I-CAN-GHANA

When I used to teach Company Law, I would often tell the students that there is one answer to almost every legal question: “IT DEPENDS.” I however stopped saying that when one student answered an exam question by quoting my flippant “IT DEPENDS.”

But in this situation, that answer applies, and I want to take you through the law that regulates the businesses that companies are authorised or not authorised to engage in.

The common law has evolved doctrine called “The Ultra Vires Doctrine.” Generally, it applies to acts beyond the scope of one’s defined powers. The term has a broad application and includes not only acts expressly prohibited but acts that are foreign to or in excess of powers granted, although not expressly prohibited. The term applies to either when an entity/person has no power to do an act, or where the entity/person has the power but exercises it irregularly.

Section 16(2) of the Companies Act mandatorily requires that the regulations of a company must state the nature of the business or objects which the company is formed to carry on. Normally referred to as “authorised object or businesses,” at common law the powers of a company is dependent on and governed by the objects/businesses as defined in the objects/businesses clause.

Section 25 of the Companies Act is emphatic that a company shall not carry on any business not authorised by the Regulations. This is a prohibition of ultra vires objects/businesses, and it is necessary to protect members and creditors, and to limit the nature of the business activities that the company can undertake to those that are expressly stated in its Regulations. By this enactment of the ultra vires doctrine, a contract made by a company beyond the scope of its objects/businesses and corporate powers is unlawful.

To that extent, it is, at least on the face of it, ultra vires for a company that is incorporated to engage in information technology, to be engaged in the import of motorbikes for another person.

However, that is not the full story. This is because section 24 of the Companies Act provides that in furtherance of its authorised objects/businesses prescribed in the Regulations, a company has all the powers of a natural person of full capacity. When sections 16 and 25 are read together with section 24, they mean that in addition to the company having power to engage in its authorised businesses, it may do such other things that are reasonably incidental or conducive to the carrying on of its business and/or attainment of its objects, except where they are expressly excluded in the Regulations.

Thus in determining whether a company has acted ultra vires its powers, the two-fold test is:

(1) Is the act an expressly authorised object or business?
(2) If not, is it reasonably incidental?

If the answers to both questions are in the negative, then the act is ultra vires.

However, section 25(3) states an act of the company is not invalid, merely because the act is ultra vires. Thus in Ghana, ultra vires acts, although wrong, are binding on the company, and the company cannot seek to escape its obligations under a contract simply because the contract is ultra vires. By this provision, Ghana law seeks to maintain whatever protection to members that the strict ultra vires rule offers, as well as prevent hardship to third parties.

This is further buttressed by proviso (b) to section 139, which states that a company cannot escape liability for acts undertaken concerning an unauthorised business, if in fact that business in being carried on by the company. Without this provision, the protection afforded to third parties under section 25 would be useless if having escaped the peril of the company’s incapacity, a third party is caught because the specific business to be undertaken by the company under the contract, is not mentioned in the company’s authorised businesses.

Section 139 is a codification of the so-called Rule in Turquand’s Case (Royal British Bank v. Turquand (1856) 6 E & B 327) which is to the effect that for business cannot be carried on if everybody who had dealings with a company had meticulously to examine its internal machinery in order to ensure that the officials with whom he dealt had actual authority.

Further, under section 141, the mere fact of the registration of any particulars or documents (e.g. the Regulations and the authorised businesses clause in it) with the Registrar of Companies, does not constitute notice to the whole world. Thus no one is under a legal obligation to ascertain whether a company has power under its Regulations to undertake a certain business before entering into a transaction with the company.

Section 142 provides that any person dealing with a company is entitled to assume, unless the contrary is known (actual notice) or ought to have been known (constructive notice), that the Regulations (including the provision on authorised businesses) have been complied with.

In Boohene Foods Ltd. v. National Savings and Credit Bank [1992] 1 GLR 175, the court recognised that it was a well-established presumption in the common law that an outsider dealing with a company was entitled to presume that its internal regulations had been complied with. Section 142, according to the court, has given that presumption a statutory backing. However, that presumption was rebutted by proof of express or constructive notice.

