IN THE SUPERIOR COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ACCRA - A.D 2018
KWESI LIVINGSTONE - (Appellants)
KEN KWAKU AND 2 ORS - (Respondents)
DATE: 1 ST NOVEMBER, 2018
CIVIL APPEAL NO: HI/163/2018
JUDGES: P.K. GYAESAYOR J.A (PRESIDING), E.K. AYEBI J.A, I. O. TANKO AMADU J.A
MR. KWABENA GYAMFI NIMAKO FOR APPELLANT
MR. EVANS DJIKUNU FOR RESPONDENTS
TANKO AMADU J.A
(1) This appeal lies from the ruling of the High Court (Commercial Division) Accra dated the 10th day of October, 2016. In the said ruling, the Trial Court determined and dismissed a motion which challenged the capacity of the Applicant/Respondent to commence the action.
By an originating notice of motion pursuant to Sections 217 and 218 of the Companies Act 1963 (Act 179), the Applicant/Respondent (hereinafter referred to as the Respondent) sought the following reliefs against the Respondents/Appellants (hereinafter referred to as the Appellants).
“(i)A Declaration that the call made on the Applicant’s shares in 3rd Respondent valued at Gh₡727,027.00 and dated September 4th, 2015 is irregular and same is invalid.
(ii)A Declaration that the unilateral exercise of the shareholders right to appoint directors of 3rd Respondent is unlawful and that all such appointments are invalid.
(iii) An order of perpetual injunction restraining Respondents from making any board appointments without shareholders’ approval.
(iv) An order that an independent audit be undertaken of the affairs of 3rd Respondent.
(v) An order that 3rd Respondent be valued by a valuer appointed by this Honourable Court for purposes of determining for Applicant’s stake.
(vi) A Declaration that the conduct of the 2nd Respondent of the affairs of the 3rd Respondent is oppressive to Applicant.
(vii)A Declaration that the transfer of Applicant’s shares to 2nd Respondent is unlawful and same is void.
(viii)A Declaration that 2nd Respondent is unqualified to act or hold himself out as Executive Director of Mc OTTLEY CAPITAL LTD. a subsidiary of 3rd Respondent.
(ix)In the alternative, a declaration that 3rd Respondent wind up as 2nd Respondent has demonstrated recklessness in the management of investor funds in the Mc OTTLEY CAPITAL LTD. leading to the detriment of investors and the Applicant.
(3) In contesting the Respondent’s action the 1st and 2nd Appellants elected to challenge same by an application to dismiss the action on the grounds that the Respondent not being a member nor debenture holder of the 3rd Appellant, he lacked capacity to invoke the Trial Court’s jurisdiction in commencing the action. The crucial allegations contained in the affidavit in support of the Appellants motion in the Trial Court are contained in paragraphs 7-17 of the affidavit in support thereof (page 137 of the record) where it was alleged against the Respondent that:-
7) That I am further advised and verily believe same to be true that an Applicant who brings an action under Section 218 of Act 179 must demonstrate that he is either a member or a debenture holder of the company at the time of instituting the action.
8) That the gravamen of the Applicant/Respondent’s action is that he has suffered certain actions and conducts of the Respondents which are oppressive to him as a purported member of the company and which is also an improper exercise of the powers of the 1st and 2nd Respondents.
9) That the Applicant and I were allotted shares in the 3rd Respondent company upon its incorporation.
10) That the said shares were allotted pursuant to an understanding between the Applicant/Respondent and I that we were to make equal contribution to the equity of the company.
11) That I paid cash and advanced certain asserts to the benefit of the company as part of my equity contribution of the company.
12) That the Applicant/Respondent did not pay any sum nor contribute any asset whatsoever towards the equity of the company.
13) That pursuant to a Board Resolution of the 3rd Respondent, a call dated 4th September 2015 (a copy attached and marked as Exhibit “RD1”) was made on the Applicant/Respondent for the payment of his unpaid shares within a stipulated time limit failing which the Applicant/Respondent was to forfeit his shares.
14) That I am reliably informed and verily believe same to be true that even though the Applicant/Respondent was served with the said call he failed, refused or neglected to pay for his unpaid shares within the stipulated time limit.
15) That I am advised and verily believe same to be true that by failing to pay for his issued shares in accordance with the call made on him, the Applicant/Respondent forfeited his shares and right to membership of the 3rd Respondent company.
