Presumption of Regularity in Company Law in Ghana

MODERN PRINCIPLES OF COMPANY LAW IN GHANA

By Ferdinand D. Adadzi

7.1 Introduction

  • Topic: Presumption of Regularity

  • Natural persons: Generally presumed to have legal capacity unless limited by law (e.g., minors).

  • Artificial entities (Companies): Recognized as legal persons with defined capacities conferred by law. Unlike natural persons, companies require explicit legal capacity.

  • Contracts with minors: Such contracts are not binding on them due to lack of capacity, regardless of other parties' knowledge.

  • Key questions:

    • Do third parties assume the risk of finding out a company's legal capacity before engaging in transactions?

    • Must a third party ensure a company complies with its constitution for a contract to be binding?

  • Doctrine of presumption of regularity: Answers these questions affirmatively; it protects third parties by presuming compliance with internal company rules (also known as the indoor management rule).

7.2 Common Law Position

  • Presumption of regularity:

    • A person dealing with a company can presume compliance with the company's internal rules.

    • There is no obligation to investigate compliance, and contracts cannot be invalidated due to breaches of these rules.

    • Parties assume that the company has the capacity to engage in the contractual matters and is compliant with its constitution.

  • Impact on third parties: The law offers protection to third parties against the risk of a company's lack of capacity or internal breaches.

  • Historical context: Developed to counteract the doctrine of constructive notice which assumed individuals had knowledge of corporate constitutions as public documents.

  • Royal British Bank v. Turquand (1856):

    • Facts: A company, under its deed of settlement, had the authority to borrow funds only as authorized by a company resolution.

    • Issue: Determining whether the bank was obliged to check if the borrowing authority was sufficiently granted.

    • Conclusion: The court ruled the bond was valid, reinforcing the presumption of regularity.

  • Business efficiency:

    • It is impractical to require customers to verify a company's internal rules before conducting business.

    • The common law's presumption of regularity facilitates commerce by removing burdens from third parties.

7.3 Position Under the Companies Act

  • Companies Act, 2019 (Act 992):

    • Section 149 abolishes constructive notice; individuals are not assumed to know of documents merely because they are registered.

    • Section 150:

    1. Clear assumptions under which persons dealing with a company can presume regularity:

      • Company is duly incorporated.

      • Individuals designated as officers are duly appointed and possess authority.

      • Documents signed on behalf of the company are authentic if they meet certain criteria.

    • Requirement for proof and assumptions regarding authority are established, benefitting third parties against eventual claims from the company.

  • Recent Cases:

    • Boohene Foods Ltd v. National Savings and Credit Bank: The bank was held liable to customers under the presumption as there was no notice of the accountant's limitations.

    • Barclays Bank v. Perseverance Transport Services Ltd: The bank was protected in its assumption of authority from the company in borrowing.

    • Oxyair Ltd & Darko v. Wood & Others: The court upheld the principle that the company is bound by promises made by its managing director unless proven otherwise.

7.4 Exceptions to the Application of Presumption of Regularity

  • Actual Knowledge:

    • A person dealing with a company cannot rely on the presumption of regularity if they have actual knowledge that contradicts it, as per Section 150(2)(a).

    • Case Reference: Transvaal Lands Co. Ltd v. New Belgium - Directors cannot assume compliance if aware of breaches of their duties.

    • Bousiako Co. Ltd. v. Ghana Cocoa Marketing Board: Liability excluded if the individual had actual knowledge of the irregularities.

  • Constructive Notice:

    • Knowledge is imputed to persons due to their position, requiring them to know specific facts related to the company.

    • Example: A company secretary is expected to know the identities of duly appointed directors.

    • Section 150(2) reiterates that knowledge can be considered on the relationship to the company.

  • Relevant Cases:

    • Morris v. Kanssen: A director cannot claim regularity if they acted in breach of their duties and had knowledge of the irregularities.

    • Chellaram & Sons (Ghana) Limited v. Halabi: Relationship to the company disqualified presumption of regularity due to knowledge of irregularities.

7.5 Effect of Fraud on Presumption of Regularity

  • Fraudulent Acts:

    • Section 151 of the Companies Act states that a company is still liable for acts of officers acting fraudulently as regular transactions, protecting third parties from corporate deceit.

7.6 Forms of Contract

  • Contracts by Companies:

    • Contracts may be in written or oral form.

    • Valid execution can be done under seal or simply signed by authorized individuals.

  • Section 152: Outlines when a contract needs to be executed by seal, emphasizing validity aligns with regulations placed on natural persons.

7.7 Bills of Exchange

  • Section 153:

    • A bill or note will be binding on a company if it is executed or endorsed as required by corporate entities.

7.8 Authentication

  • Section 154:

    • Authentication must be done by designated officers of the company, providing validity to contracts and documents executed on behalf of the company.

7.9 Execution of Deed and Use of Seal of the Company Abroad

  • Section 155:

    • Provides rules for executing documents under seal outside Ghana.

  • The constitution may permit a facsimile of the seal for locations outside Ghana.