Contract – Agreement – Lender -
Borrower – Interest on
Investments - Right to
termination or extension -
Micro-Finance Company –
Criminal law - Operating
Company - Veil of incorporation
- without licence - Defrauding
by False Pretences - Human
Rights - Misjoinder - Writ of
Prohibition– Whether or not the
2nd, 3rd
and 4th Defendants,
though Directors of
Defendant-Company, were not
proper parties to the suit - so
could not be personally liable
for a loan contracted by 1st
Defendant - Whether or not the
Plaintiff was a Money-Lender and
the Defendant-Company was the
‘Borrower- Article 19(11) – 1992
Constitution of Ghana - Summary
Judgment - Order 14 of the High
Court (Civil Procedure) Rules,
CI 47.
HEADNOTES
The
facts of the case were that in
May 2011, the plaintiff who had
been introduced to the
Defendant-Company by another
person, entered into an
agreement with the Company,
variously described as a
‘Microfinance Company’ by the
plaintiff and an ‘Investment
Company’ by the Defendants. The
2nd defendant was
designated as ‘Ag Managing
Director’, and the 3rd
and 4th defendants
were the other Directors. The
plaintiff believed he was
investing his funds for monthly
returns of 3% interest, for one
year. The agreement, which
described the Plaintiff as
‘Lender’ and the
Defendant-Company as ‘Borrower’,
was for a period of twelve
months, subject to either
party’s right to termination or
extension upon serving three
months’ notice. Barely four
months into the agreement, in
August 2011, the Plaintiff asked
for a return of half of his
investment ie Ghc 40,000, on
grounds of pressing financial
need. The Defendant-Company did
not give him the money but
instead, continued to pay the
agreed monthly interest. On 27th
October 2011, Plaintiff wrote to
Defendant-Company again, this
time, asking for the full amount
of Ghc80,000 back. The
Defendant-Company failed to pay
up although the monthly interest
payments of Ghc2,400 still
continued to be paid. Following
the failure to refund the
capital sum of the Plaintiff, he
made a report to the Criminal
Investigations Department (CID)
of the Ghana Police Service and
in the course of the
investigations it was released
that the Defendant-Company was
not registered as a
Micro-Finance Company and that
there was no pending application
for registration by the
Defendant-Company. Upon these
revelations the police charged
the three Defendants under
section 2(1) of Non-Bank
Financial Institutions Act, 2008
(Act 774), for operating a
microfinance company without
licence. They were also charged
under sections 23 and 131 of the
Criminal Offences Act 1960, (Act
29) for conspiracy to operate a
Microfinance company without
licence and defrauding by false
pretences respectively, and
arraigned before the Circuit
Court, Accra. Before the Circuit
Court could conclude a
determination of the case,
however, the Defendants applied
to the High Court, Human Rights
Division, and were granted a
Writ of Prohibition against the
Circuit Court, The High Court
granted the application and
ordered the Defendants to pay up
Plaintiff’s claim subject to
reconciliation of the accounts
Defendants filed a Notice of
Appeal against the Ruling. The 1st
Defendant did not appeal. After
months of inaction, the Court of
Appeal struck out the case on
grounds of non-compliance.
It is against this judgment by
the Court of Appeal that the
instant appeal has been brought
by the Defendants
HELD
Although the Defendants have
themselves to blame for their
failure to comply with the
statutory and regulatory regime,
there should be conclusive
evidence that their conduct, or
their operations, do, indeed,
come within the exceptions in
Morkor v Kuma to
justify them being deprived of
the cloak of corporate
protection. A full trial of
these issues would have provided
the necessary evidence for the
trial court to come to a
definitive conclusion.
In
the circumstances, we would
reverse the decision of the
Court of Appeal and remit the
case back to the High Court for
the full trial to take place. In
the circumstances, the appeal by
the 2nd, 3rd
and 4th defendants
succeeds, and is accordingly
allowed. The judgment of the
Court of Appeal dated 18th July,
2019, is set aside.
STATUTES REFERRED TO IN JUDGMENT
1992 Constitution
High
Court (Civil Procedure) Rules
2004
Non-Bank Financial Institutions
Act, 2008 (Act 774)
Criminal Offences Act 1960,
(Act 29)
Evidence
Act, 1975 (NRCD 323)
Companies Act 179
CASES REFERRED TO IN JUDGMENT
Morkor v. Kuma (No. 1)
[1999-2000]1 G.L.R. 721
Tuakwa v. Bosom [2001-2002]
SCGLR 61
Akufo-Addo v.Cathelin [1992] 1
GLR 377
Sam Jonah v. Duodu-Kumi
[2003-2004] 1 SCGLR, 50
Oyoko
Contractors v Starcom
Broadcasting Services
[2003-2005] 1 GLR 445
BOOKS
REFERRED TO IN JUDGMENT
DELIVERING THE LEADING JUDGMENT
PROF.