The question therefore, is whether a third party with actual or constructive notice that a company is not authorised to enter into a stated business, can come under the statutory protection of third parties. This question is answered, in part, in the case of Chellaram & Sons (Ghana) Ltd. v. Halabi [1963] 1 GLR 214, where the Supreme Court upheld an important exception to the rule, that a person who deals with a company and who has notice of an irregularity in its internal management in connection with the subject-matter of his dealings cannot take shelter behind the rule.

However, what the law does not say is that a person who enters into a transaction with a company with full knowledge that the transaction is ultra vires the company, can decide to abrogate or resile from the contract on that ground. The contract is valid and binding.

But that is not the full story. The authorised businesses of a company relate directly to the capacity of that company to undertake a stated venture. Thus a procurement entity or procurement authority (appointed by law to protect the public purse) that is required by law to investigate the capacity of a company, must definitely ask to see a company’s regulations and see what it says about the company’s authorised businesses. That is a clear indication of whether the company is able to deliver on the contract. If the company has put in a bid for a business outside its authorised business, that should put the procurement entity and procurement authority on notice with respect to the company’s track record in that line of business, or lack of it.

It would appear then that the only statutory remedy to preventing ultra vires transactions is an Injunction under section 25(4)&(5) of the Companies Act. An injunction is a judicial process requiring a person to whom it is directed to do or refrain from doing a particular thing, i.e. a court order commanding or preventing an action. Under the Act, any member or holder of a debenture secured by a floating charge over property (or his trustee) may apply to the court for an injunction prohibiting any ultra vires act. If the contract is yet to be made or performed, the court has the discretion to set aside and prohibit the making or performance of the contract. It may however award the company or the other party to the contract compensation for any loss or damage sustained by reason of the order of the court. However, compensation cannot be awarded in respect of loss of profits anticipated to be derived from the performance of the contract.

An applicant seeking an injunction to prevent a company acting outside it capacity, will have to bear the following in mind:

(i) It becomes the task of the court to determine, on a true construction of the objects clause, whether the proposed activity would be ultra vires;
(ii) If the act sought to be prohibited has already been performed, the remedy will not be granted;
(iii) Injunction is a discretionary remedy and will be granted only where the court thinks it equitable so to do; and
(iv) All parties to the ultra vires act should be made parties to the action because an injunction, if granted, will only be binding on parties to the action.

In conclusion, it is a wrong for a company that is incorporated as an IT company to engage in the importation of motorbikes, unless it can be shown that the importation of the motorbikes is reasonably incidental to its IT business. However, even though it is wrong, the law protects the other party who entered into the transaction, so that the company cannot escape liability simply because the transaction was ultra vires. And, the only people who can stop the transaction, are members or creditors of the company, but then only by way of an injunction.

So, you see, IT DEPENDS!

Why was Fauster Atta Mensah able to pull off and get away with one of the most hare-brained scams of our times?

The answer lies in ourselves, as Ghanaians. We are a people so enamoured with titles and positions of honour that even where none exist, we create them. Fauster knew this very well and laid out a deliberate scam to milk it to the fullest, for as long as it lasted.

Some two decades ago, as a poor, broke scholarship graduate student, my pastor invited me to dinner in his home. Over the dinner table, his wife of Jamaican origin stated that “every Ghanaian I have met is from a royal family. Are you also from a royal family?” Right there was my opportunity to claim undeserved gravitas. I could say that I was the great grandnephew of Yaa Asantewa, that I am of royal warrior blood, that… My fertile mind went into overdrive. But at the same time, in those same split seconds, I said to myself that I ought to be accepted and appreciated for who I was, even if that “who” was nothing. And so my answer was a simple, mousy, little “no.” And that was the truth. I am not from the Akyem Achiase royal family. In fact, I don’t think that the current chief even knows my name. Ah, yes, I have heard that my late dad was from the Biriwa royal family, but as an Akan, I know that no one in my family has any claims to that or any stool. We are just who we are, ordinary Ghanaians, working hard to put food on our tables, clothes on our backs, roofs over our heads and money in our pockets so that we can pay taxes for the government to misuse. We do not need any empty titles or fake claims to any positions of honour to be worth who we are.

