IN THE SUPERIOR COURT OF JUDICATURE
IN THE HIGH COURT (COMMERCIAL DIVISION)
KUMASI - A.D 2014
CAL BANK LIMITED - (Plaintiff)
SOMPA KOKOO COMPANY LIMITED - (Defendant)
DATE: 21ST OCTOBER, 2014
SUIT NO: BFS/89/12
JUDGES: ANGELINA MENSAH-HOMIAH (MRS.) JUSTICE OF THE HIGH COURT
MR. E.N. POKU FOR THE PLAINTIFF
MR. SOLOMON OPPONG TWUMASI FOR THE DEFENDANT
The instant action arose from a series of credit transactions involving the Plaintiff Bank and the Defendants herein. Specifically, the Plaintiff seeks to recover the sum of GH¢2,101,891.02, being the balance on an overdraft facility extended to the 1st Defendant in September, 2009 together with two agreed levels of interest. In addition, the Plaintiff asks for an order for the sale of the fixed & floating assets of the 1st Defendant and for the proceeds to be applied in payment of the judgment debt.
A summary of the Plaintiff’s case as gleaned from its amended statement of claim filed on 02/05/2014 is that the 1st Defendant was granted a GH¢ 2,000,000.00 Bank Guarantee and an overdraft facility (O/D) of GH¢1, 500,000.00 to augment its working capital on or about September, 2009. The O/D facility was for a period of 12 months and was at the request of both Defendants.
As security for repayment of the facilities, the 1st Defendant placed a charge on its plants, machinery, equipment and fixtures. Further, it assigned its interest in three vehicles to the Plaintiff Bank. The 2nd Defendant gave a guarantee of ¢40 billion plus interest thereon to secure the said facility. As of 22/03/2012, the Defendants’ indebtedness stood at GH¢2,101,891.02.
The Plaintiff alleges fraud on the part of the Defendants and gave these particulars:
i. In or about May, 2002, the 2nd defendant conceived the idea of forming a company to be called Sompa Kokoo Company Ltd and the same was promoted and registered by the 2nd defendant.
ii. In order to induce the Plaintiff to give the 1st defendant credit/loan facilities, the 2nd defendant who was also a good customer of the plaintiff bank allotted to themselves 100% shares in the said company and this was communicated to the plaintiff.
iii. Acting on the said representation and induced thereby, the plaintiff granted overdraft and bank guarantee to the 1st defendant
iv. The 2nd defendant has taken the monies given to the 1st defendant by the plaintiff for their own use, and had collapsed the business, and the whereabouts of the 1st defendant is unknown.
By its statement of defence field on 10/11/2012, the 1st Defendant denied that the loan was granted to it at the request of both defendants. Its case is that in the year 2009, it entered into an agreement with the Plaintiff Bank for the provision of a guarantee to augment its financial resources for the 2009/2010 main and light crop seasons. Under the agreement, the Plaintiff Bank was to provide the 1st Defendant with a guarantee to enable it raise seed fund of par value from the COCOBOD for the 2009/2010 main and light crop seasons. Without the Bank Guarantee, a cocoa purchasing company was not entitled to access seed fund from COCOBOD. Some weeks before the expiration of the guarantee, the Plaintiff Bank unilaterally terminated the agreement and revoked the bank guarantee resulting in the 1st Defendant Company incurring heavy losses in the light crop season. This rendered the performance of the contract with the plaintiff impossible. The 1st Defendant counterclaimed for breach of contract, among other reliefs.
Apart from the averment that the defendants are engaged in the cocoa business, the 2nd Defendant denied all the averments contained in the Plaintiff’s statement of claim (as amended).
In its Reply, the Plaintiff indicates that the guarantee was to expire on 28/09/2010 and it was the 1st Defendant who returned the original guarantee for the same to be cancelled. Besides, COCOBOD would not have released the said guarantee to the 1st defendant if it had not discharged its obligations with them. The Plaintiff further indicates that the agreement it had with the 1st Defendant was renewed from year to year and that the 1st facility was granted in the year 2006.
Six issues were set down for consideration by the trial court. These are:
1. Whether or not the Plaintiff Bank granted the 1st Defendant an overdraft facility of GH¢1,500,000.00 and a Bank Guarantee of GH¢2,000,000.00 in September, 2009?
2. Whether or not the 2nd Defendant acted as 1st Defendant’s Guarantor in the transaction?
3. Whether or not the Plaintiff revoked its Guarantee with the 1st Defendant before its expiry date?
4. Whether or not this revocation affected the 1st Defendant’s performance of the agreement with the Plaintiff?
5. Whether or not Plaintiff is entitled to its claims against the Defendants?
6. Whether or not the 1st Defendant is entitled to its counterclaim against the Plaintiff?
A seventh issue as to whether or not the Defendants perpetrated fraud on the Plaintiff need to be determined as a result of the amended statement of claim.
