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Land -
Property - Ownership –
Reversionary interest - Contract
- Land lord and Tenant -
Agreement - Sub-lease - Renewal
clause – Whether or not the
Defendant had divested himself
of all his interest in the land
on some portion of which
Consortium House stood following
the allotment of his Shares in
Consortium House Limited -
Whether or not the defendant has
been fully paid for this land or
the use of this land -
HEADNOTES
on the 15th
day of February, 1971, an
agreement
was entered into between the
defendant and three other
promoters (namely, Kenneth
Mackenzie Scott, Royal Exchange
Assurance and Union Trading
Company Ltd (UTC) These
promoters agreed to incorporate
and did indeed incorporate a
private company, Consortium
House Limited, The purpose for
the establishment of this
company was, to acquire from the
defendant land and premises
situated at the High Street,
Accra, for the benefit of the
promoters and for erecting on
this land a building which came
to be known, Consortium House,
now known as Enterprise House.
It is admitted by the parties
that each promoter was bound to
make a special contribution
towards the project. The
defendant was to lease his land
to the company at a peppercorn
rent, the company was to be
granted a loan by the Guardian
Royal Exchange Assurance with
which to build a commercial
building on the demised land and
Mr. Scott, the architect, was to
be paid for his services in
kind, that is with shares, and
building materials were to be
purchased from the U.T.C. at a
discount. The loan was to be
secured by the commercial
building when completed In
accordance with this agreement
the defendant, by a Sub-lease
sub-let land on which Enterprise
House stands to the second
plaintiff for a term of 25
years, on the terms and
conditions specified in the
Sub-lease. An important term of
the Sub-lease was that the rent
was to be at the peppercorn rate
If the Company, shall be
desirous of taking a lease of
the demised premises for a
further term of twenty-five (25)
years from the expiration of the
term hereby granted at the rent
and on the terms and conditions
hereinafter mentioned and shall
not more than (12) nor less than
six (6) months before the
expiration of the term hereby
granted give to the Sub-lessor
in writing notice of such its
desire and if it shall have paid
the rent hereby reserved and
shall have performed and
observed the several
stipulations herein contained
and on its part to be performed
and observed up to the
termination of the tenancy
hereby created then the Sub-lessor
will let the demised premises to
the Company for the further term
of twenty-five (25) from the
expiration of the term hereby
granted at the same rent hereby
reserved and subject in all
other respects to the same
stipulation as herein contained
except this clause for renewal.”
In 1994, the first plaintiff
made a proposal to acquire the
Consortium House building for
its sole beneficial
ownership.
As a result of this proposal,
the second plaintiff made an
offer to the first plaintiff
which accepted it, resulting in
what the parties considered to
be a contract. Certain aspects
of the terms of this contract
are in dispute between the
parties, the trial High Court
held that the plaintiffs’ action
succeeded and entered judgment
for them. The defendant
appealed to the Court of Appeal,
which affirmed the decision of
the trial judge.
HELD
A further
reason for caution with regard
to these minutes is that they
were hotly contested by the
defendant, because they were
unsigned and unconfirmed,
although prepared by the
company’s Secretary. However,
in the light of the views that
we have expressed above, it
unnecessary for us to express an
opinion on whether the minutes
were wrongly admitted or whether
a wrong weight was given them by
the courts below. Our view, in
sum, is that the contents of the
minutes discussed above should
not materially affect the
earlier analysis set out in this
judgment as to the formation of
the contract between the first
and second plaintiffs. In the
result, this Court allows this
appeal and denies the plaintiffs
the declaration and orders which
they seek.
STATUTES
REFERRED TO IN JUDGMENT
CASES
REFERRED TO IN JUDGMENT
Hornal v
Neuberger Products Ltd.[1957] 1
QB 247
Storer v
Manchester City Council [1974] 3
All ER 824
Smith v
Hughes (1871) LR 6QB 597
Deegbe v
Nsiah & Antonnelli [1984-86] 1
GLR 545
Domins
Fisheries Ltd. V
Bremen-Vegesacker-Fisheries
[1973] 2 GLR 490
Domins
Fisheries Ltd. V
Bremen-Vegesacker-Fisheries
[1973] 2 GLR 490
Cheshire,
Fifoot & Furmston’s Law of
Contract (14th
Ed.) p.33
BOOKS
REFERRED TO IN JUDGMENT
DELIVERING
THE LEADING JUDGMENT
DR. DATE-BAH,
JSC:
COUNSEL
J. K.
AGYEMANG FOR THE
DEFENDANT/APPELLANT/APPELLANT
JAMES
QUASHIE-IDUN FOR THE
PLAINTIFF/RESPONDENT/RESPONDENT
___________________________________________________________________
J U D G M E N
T
___________________________________________________________________
DR. DATE-BAH,
JSC:
This is the
unanimous judgment of the
Court. On the fifteenth
day of February 1999, the first
and second plaintiffs brought
action against the defendant in
the High Court in Accra. The
first plaintiff is a well-known
insurance company in Ghana and
the second plaintiff is a
company incorporated in Ghana
which has been, since 1994, a
wholly-owned subsidiary of the
first plaintiff. The defendant
is a lawyer and businessman and
a sub-lessor of premises in
Accra in relation to which the
present action has been
brought. The claims endorsed
on the plaintiffs’ writ of
summons were:
i.
“A
declaration that the Plaintiffs
are by law entitled to a renewal
of the
Sub-lease dated the 18th
day of June, 1971 on its
expiration on or about 31st
day of May, 1996, and that the
Defendant is legally bound to
grant to the plaintiffs a
renewal of the said
Sub-lease.
ii.