Take a look around you. Listen to our radio stations. You give an interview to a radio station, and when it is being played back, you are described as a “legal luminary,” when you have not illuminated anything in your life. I once spoke at a seminar on the legal aspects of bird flu. The next day I was a “legal expert in medical law.” A man arrived in Accra from his village and decides that he needs access to the top end of society. And so he renames himself “Prince”. He returns home, brings all his brothers and sisters to Accra, and names them “Prince” and “Princess”, as the case may be. All his children will bear the title. The next thing, one of these “Princesses” will show up in America claiming to be “Queen.”

Our Parliamentarians, Ministers, Deputy Ministers, and even Assembly Members carry the title “Honourable.” Meanwhile, in Britain, from where we claim to have borrowed it, it is not a title. It is a description, as in “Paul Boateng, the Honourable Member of Parliament for…” Only the Speaker of Parliament bears the title “The Right Honourable…” But here, the “Honourable” has left the description end and has become a much-cherished title. If you like, don’t call the man “Honourable” and see. Empty and vacuous.

Look at our pastors, especially those of the Charismatic ilk. As soon as their churches begin to grow, someone will pop up at their doors “selling” doctorate titles from some corner of the US. In a couple of weeks “Pastor so-an-so” becomes “Reverend Doctor so-and-so,” arrives in church wearing an academic gown and hat, with the 3 stripes of a “Doctor”, to loud shouts of glee and acclamation. And it is really laughable. The man has no bachelors or masters degree. But here he is, rocking an academic gown with 3 bands, and the ignorant church members are beside themselves with joy and ecstasy. Ah, people who have not written a dissertation, let alone a thesis in their lives, who do not know what a thesis defence or viva looks like, are demanding that us lesser mortals should address them with the title “Doctor.” What is worse, in academia properly so-called, honorary degrees do not become part of one’s title. But not in Ghana. We love them.

Look at our chieftaincy institution. It was used to be just “Na” or “Nana” or “Togbe” or “Nene” etc. Then we started adding further honorific, descriptive titles, which I will not mention here, but they mostly begin with “O”. Notice how we are moving from the description “chief” to the title “King”? But what what takes the biscuit now is “His Royal Majesty.” So that a man who has absolutely no natural claim a even a kitchen stool, now, on account of being made some insignificant developmental sub-chief, struts around the world holding himself out as “King so-and-so” bearing the further, comical description “His Royal Majesty.” Similarly, a caucasian appears in some rural community and shells out $2,000 to dig a borehole, he is quickly wrapped in a kente cloth, and place on a wooden stool. He returns home proclaiming to be King of Ghana. And, oh, did we not read about and see pictures of some Ghanaian ‘king’, driving a taxi in some western country, in full regalia?

Fauster is smart. He knows his people very well. He taps into who we are, and has a huge laugh at our expense. It may be that ordinarily, all his achievements, if written 10 times over, will fill a quarter of a sheet of paper, with space to spare. But he looks at us and says to himself that if he can but learn photoshopping, he would go very far with us, and enjoy the ride till it ends. And so he spends about a year or two building a false myth about himself. But it is full of holes, so many huge and gaping holes that any ordinarily diligent person could, would, should see the joke from a mile away. I mean, since when did the UN award Nobel Prizes? Read the stuff the guy has written about himself. The English he uses is extremely poor. His claims do not make sense. What did he say he studied at Adisadel? The story is so patently false that one would have thought that only a dunderhead would fall for it. But guess what? We love titles. And so he pops up in Ghana. I am not sure of the exact sequence but he succeeds in conning the title-loving church into giving him some honour. He also gains some recognition from the Government, acting by no other ministry but the Ministry SCIENCE & TECHNOLOGY, supposed to be our science and technology gatekeepers!! He appears on national TV, GTV, with aplomb, where the hapless, clueless host showers him with accolades. It was only after these that he was found out.

And so we may laugh at Fauster as much as we may want to. He is trending on social media. But whenever you see his photoshopped pictures, including the rather incredulous one where he is wearing eyeglasses while in a spacesuit, you should see ourselves in him. Actually, I think Fauster has the last laugh… at our expense.