B.O. Okafor V. African Continental Bank Ltd & Anor. (1975)
LawGlobal-Hub Lead Judgment Report
FATAYI-WILLIAMS, J.S.C.
In an action commenced as an undefended suit in the High Court, Lagos, on 22nd August, 1972, the African Continental Bank Ltd., as plaintiffs, claimed from Widi Jallo (who carries on business as Widi Jallo & Sons) as defendant the sum of 46, 413.3.6d. (N92,826.36K) being money lent by the plaintiffs as bankers to the defendant at the defendant’s request, and the interest due from the defendant to the plaintiffs in respect of the said loan. The plaintiffs also claimed additional interest on the said amount at the rate of 9 per centum per annum compound interest from the 31st day of July, 1972 until judgment and thereafter at the rate of 5 per centum per annum until payment of the said judgment debt.
The defendant was not served with the writ until some time in April, 1973. On 19th April, 1973, he gave notice to the court of his intention to defend the claim. On 7th June, 1973, the defendant filed a Third Party Notice in Court and applied for it to be served on one B.O. Okafor (now the Third Party). In the Notice, the defendant set out the particulars of the claim of the plaintiffs against the defendant and stated further as follows:-
“The defendant claims against you contribution to the extent of one half of the plaintiff’s claim on the grounds stated in the affidavit annexed to this notice.”
Paragraphs 4, 5, 6, 22, 23 and 31 of the affidavit filed in support and sworn to by the defendant’s clerk read:-
“(4) That the transaction relating to this overdraft was as a result of a business transaction including the defendant/applicant and the Chief Accountant of the African Continental Bank Ltd., Mr. B. Obiora Okafor.
(5) That the said Mr. B.O. Okafor sometime in 1971 approached the defendant for both of them to establish a company together with a Mr. Ibrahim Mikawi, an Egyptian National.
(6) That as a result of meetings held between the three of them a limited liability company named Ekhnatone Ltd was incorporated on the 8th of December, 1971, with the defendant/applicant and Mr. B.O. Okafor as Directors.
…
(22) That the whole money for the business was utilised by Ekhnatone Limited.
…
(23) That as a result of mismanagement and unnecessary interference by Mr. Okafor, the cement business flopped.
(31) That in pursuance of this cement transaction for which this money was utilised, the company Ekhnatone Ltd. entered into a contract agreement which speaks for itself with Messrs. Misr (Nigeria) Ltd. A photocopy of the said contract is exhibited and marked Ex. ‘Q’- “Q2” (The underlining is ours).
The agreement referred to in paragraph 31 of the affidavit was for the sale of 50,000 tons of Egyptian portland cement and is between Misr (Nig.) Ltd. as the seller and Ekhnatone Ltd. as the buyer. It is to be noted that this agreement was executed on behalf of the buyers by the defendant as follows:-
“(Sgd.) W.U. Jallo
Buyer’s signature
Alhaji Widi Usman Jallo,
Chairman – for and on behalf of
Ekhnatone Ltd.,
58, Ikorodu Road, Yaba,
Lagos, Nigeria.”
Pursuant to the service of this Third party Notice, B.O. Okafor, now the Third Party, entered “conditional appearance,” and pleadings were ordered by the court as between the plaintiffs and the defendant on one hand and also as between the defendant and the Third Party on the other on 11th June, 1973. In his statement of defence filed in reply to the plaintiffs statement of claim, the defendant admitted the plaintiffs’ claim but stated further in paragraphs 2 – 4 thereof as follows:-
“2.The defendant……states and maintains that in so far as the said liability is concerned its incurement is the joint liability of the defendant and the Third Party/defendant, Mr. B.O. Okafor.
3.The defendant will, therefore, rely on his statement of claim against the Third Party/defendant (Mr. B.O. Okafor) and all the records, books, documents, transactions and correspondence so cited in the said statement of claim of the defendant against the said Third Party/defendant (Mr. B.O. Okafor) to show and establish the liability of the said Third Party/defendant to the plaintiff Bank.”
In his statement of claim against the Third Party, the defendant claimed from the Third Party the sum of 18,250 or N36,500 as contribution due to him from the Third party in liquidating the debt of 46, 413.3.6d due to the plaintiffs. Paragraphs 9, 10, 11, 15 16, 24, 30 and 31 of the said statement of claim read:
“9.That after several meetings an agreement was reached to incorporate a company called Ekhnatone Ltd. with the defendant, the Third party and the said Mr. Ibrahim Mikawi, an Egyptian national as directors.