16) That the 3rd Respondent accordingly prepared the prescribed documents and filed same at the Registrar General’s Department to document the forfeiture of Applicant/ Respondent’s shares and subsequent change in membership of the 3rd Respondent company. Attached hereto and marked as “Exhibit RD2 Series” are copies of the company’s forms filed at the Registrar General’s Department showing the current membership of the company.
17) That I am advised and verily believe same to be true that in the circumstance the Applicant/Respondent had ceased to be a member of the company as at the time of instituting the instant action.
(4) The issue of capacity being fundamental and of the threshold, the Trial Court heard and determined the application on the basis of the affidavit evidence placed before her and written addresses filed.
In delivering itself, the Trial Court dutifully reviewed the affidavits filed and after applying the relevant law dismissed the application which sought to dismiss the Respondent’s action.
(5) It is from the said ruling that the Appellants have by notice filed on 19/10/2016 appealed to this court against the entire ruling on grounds set out as follows:-
(a)That the ruling is against the weight of evidence.
(b) That the Learned Trial Judge’s reliance on Form ‘3’ Exhibit ‘2’ to hold that the Applicant/Respondent was a member of the company and therefore had capacity to sue is unwarranted by the evidence and the law.
(c) That the Learned Trial Judge erred when she went into the merits of the call made by the Applicant/Respondent when the same was not the issue before the court but that of capacity of the Applicant/Respondent to institute an action under Sections 217 and 218 Companies Act 1963 (Act 179).
(d)That the Trial Court’s holding that “justice will not be served if in substantive application of the Applicant/Respondent is dismissed in limine” without going in to its merits is unwarranted in law.
The Appellants gave notice of their intention to file further ground(s) upon the receipt of the record of appeal.
(6) It must be placed on record that no further grounds have been filed nor argued in this appeal. It is significant to also note that whereas Ground (c) appears argumentative in formulation and offensive to the provisions of Rule 8(5) of the rules of this court C.I.19 (as amended) the said ground is in substance the same complaint embedded in Ground (d) of the notice. Both grounds shall therefore be considered together.
(7) SUBMISSIONS OF APPELLANTS
The Appellants did not argue the appeal sequentially in the manner the grounds were set out in the notice. That is permissible. In their submissions with respect to Ground (b) the Appellants submit that the Trial Court erred when it relied on Form ‘3’ Exhibit ‘2’ attached to the Respondent’s affidavit to hold that the Respondent was a member of the company and that per se clothed him with capacity to sue. In further exposition on this ground, the Appellants argue that in determining whether or not an Applicant seeking relief pursuant to Sections 217 and 218 of Act 179 is clothed with capacity to do so, the relevant reference document is the register of members. And further that where this is not is presented for the court’s consideration, the court may rely on the company’s particulars or any changes effected at the Registrar General’s Department the statutory custodian of company documents.
(8) According to the Appellants, whereas there is no doubt that the Respondent was a member of the 3rd Appellant company at the time of incorporation as founded in the Form ‘3’ which contains particulars of the allotment of shares, the Trial Court could not rely on the contents of Form ‘3’ exclusively in determining whether or not the Respondent was clothed with capacity to invoke the Trial Court’s jurisdiction. The Appellants further submit that Exhibit ‘RD2’ series at page 150 of the record was placed before the Trial Court to demonstrate that the particulars contained in Form ‘3’ at the time of incorporation had since changed. Therefore, the Respondent not having been named in Exhibit ‘RD2’ series by October 2015, he had ceased to be a member of the company and consequently he lacked the capacity to seek the reliefs sought against the Appellants.
(9) It is further submitted by the Appellants that by the Respondent’s own acknowledgment in his affidavit in support, the Registrar General upon notification that the Respondent’s shares had been transferred requested a meeting between the Appellants and Respondent to elicit explanations. It is submitted on this leg of the argument that having attended the said meeting, if the Registrar General had agreed with the Respondent that the forfeiture of his shares was unlawful, the changes effected of the particulars of the 3rd Appellant would not have been maintained by the Registrar General’s Department.