An
order to compel the Defendant to
execute in favour of the
Plaintiffs a Sub-lease in the
terms of the draft attached to
the Statement of Claim, and
marked “A”, which has already
been submitted to the Defendant.
iii.
A
further order directing that if
the Defendant persists in his
refusal to execute the Sub-lease
within a specified period, the
Chief Registrar of the High
Court, Accra, or some other
person appointed by the Court
should execute the same on
behalf of the Defendant.”
The facts
from which this suit has arisen
are as follows: on the 15th
day of February, 1971, an
agreement was entered into
between the defendant and three
other promoters (namely, Kenneth
Mackenzie Scott, Royal Exchange
Assurance and Union Trading
Company Ltd (UTC) These
promoters agreed to incorporate
and did indeed incorporate a
private company, Consortium
House Limited, which is the
second plaintiff in this case.
The purpose for the
establishment of this company
was, inter alia, to
acquire from the defendant land
and premises situated at the
High Street, Accra, for the
benefit of the promoters and for
erecting on this land a building
which came to be known, after
its erection, as Consortium
House, now known as Enterprise
House. It is admitted by the
parties that by the agreement of
15th February 1971,
each promoter was bound to make
a special contribution towards
the project. The defendant was
to lease his land to the company
at a peppercorn rent, the
company was to be granted a loan
by the Guardian Royal Exchange
Assurance with which to build a
commercial building on the
demised land and Mr. Scott, the
architect, was to be paid for
his services in kind, that is
with shares, and building
materials were to be purchased
from the U.T.C. at a discount.
The loan was to be secured by
the commercial building when
completed.
In accordance
with this agreement of 15th
February, the defendant, by a
Sub-lease dated 18th
June, 1971, sub-let land on
which Enterprise House stands to
the second plaintiff for a term
of 25 years, from 1st
June, 1971, on the terms and
conditions specified in the
Sub-lease. An important term of
the Sub-lease was that the rent
was to be at the peppercorn rate
of one cedi per annum, to be
paid, if demanded. The
Sub-lease also provided in
Clause 4(iii) as follows:
If the
Company, i.e. the 2nd
plaintiff “shall be desirous of
taking a lease of the demised
premises for a further term of
twenty-five (25) years from the
expiration of the term hereby
granted at the rent and on the
terms and conditions hereinafter
mentioned and shall not more
than (12) nor less than six (6)
months before the expiration of
the term hereby granted give to
the Sub-lessor in writing notice
of such its desire and if it
shall have paid the rent hereby
reserved and shall have
performed and observed the
several stipulations herein
contained and on its part to be
performed and observed up to the
termination of the tenancy
hereby created then the
Sub-lessor will let the demised
premises to the Company for the
further term of twenty-five (25)
from the expiration of the term
hereby granted at the same rent
hereby reserved and subject in
all other respects to the same
stipulation as herein contained
except this clause for renewal.”
The
availability of this
renewal
clause to the plaintiffs is
at the heart of the dispute that
has occasioned the current
action.
The next
tranche of facts in this case
relates to a transaction between
the first and second
plaintiffs.
In 1994,
the first plaintiff made a
proposal to acquire the
Consortium House building for
its sole beneficial ownership.
As a result of this proposal,
the second plaintiff made an
offer to the first plaintiff
which accepted it, resulting in
what the parties considered to
be a contract. Certain aspects
of the terms of this contract
are in dispute between the
parties.
The defendant
contends that the liquidation of
the second plaintiff was
intended and was an integral
part of the transaction under
which the shareholders of the
second plaintiff transferred
their shares to the first
plaintiff. The defendant
further contends that it was to
avoid paying capital gains tax
twice that the transaction was
crafted as a transfer of shares
in the second plaintiff to the
first plaintiff, instead of as a
straight purchase of Consortium
House from the second plaintiff
by the first plaintiff.
In contrast,
the plaintiffs have argued that
the first plaintiff, having
become the sole shareholder of
the second plaintiff, it was
entirely a matter for the first
plaintiff to decide whether to
liquidate the second plaintiff
or to maintain it. They further
maintain that the first
plaintiff by a letter of 24th
February 1994 to the defendant
made it clear that it had no
intention of liquidating the
second plaintiff.
This dispute
as to the terms of the
transaction is important because
the benefit of the renewal
clause at a peppercorn rate
inures to the second plaintiff
and therefore it is an issue of
great moment whether the first
plaintiff is entitled to use its
wholly owned subsidiary to gain
access to that benefit.
The source
for the ascertainment of the
terms of the transaction is
principally Exhibit H, tendered
at the trial. This is a letter
written by the defendant, in his
capacity as chairman of the
board of the second plaintiff,
and which was dated 17th
February, 1994. Because of the
importance of the contents of
this letter in determining the
outcome of this suit, we have
set it out in extenso
below:
“CONSORTIUM
HOUSE LIMITED
Phone:
64456/62922
P.O.Box 4102
Telex:
2153
Accra, Ghana
17th
February, 1994
The Managing
Director,
Enterprise
Insurance Company Limited,
Consortium
House,
High Street,
Accra.
:
MR. OSEI OPOKU
[Managing
Director]
Dear Mr.
Opoku,
ACQUISITION
OF CONSORTIUM HOUSE, HIGH STREET
ACCRA BY ENTERPRISE INSURANCE
COMPANY LIMITED
I am now able
to respond on behalf of
Consortium Limited to the
proposal by Enterprise Insurance
Company Limited to acquire our
Consortium House Commercial
Building for their sole
beneficial ownership.
The proposal
has been discussed by our Board
of Directors and subsequently
also by our shareholders in
general meeting, and it has been
decided that, in principle, we
are willing to allow Enterprise
Insurance Company Limited to
acquire Consortium House by
private treaty on reasonable but
realistic price and terms.
