PANAGIOTOPOULOS v. PLASTICO LTD. AND PLASTICO LTD v. PANAGIOTOPOULOS (CONSOLIDATED) [1965] GLR 176

DIVISION: HIGH COURT, ACCRA

DATE: 15 MARCH 1965

BEFORE: APALOO J.S.C.

CASES REFERRED TO

(1) Re Northumberland Avenue Hotel Co. (1886) 33 Ch.D. 16; 2 T.L.R. 636; sub nom. Re

Northumberland Avenue Hotel Co. Ltd., Sudy’s Case 54 L.T. 777, C.A.

(2) Howard v. Patent Ivory Manufacturing Co.; Re Patent Ivory Manufacturing Co. (1888) 38 Ch.D.

156; 57 L.J.Ch. 878; 58 L.T. 395; 36 W.R. 801.

(3) Werderman v. Societe Generale d’Electricite (1881) 19 Ch.D. 246; 45 L.T. 514; 30 W.R. 33, C.A.

(4) Bagot Pneumatic Tyre Co. v. Clipper Pneumatic Tyre Co. [1902] 1 Ch. 146; 71 L.J. Ch. 158; 85

L.T. 652; 50 W.R. 177; 18 T.L.R. 161, C.A.

NATURE OF PROCEEDINGS

ACTION by the plaintiff against the defendant company to enforce certain obligations under a pre-incorporation contract entered into by the promoters of the company with the plaintiff. The facts are fully set out in the judgment.

COUNSEL

H. V. A. Franklin for the plaintiff.

A. C. Kuma for the defendants.

JUDGMENT OF APALOO J. S.C.

On 3 March 1965 I consolidated and heard together two separate actions which were brought first by Mr.

Panagiotopoulos against the Plastico Ltd. of Tema and secondly, an action which was instituted by the latter company against Panagiotopoulos. The first action which was serially numbered as suit No. 488/64, claimed an amount of money alleged to be due on a balance of account which was amended to include a claim for specific performance of an implied contract; the second action serially numbered 495/64 sought damages for defamation. For the sake of convenience, I shall refer to Mr. Panagiotopoulos throughout this judgment as the plaintiff and the Plastico Ltd. as the company.

Serious and somewhat difficult contentions of law were put forward by counsel but the facts themselves are substantially not in dispute. Before I deal with the purely legal aspects of the case, I must relate the facts briefly. The plaintiff, Mr. Panagiotopoulos, is the major shareholder in a company called the

Panbros Salt Industries Ltd. He seems to be a substantial man, at any rate by Ghanaian standards. Some time before the beginning of 1963, he found himself in business association with a lady dental surgeon by name Miss

[p.179] of [1965] GLR 176

Dimitra Politis and Mr. George Constantine Michaelides, whose names, like the plaintiff’s, suggest that they were Greeks. These three persons were minded of forming a company for the purpose of manufacturing plastic goods. The factory for the manufacture of the plastic products must have been agreed to be sited at Tema. Accordingly, the plaintiff applied for and obtained through his company, the

Panbros Salt Industries a plot of land at Tema.

It would seem that a draft lease covering the site of the proposed factory, was forwarded by the legal officer of the Tema Development Corporation to Mr. H. V. A. Franklin who was then acting for the three named persons for execution. This must have been received by Mr. Franklin on a date prior to 29 January

1963. On that date, he returned the draft lease to the legal officer of the corporation with a covering letter in which he suggested that the lease be made in favour of Plastico Ltd. as Panbros Salt Industries Ltd. were desirous of assigning their rights to Plastico Ltd. He said in that letter that that lease would be the subject of a mortgage to Panbros Salt Industries Ltd. for a period of two years or so (exhibit A1).

It seems that the idea of establishing the factory was conceived by Dr. Politis and Mr. Michaelides. They both saw to the design of the factory and proceeded to Italy where they arranged for the machinery. The plaintiff was brought in to provide, as it were, the financial backbone of the company. He in fact met the pre-incorporation expenses and paid for the machinery which was purchased for the company. The plaintiff had hoped to be one of the directors or at least one of the shareholders of the proposed company.

