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GHANA LAW FINDER

HOME 1964 GHANA LAW REPORT

IN THE SUPREME COURT

20 JANUARY 1964

SARKODEE-ADOO, ADUMUA-BOSSMAN AND BLAY JJ.S.C.

Company law—Company property—Director—Acquisition of property by—Fiduciary position—Transfer of

HEADNOTES

The respondents were a limited liability company, the founder and managing director of which was J. Conte
who was also the sole proprietor and principal shareholder of the Ghana Terrazo Company. On the
dissolution of the latter company all its liabilities and assets, among which was an Albion tipper lorry, were
transferred to the respondent company. J. Conte appointed the appellant a director of the respondent
company from 24 April 1961 to 7 June 1961. The directors later appointed him managing director. As a
director of the respondent company the appellant had access to, and control of, all properties belonging to
that company. On or about 12 June 1961 the appellant removed the said lorry. He refused to comply with
the request of the other directors of the company to return it to the company on the ground that J. Conte, by a
letter to the principal licensing officer dated 2 May 1961, had transferred ownership in the vehicle to him as
part payment of certain sums owed by J. Conte to him. In an action by the respondent company for the
return of the vehicle and damages for its unlawful removal, Mrs. Jiagge J. gave judgment in favour of the
company. The appellant appealed against the judgment on the grounds, inter alia, that (1) the trial judge
was wrong in holding that a managing director of a company cannot dispose of the properties of a company
because the articles of association do not empower him to do so; (2) the judge misdirected herself by failing
to consider that the respondents acquiesced in the transfer of the vehicle to the appellant; and (3) evidence
having been given that J. Conte and J. Conte Limited, the respondents, had not taken accounts as between
themselves, the trial judge was wrong in putting on the appellant the onus of proving that J. Conte had
reimbursed the company for moneys paid by the company on the lorry in question.

Held, dismissing the appeal:

(1) directors of a company are in a fiduciary position and all the powers entrusted to them are only
exercisable in that fiduciary capacity. Further, where the directors make any profit as the result of their
fiduciary position, they have to account to the company for it.

[p.29]

(2) Although an innocent third party may benefit from the disposal of property belonging to a company by a
director who might not have been properly appointed, in the instant case the appellant as a director could
not acquire that benefit. Royal British Bank v. Turquand (1856) 6 El. & Bl. 327 at p. 331; 119 E.R. 886 and
Mahony v. Liquidator of the East Holyford Mining Co., Ltd. (1875) L.R. 7 H.L. 869 at pp. 873-884, H.L.
applied; Biggerstaff v. Rowatt's Wharf, Ltd. [1896] 2 Ch. 93 at p. 102, C.A. and British Thomson-Houston Co.,
Ltd. v. Federated European Bank Ltd., [1932] 2 K.B. 176, C.A. cited.

CASES REFERRED TO

(1) Royal British Bank v. Turquand (1856) 6 El. & Bl. 327; 25 L.J.Q.B. 317; 119 E.R. 886.

(2) Mahony v. Liquidator of the East Holyford Mining Co., Ltd. (1875) L.R. 7 H.L. 869; 33 L.T. 383, H.L.

(3) Biggerstaff v. Rowatt's Wharf, Ltd. [1896] 2 Ch. 93; 65 L.J.Ch. 536; 74 L.T. 473; 44 W.R. 536, C.A.

(4) British Thomson-Houston Co., Ltd. v. Federal European Bank, Ltd. [1932] 2 K.B. 176; 101 L.J.K.B. 690;
147 L.T. 345, C.A.

NATURE OF PROCEEDINGS

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APPEAL against a decision of Mrs. Jiagge J. sitting in the High Court, Accra, wherein judgment was
awarded against a director of a company for the removal of a vehicle belonging to the company in
satisfaction of a debt owed to him.

COUNSEL

K. Narayan for the appellant.

H. V. A. Franklin for the respondent.

JUDGMENT OF SARKODEE-ADOO J.S.C.