Accordingly,
I am authorized to convey our
formal offer for your
acceptance. I am to predicate
the offer by explaining to you
that the terms hereby offered
were arrived at after
considerable deliberation, due
regard having been had to the
contacts and pre-negotiations
that have taken place at
responsible official levels
between our two companies. In
particular, it was re-called
that the Enterprise Insurance
Company had expressed a price
reserve position of ¢650 million
but this was considered by the
Board and its advisers to be in
need of improvement.
The terms
hereby offered accordingly
represent the well considered
and minimum position acceptable
to Consortium House Limited.
On this
basis, we are pleased to make
you the following offer:-
1.
Price:
¢700,000,000 (Seven hundred
million cedis)
2.
Date
of sale: Not later than 31st
March, 1994
3 Legal
costs are to be borne by
Enterprise Insurance Company
Limited.
4. Sale to
take the form of share transfer
so as to minimize the incidence
of Capital Gains Tax. Enterprise
Insurance Company Limited will
thus take over Consortium House
Limited by acquiring its total
issued stock and thereby all the
residual assets of Consortium
House Limited after the latter
has been voluntarily liquated
5. Existing
other shareholders will agree to
sell and transfer their 74%
interest to Enterprise Insurance
Company Limited to enable
Enterprise Insurance Company to
become sole shareholder of
Consortium House Limited.
6. Consortium
House Limited will go into
voluntary liquidation and be
wound up over a period of one
year. For the purpose of the
winding up, all former
shareholders will contribute to
a fund pro-rata in the
proportions of their
shareholding immediately prior
to the sale of their shares to
cover all liabilities of
Consortium House Limited
computed at an accounting date
to be specified plus costs and
expenses of winding up.
7. At the end
of the winding up, which shall
be not later than one year from
the passing of the resolution,
the leasehold interest in the
Consortium House Building (of
which we have already given you
full particulars) and all other
remaining assets of Consortium
House Limited will pass
beneficially to Enterprise
Insurance Company Limited.
8. The
foregoing constitutes the offer
by Consortium House Limited to
Enterprise Insurance Company
Limited and is SUBJECT TO
CONTRACT.
9. Acceptance
by Enterprise Insurance Company
Limited should be accompanied by
an immediate down payment of a
deposit of 25% (twenty-five
percent) of the sale price to
bind all parties to the contract
of sale. The remaining 75% of
the purchase price is payable on
or before the date of execution
of Share Transfer Deed.
We look
forward to receiving your
acceptance of our offer. For
reasons of price inflation, this
offer will remain open only for
a limited period. Therefore, if
in principle the offer is
acceptable to you but you would
like a discussion of details
(not including the price), then
we would suggest that you first
accept with the required down
payment to save the offer.
Awaiting the
favour of your early response.
Yours
Sincerely,
For
CONSORTIUM HOUSE LIMITED
A.
Adomakoh
Chairman”
In response
to this letter, the first
plaintiff sent the following
letter of acceptance:
“ENTERPRISE
INSURANCE COMPANY LIMITED
No. 11 HIGH
STREET
P. O. BOX 50
ACCRA
Your ref
Our ref:
00/SNA
DATE: 24TH
February, 1994
PRIVATE &
CONFIDENTIAL
A.Adomakoh, Esq
Chairman
Consortium
House Limited,
P. O. Box
4101
Accra.
Dear Mr.
Adomakoh
ACQUISITION
OF 74% SHARES IN CONSORTIUM
HOUSE LIMITED BY ENTERPRISE
INSURANCE COMPANY LIMITED
We write with
reference to your letter dated
17th February, 1994
on the above subject matter and
the subsequent discussion we had
with you on 24th
February, 1994 about your offer
to sell to Enterprise Insurance
Company Limited 74% remaining
shares of Consortium House
Limited.
1.
We
accept your asking price of
¢700,000,000 (Seven Hundred
Million Cedis) representing 100%
of the shares.
2.
We
have agreed to pay the 25% of
the 74% of the said asking price
of ¢700,000,000 (Seven Hundred
Million Cedis) as a firm
commitment to the sale. Our
cheque No. 065011 for
¢129,500,000 is hereby enclosed.
3.
Since
we are buying the shares we will
pay the balance of 75% to the
individual shareholders selling
their shares on or before 31st
March, 1994, who in turn, will
simultaneously transfer their
Share Certificates to Enterprise
Insurance Company Limited
4.
The
Liabilities of Consortium House
Limited should be determined and
ascertained and confirmed by the
Auditors of Consortium House
Limited, if possible by 31st
March, 1994 so that our pro rata
liability and that of GRE shall
be discharged.
5.
On the
completion of the sale
transaction the Directors of the
Consortium House Limited shall
resign their directorships from
the company.
6.
We
agree to bear the cost for the
preparation of Legal documents.
7.
For
the time being Enterprise
Insurance Company has no
intention of liquidating
Consortium House Limited.
Please kindly
acknowledge receipt by signing
and returning a duplicate copy
of this letter.
Thanking you
for your co-operation in this
matter.
We remain,
Yours
sincerely,
OSEI OPOKU
MANAGING
DIRECTOR
ENC.”
On that same
24th February, 1994,
there was a second letter by the
Chairman of the second plaintiff
to the first plaintiff. Its
contents were as follows:
“CONSORTIUM
HOUSE LIMITED
Phone:
64456/62922
P. O. Box 4104
Telex:
2153
Accra, Ghana
24th
February, 1994
The Managing
Director,
Enterprise
Insurance Co. Ltd.,
Consortium
House,
High Street,
Accra.