The pleadings show that the company was actually incorporated on 29 May 1963. But before this, the plaintiff seems to have had second thoughts on the matter. He told me that he subsequently felt that he would not have enough time to take part in the actual running of the proposed company. He seems to have been fully occupied with Panbros where he was and I believe is still the managing director. He therefore decided to sell his interest in the factory and machinery to Dr. Politis and Mr. Michaelides who were, without doubt, the brains behind the company. These two persons must have agreed to buy the plaintiff’s interest. Accordingly, on 1 March 1963 the parties executed what I would call the sale agreement (exhibit B).

By that agreement, the plaintiff therein described as the vendor, was recorded as having sold his interest in the land, factory and machinery for an aggregate sum of £G28,326 6s. 11d. to the said Dr. Politis and

Mr. Michaelides acting for themselves and as trustees in the formation of Plastico Ltd. therein described as the purchaser.

[p.180] of [1965] GLR 176

The agreement also provided that the purchase price shall be paid by instalments of at least £G500 per month commencing from 1 June 1963, so that the total purchase price shall be paid by 31 December

1965. Obviously as security for the repayment of these sums, it was provided in the contract that “pending the full payment therefor, the said land, factory, machinery and spares shall be mortgaged to the vendor.”

I think this agreement has the merit of extreme clarity and did not create any problems of interpretation.

The evidence shows that when the company was actually incorporated they entered into possession of the land and factory which were the subject-matter of the sale agreement. On 5 December 1964 the company’s solicitors wrote to Mr. Franklin and said the “Plastico Limited are beneficiaries of agreement entered into by the promoters of the said company.” It seems obvious that the company were made aware of the obligation contracted by the promoters under the sale agreement and the company qua company began and continued to make the payments agreed upon in the sale document until the writ issued. Again this is borne out by the letter of 5 December 1964 (exhibit G), which the company’s solicitor wrote to Mr.

Franklin. In that letter, they wrote, inter alia, “They [meaning thereby the Plastico Ltd.] have been paying their instalments regularly even though they are not legally liable”.

It is not accurate to say as the company’s solicitors have said in that letter, that the agreed instalments were paid regularly. I am satisfied that there have been defaults and Dr. Politis admitted this in evidence.

On 14 August 1964, Mr. Franklin wrote to the company on the plaintiff’s instructions and expressed concern about the unsatisfactory payments. He pointed out that only ten instalments of £G500 have been made instead of fifteen. This letter was addressed to the company on the assumption that they were legally liable to make the payments. It was replied to by the company’s solicitors on 16 November 1964

(exhibit F), on the same basis. It seems that neither Mr. Franklin nor the company’s solicitors gave any serious thought to the question which has been debated before me, namely, whether the company were legally liable on a pre-incorporation contract made on their behalf by the promoters.

In his letter of 14 August 1964 (exhibit D), Mr. Franklin unilaterally purported to determine the agreed payment by instalments and enclosed a draft of a fresh agreement and requested the company to execute it. This raised the monthly instalments from £G500 to £G1,250 per month. That letter threatened that if the company failed to execute it, proceedings would be commenced to

[p.181] of [1965] GLR 176 recover the total sum due, which at that date stood at £G21, 236 6s. 11d. No reply to that letter seems to have been sent to Mr. Franklin and the draft fresh agreement was not executed. Accordingly, on 11

November 1964, Mr. Franklin wrote another letter to the company (exhibit E) withdrawing the offer to pay the instalments contained in the letter of 14 August, and intimating that he had instructions to dispose of the plaintiff’s interest.

This must have alarmed the company because five days after it, that is, on 16 November 1964, the solicitors of the company sent a fairly long letter to Mr. Franklin in which they argued inter alia that the plaintiff had no further interest to dispose of as this had already been validly alienated to the company.

They claimed that the company were only debtors to the plaintiff in the balance of the unpaid purchase price. Again that letter proceeded on the footing that the company were the vendees of the plaintiff’s interest. In that letter (exhibit F), the company’s solicitors inter alia wrote, “The factory in question at

Tema was sold to our clients as evidenced by the sale agreement, etc.”

At that time both Mr. Franklin and the company’s solicitors were ad idem in thinking that the defendant company were the debtors to the plaintiff in the unpaid balance of the purchase price. Obviously in this frame of mind, Mr. Franklin barely four days after the date of this letter, namely, 20 November, caused to be issued against the company, a specially endorsed writ claiming “£G19,826 6s. 11d. upon a balance of account for property, machinery and spares sold to the defendant.”