A relationship officer of the Plaintiff Bank by name George Addai Boateng gave evidence on its behalf. He tendered in evidence an application for seed fund guarantee by the 1st Defendant dated 11/08/2006 as exhibits A, A1 to A3 to buttress his testimony that the 1st Defendant started taking facilities from the Bank in the form of bank guarantee since the year 2006. Likewise, he tendered the banking arrangement letter between the Plaintiff and 1st Defendant in respect of the 2006 credit transaction as exhibit B. According to him, the 1st Defendant secured the facilities with an assignment over the Company’s stocks and receivables, debenture over fixed and floating assets of the company, assignment over the company’s vehicles and a cross-guarantee from the 2nd Defendant Company as in exhibits C, D, E and F. The 1st Defendant accepted the offer letter and these securities were provided. The bank guarantee was renewed every year and the same securities were used. Further, he testified that the last transaction was in the year 2009 where the 1st Defendant applied for a Bank Guarantee of GH¢2,000,000.00 and an overdraft of GH¢ 1,500,000.00 (exhibit G). This was approved and an offer letter was given to the 1st Defendant (exhibit H). The 1st Defendant accepted the offer and the facilities which were for a period of 12 months from the date of disbursement were duly disbursed (exhibit J). The validity was therefore from 28/09/2009 to 28/09/2010
The Bank Guarantee was issued in favour of Cocobod and after the 1st Defendant had satisfied its liabilities with Cocobod, the same was returned to the Bank for cancellation by a letter dated 30/08/2010 (exhibit K). According to Mr. Addai, Cocobod will never return the guarantee to the issuer if the obligations in respect of which the guarantee was issued have not been satisfied. As proof of the 1st Defendant’s indebtedness, Mr. Addai tendered a demand letter (exhibit M) and the 1st Defendant’s statement of account (exhibit N). As at 30/04/2013, the 1st defendant’s indebtedness was GH¢3, 435,777.77
In cross-examination by counsel for the 1st Defendant, he sought to attack the Plaintiff’s evidence that the Bank guarantee was unilaterally revoked but this was seriously resisted by Mr. Addai who stuck to exhibit K as proof. Again, Mr. Addai denied that the 1st Defendant was constrained by the terms of the facilities from taking any other facility from any other source. He also maintained his evidence that the 1st Defendant applied for a restructuring of the O/D facility (exhibit L) and explained that restructuring can be done in several ways when a debtor approached the bank for assistance to pay its indebtedness.
Mr. Addai however agreed that the 2nd Defendant did not give any cross guarantee in the year 2009/2010 and that the cross-guarantee issued by the 2nd Defendant was operational for the 2006/2007 Main crop season. Significantly, Mr. Addai denied counsel’s suggestion that there was no agreement on a period by which the 1st Defendant ought to have paid the O/D.
His explanation for this stance is contained in his answers in cross-examination as quoted below:
“Q. In the year 2009/2010, did the 2nd Defendant Company give a cross-guarantee?
A. No. But the 1st Defendant did not also execute new security documents. If you compare the agreements in 2006 and 2009, you realize that they are the same securities for the facilities. When the client executes this security document, these securities are registered and because they are the same securities, we do not discharge and register again until the client has fully paid the facilities. Kuapa Kokoo (2nd Defendant) when they paid their facilities, they requested for their documents to be released. And they can testify that when they were granted facilities over the years, they never executed new security documents unless it was an additional security.”
Counsel for the 2nd Defendant took his turn to cross-examine Mr. Addai. In response to counsel’s
suggestion that the cross guarantee provided by the 2nd Defendant was valid for only the 2006/2007 Main crop and light crop seasons, Mr. Addai explained that the cross-guarantee in issue was an open ended one, meaning that its validity subsisted until all liabilities are satisfied. He referred to exhibit J which ends with these words: “ this guarantee to be paid in full not later than 28/09/2010”, and argued that it is a classic example of a close ended guarantee. Mr. Addai conceded that the Bank did not inform the 2nd Defendant about the year on year renewal of the cross-guarantee and the 2nd Defendant did not also write to cancel the guarantee. Continuing, Mr. Addai indicated that the 2nd Defendant knew it ought to have written to cancel the guarantee. Despite this admission, Mr. Addai maintained the plaintiff’s position that the cross-guarantee given by the 2nd Defendant in the 2006/2007 Cocoa Season also applied to the 2009 transaction.
After the Plaintiff had closed its case, the 1st Defendant’s counsel withdrew his services and the 1st Defendant also waived its right to participate in the trial by its refusal to attend court on all subsequent dates. Upon an oral application by the Plaintiff’s lawyer on 13/01/2014, the 1st Defendant’s counterclaim was dismissed and the 2nd Defendant was allowed to state its defence.
Evidence-in –chief was given on behalf of the 2nd Defendant by its Managing Director in the person of Emmanuel Kwabena Arthur. He denied any knowledge of an O/D of GH¢1,500,000.00 and a guarantee of GH¢ 2,000,000.00 given to the 1st Defendant at their request. His testimony was concise. The 2nd Defendant gave a cross-guarantee on behalf of the 1st Defendant to the Plaintiff for the 2006/2007 main and light crop cocoa seasons as per exhibit D executed on 16/10/2006. The 1st Defendant discharged its obligations under the 2006/2007 cross-guarantee and to that extent, the 2nd Defendant cannot be held liable for any subsequent indebtedness of that company to the Plaintiff Bank.
