The plight of the ordinary Ghanaian investor is all too familiar. The problem has become so notorious that it is beginning to scare many people away from investing, particularly in indirect investment portfolios. The experience often begins innocently enough. After finding an investment manager, the investor commits his or her hard-earned money, receives statements and waits for the investment to grow.
The difficulty would begin when the investor decides that it is time to take the money back. When the investor requests the termination or redemption of an investment, what sometimes follows is a long explanation from the investment manager about where the money has been invested, why it has not yet been released, or why the investor must wait for payment.
But if the investor has complied with the terms of the investment, can the person entrusted with the money simply ask the investor to wait because the money is somewhere else? Was that really the agreement between them? What does the law say? Does an investor have any protection when the investment manager cannot, or will not, return the investor’s money in accordance with the terms of the investment? A recent decision of the Court of Appeal in Ozigbodi v IGS Financial Services offers some useful answers.
The Ghanaian Investment Landscape
Several avenues exist through which one may invest their money. There are direct investments such as Treasury bills and bonds issued by the Government, corporate bonds and shares listed on the Ghana Stock Exchange or other exchanges. In these cases, the investor generally knows what is being purchased and who issued it.
There are also indirect forms of investment, particularly collective investment schemes such as mutual funds and unit trusts. Here, investors pool their money and entrust the selection and management of investments to professionals. Depending on the particular fund, the money may be invested in money market instruments, fixed-income securities, equities or a combination of these.
The attraction is understandable. An investor does not have to spend his evenings studying financial statements or deciding which securities to buy and sell. A professional fund manager does that work, managing the pooled funds in accordance with the investment objectives and policies of the fund. But the convenience of professional management does not mean that the investor gives up control over the legal relationship governing the investment.
The Securities Industry Act, 2016 (Act 929), places responsibilities on managers of mutual funds. Section 81 requires a manager to manage the fund on a day-to-day basis, select investments to be owned by the company and perform other functions assigned under its contract with the mutual fund.
The manager is also required to act in accordance with the investment policies laid down by the directors and must not allow the company’s property to be used or invested contrary to the investment restrictions under the Act or the Regulations. These provisions form part of the regulatory framework within which professional investment management operates. But where a particular investor has a dispute with a fund manager, the agreement between the two becomes just as important as the Statute.
Ozigbodi v IGS Financial Services (2024) JELR 111784 (CA)
Keddey Samuel Kwame Ozigbodi invested GH¢200,000 with IGS Financial Services in December 2017 under an Income Support Scheme. The investment was for two years and had a targeted return rate of 29 per cent per annum.
The agreement provided that either party could terminate by giving 15 days’ notice, with full and actual termination, including settlement, taking effect on the fifteenth day.
Ozigbodi eventually decided that he wanted his investment back. On 10 March 2020, he notified IGS of his intention to terminate the agreement. The money, however, did not come. He followed up with another communication in June 2021, expressing his disappointment. Again, the money was not paid. The matter eventually found its way to court.
IGS had an explanation. It said that it had acted as Ozigbodi’s agent and had invested his money with a third party, Seed Funds Savings and Loans Limited. IGS had itself sought to redeem the investment, but the third party had not provided the liquidity necessary to pay Ozigbodi.
Its position was therefore, in substance, that it could only pay Ozigbodi when Seed Funds paid IGS. Perhaps, that was a commercially understandable explanation. But was it a legally sufficient one?
Decision of the Court
The Court described the agreement as the “foundational document” for determining the parties’ relationship. That approach is important. The agreement said that IGS was the investment management company appointed to provide fund management services in respect of Ozigbodi’s portfolio. It stated that the objective was to maximise returns while minimising risk. It also set out the circumstances in which the agreement could be terminated.
There was, however, nothing in the terms identified by the Court which made IGS’s obligation to Ozigbodi conditional upon its successful recovery of the money from Seed Funds. The Court therefore rejected the attempt to shift the responsibility to the third party.
In perhaps the most striking passage of the judgment, the Court observed that accepting IGS’s argument would amount to “endorsing and empowering Fund Managers to weaponise unpaid Third Party investment against investors.”
The language is strong, but the concern isn’t far-fetched. If a fund manager could take an investor’s money, place it with a third party and then, when the investor’s contractual right to terminate arose, simply say that the investor must wait until the third party paid, the risk of that third party’s failure could effectively be transferred to the investor. The Court was unwilling to endorse that result.
It held that any investment entered into by the manager for the investor ought to have been made with the terms of the agreement between them in contemplation. IGS was therefore bound by the agreement it had executed with Ozigbodi. The appeal was dismissed with costs of GH¢10,000 awarded in favour of Ozigbodi.
Lessons for the Investor
The decision should not be understood as saying that an investor can demand his money at any time and expect immediate payment. Investment agreements may legitimately provide for maturity periods, notice requirements, lock-in periods, redemption procedures and other conditions.
What Ozigbodi demonstrates is that the terms of the agreement matter. An investment manager cannot simply introduce a new condition when the investor comes to redeem his investment if that condition is not supported by the agreement.
For the investor, this places a premium on reading the investment agreement, something that is, rather unfortunately, often treated as an afterthought. Before committing money, an investor should know how and when the investment may be terminated, how much notice is required, whether it automatically renews, what redemption means under the particular product and, importantly, what happens where the manager has invested the money with another institution.
An investor should not have to discover the terms of an investment only when the time comes to ask for the money back.
