Asare Vrs Dupaul Wood Treatment Gh ( CA. 96/2002) [2004] GHACA 10 (23 April 2004);

Flynote: 

N THE SUPERIOR COURT OF JUDICATURE

IN THE COURT OF APPEAL SITTING AT ACCRA

ON THE 23RD DAY OF APRIL, 2004

 

SUIT NO. CA. 96/2002

               CORAM:

            TWUMASI,  JA

             FARKYE,  JA

             TWENEBOAH-KODUA,  JA

 

              NICHOLAS BERNARD ASARE     ]   …    PLT/APPELLANT

                                    VRS.

               DUPAUL WOOD TREATMENT GH]  ..    DEFTS/RESPONDENTS

      

                                                        J  U  D  G  M  E  N  T

 

               TWUMASI, JA:-  The appellant filed an originating notice of motion before

               the High Court,  Sekondi, praying the court for a variety of reliefs under

               Sections 35, 217 and 218 respectively, of the Companies Code 1963

               (Act 179).  He had three main grievances.  First he accused the respondents,

               a company called Dupaul (for short) as the 1st respondent and the Managing

               Director as the second respondent of treating him as though he was not a

               member of the company.

                         Secondly, he accused them of doing acts calculated to deprive him of the

               benefits/profits of the company.  Thirdly, he sought relief under Section 218

   which grants relief against oppression. For easy reference,I consider it    appropriate to reproduce the reliefs he sought as follows:-

                                                D e c l a r a t i o n

  1. That the applicant is a shareholder and member of the 1st

Respondent company and holds 50% of its issued share capital.

  1. That the systematic reduction by the 2nd Respondent in the

number of shares held by the applicant was an unjustified

expropriation of the applicant’s shareholding and a fraud on him.

                                                            -   2   -

  1. That the purported removal of the applicant as a director of 

the 1st Respondent company by the 2nd Respondent was unlawful

and so void as the same was contrary to Section 185(2) of the

Companies Code 1963 (Act 179) .

  1. That the affairs of the 1st Respondent company are being

Conducted and the powers are being exercised in a manner oppressive to the applicant or in disregard of his legitimate

interests as a shareholder of the company.”

                                       O r d e r s

  1. That the applicant’s name be entered in the Register of members

of the 1st Respondent company pursuant to Section 35 of the

Companies Code 1963 (Act 179).

  1. That the applicant be paid all his director’s fees and allowances

which were discontinued as a result of his purported removed as

a director of the company.

  1. That 1st or 2nd Respondent be ordered to purchase the applicant’s

shares and future prospects at a fair valuation.

  1. Any other order(s) as to this Court may seem fit.”

                             At the end of the trial the learned trial judge gave a split decision.  He

                     entered judgment in favour of the appellant in respect of two of the reliefs

                     he sought and refused the rest.  Upon what could by all accounts be regarded

                     as an eclectic analysis of the evidence adduced by the parties, the learned

                     trial judge delivered himself in the following terms (see page 201 of the

                     record of appeal):-

                              “I therefore refuse the first declaration sought by him.

                                Neither do I think he is entitled to a declaration that the

                                 reduction of his shares by the second Respondent is

                                 unjustified expropriation and fraud on him.  He acquiesced

                                 in the act by signing his name against what was allotted to

                                 him.  I am also unable to grant him a declaration that he has

  • 3  -

                                 been oppressed in the manner in which the affairs of the

                                 Company are being conducted or the powers of the directors

                                 are being exercised.”

                        After delivering these positive findings against the Appellant the learned

                 trial judge on the same page continued his judgment in the following terms:-

                                  “I think on the evidence before me the applicant is still a

                                    director of the company and should be held as such.

                                    A declaration to that effect is hereby being made and I also order

                                    that all his fees in arrears as a director are to be computed and paid

                                    to him.”

                         Continuing his judgment at page 202 of the record, the learned trial judge

                         stated as follows:-

                                    “As the evidence shows the applicant has not paid any amount

                                      for the shares, nor has any agreement been reached by and with

                                      him for such payment.  Also as it is not known what amount

                                      remains payable on such shares, it will be difficult to implement

                                      any order by this court that the name of the applicant be entered

                                       on the register of members of the company.  It will be impossible

                                       such a statement to be made as demanded by Section 35(C) of

                                       the Code ie. when such entries are being made.  I am therefore

                                       unable to make that order.  Neither will an order be made that

                                       the applicant be bought out for the reason that he did not

                                       succeed in my view in making a case of oppression against

                                       him as a member of the company.  Aside of that he has not

                                       contributed a pesewa for a share and it will be difficult to

                                        understand why he should be bought out.”