In cross-examination, Mr Arthur made these admissions: i) Sompa kokoo (1st Defendant) is now owned by Sompa Kokoo Farmers Union and ii) Kuapa Kokoo formed Sompa Kokoo (1st Defendant) in the year 2003. However, he denied that the 2nd Defendant owned 100% shares in the 1st Defendant right from its inception and throughout the period that the facilities were advanced by the Plaintiff to the 1st Defendant. Again, he denied that the Sompa Kokoo farmers union was formed to deliberately take over the liabilities that the 1st Defendant (Sompa Kokoo Ltd) had incurred. Mr. Arthur was also not agreeable to the Plaintiff’s assertion that guarantees and mortgages are always continuous and was emphatic that the 2nd Defendant did not execute any guarantee in favour of the 1st Defendant apart from what it issued in 2006/2007. He further indicated that the term sheet given by the bank for a particular transaction will show whether an existing security will be accepted as a continuing security.
The first issue as to whether or not the Plaintiff Bank granted the 1st Defendant an overdraft facility of GH¢1,500,000.00 and a Bank Guarantee of GH¢ 2,000,000.00 in September, 2009 can be resolved with ease. Based on the pleadings, the issue should be put this way: Did the Plaintiff Bank grant an overdraft facility of GH¢1,500,000.00 and a Bank Guarantee of GH¢ 2,000,000.00 in September, 2009 to the 1st Defendant alone or to both defendants as alleged in paragraph 3 of the Plaintiff’s amended statement of claim?
The burden of proof of this issue rests on the Plaintiff in terms of section 11(4) and 12 of the Evidence Act , 1975 N.R.C.D. 323. The requisite degree of proof under the above provisions is “proof by the preponderance of probabilities.” This standard was applied in cases such as Takoradi Floor Mills v Samir Faris (2005-2006) SCGLR 882 at page 900; Faroe Atlantic Co. Ltd v The Attorney General (2006) 1 G.M.L.R. 12, SC and Zambrama v Segbedzi (1991) 2 GLR 221. In all these cases, the court placed the burden of proof on the party who has made a positive averment which has been denied by his opponent.
It is apparent on the face of the evidence on record that only the 1st Defendant Company applied for the facilities in issue. In his evidence-in-chief on 20/05/2013, the Plaintiff’s representative stated:
“… The last transaction was in 2009 where Sompa Kokoo applied for the bank guarantee of GH¢2,000,000.00 and an overdraft of GH¢1.500,000.00..”
The Plaintiff’s exhibit G is the application letter for seed fund guarantee of GH¢ 2 million and an overdraft (O/D) of GH¢1.5 million for cocoa purchases in the 2009/2010 main crop season. It is dated 20/07/09 and signed by the Managing Director (MD) of the 1st Defendant Company whose name was given as Nathaniel Adja Torto. On 17/09/2009, the said Nathaniel Adja Torto and the 1st Defendant’s Finance Manager accepted the offer of a Bank Guarantee of GH¢ 2 million and O/D of GH¢1.5 million by executing exhibit H. The Plaintiff’s exhibit J is a copy of the Bank guarantee it issued in favour of Cocobod for the benefit of the 1st Defendant for cocoa purchases in the 2009/2010 main Crop cocoa season. It is also evident from page 46 onwards of the 1st Defendant’s statement of account with the Plaintiff bank (exhibit N) that the 1st Defendant utilized the O/D facility of GH¢1.5 million pursuant to the terms it accepted in exhibit H. From these documentary evidence, I find that the Plaintiff Bank actually granted an O/D facility of GH¢1.5 million in September, 2009 and the same was utilized by the 1st Defendant. Further, the Plaintiff Bank issued a Bank Guarantee of GH¢2million in favour of Cocobod and for the benefit of the
1st Defendant. Therefore, the arguments by counsel for the Plaintiff that the facilities were granted to the 1st Defendant at the request of both defendants cannot be true. From exhibits G and H, the 1st Defendant acted as an independent legal entity in sourcing the facilities from the Plaintiff Company and utilizing the same. The Plaintiff has failed to discharge its legal burden on its assertion that both Defendants requested for the grant of the facilities in issue and cannot succeed on that point.
Next to be determined is the issue of the alleged revocation of the bank guarantee by the Plaintiff Bank.
The Plaintiff’s position is that after the 1st Defendant had satisfied all its obligations to Cocobod for the 2009/2010 cocoa season, the bank guarantee was returned to them through the 1st Defendant for cancellation. Thus, the Bank never unilaterally revoked the guarantee before its expiry date.
The 1st Defendant’s stance can be gathered from its counsel’s cross-examination of the Plaintiff’s representative on 13/06/2013 as follows:
Q. In 2009/2010, you unilaterally withdrew the guarantee before the light crop season?
A. Not correct because per exhibit K, Cocobod returned the guarantee to Cal Bank through Sompa Kokoo. In the letter from Cocobod, it was Sompa Kokoo who requested Cocobod to return the guarantee to Cal Bank.
Based on the principles of proof in civil suits which have been outlined above, the onus of proof on the issue of revocation lies on the 1st Defendant. The 1st Defendant stopped coming to court after the Plaintiff had closed its case. Apart from the mere denial during cross-examination of the Plaintiff’s representative, there is no evidence on record to support the 1st Defendant’s assertion that the Plaintiff Bank unilaterally revoked the Guarantee issued for its benefit in 2009/2010.