The appellant in this action has appealed to this court against the judgment of Mrs. Jiagge J. dated 13 April
1962 by which the learned judge ordered in favour of the respondent company, the recovery of Albion Tipper
lorry No. AF 2596 or its value, awarded £500 damages for the unlawful removal of the said vehicle causing
the respondent company loss of business and 75 guineas costs.

The respondent company claimed the recovery or return of the Albion Tipper lorry No. AF 2596 unlawfully
removed and detained by the appellant or its value of £G2,400 and £G500 for loss of business or for general
damages, or both. The defence to the action was that the said vehicle was given to the appellant by Joseph
Conte for value received, that is, value of the defendant's services to Joseph Conte personally and to the
respondent company and that the said transaction was evidenced in writing.

On the summons for directions as amended and on the pleadings the issues were:

(1) Was the said vehicle transferred to the plaintiff company by the Ghana Terrazo Company?

(2) Was the said vehicle the subject of a transfer note from Joseph Conte to the defendant, and if so was
there any consideration [p.30] for the said transfer and did Joseph Conte have the right to make such a
transfer note?

(3) Was the appellant an innocent third party to benefit from an unauthorised transfer if Joseph Conte had not
the right to make such a transfer note ?

(4) Did the respondent company acquiesce in the said transaction and are they therefore estopped from
claiming ownership of the said vehicle ?

On the evidence the following facts were proved and admitted. The respondent company is a limited liability
company, the founder and former managing director of which was Joseph Conte who was the sole proprietor
and principal shareholder of Ghana Terrazo Company, a building firm. The Ghana Terrazo Company was
dissolved and all the liabilities and assets (including Albion Tipper lorry No. AF 2596, the subject-matter of
this action) were transferred to the respondent company. Joseph Conte was the principal shareholder of the
majority of the shares. The said vehicle was purchased originally by Joseph Conte on hire purchase terms
and licensed in his name but subsequently he received cash advances from the respondent company
towards payment of the balance of the amount due after the promotion of the respondent company and the
transfer of liabilities and assets aforesaid. In the absence of Joseph Conte from the country, mismanagement
and fraudulent practices marked the running of the business of the respondent company culminating in a
court action whereby the frauds and irregularities were set aside in March 1960 and the respondent
company's status as originally registered was restored to the Register of Companies.

Upon the return of Joseph Conte to the country and after his resumption as managing director and principal
shareholder of the majority of the shares, he appointed the appellant a director and later he was appointed
the managing director by the other directors in place of Joseph Conte who left the country for good. The
appellant as the managing director had control of, and access to, all the respondent company's properties in
the country, and removed on or about 12 June 1961 the said vehicle which he appropriated to his own use
and benefit. When the other directors of the respondent company became aware of the removal and
detention of the vehicle the appellant was challenged and requested to return it but he refused to do so
without any reason or lawful excuse and still retained it. The defendant in the course of his evidence said:

"I was appointed a Director on 24 April 1961 and I served till 7 June 1961. It is true that within that period I
received a total of £G1,300 drawn on the account of J. Conte Limited, but that was not salary I paid to myself
... £G800 of the £G1,300 I took on J. Conte Limited account was a refund of the money I had loaned to
Conte. Yes, I gave the money to him personally. Conte gave me I.O.Us. I returned these to him when I was
paid my money." The documentary evidence of the alleged transaction relied upon by the defendant was a
transfer note dated 2 May 1961 from Joseph Conte to the principal licensing officer, and tendered as exhibit
2 from the records of the licensing office. It is as follows:

[p.31]

"Mr. J. Conte,

P.O. Box 3431,

Accra,

2 May 1961.

The Principal Licensing Officer,

Ghana Police,

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Accra.

Sir,

Albion Diesel Tipper AF 2596

This is to inform you that as from the above date, I have no further interest in the above vehicle and it is now
the sole property of Mr. E. F. CUDJOE of Accra.