MENSA-BONSU (MRS.), JSC:-
COUNSEL
PATRICK KOJO YAMOAH FOR THE
DEFENDANTS/APPELLANTS/APPELLANTS.
NANA KOFI BEKOE FOR THE
PLAINTIFF/RESPONDENT/RESPONDENT
PROF. MENSA-BONSU (MRS.), JSC:-
INTRODUCTION
This case has travelled a
painful and tortuous road, and
comes to this Court on appeal
from a decision of the Court of
Appeal in a judgment delivered
on 18th July 2019. The genesis
of the appeal was that the High
Court, had on 24th January,
2018, dismissed the application
of the 2nd, 3rd
and 4th Defendants
(hereinafter referred to as
‘Defendants) for Misjoinder
under Order 4 r 5 of the High
Court (Civil Procedure) Rules
2004 as amended; and had also
upheld the 1st February
application for Summary Judgment
of the applicant (hereinafter
referred to as ‘Plaintiff’)
under order 14 of the High Court
(Civil Procedure) Rules 2004 as
amended. This Ruling of the High
Court granting the application
of plaintiff for Summary
Judgment was subsequently
affirmed by the Court of Appeal
on 18th July, 2019, giving rise
to the instant appeal. The
Respondent and Appellants herein
are simply referred to as
‘Plaintiff’ and ‘Defendants’
respectively, to avoid
confusion.
FACTS
The facts of the case were that
in May 2011, the plaintiff who
had been introduced to the
Defendant-Company by another
person, entered into an
agreement with the Company,
variously described as a
‘Microfinance Company’ by the
plaintiff and an ‘Investment
Company’ by the Defendants. The
2nd defendant was
designated as ‘Ag Managing
Director’, and the 3rd
and 4th defendants
were the other Directors. The
plaintiff believed he was
investing his funds for monthly
returns of 3% interest, for one
year. The agreement, which
described the Plaintiff as
‘Lender’ and the
Defendant-Company as ‘Borrower’,
was for a period of twelve
months, subject to either
party’s right to termination or
extension upon serving three
months’ notice. Under the
agreement, the Plaintiff agreed
to lend GHc 80,000 to the
Defendants at the rate of 3%
interest per month. This monthly
interest on the principal sum
amounted to Ghc2,400. The total
interest expected under the
agreement was Ghc28,200. The
agreement was signed by the Ag.
Managing Director (2nd
defendant) witnessed by the
Accountant Jesse Maxwell Caleb,
on the part of the Company, and
by the Plaintiff, witnessed by
Mrs. Theresa Kuma, the person
who introduced the Plaintiff, to
the Defendant-Company.
Barely four months into the
agreement, in August 2011, the
Plaintiff asked for a return of
half of his investment ie Ghc
40,000, on grounds of pressing
financial need. The
Defendant-Company did not give
him the money but instead,
continued to pay the agreed
monthly interest. On 27th
October 2011, Plaintiff wrote to
Defendant-Company again, this
time, asking for the full amount
of Ghc80,000 back. The
Defendant-Company failed to pay
up although the monthly interest
payments of Ghc2,400 still
continued to be paid. In total,
the monthly interest was paid by
the Defendant-Company from June
2011 until February 2012 when
payments ceased, according to
the Defendants, on account of
“operational difficulties”. The
‘Cheque Payment Voucher’ on
which the payments were made
described the payments as
“interest on Investments paid to
Mr. Daniel Gibson Danso for the
month of …”. These were all on
the letterhead of the
Defendant-Company and duly
signed by the Ag Managing
Director and the Accountant of
the Defendant-Company
respectively. (Exh B series).
When the Plaintiff changed his
mind about the transaction and
wrote to the Defendant-Company,
the letter, titled ‘Letter of
Termination of Loan’ was
addressed to the Managing
Director of Defendant-Company,
and not any of the other
Defendants, and signed by
Plaintiff.
Following the failure to refund
the capital sum of Ghc80,000
paid to Defendant- Company, the
Plaintiff, a retired senior
police officer, made a report to
the Criminal Investigations
Department (CID) of the Ghana
Police Service. The CID launched
an investigation into the
Defendant Company, and arrested
the Directors (2nd, 3rd
and 4th Defendants).
In the course of the
investigations, the police
allegedly wrote to the Bank of
Ghana to ascertain whether
Defendant-Company was registered
with them as a Micro-Finance
Company. The alleged letter from
the Bank of Ghana replied the
enquiry in the negative, and
indicated further that there was
no pending application for
registration by the
Defendant-Company. Upon these
revelations, the police charged
the three Defendants under
section 2(1) of Non-Bank
Financial Institutions Act, 2008
(Act 774), for operating a
microfinance company without
licence. They were also charged
under sections 23 and 131 of the
Criminal Offences Act 1960, (Act
29) for conspiracy to operate a
Microfinance company without
licence and defrauding by false
pretences respectively, and
arraigned before the Circuit
Court, Accra.