Exhibit K is dated 30/08/2010 and it was written on the letterhead of Ghana Cocoa Board. It is addressed to The Commercial Officer of Sompa Kokoo Co. Ltd of P.O. Box AH 8216, Kumasi. The letter states:
RE: RELEASE OF SEED FUND
We refer to your letter dated 23rd August, 2010 in respect of the above-stated subject matter and return herewith Bank Guarantee No. CAL/G/75/2009 issued on your behalf by CAL BANK for the purpose of the 2009/2010 main crop season.
DIRECTOR, LEGAL SERVICES
It is noticeable from the 1st Defendant’s own application for seed fund guarantee (exhibit G), that the bank guarantee was being sought “ for cocoa purchases – 2009/2010 MAIN CROP SEASON”. However, the purpose of the Bank Guarantee in the Banking arrangement document (exhibit H) executed by the 1st Defendant’s MD was “ to enable the company raise seed fund of same amount from COCOBOD for the 2009/2010 main and light crop seasons. Pursuant to exhibit H, the Bank Guarantee numbered CAL/G/75/ 2009 was issued by Cal Bank to Cocobod for the 2009/2010 Main Crop Cocoa Season. In consideration of the Bank Guarantee numbered CAL/G/75/2009, the 1st Defendant acting through its MD also executed a COUNTER INDEMNITY in favour of the Plaintiff herein. From the totality of the evidence on the bank guarantee, I find that the 1st Defendant knew at all times that the Guarantee numbered CAL/G/75/2009 was for the 2009 MAIN CROP COCOA SEASON. From the wording of exhibit K, it was the 1st Defendant company which requested for the release of the Bank Guarantee. And, it was in view of this express request that Cocobod returned same to the 1st Defendant at the end of that cocoa season (exhibit K). Indeed, it is quite intriguing that the same company now turns around to allege that the Plaintiff revoked the guarantee without reference to it. On the balance of probabilities, the Plaintiff’s story that the 1st Defendant returned exhibit K to the Bank for cancellation is more convincing. It is deserving of a favourable verdict and I so find.
I also accept the Plaintiff’s evidence that the release of the bank Guarantee in issue meant that the 1st Defendant had satisfied all its obligations to Cocobod for the 2009/2010 Main Crop Season. Having voluntarily requested and accepted the release of the Bank Guarantee, I do not see how the cancellation could negatively affect the 1st Defendant’s performance of the agreement with the Plaintiff for the period in issue. In any case, the 1st Defendant also took the O/D of GH¢1.5 million for a twelve month period to augment its working capital. From the evidence on record, the 1st Defendant’s core business is cocoa purchases. This meant that the 1st Defendant intended to use this O/D for cocoa purchases for the period September 2009, to September, 2010. Thus, the money raised from the O/D ought to have been available for cocoa purchases until the end of the 2009/2010 Light Crop season and the company should have been able to liquidate its indebtedness as agreed with the Plaintiff. It may be that the 1st Defendant’s cocoa business flopped but the Plaintiff cannot be held responsible for the 1st Defendant’s business misfortunes. In other words, the 1st Defendant’s obligation to liquidate its indebtedness was not dependent on the success or otherwise of its cocoa business.
The next major issue to be considered is whether or not the 2nd Defendant acted as 1st Defendant’s Guarantor in the transaction (i.e. the 2009 transaction)?
Arguments by Counsel for Plaintiff.
Counsel submits that the cross guarantee issued by the 2nd Defendant in 2006 had no expiry date and was therefore an open guarantee which remains valid unless otherwise cancelled by the guarantor. Referring to the relevant portions of the plaintiff’s representative’s evidence, counsel emphasizes on what they described as the two types of bank guarantee: i) closed guarantee and ii) open ended guarantee.
Counsel states that exhibit J is an example of an open ended guarantee and exhibit K is a closed one. In his view, if the guarantee had an expiry date, the 2nd Defendant would have requested for the return of the guarantee if indeed the 1st Defendant had discharged its obligations. He also refers to the unchallenged evidence on record that when the 2nd defendant retired its facility, it wrote to the bank to cancel their guarantee. He again refers to portions of the cross-examination of the 2nd Defendant’s representative on 29/01/2014 which in his view show that existing securities are not renewed when a facility is renewed yearly.
Continuing, counsel submits that the cross guarantee was given in respect of the facility evidenced by exhibit A (banking arrangement letter) i.e. seed fund guarantee/bridge loan and overdraft; and, that the import of the said agreement was known to the 2nd Defendant before it executed the cross-guarantee.
Arguments by Counsel for 2nd Defendant
For the 2nd Defendant, counsel submits that the only piece of evidence which seeks to tie the 2nd Defendant to the obligations of the 1st Defendant is the cross-guarantee dated 16/09/2006 (exhibit D). Prior to the execution of exhibit B, counsel submits that the Plaintiff offered, and the 1st Defendant accepted the sum of ¢50 billion ( GH¢ 5 million). Out of this sum, the 1st Defendant was to use c 2 billion ( GH¢2million) as a bridge loan to support the company’s working capital and use proceeds from the seed fund to retire an earlier bridge loan of ¢15 billion. Contrary to these explicit terms, counsel argues that the 2nd defendant was misled into signing exhibit D under the pretext that the entire amount was in respect of seed fund guarantee. He invites the court to construe exhibit D by reading the document as a whole so as to ascertain the true intention of the maker of that document.
