Practice and procedure – Pleadings – Material facts – Distinction between material facts and evidence – Order 19 r 4, LN 140A.

Company law – Members – Minimum – Members vesting all shares to one person – Transferee becoming sole shareholder – Transaction invalid – Companies Ordinance (Cap 193), section 6.

Company law – Shares – Nature of – Whether includes immovable property.

The plaintiff pleaded that in consideration for his mother paying off a debt of the Independent Press Ltd, the shareholders vested all their shares in her. One of the shareholders was NB upon whose death his shares devolved upon the plaintiff’s mother as the executrix. Consequentially the plaintiff’s mother became the sole member of the company. Eventually the company was wound up. Upon the death of his mother, the plaintiff claiming as her administrator filed a writ in the High Court claiming declaration that the assets of the company, including the disputed house, did not form part of his NB’s estate but had devolved upon his mother. The defendants, administratrices of the estate of NB’s estate, claimed the property for the estate because it was saved from sale with funds from the estate. They applied under Or 25 r 4 of the High Court (Civil Procedure) Rules 1954 (LN 140A) to dismiss the action on the ground that the plaintiff lacked capacity to sue, also that the pleadings did not disclose material facts. The court dismissed the action for lack of capacity, inter alia, and the plaintiff appealed to the Court of Appeal. Counsel for the respondent contended that in so far as the plaintiff's case was based on transfer of shares, it was incompetent as the meaning of “shares” did not include the disputed house.

Held: (1) Since the appellant claimed the house as the administrator of the estate of his mother, a capacity that the defendants admitted, it was wrong for the High Court to dismiss the action for lack of capacity. However on the facts the house was not vested in the plaintiff’s mother upon the liquidation of the company and therefore the plaintiff had no capacity to claim the house as forming part of his mother’s estate.

(2) Material facts have been defined to mean facts necessary for the purpose of formulating a complete cause of action. Order 19 r 4 required that he shall plead material facts not evidence. Although material facts could not be distinguished easily from evidence what was required was that the pleading shall provide reasonable information. If the defendants were in doubt, they should have applied for further and better particulars under Order 19 r 7 of LN 140A. Bruce v Odhams Press Ltd [1936] 1 KB 712 referred to.

(3) To the extent that the plaintiff equated shares with realty, such as the disputed house, the action was misconceived and was therefore rightly struck out.

(4) The company was incorporated under the Companies Ordinance (Cap 193) section 6 of which forbade the formation of a company comprising less than seven people. The alleged sole shareholding of the plaintiff’s mother sinned against the provision. Accordingly the plaintiff’s action was founded on illegality and was rightly struck out. Schandorf v Zeini [1976] 2 GLR 418, CA referred to.

Case referred to:

Bruce v Odhams Press Ltd [1936] 1 KB 712, [1936] 1 All ER 287, 105 LJKB 318, 154 LT 423, 52 TLR 224, 80 Sol Jo 144, CA.

Schandorf v Zeini [1976] 2 GLR 418, CA.

APPEAL against the judgment of the High Court to the Court of Appeal.

Johnny Hansen for the appellant.

K Mensa-Bonsu for the respondent.

BROBBEY JA. This appeal concerns, essentially, one house numbered as number 57, Granville Avenue, Accra. That house was at some time in its history part of the assets of a limited liability company bearing the name of Independent Press Limited.

In the High Court, the case of the plaintiff who is the appellant in this appeal was this: The Independent Press Ltd was owned by a group of shareholders. The company fell into debt. The mother of the plaintiff paid those debts. As a result, the shareholders vested all the shares of that company in his mother and she became the sole shareholder. This was before the company was wound up. One of the shareholders was Nanka Bruce. When he died the plaintiff's mother became the executrix of his will. As executrix she took over the shares and interest of Nanka Bruce in that company as well. The company was eventually wound up and the outstanding assets of the company were according to the plaintiff, vested solely in his mother. Those outstanding assets included the house in dispute. When the plaintiff's mother died, the plaintiff took over the administration of her estate. It was in that capacity that he filed a writ in the High Court claiming a declaration that “the outstanding assets of Independent Press Ltd did not form part of estate of the late Dr Frederick Nanka Bruce and that the said assets belonged to the successors of the shareholders of the said Independent Press Ltd who had vested their shares in the late Violet Afua Maanum Whitaker and therefore became the sole shareholder and executrix of the Independent Press Ltd.” The writ was later amended to include an order for possession of the house and an order for perpetual injunction.

An application was brought on behalf of the defendants to strike out the writ under order 25 r 4 of the High Court (Civil Procedure) Rules 1954 (LN 140A). That application, as I understand it, was founded on a number of grounds. The first was that the plaintiff lacked capacity to sue. The second was that the pleadings did not disclose material facts. The High Court ruled in favour of the defendants. It was against that ruling that the plaintiff appealed to this court.