                        In the concluding paragraphs of the judgment the learned trial judge found

                    as a fact that the company had not declared dividends for all the many years

                    it had been operating and, accordingly, he ordered that the company’s

                    accounts be expeditiously audited and dividends paid to persons entitled

                                                          -    4    -

                 entitled thereto.  Specifically he did not mention the name of the appellant as

                 one of those so entitled to any dividends.

                         The appellant’s Counsel argued together grounds 2, 3 and 4 of the

                 original grounds of appeal which were as follows:-

                           “(ii)   The learned trial judge erred in law when he held that

                                     the appellant was an allottee of shares when in fact he

                                     was a subscriber to the Regulations.

(iii)   The learned trial judge further erred in law by failing to order

                                      that the appellant’s name be entered in the Register of members

                                      under Section 35 of the Companies Code even though he himself

                                      had found that the appellant had subscribed to the Company’s

                                      regulations.

  1. The learned trial judge misdirected himself on the facts when he

held that the appellant had admitted that he had not paid a pesewa for his shares.”

                 The facts of the case show that the company “DUPAUL WOOD

            TREATMENT LTD.” was established by the appellant and the second respondent

             with 50% share structure for each of them.  The two of them signed the

             Regulations, as subscribers.  Later on, newly drafted Regulations were signed by

             both persons jointly with others whereby the share structure was changed to

             60% for the 2nd respondent and 10% for the appellant and the rest of the shares

             for the other shareholders.  The appellant complained that he had been unfairly

             treated by the change . 

                     Other grievances were that his name had not been registered or entered in

             the Registrar of members of the company and also had been removed from office

             as director.  The gravamen of the case made against the appellant was that since

             the establishment of the company he had not paid anything in cash for a single

             share, nor had he made any contribution towards the establishment of the

             company and, for that reason, he was not qualified to be registered or have his

             name entered in the company’s register.  The learned trial judge made this fact

  • 5  -

             the kinpin of his grounds for denying the appellant the right he contended 

             for throughout the proceedings to have his name entered in the company’s

             register.  The learned trial judge had held at page 187 of the record that in the

             evidence before him he had no quarrel with the contention by the appellant

             that he was a member of the company by reason of the fact that he was a

             subscriber to the company’s regulations and also that he had been allotted

             shares in the said company.

                     The learned trial judge, however, omitted to make a finding on the claim

            made by the appellant that he had made certain pre-incorporation expenses in

            the region of ¢500,000.00 which he claimed had been capitalised.  This claim

            became a glaring issue in view of the denial by the respondents of the claim.

            In the legal submissions in this court, the appellant’s Counsel strongly argued that

            these expenses constituted a substantial contribution.  In his statement of case:

           

             Counsel for the appellant stated:-

                                    “The appellant claimed that he owned 50% of the shares

                                      of the company by signing the Regulations.  Further under

                                      cross-examination he said that he had paid over ¢500,000.00

                                      way of preliminary expenses between 1977 and 1993.  The

                                      respondents said he owned less.  It was the duty of the trial

                                      judge to have resolved those primary issues of fact.”

              In their response the counsel for the respondents denied that the appellant had incurred the ¢500,000.00, because the appellant did not produce documentary evidence to prove the expenses. They further argued that the appellant had not paid any cash for a single share in the company.

As substantial contribution, I agree with the Counsel for the respondents that   expenses, if any, made before the establishment of the company are payable if claimed but do not constitute  payment of shares.                                                  

             At pages 263 and 264 of “Modern Company Law” 2nd

            Edition Professor Gower states the following:-

                                                                   -  6  -

                             “Until a company is formed it cannot enter into a valid contract and

                                the promoter therefore has to expend the money without any

                                guarantee that he will be re paid.  In practice, however, recovery of

                                preliminary expenses and registration fees does not normally

                                present any difficulty.  The articles will contain a provision

                                authorising the directors to pay them…………….If, as is generally

                                the case, the promoter is one of the directors, he can be reasonably

                                confident that his expenses will be paid.”

                    I fully endorse the opinion of the learned author, Professor Gower and hold

            that the ¢500,000.00 assuming it was paid could not constitute payment of shares,

            although the appellant could take proper legal steps to recover same from the

            company.  That issue therefore need not detain us any longer.  What then was

            the appellant’s real status in the scheme of shareholding in the company at the

            time he filed his petition?  Does the fact which is admitted by the appellant,

            that he has not paid physical cash for any share held or allotted to him denude

            him of his position as a shareholder in the company?  The learned trial judge’s

            view has been quoted hereinbefore and I need not repeat it.  Suffice it to say that

            he and the respondents held the view that payment of the share in cash or in kind 

            was a sine qua non for success of the appellant’s claim to have his name entered

            in the company’s register and also to be bought out.  For his part Counsel for the

            appellant contended that so long as the appellant had subscribed to the regulations

            and had been allotted shares he continued to lawfully to hold himself as a

            shareholder whether he had paid for the shares or not, until he had been unable

            to respond to a lawful call upon him by the company to pay such shares, when

            he would  be liable to forfeit the shares, or when the shares had been

            lawfully transferred, vital steps which had not yet been taken against the

            appellant.                                  