On the receipt of the writ, the company’s solicitors recoiled from their former position. On 24 November

1964, they lodged a statement of defence in which after making some immaterial averments, they contended that the contract of sale was not binding on the company because it was concluded before the company came into existence. As to the morality of such a defence, I express no opinion but if it is a good legal answer to the plaintiff’s claim, I conceive it my plain duty to give effect to it. Mr Franklin’s reaction to this volte face on the part of the company’s solicitors was to amend the writ and to include a claim for specific performance of what he claimed to be an implied contract between the plaintiff and the company, and in particular the term that “Pending the full payment therefor, the said land, factory, machinery and spares shall be mortgaged to the vendor.”

The grounds on which Mr. Franklin took the view that a contract of like terms as was concluded between the plaintiff and the company should be implied, appears to be two, namely, first because the company obtained the benefit of the contract by taking

[p.182] of [1965] GLR 176 possession of the land and machinery and secondly, undertook to make the payments so far made. The company replied to this and stuck to their position that no contract of any sort existed between them and plaintiff. If that be right, it must follow that the plaintiff would fail to show himself entitled to either of the reliefs claimed against the company.

So much for the facts grounding the plaintiff’s action against the company. It is now necessary to note briefly the circumstances which led to the cross action which the company instituted against the plaintiff.

On the same date that he filed this writ against the company, that is 20 November, the plaintiff by counsel moved the court ex parte for the appointment of a receiver to take charge of the factory and its contents pending the hearing and determination of the action. This order was professed to have been sought under

Order 50,r.7 of the Supreme [High] Court (Civil Procedure) Rules, 1954.1 The application was accompanied by a lengthy affidavit sworn to by Mr Franklin. The motion was granted by this court constituted by Asafu-Adjaye J. on the same day. When the company became aware of it, they moved to have it set aside.

The self-same judge acceded to the company’s application and on 11 December 1964 set it aside with costs. Meantime, it would seem that Mr. Croft who was appointed receiver entered into the factory on the faith of the court’s order and possessed himself of the factory and its contents. The company were understandably, aggrieved by this and they claim that the conduct of the plaintiff in instituting the action and procuring the appointment of a receiver defamed them. Hence they took out the writ which was numbered as 495/64 claiming substantial damages. In the statement of claim which the company filed in that action they averred that the plaintiff well knew that the company were not indebted to him. This averment cannot be reconciled with the company’s own action and declaration before the issue of the writ, because in their own letter of 16 November (exhibit F), the company confessed themselves as debtors to the plaintiff in the unpaid balance of the purchase price.

As is only to be expected, the plaintiff denied in his statement of defence that he knew at the time he issued his writ that the company were not indebted to him. The statement of claim contains no other averments beyond the fact that a receiver and manager was appointed to manage the company’s affairs and that the company were injured in their credit and reputation. The plaintiff denied that the company were entitled to damages of any sort. The statement of claim did not

[p.183] of [1965] GLR 176 contain any recital of any defamatory words or any allegation that any such words were written or spoken or were published of the company, averments with which one is familiar in an action for defamation. As a claim for defamation, this one seems to me to be in a category of its own.

It is now necessary to return to the question of law debated in this case. As I said, the company’s reply to the plaintiff’s claim for the balance of the purchase price was that since the contract of sale was concluded before the company was incorporated, they were not liable on it. In this, the law seems to be on their side.

At pp. 425-426, paras. 824-825 of Vol. 6 of Halsbury’s Laws of England (3rd ed.), the law is stated as follows:

“A company is not bound by contracts purporting to be entered into on its behalf by its promoters or other persons before its incorporation. The company cannot, after incorporation, ratify or adopt any such contract because there is in such cases no agency and the contract is that of the parties making it . . . In order that the company may be bound by agreements entered into before its incorporation, there must be a new contract to the effect of the previous agreement. This new contract may, however, be inferred from the acts of the company when incorporated . . .”

There is no evidence that the company have since incorporation, entered into a new express contract with the plaintiff to the effect of the agreement evidenced by exhibit B.