In this appeal too, counsel for the respondent repeated more or less the same arguments he canvassed before the High Court. He contended that the disputed house which the appellant referred to as company property had devolved on his mother. However the respondents laid claim to the property because it was saved from sale by using funds from the estate of Dr Nanka Bruce. In effect the appellant’s claim to the house was not different from the respondents’ claim to it. Both admitted that the house was at one time company property. The appellant said later in its history it was vested in his mother by the shareholders. The respondents said later in its history it was given to Dr Nanka Bruce. Since the appellant was the one who sued, he should have been allowed to adduce evidence to establish his claim that it was vested in his mother.

It is significant to point out that if the appellant was able to prove that the property was vested in his mother, the house would still not be company property because the appellant did not describe it so and the respondent too never gave it that description. Since the appellant sued for the house on the basis that it had become his mother's property, not on the basis that it was company property, it was wrong for the High Court to have dismissed his case for not satisfying the requirements for suing in respect of company property. For these reasons, I am of the opinion that the trial judge erred by striking out the claim on the ground of want of capacity to sue. The appellant sued as the administrator of the estate of his mother. That was admitted in paragraph 1 of the statement of defence. That clothed the appellant with sufficient capacity to sue. Whether the appellant would be able to prove that the house was legally vested in his mother remained matters of evidence with which to establish the vesting.

In such a case, the plaintiff was not required to plead evidence. What was required of him was to establish “material facts”; see Order 19 r 4. Material facts have been defined to mean facts “necessary for the purpose of formulating a complete cause of action.” See Bruce v Odhams Press Ltd [1936] 1 KB 712. For the purpose of satisfying this requirement, the appellant was not required to plead evidence.

It is conceded that material facts cannot clearly be distinguished or differentiated from material evidence. What is required however is to give “reasonable information.” If the defendant were to be in doubt, the rules require that he should apply for further and better particulars under Order 19 r 7 of LN 140A. This, the respondent failed to do. What counsel for the respondent sought to rely on in arguing against this appeal did not avail him because the case in which he had filed a similar application for further and better particulars had been withdrawn. A case which has been withdrawn is non-existent and no process on it can be pleaded to aid processes in a pending suit, like the instant one.

If the sole ground for striking out the plaintiff's case were for want of capacity based on requirements to prove a claim to company assets, I would have allowed the appeal. But the judge's order was based on other grounds.

Two of these grounds clearly justified the order striking out the plaintiff's case. The first related to the concept of “shares.” The writ of summons stated that “the successors of the shareholders of the said Independent Press Ltd vested their shares in the late Violet Afua Maanum Whittaker…” Paragraph 11 of the statement of claim averred that the shareholders vested all the shares of the company in her.” Counsel for the respondent contended that since the plaintiff's case was based on the transfer of “shares” and shares did not include assets like the disputed house, the plaintiff's action was incompetent. That argument may sound technical but I think there is some merit in it. In their book “Company Law” 2nd ed, at p 103, Yorston and Brown described a share as:

 “¼the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual convenants entered into by all the shareholders, inter se. A shareholder has, however, no property in the assets of the company, nor, by virtue of his shareholding are the company’s liabilities his liabilities.”

That the shares of a member do not include assets like realties such as the disputed house is further confirmed by the Companies Code 1963 (Act 179), s 39(1) of which provides that:

“The shares of any member shall be personal estate and shall not be in the nature of real estate or immovable property.”

To the extent that the plaintiff equated shares with realty, such as the disputed house, the plaintiff's action was misconceived and was therefore rightly struck out.

The second ground related to the legal basis on which the plaintiff founded his action. He sued as the administrator of the estate of his mother and included the company as one of the assets for administration because, as he stated on paragraph 11 of his statement of claim, “the other shareholders of company in appreciation of the efforts made by Violet Afua Maanum Whitaker (appellant’s mother) to settle the debts of the company, vested all the shares of the company in her, as a result of which she administered the company single-handedly until her death.”

The answer to the issue raised by this paragraph 11 was to be found in paragraph 10 of the statement of defence and was amply disposed of by the trial judge in his ruling.

The company was incorporated under the Companies Ordinance (Cap 193), section 6 of which reads:

“Any seven or more persons associated for any lawful purpose may by subscribing their names to a memorandum of association and otherwise complying with the requisitions of this Ordinance in respect of registration, form an incorporated company, with or without limited liability.”

The simple interpretation I put on this section is that the Ordinance did forbid the formation of a partnership or company comprising less than seven people. Since the appellant alleged that his mother was the sole shareholder, and she ran the company “single handedly,” that contravened section 6 as quoted. A single person holding all the shares in a company was clearly illegal. To the extent that the appellant as plaintiff founded his case on the basis that his mother was the sole shareholder, his case was founded on an illegality.

