitor and a lawyer appearing as a barrister. If a lawyer appears as a barrister, the question may be asked whether he is entitled to file papers and pleadings. In my view, the fusion of the two professions in this country should lead to the same conclusion that the provisions in Order 7 of LN 140A should apply to both solicitors and barristers. Both must comply with them because no such exception for barristers may be found in LN 140A in its original or amended form to date.

By purporting to withdraw his representation for the limited liability company, he left the plaintiff to proceed against the inanimate company unrepresented by any human body. At the same time, by writing that the director had resigned from the company and returning the processes on E B Mensah, he sought to absolve E B Mensah from whatever was claimed by the plaintiff. By his actions, therefore, he made sure that the plaintiff had no one to proceed against and thus virtually obstructed the plaintiff’s claim. As a lawyer, he was an officer of the court and therefore he was not entitled to do that. If he was convinced that he was right in doing so, he should have complied with the rules of the court by defending the appellants in open court and not by resorting to short cuts through correspondence or letters. By the method he adopted to defend the defendants, he deprived the plaintiff the opportunity to react to the defence of all the three defendants and thus caused injustice to the plaintiff.

Although the two directors filed no formal defence against the claims of the respondent, in their affidavit in opposition to the motion to lift the veil of incorporation they raised two points by way of their defence to the claims. Those points were in fact argued as the main grounds of appeal in the instant appeal. The first point was that the respondent had no capacity to sue and secondly, that the trial judge erred in lifting the veil of incorporation and authorising the respondent to proceed against the appellants.

In considering the issue of the lifting of the veil of incorporation, counsel for the appellants argued that the appellants were mere employees and directors who collected money on behalf of the defendant company for its principals. His argument was based on the fact that the defendant being a limited liability company had a separate legal entity from its employees and so the latter cannot be held liable for the acts of the company. Quite obviously, his argument was premised on the principle of Salomon v Salomon and Co Ltd [1897] AC 22, HL. Counsel however conceded that there were exceptions to that principle, save that he confined the exceptions to situations where

[p.498] of [2001-2002] 2 GLR 488 the company was established to further fraudulent activities or avoid contractual liability. He contended that the company was not set up to further fraudulent activities or avoid contractual liabilities.

He buttressed his arguments by relying on a quotation from Morkor v Kuma [1998-99] SCGLR 620 at 635, which was that:

“When an officer of a company, in the normal course of her duties, so negotiates or signs an agreement entered into by the company, no personal liability is thereby created, in the absence of other clear indications to the contrary.”

Counsel then proceeded to elaborate on the fact that the moneys that the appellants collected from the respondent were meant for then principals. As evidence of this, E B Mensah deposed to an affidavit in opposition to the motion to the effect that those principals were informed of the payment. There was also a reference to a fax message in exhibit OC5 and the fact that the respondent paid the money on behalf of one Brenya.

The significant point about the amounts paid by the respondent was that they were paid by four instalments; each payment was receipted by E B Mensah and Byron Oku; the receipts were issued on the letterheads of “Worldwide Shipping and Agencies Ltd.” They both stated on the receipts as having received the moneys directly from Ernest Nana Darko, the respondent. None of them referred to any payment being made on behalf of one Brenya as the appellants maintained in then depositions. The evidence did not therefore support the reference to the payments being made by or on behalf of Brenya.

Having received the moneys from the respondent in person, the appellants made no efforts to show how the moneys went to the principals or even to the company they worked for. The only connection with that company was the fact that the receipts were issued on the letterheads of the company. What happened to the money they collected? That is not explained. It is surely not enough to say that the money went to the principals and stop at that.