I shall be grateful if you will please make the necessary transfer to him.

Yours faithfully,

(Sgd.) Joseph Conte."

This briefly is the case from which learned counsel for the appellant has filed and argued the following
grounds of appeal:

“(1) That the learned judge was wrong in law in holding that the clause in the articles of association which
empowers directors present in Ghana to pass valid resolutions can be used to appoint a new managing
director for the company when another clause of the articles of association appoints J. Conte permanent
managing director of the company.

(2) Since it was not pleaded that Dr. Kpeglo was a director of the company and was suing as such, the
learned judge was wrong in holding that if Dr. Kpeglo is not the managing director the respondents can still
succeed on the ground that Dr. Kpeglo is a director.

(3) That the learned judge was wrong in holding that the managing director of a company cannot dispose of
property of the company because the articles of association do not empower him to do so.

(4) That evidence having been that J. Conte and J. Conte Ltd. had not taken accounts as between
themselves the learned judge was wrong in putting on the defendant the onus of proving that Conte had re-
imbursed the company for moneys paid by the company on the vehicle in question.

(5) That the learned trial judge misdirected herself by failing to consider the defence that the plaintiffs
acquiesced in the transfer of the vehicle to the defendant.

(6) That the learned trial judge misdirected herself by failing to direct herself on the evidence that the
plaintiffs allowed J. Conte to keep the vehicle registered in the name of U.A.C. and himself, allowed the
vehicle to be transferred from the name of U.A.C. and J. Conte to J. Conte and allowed J. Conte to transfer it
to the defendant.

(7) That the learned trial judge misdirected herself by failing to direct herself on the effect of exhibit 5.

(8) That the learned trial judge misdirected herself by not directing herself on the question as to whether or
not Dr. Kpeglo as attorney for J. Conte could sue to undo the act of his principal.

(9) That the judgment is erroneous in law.

(10) That the judgment is against the weight of evidence.".

[p.32]

Learned counsel in his argument referred to and stressed the powers of Joseph Conte as managing director
of the respondent company as provided in the memorandum of association of the company, J. Conte Limited
(exhibit D).

The memorandum of association and the articles of association are of the usual contents and form adopted
by companies under the Companies Ordinance.1 And I reproduce hereunder the clauses of the
memorandum of association and the articles of association referred to by learned counsel for the appellant.

Clause 3 of the memorandum of association which provides that the objects for which the company is
established are, inter alia:

"(r) To sell, improve, manage, develop, turn to account, exchange, let on rent, royalty, share of profits or
otherwise, grant licences, easements and other rights in respect of and in any other manner deal with or
dispose of the undertaking of the company or any part thereof or all or any of the property for the time being
of the company and for any consideration, and in particular for shares (fully or partly paid), stock or securities
of any other company."

By the following clauses of the articles of association:

"57. No director or alternate director shall perform any of the duties of a director or do any act as a director
except during such time as he shall actually be in Ghana and in consultation with the managing director."

"66. Members holding at least 50 per cent. of the issued capital shall have power at any time and from time
to time to appoint any eligible person to be a director of the company, either to fill a casual vacancy or as an
addition to the Board, but so that the total number of directors shall not at any time exceed the prescribed
maximum. Any director so appointed shall hold office only until the next following ordinary meeting, when
he shall retire, but shall be eligible for re-election."

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"69. The managing director shall remove from office any director, permanent or otherwise, if he finds that he
or she abuses his or her place of office."

"72. Joseph Conte of P.O. Box 3431, Accra, shall be the permanent chairman and managing director of the
company and shall hold office until he chooses to go on pension or resigns or retires or takes his last breath
as the case may be."

"74. Powers entrusted to and conferred upon the permanent chairman and managing director in regard to
shares acquired and therefore all exercised by him shall not be subject to such regulations and restrictions
as the directors may from time to time make and impose, and the said powers may not at any time be
withdrawn, revoked and varied."