Reading exhibit D as a whole, counsel reiterates that the 2nd Defendant’s intention was to cross-guarantee the Bank Guarantee issued by the Plaintiff for “seed fund from COCOBOD” for cocoa purchases in the 2006/2007 main Crop season and 2007 light Crop Season. He adds that exhibit D creates an estoppel between the parties to that document and the document is binding on the parties. In his view, Plaintiff’s counsel’s interpretation of exhibit D cannot be correct. Again, counsel refers to the offer letter dated 11/09/2009 (exhibit H) which provided in clause 5 under the heading, “security” : cross guarantee from Kuapa Kokoo Ltd. He argues that no such guarantee was ever executed between the parties in 2009 as they did in exhibit D. In that light, counsel is of the view that it will be unjust to saddle the 2nd Defendant with the debt of the 1st Defendant.
In response to the arguments that the 1st defendant promoted the 2nd defendant and that the 1st directors of the 1st defendant were appointed by the 2nd defendant so that the 2nd Defendant was the ultimate beneficiary of the facilities in issue, counsel’s stance is that this proposition is unknown to company law, either in Ghana or at common law. After the appointment of the 1st Directors by the promoters, counsel submits that they become independent and are not accountable to anybody. He invites this court to follow its earlier decision in Alhassan Musah Timber Company Ltd v Franco Company Ltd (unreported) 04/02/2014 where the court , after quoting copiously from Salomon v Salomon ( 1877) A.C. 22 , came to the conclusion that a limited liability company is distinct, separate and unique from all others including even the shareholders.
In construing any document, the true intention of the maker can be gathered if it is read as a whole. This is the proper way to construe documents and so counsel for the 2nd Defendant is right on that point. For this reason, I will set out exhibit D and proceed to interpret the same as a whole. Any attempt to put an interpretation on only a portion of that document will lead to a mischief. Exhibit D is addressed to the Manager of Cal Bank, Kumasi. It reads:
WHEREAS SOMPA KOKOO COMPANY LIMITED of plot No. 24 Block ‘A’ Nhyiaso, P.O.Box AH 8216, Kumasi ( hereinafter called “the Customer”) has been granted a Seed Fund Guarantee by CAL BANK LIMITED ( hereinafter called “ the Bank”) having its registered office at No. 13 Old Bekwai Road, P.O.Box 1912, Kumasi-Ghana to enable the customer access seed fund from COCOBOD for cocoa purchase in 2006/2007 main Crop Season and 2007 Light Crop Season.
AND WHEREAS we KUAPA KOKOO LIMITED of P.O.Box 23044, Ashtown, Kumasi being a sister Company of the Customer ( hereinafter called the “Company”) has agreed to provide the Customer with the required guarantee.
NOW THEREFORE, the Company hereby affirms that we are guarantors and responsible to the Bank on behalf of the Customer up to a total sum of ¢40 billion with interest and the Company undertakes to pay the Bank upon its first written demand declaring the Customer to be in default under the contract and without cavil or argument, any sum or sums up to a maximum amount of ¢40 billion together with interest without any need on the part of the Bank to prove or show grounds or reasons for the demand of the sum specified thereon.
This Guarantee, which is not assignable, shall be construed in accordance with the laws of Ghana.
Dated this 16th day of October 2006.
The parties to exhibit D did agree that the document shall be construed in accordance with the laws of Ghana. The statute that readily comes to mind is the Contracts Act, 1960 Act 25. The relevant provisions on Guarantees are:
(1) An agreement made before or after the commencement of this Act, by which a person guarantees the due payment of a debt or the due performance of any other obligation by a third party, is void unless it is in writing and is signed by the guarantor or is entered into in a form recognized by customary law
(2) A promise or representation made after the commencement of this Act, relating to the character or credit of a third person with the intent that the third person may obtain credit, money or goods, from the person to whom the promise or representation is made, is void unless it is in writing and is signed by the party to be charged with the promise or representation or the agent of that party.
(3) For the purpose of this section … “guarantor” means a person who guarantees the due payment of a debt or the due performance of any other obligation by a third party.
The obligation in respect of which the parties to exhibit D executed that document can be inferred from the recital. That is, to guarantee the “Seed Fund Guarantee” executed by Cal Bank to Cocobod in favour of the 1st defendant for its 2006/2007 main crop season and 2007 light crop season. The words used in the document must be given their ordinary meaning because any attempt to introduce a secondary meaning will defeat the true intention of the parties thereto. In respect of which obligation was that consideration (exhibit D) given? This is apparent on the face of the document. Having read the document as a whole, it is my considered opinion that the parties to exhibit D intended it to be used as a cross-guarantee for the cocoa season explicitly stated therein ( i.e. 2006/07 Main Crop Season and 2007 Light Crop Season).
It has been argued on behalf of the Plaintiff that the same assets and securities were used by the Defendants year on year. After a careful scrutiny of exhibit D, I do not find the slightest clue that the parties intended it to be used as a continuing security. In contrast, the charge over the 1st Defendant’s vehicles (exhibit F dated 24/10/2005) was intended to be a continuing security as spelt out under clause 7.2 therein. It reads:
“ The security constituted by this charge is to be a continuing security and is to be in addition to and without prejudice to any other security which the bank may hold or any other right or any rights of set-off, combination or consolidation which may arise by law.”
