Badagry Petroleum Refinery Limited & Anor V. Alhaji Rasaki Awayewaserere (2002)
LawGlobal-Hub Lead Judgment Report
O. ADEREMI, J.C.A.
In the court below, Federal High Court, Lagos (Coram Odunowo J.) the respondent as plaintiff claimed from three defendants i.e. (1)M. A. Sandius (now deceased) (2) Badagry Petroleum Refinery Ltd and (3) Skab Oil And Gas Resources Ltd the following reliefs:
(1) An injunction to restrain the defendants whether by themselves, their servants and/or agents or any of them or otherwise however from doing the following acts or any of them that is to say: collecting from the Ministry Petroleum Resources Licence to construct and operate Petroleum Refinery issued to Badagry Petroleum Refinery Limited;
(2) An order restraining the 1st defendant from managing or running in any manner whatsoever the affairs of the 2nd and 3rd defendants namely Badagry Petroleum Refinery Limited and Skab Oil and Gas Resources Ltd.
(3) A declaration that a letter of appointment and/or increment of consultancy fees to US $2,500,000.00 addressed to Dapo Durosimi Etiti and Olufemi Oso & Co. and written by the 2nd defendant is illegal, ultra vires, null and void
The first defendant (M.A. Sandius – now deceased) filed a separate statement of defence to which he sub-joined a counter-claim which is in the following terms:
(1) A declaration that the 1st defendant is the proper person to be appointed the Chairman and Managing Director to control the affairs of the 2nd defendant by reason of his majority shareholding.
(3) An order setting aside all resolutions, decisions or steps taken by the plaintiff alone or in conjunction with others during the pendency of this action
(4) An injunction restraining the plaintiff and members of the 2nd and 3rd defendants from:
(a) calling or holding any meeting of the 2nd defendant to consider shareholding structure
(b) issuing out any shares to anybody until all proper procedure and laws have been complied with.
(c) from running the affairs of the 2nd defendant without the 1st defendant’s consent.
(5) An order that all the expenses incurred by the 1st defendant in this action and the cross action and other related matters be bourne by the 2nd defendant Company.
The 2nd and 3rd defendants entered a joint statement of defence to which they sub-joined by way of adoption, the counter-Claim of the 1st defendant. The pleadings filed and exchanged between the parties are in the following terms: the further amended statement of claim, the statement of defence and counter-claim of the 1st defendant, the joint statement of defence and counter-claim of the 2nd and 3rd defendants and the reply to the statement of defence and counter-claim. In a reserved judgment delivered on the 2nd of August 2000, the learned trial judge granted all the reliefs sought by the plaintiff in the terms set-out in paragraph 16 of the further amended statement of claim. However the counter-claims of all the defendants were dismissed. In handing down his judgment, the learned trial had reasoned:
“Although the plaintiff is a man of limited education he nevertheless gave his evidence in a consistent and convincing manner that no reasonable tribunal will fail to be impressed what he had to say ….
On the other hand, the 1st defendant’s story rings hollow for the reasons which I must now proceed to highlight.
As regards the defendants’ counter-claim, no shred of evidence was put forward to support this … I have no misgivings whatsoever that the plaintiff has convincingly established his case against the defendants.
That being so judgment is hereby entered in favour of the plaintiff in terms of paragraph 16 of his further amended statement of claim as reflected above. As earlier indicated, since the defendants did not give evidence in support of their pleadings the averments therein are taken to have been abandoned for they stand as no more than mere averments which have not been supported. In the result the defendants’ counter-claim cannot stand and it is hereby dismissed in its entirety.”
Aggrieved by the said judgment the three defendants appealed therefrom to this court. The Notice of Appeal dated 30th of August, 2000 and filed on 1st September 2000 carries twelve grounds.
I hereby pause to say that the first defendant (M. A. Sandius) died on the 17th of September 2000, leaving the 2nd and 3rd defendants to prosecute this appeal. Distilled from the said grounds of appeal by the appellants for determination are three issues which as set out in their brief argument are in the following terms:
(1) Whether the learned trial judge exercised his discretion judicially and judiciously in granting injunction restraining the 2nd appellant from collecting the Petroleum Refinery Licence.