Dear Sir,
ACQUISITION
OF CONSORTIUM HOUSE BY
ENTERPRISE INSURANCE CO. LTD
With further
reference to our offer letter
dated 17th February
1994 we note that in your
pre-acceptance discussion of
details today with our Chairman,
you conspicuously did not raise
the question of ground rent
which, as we have previously
explained, will need to be
negotiated with the Landlord
after you have acquired the
Consortium House premises. You
may have over looked this
important detail because in your
previous approaches you have
indicated that you would also
negotiate with the Landlord to
acquire his reversionary
interest.
But we feel
that it is important to draw
your special attention now to
the fact that the peppercorn
ground rent was arranged as a
special concession to operate
between and for the benefit of
the original four Promoters of
the Consortium House Project. As
you are not one of the original
four Promoters or, conversely,
as with the sale of their shares
all the original four promoters
will have divested their
interest in the property, the
benefit of this special
perppercorn ground rent
arrangement will not accrue to
you as purchaser. That
arrangement was not between
Consortium House Limited and the
Landlord, but specifically
between for individuals parties
with a common purpose.
Accordingly, it cannot be passed
on by Consortium House Limited.
You will
therefore have to negotiate an
appropriate ground rent with the
Landlord
Yours
faithfully
For:
Consortium House Ltd
A.
ADOMAKOH
CHAIRMAN”
On this
exchange of correspondence, the
main issue that has arisen for
determination, in our view, is
the second of the issues set
down for trial in the summons
for direction filed on 17th
February, 2000, namely:
“Whether on a
proper interpretation of the
renewal clause in the sub-lease
dated the 18th of
June, 1971, the Plaintiffs are
entitled to have the said
sub-lease renewed at the same
rent as reserved by the
Sub-lease, namely, at a
peppercorn rent of c 1.00 per
annum, to be paid, if demanded”.
Although
evidence was led at the trial of
other documents and
circumstances relevant to the
transaction between the first
and second plaintiffs, to our
mind, the correspondence set out
above represents the core of
what needs to be interpreted in
order to resolve the main issue
in this case, which is what has
been set out above.
The learned
trial
High Court judge, Akwaah J.,
held that the plaintiffs’ action
succeeded and entered judgment
for them. The defendant
appealed to the Court of Appeal,
which affirmed the decision of
the trial judge. It is from
this decision of the Court of
Appeal that the defendant has
brought an appeal to this
Court. The grounds of appeal
filed by the
defendant/respondent/respondent
(hereafter “the defendant”) are
as follows:
a)
That
the Court of Appeal erred when
it affirmed the decision of the
Learned Trial High Court Judge
that the
Defendant/Appellant had divested
himself of all his interest in
the land on some portion of
which Consortium House stood
following the allotment of his
Shares in Consortium House
Limited to the 1st
Plaintiff when upon the
undisputed facts Consortium
House Ltd. only held a leasehold
interest in Appellant’s land.
b)
That
the Court of Appeal erred when
it affirmed the determination of
the Learned Trial Judge of the
High Court that the sale
transaction between the 2nd
Plaintiff Company and the 1st
Plaintiff Company was a sale of
Shares and NOT a sale of the
Consortium House building in
spite of clear unambiguous
evidence on Record that the
Parties, for their mutual
benefit agreed and chose the
transfer of Shares only as a
modus operandi to avoid payment
of capital gains tax twice.
c)
That
the Court of Appeal erred when
it failed to consider, and by
implication affirmed the wrong
admission of Exhibit “IC”, the
unsigned and unconfirmed Minutes
of 2nd Plaintiff
Company held on 10th
March, 1994 on which the Learned
Trial Judge based his decision.
d)
That
the Judgment of the High Court
was against the weight of
evidence and the Court of Appeal
erred in failing to analyze and
assess the evidence and come to
proper conclusions in respect
thereof.”
Arguing
ground (a) in its Statement of
Case, the defendant attacked the
reasoning of the trial High
Court Judge and the lead
judgment in the Court of
Appeal. The learned trial
judge had said (at pp 138-9 of
the Record):
“In his
Statement of Defence and in his
evidence in Court, the
Defendant, as noted supra,
talked about special
contributions and sacrifices
made by the original
shareholders, as he puts it, for
their mutual benefit. However,
it is clear from the evidence
that what the Defendant
described as special
contributions as sacrifices were
not contributions or sacrifices
made by them for no gain. They
were allocated shares for that.
The architects’ services were in
payment for his shares and the
defendants’ land was valued and
this was converted into shares.
It follows therefore that the
sub-lease at the peppercorn rent
together with the cash defendant
paid, gave him the 30% shares of
the 2nd Plaintiff
Company. This then is what
Defendant paid as consideration
for his shares. Shareholders
divested themselves of their 74%
of the shares at a price of
c700,000,000 in 1994, Defendant
received his due portion of this
amount. The other shareholders
also received their due
portions.
What the
Defendant is trying to do here
in this case is to make unjust
profit or double profit from his
land. It is my view that having
his land valued and used in
paying for shares,
the
Defendant has been fully paid
for this land or the use of this
land. He thus has no
interest again in the land. To
hold otherwise is to defeat
equity and good sense. It is
also my view, in this regard,
that Defendant is referred to
as Sub-lessor whose only duty
is to renew the term of the
sub-lease as and when demanded
by the 2nd Plaintiff
or whomsoever takes over the 2nd
Plaintiff. The Defendant
cannot, and should not be
allowed, to have his cake and
eat it.
Indeed, in
this regard, it is immaterial
whether 1st Plaintiff
is the successor in title to
Royal Exchange Assurance.