Likewise, the assignment of stocks and receivables created in the year 2005 was also a continuing security (exhibit E). These are the words used: “The charge hereby created shall hold good until discharged by the Bank”. The Debenture made in December, 2005 (exhibit C) also relate to future liabilities of the 1st Defendant to the Plaintiff Bank and can also be classified as a continuing security.
From the foregoing, the Plaintiff’s position that the same securities were used year on year can only hold for those which the parties intended to be used as continuing securities. Thus, after discharging all obligations for a particular season, those securities will have to be formally cancelled if the assignor does not intend to use the same for subsequent transactions. In the case of the cross-guarantee given by the 2nd Defendant, its validity was limited to the cocoa crop season mentioned in the document and nothing more. In the banking Arrangement letter in respect of the 2009 transaction, the Plaintiff required the following securities:
1. Charge over the Company’s vehicles
2. Debenture over fixed and floating assets of the company
3. Assignment of stocks and receivables
4. Unlimited Joint and Several Guarantees of all Directors of the Company
5. Cross Guarantee from Kuapa Kokoo Limited.
The Plaintiff failed to tender any joint and Several guarantee of all the Directors of the 1st Defendant.
The only reasonable inference is that the directors of the 1st Defendant did not give any joint and several guarantee but the facility was extended to the Company anyway contrary to the agreed conditions. A cross-guarantee from Kuapa Kokoo for the 2009/2010 facility was also not tendered.
The evidence shows that the 2nd Defendant did not give any such cross-guarantee for that period even though it was as required under the banking arrangement letter. I find that the Plaintiff cannot rely on the cross-guarantee executed by the 2nd Defendant in the year 2006 for the liabilities of the 1st Defendant in 2009/2010.
It is obvious from the conduct of the Plaintiff’s schedule officers that they were “playing a game of convenience”. They failed to do due diligence. Their conduct in these transactions can be summarized in a few words: “the securities are already there so let us use them”. Do they have the power to do so without an express authority or agreement from the guarantor? Obviously not! If they had been conscientious, they would have discovered that Kuapa Kokoo had to execute a fresh cross-guarantee for the 2009/2010 transaction even though the other continuing securities were valid. They erred in not taking a fresh “cross-guarantee” from the 2nd Defendant for that period.
As a general principle, a guarantor should only be responsible for the precise obligations which are guaranteed.(see Erlinger’s Modern Banking law 4th edition, page 855). It has been held that guarantees are to be construed according to usual contractual principles. See Investors Compensation Scheme Ltd v West Bromwich Building Society (1998) 1 All ER 98 at 114-115 per Lord Hoffmann. However, cases of doubt and ambiguity are to be resolved in favour of the guarantor. See Melvin International SA v Poseidon Schilffart GmBH M.V. Kalma ( 1999) 2 Lloyd’s Rep. 374.
From the above analysis and findings, I come to a conclusion that the 2nd Defendant did not act as a guarantor in respect of the facilities taken by the 1st Defendant in the 2009/2010.
I now move to the issue of fraud. Did the Defendants perpetrated fraud on the Plaintiff? And, if so, whether or not the 1st Defendant’s veil of incorporation can be lifted by the court?
SUBMISSION BY COUNSEL FOR PLAINTIFF ON FRAUD AND LIFTING OF VEIL
Counsel submits that the 2nd Defendant in the course of its cocoa purchase business strangely formed the 1st Defendant in the year 2002 to carry out a similar business. It was the 2nd Defendant which took the 1st Defendant to the Plaintiff in respect of the facilities in issue. The 2nd Defendant owns all the shares of the 1st Defendant. The 2nd Defendant knew of the financial situation of the 1st defendant at any particular time, as the auditors were their appointees. And, secondly, the shareholders (2nd defendant) were the people who attended and voted at Annual General Meetings of the 1st defendant where the company’s profits were declared. And, it is the shareholders who decided where the monies should go. Counsel refers to exhibit P and submits that the purported transfer of shares never took place because, per exhibit Q, the 2nd Defendant remains the shareholders of the 1st Defendant as of 2014. After the 1st Defendant’s previous lawyer had cross-examined the Plaintiff’s representative, the 1st defendant disappeared into thin air. Concluding, counsel submits that the obvious motive of the 2nd Defendant was to use the 1st Defendant to defraud the Plaintiff by diverting the money given to the 1st Defendant to themselves, and then collapse the company so their evil deeds cannot be traced. He cites and relies on Morkor v Kuma (East Coast Fisheries Case ( 1998-99) SCGLR 620; Jones v Lipman (1962) 1 WLR 832 and Dallas v Dallas (1979) 1 ALL ER 801.
SUBMISSION BY COUNSEL FOR 2nd DEFENDANT ON FRAUD AND LIFTING OF VEIL
For the 2nd Defendant, counsel submits that even though the 2nd Defendant promoted the 1st defendant and appointed its first directors, they are different companies in law. Alhassan Musah Timber Company Ltd v Franko Timbers, (referred to, supra), Appenteng & others v Bank of West Africa ( 1961) G.L.R. 199 and Salomon v Salomon ( 1897) A.C. 22, cited and relied on.