(10) The Appellants have anchored the propriety of the changes effected by the Registrar General by reliance on Section 37 of the Evidence Act 1975 NRCD 323 and contend that the Respondent cannot maintain his membership of the 3rd Appellant because the Registrar General has performed an official duty which ought to be presumed to have been regularly performed. The Appellants have relied on Sections 126 (a)(c) of the Evidence Act 1975 NRCD 323 to attack the Trial Court’s finding that Exhibit ‘RD2’ was hearsay evidence as the reception and evaluation of the said Exhibit falls under the exceptions to the hearsay rule provided under the said sub-sections. The Appellants further argue that whereas there is no legal or factual basis for the reliance on Exhibit ‘3’ in determining the membership of the 3rd Appellant without more, the relevant document which should have informed the Trial Court on the Respondent’s status is Exhibit ‘RD2’ Series ‘D’. The Appellants argue that the effect of the Trial Court’s position is that, the 3rd Appellant is being made to be bound by and regulated by the original registration particulars filed at the time of incorporation and not any further changes duly effected thereon.
(11) RESPONDENT’S ANSWER TO APPELLANTS’ GROUND ‘B’
The Respondent submits that a scrutiny of the record of appeal will reveal that whereas the Respondent contended that he was a 50% shareholder of the 3rd Appellant, the Appellants had confirmed the same position except that the Respondent was a member of the 3rd Appellant but having failed to positively respond to the call by the 3rd Appellant’s board to pay the value for the allotted shares at the time of incorporation, the said shares had been forfeited and same transferred to 2nd Appellant. It is significant to place on record that, the legality of the step Appellant took in the alleged forfeiture of the Respondent shares is at the heart of the Respondent’s action at the Trial Court.
(12) From the reliefs endorsed on the originating process, the Respondent has challenge the validity of the said call and the consequential forfeiture of his shares and transfer of same to the 2nd Appellant. The Respondent has referred to the Trial Court’s reliance on the statement of Sophia Akuffo JSC (as she then was) in ADEHYEMAN GARDENS LTD. VS. ASSIBEY [2003-2004] SC GLR 1006 at 1025-1027 with respect to the combined effects of Sections 30(1), 30(4) and 30(5) of Act 179.
(13) Further, with respect to the affidavit evidence placed before the Trial Court especially Exhibit ‘RD2’ Series ‘C’, the Respondent submits that the affidavit of the Company Secretary of the 3rd Appellant Samuel Agyei Gyan verifies the facts contained in a statutory declaration to the Registrar General with respect to the forfeiture of the Respondent’s shares on the grounds that the Respondent had not paid the value of the allotted shares in the sum of Gh₡727,021.00 which sum is inconsistent with the particulars contained in Exhibit ‘RD2’ Series ‘A’ where the value of the Respondent’s share at all material times was Gh₡100,000.00 However in Form ‘3’ of the 3rd Appellant’s incorporation documents marked Exhibit ‘2’, the sum of Two Hundred Thousand (200,000.00) is stated to have been paid up at the time of incorporation hence the Trial Court’s finding and conclusion to the effect that:-
“…………….The conclusion that I draw from these facts is that there were no unpaid shares due or yet to be paid at the time of incorporation of the company and the Applicant/Respondent had paid up his shares at the time of incorporation of the company. These facts therefore raise a number of questions that cannot to my mind be answered without taking evidence. For instance, how can the Board of Directors purport to make a call up on shares that were already paid up………………”
(14) The Respondent concludes the submission on this ground by contending that the Trial Court was not in error when it held that the Respondent is a member of the 3rd Appellant and therefore had the requisite capacity to commence the action. Further that, inspite of the Appellants’ posture that the Respondent did not pay for the allotted shares at the time of incorporation and took steps to deprive him of the allotment through forfeiture, the contents of Form ‘3’ Exhibit ‘2’ show otherwise in that, all shares had been paid for at the time of incorporation thereby putting the Respondent’s membership of the 3rd Appellant beyond doubt.
(15) In determining the merit or otherwise of this ground of appeal, let me place on record that the Appellants have also faulted the approach of the Trial Court in what they allege to be a prejudicial determination of the issue of the merit of the call made on the Respondent when the Trial Court had been invited to determine the issue of capacity only. This complain against the Trial Court is founded on Grounds (c) and (d) which I had indicated would be conveniently dealt with together.
