AIC v Morris et al

AIC v Morris et al [2005] LRSC 11; 42 LLR 508 (2005) (1 March 2005)

AFRICAN INTERNATIONAL CORPORATION, by and thru its President, ALI K. AJAMI, Petitioner/ Appellant, v. HIS HONOUR JOHN N. MORRIS, Assigned Circuit Judge, Sixth Judicial Circuit, Montserrado County, June Term 1994, and ISMAIL K. FARAJ, by and thru his Attorney-In-Fact, ABDULLAH FARAJ, Respondents/Appellees.

APPEAL FROM THE RULING OF THE CHAMBERS JUSTICE DENYING THE PETITION FOR A WRIT OF PROHIBITION

Heard: November 25, 2004. Decided: March 1, 2005.

1. Liberian law provides that a writ of summons shall be directed to the ministerial officer of the court in which the action is brought; shall state the court and names of the parties, together with their addresses if known; shall be signed by the clerk and bear the seal of the court; shall state the time within which the defendant is required to appear and defend; and shall notify him that in case of his failure to do so judgment by default will be rendered against him for relief demanded in the complaint.
2. In a court not of records, a statement of the substance of the complaint shall be included in the summons.
3. In order for the trial court to acquire jurisdiction over a corporation, the action filed with the court should name the corporation as defendant or plaintiff.
4. In this jurisdiction, it is required by law that a corporation is a necessary party in an action of derivative suit brought by a shareholder to assert corporate claim or cause of action.
5. A derivative action is a suit by a shareholder to enforce a corporate cause of action; hence, the corporation is a necessary party and the relief which is granted is a judgment against a third person in favor of the corporation.
6. A derivative action is a suit asserted by a shareholder on the corporation’s behalf against a third party, usually a corporate officer, because of the corporation’s failure to take some action against the third party.
7. A Chambers Justice errs in denying a petition for a writ of prohibition when he overrules the contention of the respondent that prohibition will lie when the lower court exceeds its jurisdiction by granting relief against a party who is not a necessary party in a suit.
8. The failure to name a corporation as a party and have it brought under the jurisdiction of the trial court is a material defect and the corporation, not being a party in the trial court, is not bound by the decision of the court in the motion to vacate or modify a preliminary injunction.
9. No one shall be concluded by a judgment rendered in a suit to which he is not a party, and that a party cannot be bound by a judgment without being allowed his or her day in court.

Ali K. Ajami, Ismail K. Faraj and two other persons were originally equal shareholders of the African International Corporation, a corporation formed under the laws of Liberia. Following the formation of the corporation two of the original shareholders sold their shares to Ali K. Ajami and Ismail K. Faraj, respectively, thus making the two of them ninety-eight percent shareholders in the corporation. Ali K. Ajami was appointed general manager of the corporation. Because of the Liberian civil war, Ismail K. Faraj and Ali K. Ajami departed the country. When subsequently Ali K. Ajami refused to give an account of the funds received from the leased properties of the corporation, as requested by Ismail K. Faraj, acting through his attorney-in-fact, the latter shareholder commenced a shareholders derivative suit against Ali K. Ajami, and an action for accountability and damages for fraud. The suit did not name the corporation as a party plaintiff or defendant.
Ismail K. Faraj also filed, simultaneously with the main suit, a motion for a preliminary injunction praying the court to compel Ali K. Ajami to give an account of the corporation’s leased properties, to enjoin the defendant from collecting and receiving rents from the said leased properties, and to have the rents kept in an escrow account until the main suit was determined. The defendant filed an answer, a bond and a motion to vacate or modify the preliminary injunction. The bond was approved but the motion was not heard by the judge who was presiding at the time.
A new presiding judge heard the motion, denied the same and ordered the sheriff to collect and deposit the rents from the leased properties into an escrow account at a bank to await the final determination of the main suit. To this ruling of the judge the defendant noted exceptions and prayed an appeal to the Supreme Court, which was granted.
In the meantime, the corporation filed before the Justice in Chambers of the Supreme Court a petition for a writ of prohibition against the trial court judge, asserting the following: (a) that the corporation was a separate and distinct entity from Ali K. Ajami; (b) that the corporation was not a party to the suit between Ismail K. Faraj and Ali K. Ajami; and © that the lower court therefore exceeded its jurisdiction in granting relief against the corporation. The Chambers Justice denied the petition, to which exceptions were taken and an appeal taken to the full bench of the Supreme Court.
The Supreme Court reversed the ruling of the Chambers Justice, holding that the petition for the writ of prohibition should have been granted given that the petitioner, a corporation separate and distinct from the defendant in the case, not having been served with precepts by the lower court, was never a party to the suit. The Supreme Court opined that as the action in the lower court was brought against the shareholder rather than the corporation, and as the corporation was not named in the writ or the action by the clerk, it was not bound by the decision of the lower court. The corporation’s funds could therefore not be ordered deposited into an escrow account by the court.
The Supreme Court noted further that suit, having been denominated a derivative suit, which is a suit brought by a shareholder intended to enforce a corporate cause of action against a third party, vested in the corporation but which the corporation had failed to assert, the suit should have been brought in the name of the corporation, either as a plaintiff or a defendant. This not having been done, and the corporation not having been brought under the jurisdiction of the court, the trial court proceeded by wrong rule and exceeded its jurisdiction in granting relief against the corporation, the Supreme Court observed. This act by the trial court, the Supreme Court noted, provided a sufficient basis for the issuance of the writ of prohibition and it therefore so ordered.
M. Kron Yangbe and Samuel R. Clarke of the Cooper and Togbah Law Offices appeared for the petitioner/appellant. Jerome Verdier of the Stubblefield & Associates Law Firm appeared for the respondents/appellees.