Defendant owes an obligation to
renew the sub-lease for the 2nd
Plaintiff or whosoever takes it
over. Thus it is my view that
even if 2nd Plaintiff
had been taken over by any other
company apart from the 1st
Plaintiff, 2nd
Plaintiff and thus by extension,
the new owner would still be
entitled to the renewal of the
sub-lease Exh. ‘D’ in the terms
contained therein, including
especially the right to the
peppercorn rent.”
The Court of
Appeal, in affirming the
decision of the High Court,
similarly said (per Gyaesayor
JA) at p.494 of the Record:
“Having said
so, it is pertinent to state
that the peppercorn rent was for
the benefit of 2nd
Plaintiff. The
Defendant/Appellant is a
shareholder having used the land
to pay off his shares. In
cross-examination he was asked
what was your portion of the
shares he said “30%. 20% fully
paid in cash 100% otherwise
other than cash i.e. how did you
make payment in kind i.e. it was
the land which amounted to 10%.
Obviously the Defendant was a
shareholder having used the land
and cash to pay for his shares;
now the 1st Plaintiff
is the 100% shareholder of 2nd
Plaintiff Company and my view is
that the shares of
Defendant/Appellant were validly
transferred to Respondents.
Any interest
that Defendant/Appellant had in
the property had been
extinguished and he no longer
has any interest in the said
property as found by the learned
trial judge. There is
sufficient evidence to show that
upon the expiry of the first 25
years the Plaintiff acted within
the terms of the sub lease by
giving notice of their intention
to renew the sublease for a
further 25 years…”
The defendant
easily demonstrated in his
Statement of Case that both
courts were in error in holding
that the defendant had no
interest in the land on which
Consortium House or Enterprise
House stands. It is quite clear
that what the defendant
transferred to the second
plaintiff was a part only of the
leasehold interest that the
defendant held from UTC. He
correctly asserts that he has a
reversionary interest in the
land sub-let to the second
plaintiff. The fact that the
defendant conveyed a leasehold
interest in the land to the
second plaintiff in exchange for
valuable consideration in the
shape of shares in the second
plaintiff cannot be correctly
construed as divesting the
defendant of all his ownership
rights in the land. This point
is in effect conceded by the
plaintiffs in their Statement of
Case when they state that:
“The said
statements by the Learned Trial
Judge and the Learned Judges of
the Court of Appeal cannot
affect their evaluation of the
evidence led at the trial and
the conclusion reached by them
that the Defendant was, under
the agreement, obliged to grant
a renewal of the sub-lease at a
peppercorn rent.
It may be
argued that the language of
these statements could have been
more felicitous in describing
the legal consequences of the
event. However, this does not
affect the conclusion reached by
the Learned Trial Judge and by
the Learned Judges of the Court
of Appeal. The above-mentioned
statements are obiter dicta
and not the ratio decidendi
in the case.”
The
plaintiffs also contend that the
nature of the defendant’s
interest in the land on which
Consortium House stands was
never raised in the plaintiffs’
Statement of Claim, the
Statement of Defence or the
Reply. However, the issue raised
in the defendant’s ground (a) is
relevant because if it were
correct that the defendant’s
title in the relevant land had
been extinguished, he would be
out of court. He would no
longer be a sub-lessor and
therefore the issue of whether
or not he is obliged to renew
the sub-lease would no longer
arise. We would therefore
uphold ground (a) of the
defendant’s appeal.
The defendant
argued his grounds (b), (c) and
(d) together, attacking the
decision of the Court of Appeal
which affirmed that of the
learned trial judge that on a
proper interpretation of the
renewal clause the plaintiffs
are entitled to have the
sub-lease renewed at the same
rent as reserved by the
sub-lease. The defendant
admitted that the second
plaintiff was, on a proper
construction of the sub-lease,
entitled to renew the sub-lease
in terms of its clause 4(iii)
(set out near the beginning of
this judgment), but contended
that in all the circumstances of
the case it was unreasonable and
inequitable to allow the second
plaintiff so to renew the
sub-lease. The defendant also
contended that the Court of
Appeal made an error when,
having found that the
transaction between the first
and second plaintiffs involved a
sale of shares rather than a
sale of the Consortium House
building, it nevertheless held
in all the circumstances of the
case that the first plaintiff
was entitled to renew the
sub-lease.
In connection
with these grounds, the
defendant made the following
arguments: the first was that
the first plaintiff was not
entitled to renew the sub-lease
in terms of clause 4(iii)
(supra) because it was not
privy to the sub-lease agreement
between the defendant and the
second plaintiff. It was the
defendant’s contention that the
first plaintiff was a legal
person distinct from the second
plaintiff and therefore not the
company referred to in clause
4(iii) (supra). Neither
could the first plaintiff be
said to be a “successor” or
assignee of the second
plaintiff. We consider that
these contentions are sound and
we uphold them. Although the
first plaintiff argues that it
is the successor to the Royal
Exchange Assurance, that is not
relevant to the issue here and
it does not address any serious
argument towards rebutting the
defendant’s argument that the
first plaintiff is not a
successor to the second
plaintiff; neither is the first
plaintiff an assignee of the
second plaintiff. What the
first plaintiff clearly is is
the owner of the second
plaintiff, which is different
from being its successor or
assignee.
The second of
the defendant’s arguments is
that the first plaintiff cannot
in law or equity benefit from
the renewal clause in the
sub-lease because of the
circumstances leading to the
formation of the second
plaintiff and the explicit
notice given to the first
plaintiff before the conclusion
of the transaction between the
first and second plaintiffs.
The defendant contends that
before the transaction between
the first and second plaintiffs,
the second plaintiff took steps,
particularly through its Board
Chairman, who was then the
defendant, to inform the first
plaintiff that it did not
qualify to enjoy the peppercorn
rent arrangement applicable to
the second plaintiff company as
owned by its four original
promoters in accordance with the
provisions of the formation
agreement concluded by the
original promoters.