                    It must be stressed in fairness to the learned trial judge that he was not

            unmindful of, but in fact appreciative, of the law on the subject matter of

            corporate shares as borne out in his judgment at page 187 of the record of

                                                         -   7   -

                         appeal where he stated thus:-

                                  “There is no doubt raised that he is a member of the company

                                     for the reasons that he is a subscriber to the regulations of the

                                     company and also that he has been allotted shares in the

                                      company which is one limited by shares and that so far he is

                                      yet to forfeit any of them for non-payment on any calls made

                                      on him.  I must make it clear that the number of shares held by

                                      the applicant is in dispute and will soon be resolved in this

                                      judgment.”   

                       The evidence shows that the appellant originally held 50% shares as the 2nd

              Respondent.  No dispute whatsoever about that (See paragraph 6 of appellants

              affidavit at page 6 of the record which was admitted by the 2nd respondent in

              in paragraph 11 of affidavit in opposition at p. 31 of the record of appeal).  Then

              at page 196 of the record the learned trial judge made positive findings of fact

              to the effect that the 2nd respondent systematically reduced the appellant’s shares

              from 50% to 10% as at 1 May 1980 and the applicant has not protested this state

              of affairs for several years.  The learned judge quotes the appellant as saying in a

              letter he tendered as follows:-

                                  “Due to circumstances beyond my control and because

                                     of family ties I reluctantly accepted the current 10%

                                     share that I hold.”

                      The sentiments expressed by the learned trial judge that the appellant

               never protested against the treatment meted to him seem to me to be in serious                                                  

               conflict with the true feelings of the appellant which in reality were that of a

               man who felt he was being suppressed by another person in a stronger

               position as against a miserable man who had no means to fight for his rights.

                       Little wonder that the appellant used this trend of affairs as one of th                         

                      grievances for his petition against oppression under S. 218 of the

                      Companies Code which I shall soon deal with.  Now back to the question

                      about payment for shares allotted to the appellant.  It is clear from the

                                                             -   8   -

                      judgment at page 195 of the record that the learned trial judge held that

                      since the evidence showed that the appellant had not paid for the shares

                      to him, he could not qualify to be a shareholder of the company.  Note that

                      the learned trial judge had not stated that there was evidence that the

                      company had made any call upon the appellant to pay for his shares.  The

learned trial judge cited an English case, Oregun Gold Mining Co.  of India Ltd. Vrs Roger (1892) AC 125 and stated that the law was that an allottee of the shares must pay for them in full.  He then quoted Section 42 of the Companies Code, 1963 (Act 179) thus:-

                      “42(1) Except on a capitalisation issue, pursuant to

                         subsection 1 of Section 74 of this Code, shares shall

                         not be issued, offering them for valuable rights

                         consideration, paid or payable to the company and

                         unless otherwise agreed, shares shall be paid for in cash.”

                       Properly construed, this section cannot be interpreted as laying down any

             inflexible rule that non-payment of shares allotted automatically deprives a           

 member or shareholder of a company of his rights as such members of                 shareholder. All it says is that if such a member or shareholder decides to discharge his obligation to pay for his or her shares, he or she should pay them in cash.  At page 67 of his famous book “Modern Company Law” Professor Gower states the following:-

                                              “In the case of a company limited by shares each member

                                                is liable to contribute when called upon to do so the full

                                                nominal value (in money or money’s worth) of the shares

                                                held by him in so far as this has not already been paid by

                                                 him or any prior holder of those shares.”

          Section 42(1) of the Company’s Code (supra) is in the same terms except that in

          this country, shares shall be paid for in cash, not in kind, that is money’s worth.

          The learned trial judge himself has stated it clearly in the passage of his judgment

          at page 187 of the record, which I have already quoted above, that unless a special

                                                           -   9   -

   call has been made upon members of a Company to pay for their shares, upon pain               of forfeiture of such shares, such members or shareholders their status as  such members or shareholders.  Hence my surprise that in the same breath the learned trial                  

 judge in the absence of evidence of any call upon appellant to pay cash for his shares,

 should arrive at the decision he reached that the appellant was not entitled to have his name entered in the register of the

                    Company.  Section 30(1) of the Companies Code, 1963 (Act 179) reads

                    as follows:-

                                “30(1) The subscribers to the Regulations shall be deemed to be

                                   members of the company and on its registration shall be entered

                                   as members in the register of members referred to in section 32 of

                                   this Code.