MR. JUSTICE CAMPBELL delivered the opinion of the Court.

This case is before us by way of an appeal from the ruling of the Chambers Justice denying the petition for issuance of a writ of prohibition. The petition for the writ of prohibition grew out of a motion for preliminary injunction filed in the Sixth Judicial Circuit Court, Montserrado County, Liberia, by the plaintiff, Ismail K. Faraj, by and thru his attorney-in-fact Abdullah Faraj, against the defendant, Ali K. Ajami, by and thru his attorney-in-fact, Ali M. Ajami.
The records show that sometime in June, 1982, Ali K. Ajami, Ismail K. Faraj, Philip T. Bowen and Aref M. Annous formed a business corporation known as African International Corporation (AIC). The nature of the business was to erect, construct, lease, maintain, improve, rebuild, repair, and sell all kinds of buildings, dwelling homes, workshops, vehicles, warehouses, factories, roads, bridges and several other business undertakings, directly or indirectly. The records further show that each of the four (4) incorporators agreed to take 25 shares of the capital stock of the corporation. Later, Philip T. Bowen sold his shares right in and to 23 shares of the capitol stock of the corporation to Ismail K. Faraj, thereby making him (Ismail Faraj) the holder of rights to ownership of 48 shares of the corporation. Also, incorporator Aref M. Annous sold his share rights in and to 25 shares of the capital stock of the corporation to Ali K. Ajami, thereby making him the holder of rights to ownership of 50 shares of the capital stock of the corporation.
The case file also reveals that Ali K. Ajami was the general manager of the corporation responsible for the day to day operations and management of the corporation. The business of the corporation went on without confusion until the Liberian civil war broke out on December 24, 1989. As a result of the civil war, Ismail K. Faraj and Ajami K Ajami left Liberia for their safety. While they were absent from Liberia, Ali K. Ajami was appointed attorney-in-fact for Ali M. Ajami to manage the corporation. Later, Ismail K. Faraj appointed Mr. Abdullah Faraj to inquire about his interest in the corporation in Liberia and to sue Ali K. Ajami.
As further disclosed by the records in the case file, because Ali K. Ajami refused to give an account of the corporation’s funds from the leased properties of the corporation, Ismail K. Faraj filed an action of shareholders’ derivative suit, action of accountability and damages for fraud, simultaneously with a motion for preliminary injunction, praying the court to compel Ali K. Ajami to give an account of the leased properties of the corporation; to enjoin Ali K. Ajami from collecting and receiving rents from the leased properties of African International Corporation (AIC); and to keep the rent in an escrow account at the International Trust Company until the main action was heard and determined.
Ali K. Ajami filed an answer to the main suit, an injunction bond and a motion to vacate or modify the writ of injunction. Judge William Metzger, the presiding judge at the time of the filing of the action, approved the bond before his term was over. The motion was not heard when the term of Judge Metzger was over. He was succeeded by His Honour, Judge John N. Morris, who heard the motion and ruled thereon as follows:

“In view of the foregoing facts and circumstances and the law controlling, the court hereby sustains the motion for preliminary injunction as filed against the defendant Ali K. Ajami and his agent, Ali M. Ajami and denies the defendant’s motion to vacate or modify the writ of injunction. The clerk of this court is hereby ordered to direct the sheriff to have instituted a special account in the International Trust Company Bank of the Republic of Liberia and receive and deposit all rents and/or monies due and payable unto the African International Corporation. It is the further order of this court that to ensure compliance herewith, the sheriff is further ordered to obtain the names of all tenants and all other persons utilizing the premises of the African International Corporation and have these persons to pay every and all monies to the sheriff of this court for immediate deposit into the aforesaid escrow account to be deposited in the aforesaid account which shall lodge in the banking department of the International Trust Company Bank (ITC) pending the determination of the shareholders derivative suit, action for accountability and damages for fraud, filed by the plaintiff against the defendants. Costs in these proceedings are ruled against the defendant. AND IT IS HEREBY SO ORDERED.
From the above quoted ruling, defendant Ali K. Ajami announced an appeal to the Supreme Court, which was granted. The bill of exceptions was approved and filed with the clerk of court and the remaining procedural steps for perfecting an appeal were fulfilled by the defendant.
As a result of the court’s decision to have the sheriff collect and deposit all rent and/or monies due and payable unto African International Corporation from the leased properties, AIC, which was not a party to the case below, filed a petition for prohibition with the Chambers Justice to prohibit and restrain the court below and Ismail Faraj from interference with the corporation’s leased properties based on the following stated grounds:
1. That the corporation is a separate corporate person.