This is an
argument which calls for a close
analysis of the process for the
formation of the contract that
enabled the first plaintiff to
own all the shares in the second
plaintiff. The orthodox tools
of analysis deployed in relation
to the formation of contracts
have to be applied to determine
whether the contract concluded
between the first and second
plaintiffs contained a term or
understanding along the lines
alleged by the defendant.
The contract
between the first and second
plaintiffs was formed as a
result of the acceptance by the
first plaintiff of the offer
contained in the second
plaintiff’s written offer dated
17th February, 1994.
That written offer is set out in
full above. It purports by its
own terms to be a comprehensive
and carefully-considered offer.
It is described as a “formal
offer for your acceptance”.
This was the offer that was
accepted by the first
plaintiff’s letter of 24th
February, 1994, also set out in
full above. By this exchange of
correspondence, an agreement was
reached under which the first
plaintiff became entitled to
purchase the shares of all the
other shareholders in the second
plaintiff. Although this
agreement was expressed to be
“subject to contract”, the
subsequent conduct of the
parties to it indicates a waiver
of the need for a subsequent
formal written agreement.
Under normal
circumstances, having converted
the second plaintiff into its
subsidiary, the first plaintiff
could procure its subsidiary to
exercise the subsidiary’s rights
under its pre-existing
sub-lease. However, the
defendant seeks to counter such
an outcome by contending that
there was a condition attached
to the transaction between the
first and second plaintiffs. He
claims that that condition was
that the first plaintiff was not
to benefit from the peppercorn
rent arrangement that had been
embodied in the sub-lease
between himself and the second
plaintiff. His argument was
that the peppercorn rent was a
special concession meant for
only the original promoters of
the second plaintiff.
The
difficulty for the defendant in
this contention of his is that
this alleged feature of the
sub-lease was not reflected in
its language. Nowhere in the
sublease is reference made to
the fact that the peppercorn
rent is to be payable only for
so long as the original
promoters remained the
shareholders of the sub-lessee.
Even if subjectively, this is
what the promoters intended,
this subjective intent is not
enough. The common law of
contract, as is well-known,
adopts an objective approach in
recognizing the manifestations
of assent. Thus Denning L.J.
(as he then was) said in
Hornal
v Neuberger Products Ltd.[1957]
1 QB 247 at p. 257:
“Now I quite
agree that if the judge did try
to look into their inmost
thoughts it would be a mistake.
In seeing whether there is a
contract or not, the law can
only look to outward
appearances. If an intelligent
bystander would reasonably infer
that a warranty was intended,
that will suffice even though
neither party in fact had it in
mind.”
Lord Denning
makes the same point again in
Storer
v Manchester City Council
[1974] 3 All ER 824 at p.
828 where he said:
“In contracts
you do not look into the actual
intent in a man’s mind. You
look at what he said and did. A
contract is formed when there
is, to all outward appearances,
a contract. A man cannot get
out of a contract by saying: “I
did not intend to contract’, if
by his words he has done so.
His intention is to be found
only in the outward expression
which his letters convey. If
they show a concluded contract
that is enough.”
Earlier, Lord
Blackburn had expressed a
similar approach in
Smith
v Hughes (1871) LR 6QB 597
at p. 607 as follows:
“If whatever
a man’s real intention may be,
he so conducts himself that a
reasonable man would believe
that he was assenting to the
terms proposed by the other
party, and that other party,
upon that belief enters into the
contract with him, the man thus
conducting himself would be
equally bound as if he had
intended to agree to the other
party’s terms.”
Secondly, the
existence of the condition
alleged by the defendant is not
referred to in the formal offer
made to the first plaintiff.
Nevertheless, the defendant
energetically contends that he
communicated the existence of
this condition in his letter of
24th February 1994,
which is also set out above. In
our considered view, however,
this letter of 24th
February 1994 cannot be
construed to be part of the
offer made to the first
plaintiff which it accepted by
its letter also of 24th
February.
On the whole,
in analyzing the contents of the
transaction between the first
and second plaintiffs, we have
given primacy to what we
consider to be the principal
building blocks of the contract,
namely the letter constituting
the offer and the letter
constituting the acceptance. We
have given greater weight to
these than to the minutes of
meetings held by directors,
which are merely the backdrop to
these main building blocks.
The third
argument raised by the defendant
is that the first plaintiff
cannot be lawfully permitted to
renew the sub-lease in terms of
clause 4(iii) on account of
another key condition which was
an integral part of the
transaction between the first
and second plaintiffs, namely
that the second plaintiff
company was to be liquidated as
part of the transaction. This
argument has a firmer footing in
the actual language of the
deal. It will be recalled that
paragraph 6 of the offer
contained in Exhibit H is in the
following terms:
“6.
Consortium House Limited will go
into voluntary liquidation and
be wound up over a period of one
year. For the purpose of the
winding up, all former
shareholders will contribute to
a fund pro-rata in the
proportions of their
shareholding immediately prior
to the sale of their shares to
cover all liabilities of
Consortium House Limited
computed at an accounting date
to be specified plus costs and
expenses of winding up.”
The first
plaintiff counters this
contention with the claim that
in its letter responding to the
second plaintiff’s offer it did
not accept this particular term
in the offer. In what we
consider to be its acceptance of
the second plaintiff’s offer of
17th February, there
is this sentence:
“For the time
being Enterprise Insurance
Company has no intention of
liquidating Consortium House
Limited.”