(16) With respect to the merits of the submissions of the parties on Ground (b), while I appreciate the paucity of local judicial authorities on this area of law, company law and practice by itself is on area founded on statute in force since 1963. That is why the decision of the Supreme Court in ADEHYEMAN GARDENS case is a locus classicus and its effect shall remain so until the intervention of statute. Therefore, to the extent that the provisions of Sections 30(1)(4) and (5) of the Companies Act 1963 remain good law, the principle in the ADEHYEMAN GARDENS (supra) is not only relevant but binding on this court by virtue of the provisions of Article 129(3) of the 1992 Constitution.
(17) It is on the basis of the binding effect of the ADEHYEMAN GARDENS case that in the case of AMOS WEDZI VS. RICHARD WEDZI & ANOR. unreported decision in Civil Appeal No.HI/60/2015 dated 11th February 2016, this court reversed the ruling of a Trial Court when on the evidence, the call on the Appellant therein to pay the sum of One Hundred and Fifty Thousand United States Dollars (U$D150,000.00) and having failed to pay, the subsequent forfeiture of his shares was held as inconsistent with the sum of Gh₡2,00 the Appellant therein had contracted to pay under the regulations of the company.
(18) In that judgment aforesaid, where I had the privilege of reading the unanimous opinion of the court, I found that the Respondent company therein had failed to meet the express provisions of its own regulations and consequently the other principal officers of the company had acted in violation of the said regulations and the provisions of Section 21 of Act 179 which provides that:-
“21(1) Subject to the provisions of this code, the regulations when registered, shall have the effect of contract under seal between the company and its members and officers themselves whereby they agree to observe and perform the provisions of the regulations as altered from time to time, in so far as they relate to the company; members or officers as such”.
And further that under Sections 30(1) and 30(4) of the Act provide respectively as follows:-
“30(1) The subscribers of the Regulations shall be deemed to be members of the company and its registration shall be entered as members in the register of members referred to in Section 32 of this code”.
(30)(4) In the case of a company with shares each member shall be a shareholder of the company and shall hold at least one share, and every holder of a share shall be a member of the company” .
(19) Therefore by the provisions of Sections 30(1) and (4) of the Companies Act 1963 (Act 179) and the application of the underlying principle in the ADEHYEMAN GARDENS LTD. case, the payment of value of allotted shares is not a condition precedent to membership of a company, unless a call for such payment has been duly made with requisite notices in accordance with the provisions of the code. Where however an allottee defaults to positively respond to a call validly made, the forfeiture provisions can then be duly invoked. In situations where the company intends to raise capital for its business and will require allotment, transfer or dilution of shares as the case may be, in order to raise such capital, due process has to be followed per a valid resolution of the company for it to become effectual and binding. Any short cut will be tantamount to ambush and will not be endorsed by the court.
(20) In the instant case, the Trial Judge found as a fact that, whereas the Appellants had alleged that the Respondent had forfeited his shares by reason of the non-payment of value of Gh₡727,621.00 when the call was made on him to pay, there is evidence from the Registrar General’s Office per Exhibit ‘RD2’ Series ‘A’ that the value of the Respondent’s share was Gh₡100.000.00. And further to this undisputed documentary evidence, Exhibit ‘2’ on pages 193 to 195 of the record clearly shows that while the authorized shares of the 3rd Appellant is 100,000,000. only 200,000 ordinary shares had been issued 50% of which had been allotted to the Respondent while the 2nd Appellant holds the other 50%.
(21) I am aware that the Appellants have contested these facts on the ground that the Trial Court had failed to take into consideration subsequent changes alleged to have been duly made which are founded on Exhibit ‘RD2’ Series ‘D’ which they argue the Trial Court ought to have taken into account as having taken precedence over any entries of particulars made during the period of incorporation. I am unable to appreciate the Appellant’s difficulty on the Trial Court’s position on this issue. This is because there is an obvious dispute over which of the two documents is valid and binding on the 3rd Appellant as representing its true particulars. And even though the Learned Trial Judge arrived at a conclusion prama facie on the strength of the affidavit evidence before her, she did place on record that the questions raised by the contradicting documents cannot be answered without the adduction of further evidence. I cannot agree more with the Learned Trial Judge’s position.