10.That it was agreed among the three parties that the shareholding will be divided into three equal parts.
11.That the Memorandum and Articles of the Company was prepared with the defendant, the Third Party, and Mr. Mikawi as subscribers.
…
15.That prior to the registration of the company Ekhnatone Ltd., the defendant, the Third Party and the said Ibrahim Mikawi had been negotiating for the purchase of cement from Messrs. Misr. (Nig.) Ltd.
16.That on the registration of Ekhnatone Ltd., an agreement for the purchase of 50,000 tons of cement from Messrs. Misr (Nig.) Ltd. was entered into between Ekhnatone Ltd. and Misr (Nig.) Ltd.
…
24.That in getting to the A.C.B. Ltd., Apapa, the Third Party informed the defendant that the money for the payment of Misr (Nig.) Ltd. will be passed through the defendant’s account, as Ekhnatone Ltd. did not at that time have any account and that after the sale of the cement the proceeds will be paid into the defendant’s account.
30.The defendant will establish and prove at the trial that the Third party was a party to all the transactions relating to the overdraft and is entitled to contribute one half of the money due to the plaintiffs.
31.That despite repeated demands the Third party had failed, refused or neglected to meet the defendant to be able to settle the said sum due and owing by Ekhnatone Ltd., to the plaintiffs.” (The underlining is ours).
The Third party denied all the averments in the defendant’s statement of claim and averred further that he was not liable to indemnify the defendant.
In the evidence given in support of his claim, the defendant admitted issuing a cheque for 55,000pounds in favour of Misr (Nig.) Ltd., and that his account with the plaintiffs’ Branch at Apapa was debited with the amount. He testified also as follows:-
“The cheque was for the payment for 7,000 tons of cement with Misr (Nig.) Ltd. in the office of El Nawani the Managing Director …… The money that we took from A.C.B. I did not use it for myself. Immediately the third party wrote out the cheque it was given to Misr (Nig.) Ltd. and it was to settle the cost of cement forwarded to Ekhnatone Ltd. The debt due to the plaintiff has to be paid by myself and the third party.” (The underlining is ours).
When he was cross-examined about the transaction, he explained further as follows:-
“Ekhnatone Limited was in fact registered as a limited liability company. I still confirm that I did not spend a penny of the money owing to the plaintiff’s bank on myself. The money was used by Ekhnatone Ltd. to buy cement from Misr (Nig.) Ltd.” (The underlining is ours).
In his own defence on oath, the third party testified that he is neither a party to the formation of Ekhnatone Ltd. nor a director of the said company. He also denied knowing anybody by the name of Ugonna Okafor (the name of the person shown as the second subscriber in the Memorandum and Articles of Association of Ekhnatone Ltd. (Exs. 0-02). He denied signing the Particulars of Directors of the Company (Ex. N) or the said Memorandum and Articles (Exs. 0-02). He said that there was no time when he agreed with the defendant to buy cement and that the evidence of the defence witnesses against him was fabricated.
At the close of the case for both parties, learned counsel for the third party pointed out in his address that in view of the averment in paragraph 31 of the defendant’s statement of claim and the evidence adduced in support, there was no basis for joining Okafor as the third party and that the party who should have been joined as the third party is Ekhnatone Ltd., not the directors or the shareholders. As a consequence of this submission, the defendant applied and, in spite of the strenuous objection by learned counsel for the third party, he was granted leave by the learned trial Judge later, in his reserved judgment, to amend paragraph 31 of his (the defendant’s) statement of claim by substituting the words “the defendant and the third party” for the words “Ekhnatone Ltd.” Because of the said amendment, the paragraph now reads –
“31. That despite repeated demands the third party failed, refused or neglected to meet the defendant to be able to settle the sum due and owing by the defendant and the third party to the plaintiff.”