This sentence
has to be construed as either
introducing a new term into the
transaction and therefore
turning the communication into a
counter-offer or else as not
altering any of the significant
terms of the offer and therefore
serving as an effective
acceptance. The orthodox
learning on this issue is that
an acceptance must be an
absolute and unqualified
acceptance of the terms of the
offer. (See
Deegbe
v Nsiah & Antonnelli
[1984-86] 1 GLR 545).
However, the unqualified
acceptance need not replicate
exactly the language of the
offer, so long as all the
significant terms of the offer
are assented to. (See
Domins
Fisheries Ltd. V
Bremen-Vegesacker-Fisheries
[1973] 2 GLR 490). The
defendant has argued that the
phrase “for the time being” is
not to be interpreted as a
rejection of the term in the
offer that the second plaintiff
was to go into voluntary
liquidation and be wound up over
a year. He has contended that
the phrase means that the first
plaintiff accepted the principle
and condition of liquidation,
but not immediately. The phrase
did not mean that the second
defendant would not be wound up
at all, but that for the time
being it would not be wound up.
The plaintiffs, on the other
hand, have argued that the first
plaintiff’s letter of 24th
February was a counter-offer to
the second plaintiff’s letter of
17th February, which
counter-offer was accepted when
the shareholders accepted the
cheques enclosed in that letter.
The letter of 24th
February certainly was not cast
expressly in the mould of a
counter-offer. Neither was its
tone evocative of a
counter-offer. It purported to
be responding to the second
plaintiff’s offer and merely
requested acknowledgement of
receipt by the second plaintiff
signing and returning a
duplicate copy of the letter.
Apart from the term on voluntary
liquidation, it was in substance
a full acceptance of the exact
terms of the offer letter. In
our view, the sentence in
question is to be construed as
not intended to alter the
offeror’s term that “Consortium
House Limited will go into
voluntary liquidation and be
wound up over a period of one
year.” In this Court’s opinion,
the exchange of the letters of
17th and 24th
February resulted in the
formation of a contract and one
of its terms was that the second
plaintiff was to be wound up
within one year. It was on this
understanding that the
transaction was concluded and
the shareholders accepted the
cheques enclosed in the letter
of 24th February.
Abban J., as he then was,
reached a similar conclusion in
Domins
Fisheries Ltd. V
Bremen-Vegesacker-Fisheries
[1973] 2 GLR 490. As he
rightly held in that case,
whether or not a letter such as
that of 24th February
is a counter-offer or an
acceptance is a matter of
interpretation. In the
circumstances of this case, our
interpretation of that letter is
that it is an acceptance.
The
implication of this analysis is
that the second plaintiff would
continue to have the benefit of
the peppercorn rent embodied in
its sub-lease with the defendant
for the period of up to a year
within which there was a
contractual obligation to
liquidate it. After the year,
the first plaintiff would be in
breach of contract if it
continued the second plaintiff
in existence. Accordingly, it
could not enjoy, through its
subsidiary, the benefit of the
peppercorn rent. An interesting
question is what the rights of
the first plaintiff would be
upon the liquidation of the
second plaintiff. The first
plaintiff, as the sole
shareholder of the second
plaintiff, would of course be
entitled to the proceeds of the
liquidation. It would be up to
the liquidator to determine how
he or she would dispose of the
company’s assets. Among these
assets would be the sub-lease
with the defendant at a
peppercorn rent. A liquidator
appointed for the purposes of a
private liquidation stands in a
fiduciary relationship to the
company to be liquidated as if
that liquidator were a director
of that company. It would thus
be this fiduciary of the second
plaintiff that would determine
the fate of the sub-lease and
its peppercorn rent. Though the
first plaintiff would not have
an automatic entitlement to the
benefit of the sub-lease, it
would be reasonable to expect
the liquidator to assign the
sub-lease to the first
plaintiff, given the fact that
Exhibit H provides in paragraph
7 of the offer contained in it
that:
“ At the
end of the winding up, which
shall be not later than one year
from the passing of the
resolution, the leasehold
interest in the Consortium House
Building (of which we have
already given you full
particulars) and all other
remaining assets of Consortium
House Limited will pass
beneficially to Enterprise
Insurance Company Limited.”
From this
provision in the parties’
agreement, it is reasonable to
conclude that the liquidator
would be bound to assign the
sub-lease to the first
plaintiff.
Thus, though
the first plaintiff is not
automatically entitled, as of
now, beyond 24th
February 1995, to the benefit of
the peppercorn rent on the
Consortium or Enterprise House,
through its subsidiary, the
second plaintiff, it can
reasonably expect that, after
the winding up of the second
plaintiff, this benefit will
accrue to it. In sum, the first
plaintiff is hereby declared to
be under an obligation to cause
the second plaintiff to be wound
up as soon as reasonably
practicable. The liquidator
will, however, be under an
obligation to assign the
sub-lease with its peppercorn
rate to the first plaintiff.
We have
arrived at this result by
focusing on interpreting what
are, for us, the contractual
documents, namely the letters of
17th and 24th
February. We have done this, as
earlier indicated, because this
is required by the common law’s
objective view of contract,
expressed, for example, in
Cheshire, Fifoot & Furmston’s
Law of Contract (14th
Ed.) p.33 through the
assertion there that the title
of the book’s chapter on
formation of contracts: “is not
‘Agreement’ but the ‘The
phenomena of agreement’,
concerned not with the presence
of an inward and mental assent
but with its outward and visible
signs.” For this Court, the
phenomena of agreement, on the
facts of this case, are to be
found in the correspondence that
the parties entered into with a
view to reaching an agreement,
rather than in their
deliberations in any board room
before or after sending the
letters concerned. However,
both plaintiffs and the
defendant went to considerable
lengths in trying to persuade
this court and the lower courts
of the parties’ contractual
intentions from the minutes of
the board of directors. We,
therefore, need to deal with
this aspect of the case.