Before the Circuit Court could
conclude a determination of the
case, however, the Defendants
applied to the High Court, Human
Rights Division, and were
granted a Writ of Prohibition
against the Circuit Court on 9th
July, 2014. The reliefs sought
were granted on the grounds that
the relationship between the
parties was contractual in
nature and therefore sounded in
civil law; and that those
contractual terms did not give
rise to criminal liability.
Further, that section 2(1) of
Act 774 did not have any
sanctions attached to the
prohibited conduct contained
therein, and therefore violated
the constitutional standard
prescribed under
Article
19(11) of the Constitution of
Ghana, 1992. Since no
constitutionally valid crime had
been created under section 2(1)
of Act 774, there could be no
criminal liability under the
provision. Consequently, there
could be no inchoate offence
under that provision either. The
High Court, Human Rights
Division, further opined that
the contract between the parties
involved a future promise which
could not be proved to have been
false at the time it was made,
and so the charge of
Defrauding by False Pretences
could not be properly laid.
The proceedings before the
Circuit Court were consequently
described as “quashed”, by the
High Court on 9th
July, 2014. In the course of the
proceedings in the Circuit
Court, the 2nd
defendant undertook to refund
the money owed, in installments.
However, after paying four such
installments of Ghc 1,000,
amounting to Ghc 4,000, the 2nd
Defendant failed to make any
further payments.
Dissatisfied with the decision
of 9th July 2014, the
Plaintiff subsequently applied
to the same High Court, Human
Rights Division, for a review of
the 9th July 2014
decision. On 2nd
June, 2016, the High Court,
Human Rights Division, now
differently constituted, quashed
the decision of 9th
July, 2014. Following this
purported act of quashing its
own decision of 9th
July, 2014, the Defendants
sought judicial review before
this honourable Court. On 9th
February, 2017, the decision of
the High Court, Human Rights
Division, purporting to quash
the decision of the same High
Court, differently constituted,
was quashed by this honourable
Court. And rightly so.
The Plaintiff, then, initiated a
fresh action by Writ, this time,
at the High Court, General
Jurisdiction, on 3rd
November, 2017, asking for a
total sum of Ghc 88,000, made up
of the principal sum of Ghc
80,000; and the outstanding
interest from 5th
July 2012 (when the original
contract would have ended) till
the date of final judgment. The
Defendants filed a Statement of
Defence to the action on 22nd
December, 2017, contending that
the Ghc 80,000 was a loan made
by Plaintiff to the
Defendant-Company and not an
“Investment” as Plaintiff
claimed. In the said Statement
of Defence, the Defendants
averred in paragraph 18 that the
Plaintiff entered into a
business agreement with the
Defendant-Company as a
money-lender, for which
Plaintiff had no licence, to
lend money to it at 3% interest
per month. They also averred
that in consequence of the
agreement,
the
Plaintiff was a Money-Lender and
the Defendant-Company was the
‘Borrower’ who had agreed to
pay Ghc 28,800 as interest in
addition to the principal sum of
Ghc 80,000; and that the
contract was between the
Plaintiff and Defendant-Company,
and not with them, as
individuals. Apart from erecting
the “corporate shield” between
themselves and 1st
Defendant, the sums of money
paid, or due, were all admitted.
These are the facts that have
given birth to the instant
appeal,
On 26th January,
2018, the Defendants moved the
High Court to strike out the 2nd,
3rd and 4th
Defendants on the ground of
Misjoinder. They contended
that although money was owed to
the Plaintiff by the
Defendant-Company (ie the 1st
Defendant),
the 2nd,
3rd and 4th
Defendants, though Directors of
Defendant-Company, were not
proper parties to the suit and
so could not be personally
liable for a loan contracted by
1st Defendant.
The High Court, presided over by
Norvisi Afua Aryene J.
considered the evidence provided
on affidavit and ruled that the
2nd, 3rd
and 4th Defendants’
presence in the suit was
necessary and so refused to
strike them off the suit as
parties. Relying
on
Morkor v. Kuma (No.
1) [1999-2000]1 G.L.R. 721,
she ruled that the circumstances
of the case were in consonance
with the exception to the rule
enunciated therein by this
honourable Court, on when the
veil of
incorporation would be
lifted.
Within one week of this Ruling
on 1st February,
2018, the Plaintiff moved the
High Court for Summary Judgment
under Order 14 of the High Court
(Civil Procedure) Rules 2004,
C.I.47 as amended, contending
that the Statement of Defence
contained no defence and
therefore he was entitled to
Summary Judgment. The 2nd,
3rd and 4th
Defendants contended that there
were triable issues as to whose
liability the debt was, so the
application ought not to be
granted.
The High Court granted the
application and ordered the
Defendants to pay up Plaintiff’s
claim subject to reconciliation
of the accounts by the Director
of Finance of the Judicial
Service.