"82. The directors may delegate any of their powers to committees consisting of such one or as they think fit
two members, and may from time to time revoke such delegation. Any committees so formed shall, in the
exercise of the powers so delegated, conform to any regulations that may from time to time be imposed on it
by the directors. The meetings and proceedings of any such committee, consisting of two members shall be
governed by the provisions herein contained for regulating [p.33] the meetings and proceedings or the
directors, so far as the same are applicable thereto, and are not superseded by any regulations made by the
directors under this article.”

"84. A resolution in writing signed by all directors for the time being in Ghana shall be valid and effectual as if
it had been passed at a meeting of the directors duly called and constituted."

These clauses do no more than define the objects for which the company is established and the powers and
duties of the directors and the managing director in the ordinary course of business when they are acting
within the scope of their authority. The alleged transfer note dated 2 May 1961 is conclusive that the
appellant on his own admission was a director from 24 April 1961 to 7 June 1961 and as such could not
lawfully have benefited therefrom, nor could J. Conte have validly made the transfer. Reliance on these
clauses could not avail the appellant.

Learned counsel for the appellant seeks to rely in support of his contention in the appeal on the following
cases: Royal British Bank v. Turquand2; Mahony v. Liquidator of the East Holyford Mining Co., Ltd.3;
Biggerstaff v. Rowatt's Wharf, Ltd.4; and British Thomson-Houston Co., Ltd. v. Federated European Bank,
Ltd.5

In the case of Royal British Bank v. Turquand (supra), under the registered deed of settlement (the forerunner
of the modern memorandum and articles) the board of directors were authorised to borrow on bond such
sums as should from time to time be authorised by a general resolution of the company. The board borrowed
money from Turquand on a bond bearing the company's seal. It was held that even if no resolution had in
fact been passed by the company in general meeting, the company was nevertheless bound.

In the case of Mahony v. Liquidator of the East Holyford Mining Co., Ltd. (supra), the company's bank had
received what purported to be a formal copy of a resolution of the board authorising the payment of cheques
signed by any two of three named "directors" and countersigned by the named "secretary." The copy was
itself signed by the secretary. The bank paid cheques accordingly, but the whole company was a bubble and
on its liquidation the liquidator sought to recover the amounts paid out by the bank. On investigation it
proved that neither the directors nor the secretary had ever been formally appointed and no formal company
or directors' meetings had ever been held. The House of Lords took the opinion of the judges and upheld
their unanimous conclusion that the liquidator could not recover.

These cases together with the others cited supra are relied upon by learned counsel to illustrate the
principle and although an innocent third party might benefit, in the instant case, the defendant as a director is
far from acquiring that benefit. For most purposes it is sufficient to say that [p.34] directors occupy a fiduciary
position and all the powers entrusted to them are only exercisable in this fiduciary capacity. In the result, the
company's assets are impressed with the qualities of a trust fund, so that they may be followed into the
hands of an alienee who takes with notice of their ultra vires application. Further, where the directors make
a profit as the result of their fiduciary position, they have to account to the company for it.

On these principles, there was no need for the learned trial judge to have found fraud in the defendant: it was
sufficient that she contented herself in finding a breach of fiduciary relationship.

Having given the most careful consideration to the issues involved I cannot find anything in the judgment of
the learned trial judge which is open to any criticism and I would therefore dismiss this appeal with costs.

JUDGMENT OF ADUMUA-BOSSMAN J.S.C.

I agree.

JUDGMENT OF BLAY J.S.C.

I also agree.

DECISION

Appeal dismissed.

S.A.B.

FOOTNOTES

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1 Cap. 193 (1951 Rev.).

2 (1856) 6 El. & Bl. 327 at p. 331; 119 E.R. 886 at p. 888.

3 (1875) L.R. 7 H.L. 869 at pp. 873-884, H.L.

4 [1896] 2 Ch. 93 at p. 102, C.A.

5 [1932] 2 K.B. 176, C.A.

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