The appellants procured an affidavit from one Joe Biney who claimed to be the local representative of Tradewinds of Canada, the alleged principals. In his affidavit he deposed to the fact that all the appellants did was to have received the money on behalf of Tradewinds Canada. The only reference to money to Tradewinds was in exhibit OC5. That was a document which was shrouded in doubt because it was self-serving, coming from the same Worldwide Shipping and Agencies (Gh) Ltd where the two appellants conducted the business with the respondent; additionally, it was unsigned and bore no name

[p.499] of [2001-2002] 2 GLR 488 and so no one could tell who really sent it. There was no indication that that fax, if it may be so called, even went anywhere outside the offices of the Worldwide Shipping and Agencies (Gh) Ltd, and finally, that fax contained the message that an amount of $3,000 had been received “today” which was explained to mean “February 02, 1998.” From the receipts given by the appellants to the respondent, only exhibit 14 referred to payment made on 2 February 1998 and that was for an amount of $1,000. That affidavit did not therefore fully show where the money really went.

In any case, if the appellants genuinely believed that the money went to Tradewinds Canada and Joe Biney was the representative for Tradewinds Canada, what prevented them from joining Joe Biney to the suit as a co-defendant or even taking third party proceedings against him on behalf of his company? At least any of the two procedures would have evidenced the fact that they genuinely believed that the money went to someone else or some other company and not them or their Worldwide Shipping and Agencies Ghana Ltd.

Then there was the question of the whereabouts of the company. Where is the company in whose name they acted? What had happened to that company? In the affidavit in opposition that contained their side of the story, the appellants gave no indication of the whereabouts of the company or its directors. The first time some indication was given of the company was in the written statement of counsel for the appellants in the appeal before this court where he stated that the company did not contest the case in the trial court because it was dormant. That was a statement of fact that should have been given by the appellants during the time when the case was at the trial court so that the respondent could in fairness have reacted to it. If it had been given at the trial stage, a number of questions would have been asked including the following; when was the company dissolved? Who were the directors when it was dissolved? What assets were left behind when it was dissolved? Who took over the assets? Who were responsible for the liabilities left by the company? Who were the people who actually dissolved the company and many other questions. If the company was dissolved by the appellants with full knowledge that it was indebted to the respondent, that would have amounted to fraud on the respondent as a creditor, as it was held in Chellaram & Sons (Ghana) Ltd v Halabi [1963] 1 GLR 214, SC. If intent to defraud creditors in any transaction could be found at the time of the dissolution, persons within the company who were parties to the transaction like the two appellants herein could be held personally liable under the Bodies Corporate (Official Liquidations) Act, 1963 (Act 180) if certain conditions

[p.500] of [2001-2002] 2 GLR 488 contained in the Act did exist. That is why the law in its wisdom does not allow such statements of fact to be introduced at such belated stages when there would be no opportunities to probe them further.

Counsel was not a party to the case. It was wrong for him to have canvassed facts that had not been brought up at the trial and use them as the basis of his argument in the Court of Appeal. If he needed to rely on those facts, he should have filed a motion to adduce fresh evidence as required by rule 26 of the Court of Appeal Rules, 1997 (CI 19). He did not do that. This court cannot take into account that statement of fact improperly given by counsel for the appellants.

The important point was that the onus was on the appellants to have shown where the company or the other directors were. This was because by the time the appellants were brought into the case, the respondent was alleging that the two had used the façade of the company to defraud or at least cheat him of his money. Since they asserted the positive that the company was in existence, they had the onus to have proved their positive averment that the company was in existence and that the business they did on its behalf was genuine.

By implication, their case was that they acted for a limited liability company that was in existence and so the respondent should have proceeded against it, not them. If that was the position, why did they not disclose the whereabouts of the company and its directors so that the respondent could have gone after them or at least the court could have ordered the respondent to go after them? By maintaining complete silence over the whereabouts of the company or its directors, they left the respondent with no choice but to believe as he did in the motion to lift the veil of incorporation that the company did not exist even at the time they collected the moneys from him. Since he dealt with the appellants and gave the moneys to them, it was only logical that he should go after them for his money. Their total silence about the whereabouts of the company or its directors gave the unmistakable impression that they collected the moneys for themselves, and not for any company, but they merely used the name of the company to collect the money. This is where this case differs from that of Morkor v Kuma (supra). The difference lies in the fact that that case refers to officials acting in the normal course of their business. The evidence or the record did not show that the two directors acted in the normal course of their business. It showed that they engaged on a venture which they, and not the company, profited from.