During the process of
reconciling the accounts the
Defendants had the opportunity
to cross-examine the Director of
Accounts but failed to do so,
leading the court to conclude
subsequently, that they were in
agreement with the total amount
which had, by then, ballooned to
Ghc 184, 855.16. On 26th
April, 2018, the 2nd,
3rd and 4th
Defendants filed a Notice of
Appeal against the Ruling. The 1st
Defendant did not appeal. After
months of inaction, the Court of
Appeal struck out the case on
grounds of non-compliance on
4th February 2019. On
14th February, 2019,
the Defendants applied for, and
secured Leave of the Court of
Appeal for a re-listing of the
case. The case was duly
re-listed, and heard by the
Court of Appeal. On 18th
July, 2019, the Court of Appeal
dismissed the appeal.
It is against this judgment by
the Court of Appeal that the
instant appeal has been brought
by the Defendants.
GROUNDS OF APPEAL
The Defendants have submitted 6
grounds of appeal numbered a-f
as follows
“a. The court below erred in law
when in the absence of proof
beyond reasonable doubt held
that the appellants had
perpetuated [sic] fraud against
the Respondent [plaintiff].
b. The Court below erred in law
when it adopted a summary and
perfunctory approach to impute
fraud and illegality against the
appellant.
c. The finding by the court
below that the appellants set up
the 1st Defendant company for
illegal purposes is not
supported by the evidence on
record.
d. That despite the subsistence
of the decision of the High
Court dated 9th day
of July 2014 Suit No. HRCM
145/13 titled The Republic v.
Circuit Court Accra, & 1 Or. Ex
parte Kudjo Anku, David Fameye
and David Osei-Manu (Daniel
Gibson Danso, Interested Party
which held among others that the
appellants had not engaged in
fraud or deceit against the
Respondent herein, the court
below erred in law when its
decision purports to have
reverse [sic] the findings of
the High Court in Suit No
145/13.
e. The court below failed to
adequately consider the case of
the appellants.
f. That the judgment was against
the weight of evidence.”
A close inspection of the
grounds of appeal suggests that
this appeal, is in fact, a
composite case of two appeals,
made up the ruling of the High
Court on 26th January 2018
dismissing the application for
misjoinder, brought under Order
4 Rule 5 of High Court (Civil
Procedure) Rules, CI 47; and the
ruling of 26th April 2018
upholding the application for
Summary Judgment under
Order 14
of the High Court (Civil
Procedure) Rules, CI 47.
Since the appeal was primarily
against the
Summary
Judgment provided for under
Order 14, it would be important
to examine its operation in law
while taking the specific
grounds of appeal. The grounds
of appeal, ought to have been
discussed in chronological
order. However, it being
thematically inappropriate so to
do, we begin with ground f,
the omnibus ground, which
invokes the weight of authority
as to what an appellate court
should when such omnibus ground
is pleaded.
GROUND f.
It is trite law that an appeal
is by way of re-hearing. As
stated by Akuffo JSC (as she
then was) in
Tuakwa
v. Bosom [2001-2002]
SCGLR 61 at p.65,
“an appeal is by way of
rehearing, particularly where
the appellant…alleges in his
notice of appeal that the
decision is against the weight
of evidence. In such a case,
although it is not the function
of the court to evaluate the
veracity or otherwise of any
witness, it is incumbent upon an
appellate court, in a civil
case, to analyse the entire
record of appeal, take into
account the testimonies and all
the documentary evidence adduced
at the trial before it arrives
at its decision, so as to
satisfy itself that, on a
preponderance of probabilities
the conclusions of the trial
judge are reasonably or amply
supported by the evidence.”
In
Akufo-Addo v.Cathelin
[1992] 1 GLR 377 at p391,
the Supreme Court had to
determine, inter alia, whether
the Court of Appeal could,
suo motu, raise a point not
argued by the parties in the
trial court, and base its
judgment on the point. Kpegah
JSC concurring in the majority
judgment stated as follows:
“One must understand what the
phrase ‘by way of re-hearing’
means. It must be pointed out
that the phrase does not mean
that the parties address the
court in the same order as in
the court below, or that the
witnesses are heard afresh. …It
does also not mean that the
Court of Appeal is not to be
confined only to points
mentioned in the notice of
appeal but will consider (so far
as may be relevant) the whole of
the evidence given in the trial
court, and also the whole course
of the trial.”
However, in such situation, the
other party must have a chance
to be heard on the new point
raised suo motu by the
Court of Appeal.
Consequent upon these and other
authorities in this line, this
court is obliged to consider the
totality of pleadings and other
documents provided in the Record
of Appeal.
GROUND b.
The Defendants’ complaint about
the use of the mode of Summary
Judgment was couched thus: “the
Court below erred in law when it
adopted a summary and
perfunctory approach to impute
fraud and illegality against the
appellant.”