Accordingly, if the plaintiff should succeed in this action, he must show that the acts of the company since its incorporation are such that such a contract must be implied. The acts to which the plaintiff points are two, namely, first that the company are in the beneficial enjoyment of the factory and the machinery and secondly have so far made the payments due under the original contract. That prima facie would seem to lend colour to the suggestion that as the company acted on the contract entered into between the plaintiff and the promoters, it ought to be inferred that there was a contract entered into between the company and the plaintiff on the same terms as the contract evidenced by exhibit B.

But it was decided by the English Court of Appeal in Re Northumberland Avenue Hotel Co.2 that if the acts from which the inference is sought to be drawn were done in the mistaken belief that the pre-incorporation agreement was binding on the company, then such an inference cannot properly be drawn. In other words, the acts would have been explained

[p.184] of [1965] GLR 176 otherwise than on the basis of a new contract by the company. I have already found that not only the plaintiff, but the company as well, were under honest but erroneous impression that the contract of 1

March 1963 (exhibit B), was binding on the company. It seems to me reasonable to infer that the acts done by them and on which the plaintiff relies were done on the faith of that belief. Accordingly, the

Northumberland Avenue Hotel Co. case precludes me from holding that a new contract between the plaintiff and the company can be implied from the acts on which the plaintiff relies. If that is right, the plaintiff’s claim against the company for the balance of the purchase price of the machinery and spares and the claim for specific performance must fail.

Mr. Franklin referred me to the case of Howard v. Patent Ivory Manufacturing Co.3 in which Kay J. sitting in the Chancery Division of the High Court, distinguished the Northumberland Avenue Hotel Co. case and invited me to hold on the authority of that case that there was an implied contract between the plaintiff and the company. I cannot accede to that. The judgment did not seek to override the principle laid down by the Court of Appeal in the Northumberland Avenue Hotel Co. case. The learned judge merely considered that the special facts of Howard’s case entitled him to imply a contract between the company and a former owner of property on like terms as their pre-incorporation contract. Unlike this case, the acts from which the contract was implied did not consist in the mere enjoyment of the property and the payment of the instalments by the company.

There was evidence that after incorporation, a resolution of the board of directors adopting the pre-incorporation agreement, was passed. Furthermore, in Howard’s case, both the memorandum and articles of association contain provisions for the adoption of the pre-incorporation agreement by the directors on behalf of the company and the resolution which was passed after the incorporation merely gave effect to it. There is the further fact that the company after incorporation took an assignment of leasehold property in accordance with a pre-incorporation agreement and affixed the company’s seal to it and effected payment therefor in part by the issue of debentures. It follows therefore that the special facts of Howard’s case amply justified the learned judge in implying a contract between a person in the position of the present plaintiff and the company on like terms as a pre-incorporation agreement concluded by the promoters. In my opinion, this case is entirely governed by the Northumberland Avenue

Hotel Co. case to which I have referred.

[p.185] of [1965] GLR 176

Mr. Franklin then referred me to the case of Werderman v. Societe Generale d’Electricite4 and the explanation put on it in the case of Bagot Pneumatic Tyre Co. v. Clipper Pneumatic Tyre Co.5 and submitted that as the company took possession of the factory with notice of the mortgage, they are bound by it and that an implied contract within the principle in Howard’s case must be deemed to have come into existence, entitling the plaintiff to an order for specific performance against the company. That, Mr. Franklin said, was putting his case on a lower plane. Although Werderman’s case seems, at first sight to support Mr. Franklin’s contention, this decision was explained away in the much later Bagot case so as to make it almost valueless.

Bagot’s case decided as clearly as anything can be decided that a person who takes property with notice of an incumbrance takes subject to that incumbrance, but he does not thereby become a party to the contract creating the incumbrance so as to sue or be sued on the contract. Indeed Vaughan Williams L.J. explained the matter in this way6:

“If the judgments in Werderman v. Societe Generale d’Electricite are looked at carefully, I think it will be seen that all that is decided by that case is this, if you had notice of a contract between the person under whom you claim property, real or personal, and a former owner of the property, whereby a charge or incumbrance was imposed on the property of which you thus take possession and have the enjoyment, you take the property subject to the charge or incumbrance, and can only hold it subject thereto. But that proposition does not, as it seems to me, involve the consequence that the assignee of the property is liable to be sued for non-performance of the terms contained in the contract to which he was not a party.”