In the reserved judgment, the learned trial Judge had earlier pointed out, before granting the amendment, that the case of the defendant is that the third party is liable to him for half of the amount of the indebtedness while that of the third party is that if there is liability at all, it is that of Ekhnatone Ltd. He, nevertheless, granted the amendment and then considered the evidence adduced by both sides before finding as follows:-
“Without the least hesitation I am clear in my mind that the cement business was undertaken by the defendant, the third party, and Mr. Mikawi. There is no question that the loan of 55, 714.15.0d was taken for the purpose of paying for the cement because the evidence is there that it was paid out to the representatives of Misr (Nig.) Ltd. who accompanied the parties to the Bank. It does not appear to me material whether the third party was a member of Ekhnatone Ltd. or not or whether he used somebody as a front. The loan was made to pass through the bank account of the defendant, but certainly for the purpose of the three parties in the business.”
The learned trial Judge then gave judgment for the defendant after finding finally as follows:-
“In my judgment, the evidence is strong against the third party that he was a joint adventurer with the defendant and Mr. Mikawi in the purchase of 10,000 tons of cement for which a loan was advanced by the plaintiff for the settlement of the purchase price to Misr (Nig.) Ltd.”
Of the four grounds of appeal filed by the third party in his appeal against the judgment, only one was argued and it reads:-
“The learned trial Judge erred in law in making the order for contribution against the appellant when the defendant/respondent admitted that all the money in respect of which he sought contribution was used by a limited liability company and the defendant did not establish that either
(i)any demand for payment had been made from the company and/or
(ii)that the company was unable to repay the money.”
Briefly stated, the submission of the learned counsel for the appellant is this. Since the defendant himself has testified that the overdraft which he obtained from the African Continental Bank Ltd. (the plaintiffs) was for the use of Ekhnatone Ltd., the party which could have been sued as a third party is that limited liability company and not the appellant. Since it is immaterial whether the appellant is a director of that company or not, it would be wrong to make him liable for any portion of the amount so paid.
In reply, learned counsel for the defendant (Widi Jallo) submitted that since the appellant directed the sale of all the cement bought by Ekhnatone Ltd. from Lagos, the learned trial Judge was right in holding that he was rightly sued as a third party and that he was liable as such for part of the money paid by the defendant to Misr (Nig.) Ltd. for the cement. He conceded, however, that the appellant would also be an accounting party to the defendant and could have been sued for an account with respect to the cement which he had sold.
We think that the learned trial Judge should not have granted the amendment asked for by the defendant particularly at that late stage in the proceedings. In granting the amendment, the learned trial Judge did not advert to the averment in the affidavit sworn to by the defendant’s clerk in support of the application for the third party notice. He also seemed to have overlooked that part of the defendant’s testimony where the defendant clearly admitted-
(a)that the agreement for the purchase of the cement was between Ekhnatone Ltd. and Misr (Nig.) Ltd; and
(b)that the money which he took from the plaintiffs was not for his own personal use but was used for the settlement of the cost of the cement which Ekhnatone Ltd. bought from Misr (Nig.) Ltd.
As it is, the amendment which he has granted does not appear to be supported by the evidence of the defendant.
In our view, the mere service of a third-party notice does not make the person on whom it is served a defendant to the main action but makes him only a defendant vis-a-vis the person serving the notice. In the main action, the rights of the plaintiff and the defendant are determined without reference to the defendant’s claim against the third party, but when those rights have been ascertained, it is then open to the person brought in as the third party to have all relevant disputes determined between him and the person serving the notice. In doing this, the third party may defend himself in any way in which any defendant in an action at the suit of a plaintiff may defend himself. (See Barclays Bank v. Tom (1922) All ER p. 279 at pages 280 and 281).
Admittedly, in the case in hand, the learned trial Judge, presumably because of the error he made in granting the amendment, found that –
“the evidence is strong against the third party that he was a joint adventurer with the defendant and Mr. Mikawi in the purchase of 10,000 tons of cement for which a loan was advanced by the plaintiff for the settlement of the purchase price of Misr (Nig.) Ltd.”