On behalf of
the defendant, it was argued
that the minutes of the
Emergency Board Meeting of the
second plaintiff held on 2
February 1994 at which the
decision was taken to sell the
Consortium House building to the
first plaintiff(Exhibit 1D at p.
362 of the Record) supported the
defendant’s contention that it
was a condition of the contract
between the first and second
plaintiff that the second
plaintiff be liquidated. It is
true that one of the minutes
recorded that: “It was further
decided that Consortium House
would go into voluntary
liquidation after transfer of
the shares over a period of one
year.” However, this decision
of the Board simpliciter,
without its communication to the
first plaintiff, has no
contractual significance.
Hence, what was significant was
its communication to the offeree
in the letter of 17th
February.
Another set
of minutes which the parties
resorted to in their efforts to
elucidate the contractual intent
of the first and second
plaintiffs was that recorded in
Exhibit 1C, at p. 359 of the
Record. These minutes, whose
validity was challenged before
this court by the defendant,
were of a meeting of the Board
of Directors of the second
plaintiff held on 10 March
1994. Paragraph 3.2 of these
minutes read as follows:
“Acquisition
of Consortium House Limited
The Board was
informed by the Chairman that
since the last meeting, an offer
in writing of c700,000,000 was
made to EIC together with
conditions. He said EIC had
indicated their acceptance of
the price. However, they
preferred transfer of shares to
liquidating the Company.
They were
expected soon for further
discussion. The Chairman
pointed out that, after the
transfer of the shares by the
other shareholders, all members
of the board with the exception
of Mr. Opoku should resign from
the Board since EIC was not
informed of the decision to
liquidate Company.
EIC, in this
case, will take over and operate
the Company. It was decided
that after sale, 25% of the
proceeds due to shareholders
should be deposited with the
Company to be accounted for
after all liabilities had been
settled.
The date of
transfer was scheduled for 31
March, 1994.”
The trial
judge attached great weight to
this minute. We will quote a
passage from his judgment
shortly, but before that we want
to stress that for this Court
what counts is the language and
context of the letter of 24th
February, rather than any ex
post facto report on it in a
boardroom. This is what the
learned trial judge said (at pp.
136 of the Record):
“…we have to
have a look at the Exhibits in
evidence as Court Exhibits ‘1.
1A, 1C and 1D’ these are the
minutes of the meeting of the
Board of Directors of 2nd
Plaintiff Company. Though they
were not signed, thus signified
that they were un-confirmed (sic),
the fact that the Company
Secretary DW1, who in fact
prepared the minutes and
testified in Court that he
prepared them and particularly
the fact that he said the
minutes Book which ought to
contain the confirmed minutes
could not be traced, I am of the
view that a very great weight
ought to be attached to these
Exhibits. The combined effects
of Exh ‘1D and 1C’ is that 1st
Plaintiff Company indicated its
preference for a transfer of
shares to liquidating the
Company, thus in the minutes of
10th March 1994 Exh
1C.”
The learned
trial judge’s conclusion is,
with respect, not supportable.
What happened in a board room
after a letter of acceptance had
already been delivered cannot
safely be taken as evidence that
the first plaintiff company had
indicated its preference for a
transfer of shares, as opposed
to liquidating the company. In
this regard, this Court finds
persuasive the following passage
relating to the minutes of 10th
March from the defendant’s
Statement of Case:
“Furthermore,
what the Chairman was alleged to
have said at the alleged Meeting
on 10th March, 1994,
assuming but without accepting
that it was true, was NOT the
communication the Board of the 2nd
Plaintiff Company was expected
to make to 1st
Plaintiff Company for its
reaction. It was a report he
was making. That report
arose out of the offer and
acceptance. As stated above, it
was to be noted that 1st
Plaintiff was to go for
further discussion to state its
preference for a share sale
transaction as against
liquidation of 2nd
Plaintiff Company. This
expected meeting never took
place, and therefore 1st
Plaintiff was held bound by its
contract arising out of its
acceptance of Exhibit H Exhibit
G. The 1st
Plaintiff’s reaction was
contained in Exhibit G (i.e.
the letter of acceptance)
and NOT in Exhibit 1C (i.e.
the minutes of 10th
March 1995) which was the
Chairman’s report rightly
or wrongly of what he thought
had already taken place.”
A further
reason for caution with regard
to these minutes is that they
were hotly contested by the
defendant, because they were
unsigned and unconfirmed,
although prepared by the
company’s Secretary. However,
in the light of the views that
we have expressed above, it
unnecessary for us to express an
opinion on whether the minutes
were wrongly admitted or whether
a wrong weight was given them by
the courts below. Our view, in
sum, is that the contents of the
minutes discussed above should
not materially affect the
earlier analysis set out in this
judgment as to the formation of
the contract between the first
and second plaintiffs.
In the
result, this Court allows this
appeal and denies the plaintiffs
the declaration and orders which
they seek.
[SGD] DR.
S. K. DATE-BAH
JUSTICE OF
THE SUPREME COURT
[SGD] S. A.
B. AKUFFO (MS)
JUSTICE OF
THE SUPREME COURT
[SGD] S. O.
A. ADNYIRA (MRS)
JUSTICE OF
THE SUPREME COURT
[SGD] P.
BAFFOE-BONNIE
JUSTICE OF
THE SUPREME COURT
[SGD] N.
S. GBADEGBE
JUSTICE OF
THE SUPREME COURT
COUNSEL:
J. K.
AGYEMANG FOR THE
DEFENDANT/APPELLANT/APPELLANT
JAMES
QUASHIE-IDUN FOR THE
PLAINTIFF/RESPONDENT/RESPONDENT
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