The procedure for Summary
Judgment is well-grounded in law
and cannot be described as
“perfunctory” as the Defendants
state in their Statement of
Case. It serves a useful purpose
when nothing would be gained by
a full scale and possibly,
long-winded trial when there are
no triable issues. In
Sam
Jonah v. Duodu-Kumi
[2003-2004] 1 SCGLR, 50 at
54, the Supreme Court, per
Akuffo, JSC had cause to
pronounce on the essence of this
procedure, thus:
“The objective of Order 14 … is
to facilitate the early
conclusion of actions where it
is clear from the pleadings that
the defendant therein has no
cogent defence. It is intended
to prevent a plaintiff being
delayed when there is no fairly
arguable defence to be brought
forward. … What we are,
therefore required to do in this
appeal is to ascertain whether,
on the totality of the pleadings
and all matters before the High
Court at the moment it delivered
the Summary Judgment, the
respondent had demonstrably, any
defence in law on the available
facts, such as would justify his
being granted leave to defend
the appellant’s claim.”
On this statement of the
applicable law, the question
whether there were triable
issues would have to be
resolved.
WERE THERE TRIABLE ISSUES?
There appear to be. The
Defendants state in paragraph
3.20 of their Statement of Case
filed on 5th March,
2020, thus:
“My Lords, clearly the trial
court recognized that there were
triable issues to which the
appellants ought to assist the
court to resolving them. In the
wisdom of the court the
controversies surrounding
whether the appellants
misrepresented to the Respondent
to invest his money in the 1st
Defendant ought to be
interrogated and further,
whether the defendant did invest
or loaned his monies to the
appellant. Even more important
is whether Appellants could
assume liability of what they
contend is that of the 1st
Defendant at the trial court.”
It must be stated from the
outset that the fact that an
admission of indebtedness by 1st
Defendant is made by the 2nd,
3rd and 4th
Defendants, does not mean an
admission and acceptance of
personal liability on their
part.
It is also a fact that the
nature of proceedings for
Summary Judgment makes it
unsuitable for drawing
conclusions when allegations of
fraud are made. Indeed, under
Order 14 r.12(c), it is provided
that the rule on Summary
Judgment should not apply when
there is a “claim or
counterclaim based on allegation
of fraud.” In defending the
‘Summary Judgment’, the
Plaintiff made two interesting
statements in 6.15- 6.16 of the
Statement of Case, the Plaintiff
states as follows:
“The appellants also submit that
the Respondent argued in the
Court below that he did not
plead fraud therefore the Court
below erred by making a finding
of fraud when same was not an
issue before them.
6.16 It is our respectful
opinion that an appeal being by
way of re-hearing, the Court
below is seised with the
discretion to consider the
entirety of the issues between
the parties and not limit itself
to only the points made by the
parties on the grounds of appeal
only.”
As has been demonstrated, the
above is a correct statement of
law in respect of the remit of
an appellate court. However, the
correctness of the statement
also means that there was a
“claim or counterclaim based on
allegation of fraud.”, thereby
rendering the grant of Summary
Judgment under these
circumstances inappropriate by
the dictates of Order 14
r.12(c). The Plaintiff affirms
the veracity of this observation
by stating in 6.19 of the
Statement of Case that “the
Court below made no error when
it made a finding of illegality
and fraud against the appellants
based on evidence before it
during the appeal.” In
Oyoko
Contractors v Starcom
Broadcasting Services
[2003-2005] 1 GLR 445, this
honourable Court allowed the
appeal on the grounds that an
allegation of fraud in the
counterclaim of the defendant
raised triable issues which
ousted the jurisdiction of the
High Court to grant application
for Summary Judgment.
GROUNDS a-c
The Defendants argued grounds
a-c together and therefore a
composite response would be
equally mandated.
WHO IS LIABLE IN THIS SUIT FOR
THE MONEY OWED OR WHO ARE THE
PROPER PARTIES IN THIS SUIT?
This case raises pertinent
issues as to the nature and
incidence of the corporate
persona. Throughout the appeal,
there was no contention as to
whether money was owed to the
Plaintiff. The real question was
“Who owed that money?” Indeed,
when the Defendants applied to
the High Court for misjoinder,
it was based upon their position
that although they had conducted
business, they had done so as a
corporate entity and were
therefore not personally liable
for any debt incurred in the
course of business. The High
Court in ruling on the
application to strike out the
Defendants as parties to the
suit ruled in cryptic fashion as
follows:
“Having heard both counsel,
reviewed the respective
affidavits and exhibits attached
thereto, I rule that the
applicants are necessary parties
to the suit. Am [sic] satisfied
that the exception laid down in
Morkor v Kuma
applies in the circumstances of
this case. Whereas the
applicants contend that the
respondent described himself as
a moneylender and the respondent
on the other hand avers that he
invested his money in 1st
defendant due to alleged
misrepresentations by the
applicants herein, it is my
respectful opinion that the
presence of the applicants is
necessary for the complete and
final determination of the
matters in dispute.”
In this very statement by the
learned judge, a number of
issues required determination by
further evidence.