If these were the facts on which the defendant’s case was predicated, the third party would certainly be liable on the basis that what the parties did was in the nature of a joint partnership adventure in which case each of them would be deemed to have participated equally in the profit or loss. (See Lowe & Sons v. Dixon & Sons (1885’9786) 16 QBD 455). This finding of the learned trial Judge was, however, not supported by the evidence adduced by the defendant in support of his claim against the third party. Shorn of all irrelevancies, the facts which clearly emerged from the evidence are as follows. The defendant and two other persons (Ugonna Okafor and Ibrahim Mikawi) formed a company known as Ekhnatone Ltd. It was not conclusively proved (and consequently the learned trial Judge made no finding on the point) that Ugonna Okafor is the same person as the third party. Later, the name of Ibrahim Mikawi was removed from the list of subscribers because he is an expatriate. Soon after this, the company entered into an agreement with another company (Misr (Nig.) Ltd.) for the purchase of 50,000 tons of cement. When the cement arrived, they were delivered and the defendants paid for them on behalf of Ekhnatone Ltd. To get the money, the defendants asked for and was granted an overdraft on his account at the Apapa Branch of the plaintiffs bank. The defendant explained that the money which he withdrew from his account and with which he paid for the cement was not used for himself but was used to pay Misr (Nig.) Ltd. which sold the cement to Ekhnatone Ltd. He nevertheless concluded that the debt due from him to the plaintiffs should not be paid by himself alone because, according to him, it is the joint liability of both himself and the third party. It is significant, however, that the defendant’s cheque for 55,714.15.0d (Ex. L’) by which the amount was withdrawn from the plaintiffs was dated 8th December, 1971, the same date on which Ekhnatone Ltd. was incorporated (See Certificate of Incorporation Ex.’91M’91).
Manifestly, the payment made by the defendant to Misr (Nig.) Ltd. could only have been made, and was in fact made, on behalf of Ekhnatone Ltd. to which Misr (Nig.) Ltd. sold the cement. Therefore, the party who should reimburse the defendant for the payment and who should have been called upon to indemnify him is Ekhnatone Ltd. and not the third party/appellant. In this connection, we would like to point out that the “third-party procedure” is now applicable, not only to cases where the defendant’s claim against a person sought to be made liable as a third party is substantially a claim for contribution or indemnity in respect of the plaintiff’s claims in the action, but also to proceedings where a defendant-
“(a) claims against the third party any relief or remedy relating to or connected with the original subject matter of the action and substantially the same as some relief or remedy claimed by the plaintiffs; or
(b) requires that any question or issue relating to or connected with the original subject matter of the action should be determined not only as between the plaintiff and the defendant but also as between either or both of them and a person not already a party to the action.”
(See Order 16 rule 1 of the English Rules of the Supreme Court, 1971 and Order 13 rule 22(1) of the High Court of Lagos (Civil Procedure) Rules, 1973, which came into force on 1st September, 1973.) Notwithstanding this extension of the scope of the rule, there is no doubt that Ekhnatone Ltd., on whose behalf the money was paid, is the party liable to reimburse the defendant and could have been brought into the case under a third-party notice. On the other hand, the appellant’s liability to the defendant, (and we express no definite view on the point), may well be to account to him for any money received by him with respect to the quantity of cement sold by him. In this respect, we refer once again to paragraph (25) of the affidavit of the defendant’s clerk which reads:-
“That as a result of mismanagement and unnecessary interference by Mr. Okafor, the cement business flopped.”
We do not therefore see how, in the particular circumstances of this case, the appellant could be made to reimburse or indemnify the defendant for the amount which he (the defendant) paid to Misr (Nig.) Ltd. on behalf of Ekhnatone Ltd. The learned trial Judge was clearly in error in finding as he did that the appellant was liable as a third party. He undoubtedly misdirected himself on the facts when he found that the business was undertaken by the defendant, Mr. Mikawi, and the appellant, in their personal capacities, and that the loan made by the plaintiffs to the defendant was for the purpose of the three parties in the business. Manifestly, the parties (whoever they are) formed Ekhnatone Ltd. for the purpose of the business with Misr (Nig.) Ltd. and the defendant paid the money, not on behalf of himself and the appellant, but on behalf of Ekhnatone Ltd.
The appeal therefore succeeds and it is allowed. The judgment of the learned trial Judge in Suit No. LD/963/72 delivered on 11th February, 1974, in so far as it affects the claim of the defendant against the third-party/appellant, including any order as to costs made in that respect, is set aside. Instead, we order that the defendant’s claim against the third-party be and is hereby dismissed, and this shall be the judgment of the court.
The third party is awarded costs against the defendant assessed in the court below at N150.00 and in this court at N230.00.
Other Citation: (1975) LCN/2028(SC)