Concluding, counsel submits that the Plaintiff has failed to prove the issue of fraud to the requisite degree under section 13(1) of the Evidence Act 1975 (N.R.C.D. 323) and that the plaintiff is relying on it as a mere afterthought.
The principle of the separate legal existence of a limited liability company is not new. It has been so since the over a century old case of Salomon v Salomon. See also Quartson v Quartson (2012) SCGLR 1077 at 1080. The Supreme Court in Morkor v Kuma, referred to supra, agreed with the appellant that her multifaceted status in the company could not, by itself, render the company her alter ego. At page 632, Sophia Akuffo JSC noted:
“ … A company, is thus a legal entity with a capacity separate, independent and distinct from the persons constituting it or employed by it. From the time the House of Lords clarified this cardinal principle more than a century ago in the celebrated case of Salomon v Salomon & Co ( 1897) AC 22,it has , subject to certain exceptions, remained the same in all common law countries and is the foundation on which our Companies Code (Act), 1963 is grounded.”
Her Ladyship continued:
“The corporate barrier between a company and the persons who constitute or run it may be breached only under certain circumstances. These circumstances may be generally characterized as those situations where, in the light of the evidence, the dictates of justice, public policy or the companies Code itself so requires… Therefore, whether or not a circumstance is one in which the lifting of the veil of incorporation is merited is dependent on the peculiar factors driving each particular case.”
Counsel for the Plaintiff is urging this court to follow its decision in the Alhassan Musah Timbers case. In that case, I refused to lift the veil of incorporation because the circumstances did not merit the veil to be pierced.
But, in situations of improper business conduct, securing an immediate personal benefit from a corporate transaction, a scheme to avoid contractual obligations, fraud and the like, the courts are more likely to lift the veil.
In the instant action, the 2nd Defendant Company, per exhibit P, transferred all its shares in the 1st Defendant Company to Sompa Kokoo Farmers Union which is a company limited by guarantee. Exhibit P was filed with the Registrar of Companies on 17/09/08. It appears to me that counsel for the Plaintiff is relying on this transfer of shares to argue that the 2nd Defendant has transferred its liabilities to the said Sompa Kokoo Farmers Union who had not paid for those shares , with the intent of defrauding the plaintiff as a creditor.
By section 42 of the Companies Act, shares can either be paid for in cash or otherwise. Where a company agrees to accept payment for any shares otherwise than wholly in cash, the company is enjoined to deliver the agreement to the Registrar for registration within 28 days after the allotment of shares. Exhibit P has detailed how Sompa Kokoo Farmers Union is to pay for the shares transferred to them. Section 30 of Act 179 deals with membership of Companies. Under section 30(4), a holder of a share is a member of the company. Under section 30(5), membership of a company with shares continues until a valid transfer of all the shares held by the member is registered by the company, or until all the shares are transmitted by operation of law to another person or forfeited for non-payment of calls under the Regulations. The directors of a company need not be the same as the shareholders even though in practice a director may own some shares in the company. In the Regulations of Sompa Kokoo Company Limited (exhibit Q), the first directors are seven individuals. Yet, all the issued shares were owned by Kuapa Kokoo Limited until they were transferred to Sompa Kokoo Farmers Union. I do not see any evidence on record that supports counsel’s argument that the transfer of shares evidenced by exhibit P is tainted with fraud and therefore of no legal effect. If the said Union has not fully paid up for those shares, it is the responsibility of the 1st Defendant to make a call on those shares under section 15 of its Regulations (exhibit Q). It is only when the transferee fails to make payment after a call has been made that the shares can be forfeited under sections 22 to 27 of the Company’s Regulations. In the absence of the above, the transferees remain shareholders of Sompa Kokoo Company Limited.
I think in the circumstances of this case, counsel ought to have sued the said Sompa Kokoo Farmers Union as well and then lead credible evidence to support the allegation of fraud. In the absence of that, and exhibit P having been duly registered with the Registrar of Companies, I am unable to set it aside merely because fraud has been alleged.
The legal position as regards the company and its members has been expounded by Philip Ebow Bondzi- Simpson (2011), Company Law in Ghana page 169. The learned author stated in clear terms that a company is a distinct legal person from its members. Therefore, a shareholder is not an owner of the company or any part of it. He continues that one may own a share but the person who owns the share does not own the company. Further, he indicated that ownership of a share only confers interest, rights and liabilities to the company.
The liability of a shareholder is limited to his shares. Thus, in the case of Kuapa Kokoo Company limited, the extent of its liabilities as shareholders of Sompa Kokoo Company limited is what is stated on the face of its Regulations. In that case, the clause in exhibit P stating that the assignee ( Sompa Kokoo Farmers Union) has agreed to take over the liabilities of the Assignor (Kuapa Kokoo Limited) can only be valid for the stated liabilities of Kuapa Kokoo in the Regulations of Sompa Kokoo and nothing more. The liabilities of Kuapa Kokoo as a member (shareholder) of Sompa Kokoo Limited prior to the transfer of shares is different from the liabilities of Sompa Kokoo Company Limited itself. So, by exhibit P, Kuapa Kokoo Limited ceases to be a member of Sompa Kokoo Company Limited. Notwithstanding the transfer of shares from Kuapa Kokoo Limited to Sompa Kokoo Farmers Union, the Directors of Sompa Kokoo Limited as stated in its Regulations have not changed. I believe a copy of the Regulations was submitted to the Plaintiff before the approval of the credit facility. If the Plaintiff suspected any foul play on the part of the Directors of the 1st defendant Company which will necessitate the piercing of the corporate veil, these Directors ought to have been sued alongside the Company for their liabilities to be determined by the court.