1.
Were the “alleged
representations” made, and by
whom, and to what effect? The
Plaintiff alleges that he was
influenced by those assurances
given by the Defendants as to
their sincerity. On the
evidence, it is not quite clear
exactly what constituted the
“representations”; who made
them; and in what capacity those
were made. The “alleged
representations” formed a
critical part of the analysis as
to fraudulent intent of the
Defendants, yet it is uncertain
whether they were made, by whom,
of whom and to what effect. If
at the end of a case, a court
basing a judgment on
“representations made” still
qualifies those cardinal
elements as “alleged” then there
clearly was not enough evidence
to conclude one way or the
other. Again, it is uncertain
who made the “representations”
or in what capacity. If the 2nd
Defendant as ‘Ag Managing
Director’ made them on the then
track record of Defendant-
Company, it would surely mean
something different from if they
were made on the personal
character and track record of
the directors themselves. This
should have been settled by
clear evidence, particularly as
Plaintiff alleges that those
assurances tilted the balance in
favour of a decision to trust
his money to the company.
2.
Was the 1st Defendant
a body corporate, as maintained
throughout by 2nd, 3rd
and 4th Defendants?
On the current documentation on
the record, there is only the
say-so of the Defendants. Should
the existence of corporate
personality being set up as a
shield against personal
liability not have been
established by documentary
evidence? As observed by the
Court of Appeal,
It is patently clear that the
Company listed as 1st Defendant
does not exist or has the
mandate to do business as a
financial institution…It is
their duty to show that they are
truly registered to operate as a
financial institution which they
failed to do
The question here is, did the
Defendants have a chance to
prove by evidence, one way or
the other, before the
application for Summary Judgment
truncated proceedings? I should
think not. It is no surprise
that the Court of Appeal itself
oscillated between stating that
the company did “not exist”, and
also that the “company was
formed for illegal purposes”.
Did it or did it not exist? If
it did not exist, then it could
not even be a party to the
proceedings since it would lack
legal personality. In effect,
had the trial proceeded beyond
the Ruling of 26th of January,
this question would have been
answered definitively, as it was
critical in determining who the
parties were.
3.
If the company did exist, what
was its authorized business? Did
its regulations permit the
taking of loans from private
individuals for the conduct of
its business as the Defendants
have sought to suggest by their
reliance on the status of
Plaintiff as ‘Money-Lender’?
Where a Company steps out of its
line of business, the ultra
vires doctrine could operate to
impose personal liability on the
Directors, and therefore
establishing what its line of
business was by its regulations
could make a difference to the
personal liability of its
directors for a debt incurred in
consequence.
4.
Did the 1st Defendant
possess a licence of any kind to
carry on business in the
financial sector? There is some
documentary evidence on the
record that the Police, in the
course of investigations to
initiate the ill-fated criminal
prosecution at the Circuit
Court, received a letter, in
response to an enquiry from the
Bank of Ghana denying the
existence of such licence. The
genuineness of this letter
appears to have been accepted on
faith, but this was not tested
on the evidence. In paragraph
6.14 of the Plaintiff’s
Statement of Case, he pleads
thus:
“it is our respectful submission
that the contents of Exhibit D
ought to be presumed authentic
in accordance with Section 37 of
the
Evidence Act, 1975 (NRCD 323)
as it emanates from the body
lawfully mandated to regulate
business such as the one the
Appellants purported to operate.
In fact, the contents of Exhibit
D or its authenticity was never
challenged by the Appellants.”
Was there opportunity for the
authenticity of the letter to be
established, bearing in mind
that the proceedings at the
Circuit Court were truncated;
and there was no opportunity for
a full scale trial at the High
Court, General Jurisdiction?
Since the absence of any licence
from Bank of Ghana was construed
as indications of fraud through
the instrumentality of the
Defendant-Company by the
Defendants, this enquiry was
part of what it would have taken
to determine whether there was a
corporate veil at all; and then
to consider whether to lift it
to reach the directors.
Therefore it was necessary
evidence that could not be left
to guess work.
Indeed, in the judgment of the
High Court, Human Rights
Division in 2014, the Defendants
had established that they had a
Money-Lender’s Registration
which though valid on its face
at the time they made the
“alleged representations” to the
Plaintiff, was not in fact so,
since the enabling legislation
had been repealed some years
earlier. This situation caused
Essel Mensah, J. at the High
Court, Human Rights Division to
describe the situation as “a
comedy of errors”, when he found
that the legislation under which
the Defendants had purported to
register their business had been
repealed at the time both the
Defendant-Company and the
administrative agency, Ghana
Police Service, purported to
operationalize its provisions.