(2) Whether the learned trial judge misconceived the case of the respondent and that the appellants and erred in his failure to uphold the submission of the learned counsel for the appellants that under the rule in FOSS VS HARBOTTLE and Section 299 of the COMPANIES AND Allied Matters Act, the respondent cannot bring this action.
(3) Whether on the facts before the court, the court, the respondent’s claim should have been dismissed and the 1st leg of the counter-claim granted.
For his part, the respondent identified two issues for determination and as contained in his brief of argument they are thus:
Whether the learned trial judge judicially and judiciously exercised his discretion in granting the injunction proved for.
(2) Whether the learned trial judge correctly appraised all the facts particularly affidavit, evidence and exhibits placed before him in arriving at his judgment.
When this appeal came before us on 22nd November, 2001 for argument, Alhaji Y.A. Agbaje S.A.N. learned counsel for the appellants adopted the appellants brief of argument filed on the 11th of May 2001 and the Reply Brief filed on 13/7/2001 and urged us to allow the appeal. Chief Olaogun learned counsel for the respondent adopted the respondent’s brief of argument filed on 27th April 2001 and urged that the appeal be dismissed.
Briefly, the case of the plaintiff/respondent as deciphered from his pleadings is thus: The plaintiff/respondents and the 1st defendant (M.A. SANDIUS – now deceased), both business-men jointly promoted the now first and second defendants/appellants.
Thereafter an application was made for petroleum refinery licence. It was the further case of the respondent that when the application for the petroleum refinery licence reached an advanced stage the 1st defendant (M. A. Sandius – deceased) became arrogant and unilaterally took several steps which were not in conformity with the operation of a limited liability company. The 1st defendant/appellant incurred heavy debts in foreign exchange resulting from the management of the appellants/companies by the deceased (M.A. Sandius). The plaintiff/respondent
also averred that he was a major financier of the 1st defendant/appellant and solely financed all the expenses incurred.
The first defendant (M.A. Sandius now deceased) in his statement of defence agreed with the contention of the plaintiff/respondent that they both jointly promoted the formation of the 1st and 2nd defendants/appellants on the condition that he (Sandius) and his overseas partners who would finance the oil and gas exploration refinery and marketing project would hold 80% share in the 1st defendant/appellant/company while the plaintiff/respondent and all other would-be Nigerian shareholders would hold 20% share. It was his (Sandius) case that on registering the 1st defendant/appellant/company, Sandius, by virtue of his being the majority shareholder, became the Managing Director and the plaintiff/respondent an ordinary director. All the actions taken by him (Sandius) as Managing Director, were with the knowledge and consent of the plaintiff/respondent and other members of the 1st defendant/appellant. Suddenly, the plaintiff/respondent became disinterested in the affairs of the 1st defendant/appellant.
The genesis of the crisis, according to him was rooted in the refusal of the deceased (Sandius) to accede to the request and agitation of the plaintiff/respondent for a larger share of the sum of $37.9 million which is 5% of the agreed project cost of $1680 million set aside for the preliminary payment by the foreign partners to cover promotional expenses immediately upon the grant of licence. The 2nd and 3rd defendants who are now the appellants in their joint statement of defence and counter-claim adopted the case put forward by Sandius.
In view issues Nos 1 and 2 set out in the respondents’ brief are materially the same. Again, these two issues are in pari materia with issue No 1 identified in the appellants’ brief of argument for determination. I shall therefore take issue No 1 on the appellants together with the two issues contained in the respondents’ brief of argument in the consideration of the appeal. Issue No 2 on the appellants’ brief raises very fundamental point of law that I consider taking it first and later issue 3 No 3 raised by the appellants. Finally, I shall take issue 1 on the appellants’ brief and issues Nos 1 and 2 on the respondents’ brief together.
On issue No 2 the appellants have recounted the principle of law enunciated in FOSS VS HARBOTTLE (1843) 2 HARE 461 and submitted that the complaints of the respondent as averred in paragraphs 8, 11, 12, 13, 14 and 15 are not in respect of rights due to him personally; they are matters’ relating to internal management of affairs of the 2nd appellant (now 1st appellant, M. A. Sandius having died which ought to be and have been resolved by the majority of members of the now 1st defendant/appellant. The respondent, they further argued, is therefore caught by the provisions of Section 299 of CAMA. The essence of the plaintiff/respondent’s claim before the court below is quite different from what the learned trial judge construed it to be. Fraud was not pleaded; nor did he plead fixation of ultra vires acts against the appellants; reliance was placed on the decisions in Abubakri vs. Smith (1973) All N.L.R. 634.