For now, the Defendant Companies are separate legal entities. They can sue and be sued. They have their respective rights and obligations. It is quite intriguing that even though exhibit H, dated 11/09/2009 required unlimited joint and Several Guarantees of all directors of the 1st Defendant Company, for no apparent reason, this was not done! I do not find any cogent evidence on the issue of fraud as alleged by the Plaintiff. In the absence of an express personal guarantee, fraud and the like, the directors of the 1st defendant company cannot be liable for the debt incurred by the said company. In the same vein, neither the 2nd Defendant Company nor its directors can be held liable for the debt incurred by the 1st Defendant Company. If the Plaintiff’s schedule officer(s) had gone strictly by the terms of the Banking Arrangement letter, dated 16/09/2009 and had taken unlimited Joint & Several
Guarantees of all Directors of the 1st Defendant Company; plus a Cross Guarantee from Kuapa Kokoo Limited, the Plaintiff would not have found itself in such a difficult situation. Instead of the unlimited Joint and Several Guarantees of all Directors of Sompa Kokoo Co. Limited, the Plaintiff accepted a counter indemnity from the said company. Going by the well established principle that a company is not the same as its members, a counter indemnity executed by Sompa Kokoo Company Limited cannot be the same as a Guarantee executed by its directors. In my candid opinion, the Plaintiff Bank erred in not ensuring strict compliance with the required securities in the Banking Arrangement Letter dated 16/09/2009.The Plaintiff has failed to demonstrate any special circumstance which merits the lifting of the corporate veil at this time.
From the evidence on record, I find that the 1st Defendant Company has not fully paid its debt arising from the O/D extended to it by the Plaintiff Company. From the amended statement of defence filed on 20/11/2012, the 1st Defendant Company does not deny that the credit facility extended to it for a period of twelve months attracted interest at the rate of 34.9% per annum subject to changes at the instance of the Bank from time to time plus a default charge of 2% flat on the outstanding amount.
Midway through this trial, the 1st Defendant Company elected not to participate any longer irrespective of the numerous hearing notices served on it. Prior to the institution of this action, the Bank sent a demand notice dated 16/05/2011 to the 1st Defendant Company per its Managing Director (exhibit M). As at that time, the 1st Defendant’s indebtedness on the O/D stood at GH¢2,068,187.30. A statement of account of the 1st Defendant was tendered in evidence as exhibit N.
On that statement, the 1st Defendant’s debit balance as at 01/05/2011 was Ghs 2, 041,710.92. This figure continued to attract interest. The writ of summons was issued on 07/06/2012 and the amount endorsed thereon is GH¢2, 101,891.02. In the evidence of the Plaintiff’s representative, the 1st Defendant’s indebtedness was put at GH¢3,435,777.73 as at 30/04/2013 and this debit balance continued to attract interest. The 1st Defendant did not show up to challenge its indebtedness as stated by the Plaintiff. In the absence of any other evidence to the contrary, I accept the sum of GH¢2,101,891.02 endorsed on the writ of summons as the 1st Defendant’s indebtedness to the Plaintiff as at 22/03/2012. The Plaintiff is certainly entitled to interest on this amount per the agreement between it and the 1st Defendant.
Accordingly, I enter judgment against the 1st Defendant in the sum of GH¢2,101,891.02 together with the agreed interest of 34.9% per annum and 2% flat rate per annum default interest from 23/03/2012 to date of final payment.
The Plaintiff also seeks an order for the sale of fixed and floating assets of the 1st Defendants. There is
no doubt from the evidence adduced on behalf of the Plaintiff that the 1st Defendant provided security in the nature of assignment over the company’s stocks and receivables, debenture over its fixed and floating assets and assignment over its vehicles. Details of the securities are more particularly set out in exhibits C,E and F as follows:
1. Company’s stocks
2. Proceeds from sales
3. Credit balances on all accounts of the assignor held with the Bank
4. Toyota vehicle with Registration number AS 6242 U chasis Number JTFDE 628800109322.
5. Nissan vehicle with Registration number GE 3207 V and chasis number JNICJUD 22Z0738645
6. Nissan vehicle with Registration number GW 9567 V and chasis number JNICJUD 22Z0058037.
7. Any other fixed/floating asset given as security by the 1st Defendant.
These assets which were given as security by the 1st Defendant shall be assessed by an independent valuer to be commissioned by the Registrar of this court. A copy of the valuation report must be served on the 1st Defendant Company. The Plaintiff shall then apply to the court for an order fixing the reserved prices of these assets. These assets shall be sold and the proceeds applied to reduce the 1st Defendant’s indebtedness to the Plaintiff which stands at GH¢2,101,891.02 together with the agreed interest of 34.9% per annum and 2% flat rate per annum default interest from 23/03/2012 to date of final payment.
Cost is at the discretion of the Court. Having considered the relevant provisions on the award of cost, order 74 at C.I. 47, I award GH¢100,000.00 as cost against the 1st Defendant.