Although on the pleadings in
the instant case, they failed to
plead same for obvious reasons,
surely the very fact that they
took steps to bring their
operations under law, albeit an
expired law, may be evidence of
ineptitude, or even negligence,
but is that sufficient to make
imputations of fraudulent intent
behind the operations of the
Defendant-Company? It is true
the business apparently had no
legal backing, but was that
conclusive evidence of fraud? As
Essel Mensah J. observed, “At
least the conduct of the
applicants [Defendants] in
applying for and obtaining a
licence shows that they were
bent on doing lawful business.
They honestly believed that with
the licence they were in lawful
business.”
Further, the Statement of Case
of Plaintiff states at paragraph
6.6 as follows: “It is our
considered opinion that enough
evidence is available before
this Court to support findings
made by the trial High Court
judge and the court below
regarding the illegality of the
1st Defendant’s
operations”. However, the facts
do not bear out this statement.
5. Was the 1st
Defendant actually in the
business of taking and making
loans on behalf of clients and
paying them interest, even if it
did not have appropriate
licences to do so? If it did,
would such evidence support
imputations of fraud, as may be
fairly and objectively be
concluded from the Statement of
Case of the Plaintiff, and which
imputations were complained of
in the Statement of Case on
behalf of the Defendants? The
Plaintiff alleges that he was
introduced to the Defendants by
an acquaintance who remained in
the transaction to act as his
‘Witness’ during the signing of
the agreement. Was she an
accomplice to the alleged fraud?
Or she had used the services of
Defendant-Company and was a
satisfied consumer, hence the
introduction? One cannot tell,
one way or the other. Her
evidence might have been helpful
in establishing the nature of
Defendants’ business operations
to which she introduced the
Plaintiff.
6. Was the plaintiff-respondent
under any misapprehension as to
whether he was dealing with a
‘Microfinance Company’ or with
the individuals involved?
These obviously triable issues,
had they been determined in a
full scale trial, may have given
the learned trial judge a basis
to indicate which particular
aspects of Morkor v.
Kuma were being relied on.
As things stood, the cryptic
reference to Morkor v.
Kuma, without any further
indication as to the particular
“circumstances of this case”,
left the Defendants no option
but to come to the undeniable
conclusion that an allegation of
fraud was being made against
them in view of the previous
attempts to prosecute them for
fraud at the Circuit Court. They
were therefore right to appeal
to the Court of Appeal that
there was an imputation of fraud
against them and yet no
particulars of fraud had been
specifically pleaded as required
under section 13(1) of the
Evidence Act, NRCD 323.
The Court of Appeal’s response
was to confirm that indeed the
Defendants had been guilty of
fraud, without an opportunity to
defend themselves against the
charge as prescribed by
Akufo-Addo v Catheline.
At p.7 of the judgment,
Gyaesayor JA said,
in this case the Company does
not exist or licensed to operate
as a financial institution … It
is a fraudulent company designed
to defraud unsuspecting
customers and they must be
personally liable for the
alleged acts of the supposed
company.
With the greatest respect, the
record of the case does not bear
out this damning conclusion. The
evidence shows that the
plaintiff received the interest
of Ghc 2,400 regularly for eight
of the twelve months of the
contract period, and even after
the Plaintiff had written to
them demanding his principal sum
in full. Being aware of the
consequences of being adjudged a
fraud under
Act 179
and its successor
legislation, Act 992, the
Defendants mounted a vigorous,
even if somewhat delayed,
challenge to the imputation of
fraud.
From the evidence on record, the
Plaintiff was under no
misapprehension that he was
dealing with a company. The
payment Vouchers on which he
received payment of the agreed
interest were on the letterhead
of the Company; and they were
signed by the same officers to
wit, the Ag Managing Director’
and the ‘Accountant”. At p.6 of
the judgment the Court of Appeal
upheld the High Court’s effort
to lift the veil of
incorporation under the
exceptions in Morkor v.
Kuma thus:
“The attempts to detach
themselves from the act of the
1st Defendant cannot be
supported. It is true that the
Company is a body corporate
which can sue and be sued in its
own name, but in the case before
us, there is no evidence that
the company was ever licensed to
do business. The company was
clearly set up by the defendant
for illegal purposes.” (my
emphasis.)
With the greatest respect, a
company set up for illegal
purposes is not the same as one
that engages in business that is
rendered illegal for failure to
comply with statutory and
regulatory requirements. A
company set up to take and make
loans; and invest money for
interest would, with the
necessary licences be engaged in
lawful activity, whilst one set
up to engage in
money-laundering, for instance,
could be said to have been “set
up for illegal purposes.” From
the available evidence, the 1st
Defendant appears to belong to
the former category, rather than
the latter category. To be able
to come to a definite conclusion
that Defendant-Company belonged
to the latter category rather
than to the former, one would
have to base such conclusion on
better evidence than mere
inferences and suppositions.