It is to emphasize this prohibition that the legislature in its wisdom enacted penalties for such illegality in section 61 of the Companies Ordinance, which states:

“If any Company carries on business when the number of members is less than seven for a period of six months after the number has been so reduced, every person who is a member of such company during the time that is so carries on business after such period of six months, and is cognizant of the fact that it is so carrying on business with fewer than seven members, shall be severally liable for the payment of the whole debts of the company contracted during such time, and may be sued for the same without the joinder in the action or suit of any other member.”

The principle at stake here and which militates against the appellant is the maxim ex turpi causa non oritur actio which literally means that no one can found an action on an illegal cause. A litigant like the appellant herein whose action is found to be illegal because it expressly flies in the face of a statute should not be allowed to proceed with the action from the moment the illegality is brought to the fore. This principle was considered by this court in Schandorf v Zeini [1976] 2 GLR 418, CA.

Mr Johnny Hansen who appeared for the appellant sought to clear that hurdle by relying on section 61 of Cap 193. As stated previously that section dealt with penalties to be visited on those who breached the requirement for the number of persons forming a company or partnership. It did not affect the formation of a company. What is at stake here is how many people were allowed by law to form a company or partnership, not what should be done to those who breach that law.

No matter what other merits the appellant's action may have, in so far as the action was based on an illegal act, it could not be pursued in a court of law. The trial judge was, for this reason alone, right in striking out the plaintiff's writ. This was a fundamental point which totally annihilated any plausible base on which the action could have been founded.

I am of the opinion that the appeal should be dismissed.

AMUAH JA. This is an appeal by plaintiff-appellant against the ruling of an Accra High Court dated 22 March 1994 which set aside the amended writ and statement of claim of the plaintiff-appellant for disclosing no cause of action. The brief facts of the case are as follows:

The plaintiff-appellant instituted an action against the defendant-respondent claiming:

“1 A declaration that outstanding assets of Independent Press Limited do not form part of the estate of the late Dr Frederick Nanka-Bruce and that the said assets belong to the successors of the shareholders of the Independent Press Limited who had vested their shares in the late Violet Afua Maanum Whitaker who therefore became the sole shareholder and administratrix of the Independent Press Ltd

2 An order for possession.

3 An order for perpetual injunction to restrain the defendants, their agents and assigns from interfering with the plaintiff's ownership of the property.”

The defendants-respondents pleaded in their statement of defence that as the alleged outstanding asset did not form part of the property of his late mother he could not sue as an administrator to recover the property on her behalf. They further pleaded that the outstanding asset belongs to Independent Press Limited and since this action was in respect of a limited liability company he not being an official of the company or a liquidator of the company could not sue in respect of the alleged property of the company. They therefore moved the court under Order 25 rule 4 of the High Court (Civil Procedure) Rules 1954 (LN 140A) to set aside the writ and statement of claim for disclosing no cause of action. After listening to the arguments the court held that the writ and statement of claim did not disclose any cause of action and set them aside. It is against this decision that the plaintiff-appellant has filed this appeal on the ground which includes:

(1). That the learned judge erred in dismissing the whole writ and statement of claim.

(2) The learned trial judge erred in not observing several triable issues of contention on the pleadings, which are arguable.

For a complete understanding of this case I set out in full the facts pleaded in the statement of claim, which accompanied the writ. The facts are:

“1. The plaintiff is the administrator of the estate of the late Violet Afua-Maanum Whitaker who was a director and shareholder of Independent Press Limited.

2. The defendants are adminsitratrices of the estate of the late Dr Frederick Victor Nanka-Bruce who was also a director and shareholder of Independent Press Limited.

3. The late Violet Afua-Maanum Whitaker was an executrix of the will of the late Dr Frederick Victor Nanka-Bruce and an administratrix of his estate and was also recognised as head of his family.

4. The late Violet Whitaker was for sometime the sole survivor of the directors and shareholders of the Independent Press Limited and at one time had to execute a lease together with the late Dr C E Reindorf in favour of the Independent Press Limited in respect of land and property on which the Independent Press company was situated and from which it has operated.

5. The land on which Independent Press Limited operated was purchased by the company from one Arthur Horne and a document signifying the said purchase was registered as No 101/1925.

6 The name of the late Dr Nanka-Bruce was never mentioned in the said document and the company was only mentioned as “a company registered in the Gold Coast Colony under the Companies Ordinance and having its registered office situate at 57, Granville Avenue, Accra.”

7. It was during the period when the late V A M Whitaker, as a director and shareholder of the said company, also became the executrix of the will of the late Dr Nanka-Bruce and administrator of his estate that the impression was created that the Independent Press Limited was part of the estate of the late Dr Nanka-Bruce.

8. In his will, the late Dr Nanka-Bruce devised several shares in the said company to several persons “to be held in perpetuity for their descendants and mentioned that the residue of his shares should be held for the benefit of his estate.

9. The Independent Press Limited was a limited liability company and any provision in the will of the late Dr Nanka-Bruce could