2. That AIC is not party to the suits between Ismail K. Faraj and Ali K. Ajami.
3. That the court below exceeded its jurisdiction and proceeded by wrong rule by granting relief against a party who is not a necessary party.

In their returns to the petition for prohibition, the respondents prayed that the petition be dismissed for the following reasons:

1. That the petitioner having taken active part in the trial of the preliminary injunction, petitioner cannot at this junction deny its jurisdiction because petitioner’s interest has changed.
2. That since petitioner excepted to the ruling in the preliminary injunction, announced appeal to the Honourable Supreme Court, filed an approved bill of exceptions, appeal bond and notice of completion of appeal, the petition for prohibition is an attempt for the Chambers Justice to assume original jurisdiction over an injunction proceedings when an appeal is pending.
3. That the judge below did not exceed his jurisdiction nor proceed by wrong rule. Therefore, prohibition will not lie because the assets accruing from rents in AIC, of which Ismail K. Faraj has an equitable interest, could not stand by and acquiesce in the continuous mismanagement being carried on by Ali K. Ajami without seeking the intervention of equitable injunctive relief to preserve the status quo and avoid irreparable loss.

The Chambers Justice, having entertained arguments on the petition and returns, handed down a ruling denying the issuance of the peremptory writ of prohibition on the following grounds:

1. That Ali K. Ajami who managed the day to day operations of the corporation had knowledge of what was intended to be done with the rents accruing from the corporation’s leased properties in the injunction proceedings.
2. That having had knowledge, petitioner failed to protest by way of prohibition to prohibit and restrain the co-respondent at the time from collecting, receiving and holding in escrow the said rents, but instead contested the injunction proceedings, which ended with a ruling perpetuating the injunction to which he excepted and appealed. Yet, he elected to come by prohibition against the ruling instead of pursuing the appeal.
3. That the issue of African International Corporation not being a party to the suits in the court below is moot because the petitioner did not raise the question timely by prohibition until the court heard and perpetuated the injunction, which decision of the court petitioner appealed. Hence, petitioner cannot thereafter contend that AIC is not a party to the suits to be bound by the ruling perpetuating the injunction.
4. That the judge neither proceeded by any rule that is contrary to those which ought to be observed at all times, nor did the judge exceed his jurisdiction. The Justice therefore denied the petition and quashed the alternative writ of prohibition with cost against the petitioner.