  1. Every member shall have such rights duties and liabilities

as are by this Code and the Regulations of the company

conferred and imposed upon members

  1. 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

  1. Membership of a company with shares shall continue until a

valid transfer of all the shares held by the member is registered

by the company or until all such shares are transmitted by

operation of law to another person or forfeited for non-payment

of calls under a provisions in the Regulations, or until the

member dies.”

                           The foregoing statutory provisions clearly support the views expressed

                    by Professor Grover in his book.  Also they have been judicially considered.

                    Thus in Luguterah vrs. Northern Engineering Co. Ltd. [1979] GLR 477 at

                     501 Taylor J (as he then was) stated and I agree:-

                                       “It seem to me that having regard to the provisions of the

                                                               -  10  -

                                         Code, entry in the register is at least some prima facie

                                         evidence of the fact of membership and the extent of share-

                                         holding. The effect of the corresponding English Provisio

                                       of Section 30 (1) of the Code was considered in Evans

                                       case 1867 2 CR App. 427 and it was there held that as a

                                        general proposition, registration ipso facto makes a

                                        subscriber automatically a member of the company and

                                        holder of the shares for which he has signed and in my

                                        opinion the subscriber continues to be a shareholder and a

                                        member even if the company makes default by emitting to

                                         perform its statutory obligation of putting the subscriber’s

                                         name in the register or allotting the shares to him.”

                                 On the evidence before the trial court, it was clear that the appellant

                        was a shareholder and member of the company in terms of Section 30(1)

                        of the Companies Code:  He was therefore entitled ex debito justitine to

                        have his name entered in the register of the company.  The learned trial

                        judge therefore erred in refusing to make the order for such entry and he is

                        hereby over-ruled in that regard.  Grounds (ii), (iii) and (iv) of the Original

                        grounds of appeal therefore succeed.

                                  I now turn to the applicant’s complaint under Section 218 of the

                         Code.  That section entitles any member or shareholder or a debenture-

                        holder to apply to the court for an order  on the ground that the affairs

                        of the company are being conducted in a manner detrimental to his interest

                        as member. An applicant under Section 218 must also prove any harsh

                        or burdensome act against him:  See Pinammang vrs. Abrokwa [1991]

                        2 GLR 384.  In Asufu-Adjaye vrs. Agyekum [1984-86] 1 GLR 382                                                            

                        holding (3) the word oppressive in Section 218 of Act 179 was construed

                        to mean a conduct which was harsh, burdensome and wrongful affecting

                        the interest of a member or members of a Company.  Thus in Billy vrs.

                        Kumor [1991] 1 GLR 522 Benin J (as he then was) held that it was

                                                          -  11  -        

            oppressive for the majority shareholders to have wrongfully dismissed

            a member of the company who was an officer/member.

                  In the instant case the appellant originally held 50% shares

           for a long time he headed the accounts department of the company and he

            did a lot of service right from the establishment of the company but somewhere

           along the line his fifty percent structure was reduced to 10% in a manner that was

           harsh, burdensome and wrongful.  His sad sentiments were expressed in a letter

           which was tendered in evidence.  He was removed from office while on a course

           in the United States.  All these acts in my view amounted to oppression within

           the meaning of Section 218.  It was clear that he was thrown out of the

           management of the affairs of the company when that should not have been the

           case because he was originally a shareholder director.  What happened?

           Curious isn’t it?  I need not waste much breath to make a clear and positive

           finding that there was more tan sufficient evidence to support a case of

           oppression under Section 218 the most glaring of it being that for several

           years dividends of the company were not declared for no apparent reason, and

           the fact that the wife of the 2nd respondent played roles which conflicted with

           the judiciary interest of the second respondent.

                   Such conduct in my view constitutes oppression under S. 218 as if affects

           the best interests of the members of the company.

                    For the foregoing reasons I would allow the appeal.

 

 

                                                                                            P.K. TWUMASI

                                                                                       JUSTICE OF APPEAL

      

 

I agree.                                                                                 S.T. FAAKYE

                                                                                         JUSTICE OF APPEAL       

 

 

I also agree.                                                                          K. TWENEBOAH-KODUA

                                                                                                  JUSTICE OF APPEAL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                          

 

                I  agree.                                                             S.T. FAAKYE                                                                                    JUSTICE OF APPEAL

 

 

               I also agree                                                       K. TWENEBOA-KODUA

                                                  JUSTICE OF APPEAL