LIFTING THE VEIL OF
INCORPORATION
At p.7 of the judgment Gyaesayor
JA also said
“in this case the Company
does not exist or licensed
to operate as a financial
institution as claimed by the
defendants.” (my emphasis) With
respect, the registration of a
company is separate from its
power to transact any business;
and where, as in this case it
required a licence to operate,
its power to conduct lawful
business in the financial
sector. Even if it had not
applied for the requisite
licences to operate, that was a
separate question from its
existence as a company. To
conclude therefore that the
company did not exist, merely
from the fact of it not having
obtained the requisite licences
was unfair to the Defendants.
Indeed, the Defendants, in their
Supplementary Affidavit in
Opposition filed on 24th
January, 2018, at the High
Court, they traversed the
averments of the Plaintiff’s
affidavit in paragraph 6 as
follows: “Save that the 2nd,
3rd and 4th
defendants promoted and became
Directors of the 1st
Defendant Company, the rest of
paragraph 10 of the affidavit in
Opposition is denied.” Again in
paragraph 9 of the affidavit in
support of Motion to strike out
2nd, 3rd
and 4th Defendants
names from the suit filed on 22nd
December, 2017, the Defendants
maintained that although the
Plaintiff, indeed, did sign an
agreement with 1st
Defendant, the contract was not
with them as individuals since
they were “distinct and separate
individuals from the 1st
Defendants. What then was the
evidence upon which the Court of
Appeal could come to the
conclusion that the 1st
Defendant did not exist?
The application for Summary
Judgment was filed on 1st
February, less than one week
after the Defendants’
application of 26th
January had been dismissed.
Although the indebtedness of 1st
Defendant had never been denied
by 2nd, 3rd
and 4th defendants,
the real issue was who was
liable to pay that debt. This,
in turn, was dependent upon
whether or not the 2nd,
3rd and 4th
Defendants could be held
personally liable for the debts
of 1st Defendant.
Consequently, the issue of
whether the High Court was right
to lift the veil of
incorporation could not be
settled by a mere statement that
the case fell within “the
exception in Morkor v.
Kuma”. In Morkor v.
Kuma (No.1) [1999-2000] 1
GLR 721, at p. 733 Akuffo JSC
(as she then was) had stated the
oft-quoted words:
“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 Act
179 [now Act 992] so require. It
is impossible to formulate an
exhaustive list of circumstances
that would justify the lifting
of the corporate veil. However,
the authorities indicate that
such circumstances include where
it is shown that the company was
established to further
fraudulent activities, or to
avoid contractual liability.”
Her Ladyship did not end there.
At p. 735 of the report, she
gave some indications of the
circumstances she had in mind
and stated further that,
“Nevertheless were there any
proven factors driving the case,
such as fraud, improper business
conduct, deliberate attempts at
evasion of legal obligations, or
other devises or willful
misdeeds on the part of the
appellant, which would have
justified the lifting of the
veil in order to reach the
appellant for redress?”
From these statements clarifying
the circumstances under which
the veil of incorporation would
be lifted, the next question is,
as Morkor v. Kuma
contained a number of
exceptions, “Which of the many
grounds in Morkor v.
Kuma were made out by the
evidence, such that the learned
judge could declare herself to
be “satisfied that the exception
laid down in Morkor v.
Kuma applies in the
circumstances of this case”? Not
surprising therefore, that while
the Defendants complained that
they had been unfairly
criminalized by the imputation
of fraud, the Plaintiff stuck to
the fact that the company’s
operations were “illegal”,
whilst the Court of Appeal
oscillated between “fraud” and
“illegal purposes”. Even if the
Defendants entered a line of
business without fully apprising
themselves of the legal
requirements governing that
sector, that did not convert the
company they set up into one
that had been set up to “defraud
unsuspecting customers”, or for
“illegal purposes.
Although the Defendants have
themselves to blame for their
failure to comply with the
statutory and regulatory regime,
there should be conclusive
evidence that their conduct, or
their operations, do, indeed,
come within the exceptions in
Morkor v Kuma to
justify them being deprived of
the cloak of corporate
protection. A full trial of
these issues would have provided
the necessary evidence for the
trial court to come to a
definitive conclusion.
In the circumstances, we would
reverse the decision of the
Court of Appeal and remit the
case back to the High Court for
the full trial to take place.
In the circumstances, the appeal
by the 2nd, 3rd
and 4th defendants
succeeds, and is accordingly
allowed. The judgment of the
Court of Appeal dated 18th July,
2019, is set aside.
PROF. H. J. A. N.
MENSA-BONSU (MRS.)
(JUSTICE OF THE SUPREME COURT)
V. J. M. DOTSE
(JUSTICE OF THE SUPREME COURT)
G. PWAMANG
(JUSTICE OF THE SUPREME COURT)
G. TORKORNOO (MRS.)
(JUSTICE OF THE SUPREME COURT)
C. J. HONYENUGA
(JUSTICE OF THE SUPREME COURT)
COUNSEL
PATRICK KOJO YAMOAH FOR THE
DEFENDANTS/APPELLANTS/APPELLANTS.
NANA KOFI BEKOE FOR THE
PLAINTIFF/RESPONDENT/RESPONDENT.
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