To the Chambers Justice’s ruling on the petition for the writ of prohibition proceedings, the petitioner/appellant, AIC, excepted and announced an appeal to the Court en banc.
From the facts and circumstances in this case, the single issue which is determinative of this controversy is whether or not prohibition will lie?
In passing, we observe that in their briefs and arguments before this Bench, the appellant raised issues of co- respondent Ismail K. Faraj not having share certificate and therefore not being considered a shareholder for the purpose of instituting the shareholder’s derivative suit and that defendant Ali K. Ajami having filed an approved indemnity bond in the injunction proceedings, the motion to vacate or modify the writ of preliminary injunction was therefore moot and therefore Judge Morris who succeeded Judge Metzger erred when he entertained further argument on the said motion. As we see it, these are not issues to be determined by this prohibition. A regular appeal would properly deal with these issues. Since a regular appeal from the preliminary injunction proceedings is also before this Court, the time will come to deal with these issues. For now, we shall only discuss whether or not prohibition will lie in this case.
The records show that while the appeal from the preliminary injunction was pending before the Supreme Court, African International Corporation filed a petition for a writ of prohibition with the Chambers Justice wherein it is contended, among other things, that African International Corporation was not named as a party both in the main suit and the motion for preliminary injunction and that therefore the co-respondent judge erred when he ordered the sheriff to receive and deposit all rents or monies due and payable to African International Corporation into an escrow account.
We observe that in the caption of the main suit and the preliminary injunction filed by Ismail K. Faraj, by and thru his attorney-in-fact, Abdullah Faraj, is the plaintiff, while Ali K. Ajami, by and thru his attorney-in-fact, Ali M. Ajami, is the defendant. Moreover, the averments in both the main suit and the motion for preliminary injunction, the caption of these actions did not name African International Corporation, which owned the properties in question as party plaintiff or defendant. For this reason, the writ of summons issued out by the clerk of the lower court did not name African International Corporation as a party.
Our law provides that the summons shall be directed to the ministerial officer of the court in which the action is brought; shall state the court and names of the parties, together with their addresses if known; shall be signed by the clerk and bear the seal of the court; shall state the time within which the defendant is required to appear and defend; and shall notify him that in case of his failure to do so judgment by default will be rendered against him for the relief demanded in the complaint. In a court not of records, a statement of the substance of the complaint shall be included in the summons”. See Civil Procedure Law, Rev. Code 1:3.33.
In view of the laws stated above, we disagree with our colleague, Justice Smith, when he stated in his ruling that appellant AIC had knowledge as to what the injunction sought to do with the rents accruing from the corporation’s leased properties; that the appellant should have protested by way of prohibition to inhibit and restrain the court below at the time from collecting, receiving and holding in escrow the said rents, but instead contested the preliminary injunction proceedings which ended in a ruling perpetuating the preliminary injunction; that it excepted to the lower court’s ruling, appealed therefrom, and thereafter elected to come by prohibition against the ruling instead of pursuing the appeal; and that therefore, the issue was moot. The records show that Ali K. Ajami was the only defendant/respondent, and not petitioner/appellant AIC, which was never a party to any law suit in the court below. We agree that AIC is a corporate person, separate and distinct from Ali K. Ajami, who was sued. It is our holding that for the court below to have acquired jurisdiction over African International Corporation, the action filed with the said court should have named the corporation as a defendant or as a plaintiff because in this jurisdiction it is required by law that a corporation is a necessary party in an action of derivative suit brought by a shareholder to assert corporate claim or cause of action.
A derivative action is “a suit by a shareholder to enforce a corporate cause of action. The corporation is a necessary party, and the relief which is granted is a judgment against a third person in favor of the corporation.” LIBERIA: WORLD CORPORATE DOMICILE (Banks et al.), Vol. 1, text of Treatise- Chapter 7, Section 7.16.02, 589.
Also, a derivative action is “a suit asserted by a shareholder on the corporation’s behalf against a third party (usually a corporate officer) because of the corporation’s failure to take some action against the third party.” BLACK’S LAW DICTIONARY 360 (abridged 7th ed.). Hence, the question is not moot since the action should have been brought in the name of the corporation in order to protect its interest in the corporation.
We think that our distinguished colleague also erred by denying the petition for prohibition when he overruled the contention of the appellant that prohibition will lie when the court exceeds its jurisdiction by granting relief against a party who is not a necessary party in a suit. The Chambers Justice further ruled that same is far from being a ground for a writ of prohibition and that to grant the petition will undermine the appeal. We hold, however, that since African International Corporation was never summoned and did not appear in the case below, where it was never a party, the judge did exceed his jurisdiction when he ordered the properties of African International Corporation to be put in escrow.
This failure to name the corporation (AIC) as a party plaintiff or defendant and to have it brought under the jurisdiction of the court is a material defect under our law and therefore the corporation, not being a party in the trial court, is not bound by the decision of the lower court in the motion to vacate or modify the preliminary injunction because the lower court had not acquired jurisdiction over the corporation. Moreover, the corporation is not a party to the appeal pending before the Supreme Court, which appeal grew from the judgment in the motion to vacate or modify the preliminary injunction.
Several opinions of this Court, which are in line with universal law, state that “no one shall be concluded by a judgment rendered in a suit to which he is not a party, and that a party cannot be bound by a judgment without being allowed a day in court”. See Tubman v. Murdoch, [1934] LRSC 26; 4 LLR 179, 184 (1934).
The Supreme Court also held in the case The Intestate Estate of the Late John N. Lewis v. Metzger et al.[1997] LRSC 9; , 38 LLR 404, 412 (1977) that “in order for a party to be concluded by judgment in a suit, he must have been made a party”. See also the case Boye v. Nelson, [1978] LRSC 33; 27 LLR 174 (1997).
We are convinced that the lower court proceeded by wrong rule and exceeded its jurisdiction by granting relief against a party who was not a party to the action and by ordering the rents accruing from the leased properties of African International Corporation to be collected by the court and held in an escrow account pending the determination of the main suit of which African International Corporation is not a party.
Wherefore and in view of the facts and the laws herein cited, the ruling of the Chambers Justice is hereby reversed and the peremptory writ of prohibition ordered issued. The Clerk of this Court is ordered to send a mandate to the lower court to resume jurisdiction over the case and give effect to this judgment. Costs are assessed against the appellee. And it is hereby so ordered.

Petition granted.