I do not doubt that Dr. Politis and Mr. Michaelides were obliged by the sale document (exhibit B) to convey the land and factory in question to the plaintiff by way of mortgage until the full payment of the purchase price and that obligation is as good in equity as a mortgage. It is altogether unclear whether any right to these properties was transferred by the aforementioned persons to the company. What is clear is that the company are in enjoyment of the land and factory and whatever rights they may have, are plainly subject to the mortgage in favour of the plaintiff. Had the reliefs now sought against the company been sought against Dr. Politis and Mr. Michaelides, I cannot conceive that they would have anything

[p.186] of [1965] GLR 176 like a valid answer. But the principle of law clearly enunciated by Vaughan Williams L.J. in the Bagot case, precludes me from holding the company liable to the plaintiff in all or any of the reliefs sought.

Although in the course of the arguments my mind has wavered on reflection, giving the best attention that

I can to the matter, and giving due weight to Mr. Franklin’s able and interesting submissions, I think Mr.

Kuma’s view of the matter is the right one and I agree with it. The result is that in the first of the two consolidated suits, namely, suit No. 488/64, the plaintiff fails completely.

That leaves me only with the claim for damages for defamation which the company sought against the plaintiff. I have already recounted the circumstances which led to the institution of the action and have noticed some peculiarities about the pleadings. In the statement of claim, the company put as their cause of action, two matters, first, that the plaintiff caused to be issued against them a writ for debt when he well knew that the company were not indebted to him; secondly, that the plaintiff procured a receiver and manager to manage their affairs. In the course of the trial, counsel for the company felt himself unable to pursue his first ground of complaint and shrank from contending that the institution of the action per se was a ground for complaint. On the facts of this case, he cannot sustain the argument that the plaintiff well knew that the company were not indebted to him. On the contrary, the evidence completely satisfies me that the plaintiff bona fide thought the company were his debtors and indeed the company themselves thought so and committed this into writing.

Counsel for the company however pressed his claim on the second limb, that the appointment of a receiver and manager which the plaintiff procured, imputed insolvency to the company and the latter were damnified by it. If the company should sustain an action such as this, it cannot, in my opinion, be a claim in defamation but one for special damages suffered by them by the abuse of civil process. Such an action is, I believe, known to the law of tort, but to succeed, the plaintiff must not only show that he sustained actual damage, but he must also prove malice and the want of reasonable and probable cause on the part of the plaintiff.

It is obvious that I must find on the facts of this case that the company did not even begin to prove any of these ingredients. There is nothing in the evidence nor the circumstances of the case which entitles me to say that in applying for the appointment of receiver, the plaintiff was actuated by malice. The application was, as I said, supported by a lengthy affidavit in which no facts pertinent to the exercise of the court’s discretion were suppressed. It may be hard

[p.187] of [1965] GLR 176 for the company that an order should be made which in effect, temporarily puts their business out of their control without their being offered an opportunity of arguing against its making. But in a sense, the company brought it upon themselves by writing what they must have known to be false to the Tema

Development Corporation to the prejudice of the plaintiff, namely, “that the mortgage mentioned in Mr.

H. V. A. Franklin’s letter addressed to you some time in March, 1963 has now been liquidated (exhibit

A3).”

I am satisfied that on 22 September 1964, when this letter was written, a large amount of money was owed to the plaintiff by the promoters. The company cannot have been unaware of this. If in these circumstances, the plaintiff took steps to oust the company from the control of the factory which ought to have been mortgaged to him before then, I cannot see how that can be evidence of malice. I hold that the company have entirely failed to prove that in applying for the appointment of a receiver and manager, the plaintiff acted maliciously or without reasonable and probable cause. That is sufficient to conclude this case in favour of the plaintiff. In my judgment the suit numbered as 495/64 fails.

In the result, in suit No. 488/64 I give judgment for the defendant company with costs which I assess at

250 guineas inclusive.

In suit No. 495/64 I dismiss the action and give judgment for the defendant, Mr. Panagiotopoulos, with costs which I assess at 150 guineas inclusive.

Judgment for the defendant in suit No. 488/64.

DECISION

Judgment for the plaintiff in suit No. 495/64.

E. A. A.