(22) The Respondent’s capacity to issue and prosecute his originating motion therefore passes the preliminary test. If upon taking evidence, the Trial Court is able to resolve the conflict of facts in dispute and finds that the shares of the Respondent have after all not been paid for, and consequently, the call on the Respondent to pay value and subsequent forfeiture of his shares all pass the test of validity, the eventual outcome of the Respondent’s application is logically predictable.
(23) In the absence of further evidence therefore coupled with the binding effect of the ADEHYEMAN GARDENS case and the combined effect of Sections 30(1) and (4) of Act 179, I am in agreement with the Trial Court that the Respondent is clothed with capacity to commence and prosecute the action. Ground (b) therefore fails and is consequently dismissed.
(24) With respect to Grounds (c) and (d), I have already indicated that they require an examination of substantially the same issues and will be considered compositely. I notice from the submissions of the Appellants that they have set out are statement of the law on the issue of capacity being a foundation issue in any civil proceedings which must be determined as a preliminary issue. And I am in full agreement with the Appellants on those submissions on the position of the law. However, upon my examination of the submissions of the Appellants, they are clearly dissatisfied with the Trial Court’s view that without proof of the Respondent’s shareholding, the Trial Court could proceed to determine Respondent’s originating motion since it would be “in the interest of justice” so to do. The Respondent naturally finds nothing wrong with the approach and reasoning of the Trial Court. The Respondent has referred to the conflict of affidavit evidence which confronted the Trial Court as it expressed on the face of the ruling as follows:-
“It appears to me that, overall, the record before me is replete with more questions than answers and these questions would require more than just affidavit evidence to bring the needed clarity to the Court. Nonetheless, I am convinced of one thing that in the light of Exhibit ‘2’ there is evidence on record which indicates that the Applicant/Respondent paid for his shares, Exhibit ‘2’ emanated from the Registrar General’s Department”.
(25) I have a difficulty in appreciating why the Appellants have raised issues about the Trial Court’s approach as I see nothing erroneous about it save their perception which is not unnatural that the Trial Court has intruded into the substantive issue of whether or not value for allotted shares had been paid for by the Respondent. Under the current legal regime, the question of membership and allotment of shares even without paying for value is sufficient to clothe a person with capacity because they satisfy the conditions for membership. However, in determining whether or not a person is a member of a company, the answer naturally dovetails into interrogating whether value has been paid or not when as in this case the Appellants have alleged that the shares have been forfeited upon a call for payment of value validly made. In all these, given the position of the Appellants that there have been changes in the 3rd Appellants particulars, the Trial Court’s view was never conclusive and she did place same on the face of the ruling. Indeed, any perception of the affidavit evidence she has at this stage of the proceedings can change after the adduction of further evidence. Having already determined that the Respondent has capacity to commence the action, the issue of the propriety of the call on him to pay value for the shares should be determined when further evidence is adduced. The two grounds of appeal are to my mind merely tangential and even if upheld, they will not have the consequential effect of depriving the Respondent with the capacity to proceed with the substantive action. I will accordingly dismiss both grounds.
(26) Having dismissed Grounds (b), (c) and (d) and have found that the Respondent is clothed with capacity, the determination of Ground (a) is merely academic and it goes to the issue. The courts are not a creation to determine moot issues. There is to my mind no evidence per the affidavits which can be said not to have been properly evaluated by the Learned Trial Judge in her ruling. The crucial issue for determination in this appeal is one whether or not the Respondent has the capacity to commence the action and I am of the view that the question has been ably answered by the Learned Trial Judge. I find no evidence evaluated under the wrong perception nor any which has been misapprehended by the Learned Trial Judge which if considered favourably for the Appellants, will lead to a different result. Ground (a) of the notice of appeal is therefore also dismissed.
(27) In the result, I find that the Learned Trial Judge not only properly reviewed the affidavit evidence before her but proceeded to make exhaustive findings in order to answer the central gateway issue of the Respondent’s capacity. The reasons given are to my mind logical, legally grounded and cannot be faulted. In consequence the appeal fails and it is hereby wholly dismissed.
(28) Let the suit be remitted to the Trial High Court for continuation of proceedings.
I.O. TANKO AMADU
(JUSTICE OF APPEAL)
I AGREE P. K. GYAESAYOR
(JUSTICE OF APPEAL)
I ALSO AGREE E.K. AYEBI
(JUSTICE OF APPEAL)