In situations like the instant case, it is important that the court compels the directors or employees of the company who rely on the fact of incorporation as a defence to disclose the particulars of the

[p.501] of [2001-2002] 2 GLR 488 company because they have better knowledge of the company than the creditor or the one who does business with the company who may be an outsider to the internal workings of the company. If that were not so, it would be easy for any group of people to come together, form a company, transact business in the name of the company with innocent businessmen, collect moneys or assets, and hide the whereabouts of the company, its employees or directors; and when the creditors attempt to seek redress arising from the business, the very people who transacted the business in the name of the company will plead that by reason of the fact of incorporation, the company is responsible and so the creditor should go after the company while at the same time they refuse or fail to disclose the whereabouts of the company. In other words, they will hide behind the fact of incorporation of the company and at the same time make it virtually impossible to go after the incorporated company. If the directors or employees were not compelled to disclose the whereabouts of the company, the courts would aid them to defraud innocent businessmen and women by the misuse or abuse of the concept incorporation. The views of Sanborn J in United States v Milwaukee Refrigeration Transit Co, 142 Fed 247 at 255 (quoted in Pennington’s rd Company Law (3 ed), p 51) which represents the position of the American courts on the issue, sums up the view being espoused here:

“. . . A corporation will be looked upon as a legal entity as a general rule . . . but when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons.” and on the basis proceed against those persons, like the two directors in the instant case. The law is well settled that the veil of incorporation will be lifted if it is just and in the interest of the public so to do.

There is no doubt that the receipts were issued on the letterhead of the company and that created the impression that the transaction was undertaken in the name of the company. However, the real people behind the transaction were the two appellants who actually took the money from the respondent. They merely used the incorporation of the company to conduct that business. They took the money and they know where the money went. Not having filed any defence or shown where the money went or where the company and the other directors were, it would be unjust and against public policy to allow them to get away and keep the moneys behind the cloak of incorporation by alleging that they merely acted in the name or on behalf of the

[p.502] of [2001-2002] 2 GLR 488 company. In effect, although Worldwide Shipping and Agencies (Gh) Ltd had a separate identity and legal existence, this is a case in which the court should unveil the cloak of incorporation and allow the real operators behind the facade of the company to be held liable for the business they entered into.

One of the appellants produced a letter to the effect that he had resigned from the company. This action was brought on the basis of his conduct and actions in 1998 when he was a director and not at the time the writ was issued in 1999. That resignation did not answer the complaint of the respondent that the two appellants had used the incorporated company to collect his money when they knew that they were collecting the moneys for their own use.

No court of conscience and equity would uphold an argument that a party who has collected moneys in the name of a company cannot be held liable for the moneys merely because he says he has resigned from the company whose whereabouts or the whereabouts of its directors he would not disclose. For all the foregoing, the trial judge was right in unveiling the cloak of incorporation and holding the appellants responsible for the $5,200.

The other argument canvassed on behalf of the appellants was that the respondent had no locus standi to have brought the action because he was not the consignee of the goods and the waybill was not in his name. That argument was based on a misapprehension of the claim made by the respondent against the appellants. It was an action for money had and received but being claimed for failure or consideration. The claim was for the refund of $5,200 that he paid to the two appellants. There is no doubt that the money was paid. The consideration for the payment was the shipping of a container from Benin to Ghana. That shipping never took place. None of the appellants deposed to any affidavit that the container had arrived in Ghana. As far as the respondent was concerned, the consideration for the payment had failed. He therefore asked for a refund of his money. That was all. He did not sue in admiralty. He did not claim specific performance of the contract for the shipping of the container. He did not make a claim for the delivery of the container. These would have raised issues of consignee and bill of lading; but these were not the basis of his case. All the arguments on the capacity of the respondent to sue based on the bill of lading not being in his name or he not being the consignee are consequently irrelevant.

In my considered opinion, there is no merit in this appeal. The appeal fails and is dismissed.

[p.503] of [2001-2002] 2 GLR 488

Adinyira JA. I agree that the appeal should be dismissed.

Amonoo-Monney JA. I also agree that the appeal fails and should be dismissed. Appeal dismissed.

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