The respondent in his brief of argument had submitted that this case emanates from an apparent breach or threatened breach of contract between a corporate entity and an individual and between individual members of a corporate body inter se. He therefore argued that the case of FOSS VS. HARBOTTLE cited by the appellants is in applicable to this case because, according to him, the principle enunciated in that case and section 299 of the Companies and Allied Matters Act 1990 Cap 59 Laws of the Federation do not harbour illegal and/or unlawful acts either by shareholders and/or the directors of the Company. He further reasoned that once a company is incorporated the Articles of Association creates a contractual relationship among the shareholders inter-se by virtue of Section 37 of CMA; for this submission reliance was placed on the decision in WOOD VS. ODESSA WATERWORKS CO. LTD (1889) 42 Ch. D. 14.
The plaintiff/respondent, it was further contended is on a firma terra in bringing this action by virtue of Sections 310 and 311 of CAMA 1990. The management of a limited liability company is, it was submitted, usually a function of the Board of Directors of the company be it private or public.
In the instant case, the management of the defendants/appellants companies is spelt out in clauses 3, 81, 103 and 105 of the Articles of Association of the companies.
I have examined grounds 1, 6, 7 and 9 on the notice of Appeal vis – a – vis Issue No 2 formulated for determination by the appellants, that issue flows directly from the said four grounds of appeal. I will start by saying that, in very general terms, responsibility for a company’s acts and affairs often rests either with its officers who usually are the directors or with its shareholders (normally by a simple majority). Before I go on, I feel compelled to re-visit the amended statement of claim in order to decipher the cause of this action. Paragraphs 8, 11, 14 and 15 of the Plaintiff/respondent’s amended pleadings are here relevant.
For a proper appreciation of the issues involved I shall here under reproduce them:
Para 8
“As soon as the application for the petroleum refinery licence reached advanced stage the 1st defendant became arrogant and unilaterally took several steps which were not in consonant (sic) with the operation of a limited liability company.”
The particulars of the several steps which the deceased 1st defendant – M.A. Sandius – unilaterally took as spelt out in the pleadings are as follows:-
‘PARTICULARS’
(1) The 1st defendant single – handedly wrote several letters appointing, consultants, legal adviser, company secretary ‘among others;
(ii) Staying in hotels, incurring heavy bills, some which were settled by the plaintiff
(iii) Travelling abroad without the consent and/or approval of the Board of Directors:
(iv) Collecting money from several persons with a promise to offer shares in the 2nd defendant and also offering some of them seats in the Board of Directors of the 2nd defendant Committing the 2nd defendant to pay salaries of purported staff and consultants appointed by him in foreign currency (United States Dollars).
(vi) Unilaterally taking up sub-lease of premises at Head Office of the 2nd defendant at Plot No. 697 Amodu Tijani Street, Victoria Island, Lagos.
Para 11
As a result of the 1st defendant’s unilateral management of the 2nd and 3rd defendants, the 2nd defendant has incurred heavy debts in foreign currency to corporate Trust Limited vide 1st defendant’s letter Ref. AS/LM/ AG/1. 95 dated 1st February, 1995 etc.
Para 14
“After the petroleum refinery was provisionally granted to the 2nd defendant, the 1st defendant unilaterally made unauthorised promises of gifts and monetary payments for anticipated and/or unrendered services to various people on the 2nd defendant’s behalf without due consultation with the Directors.”
Para 15
“The plaintiff is major financier of the 2nd defendant and solely financed and/or “bank rolled” all manner of expenditure inclusive of those incurred by the 1st defendant right from the very conception of the idea to the granting of the petroleum refinery licence to the 2nd defendant.”
A careful reading of the relevant, paragraphs of the plaintiff/appellant’s pleadings which I have reproduced above leaves me in no doubt that the plaintiff’s grouse is about maladministration of or wrongs committed against the now 1st defendant/appellant – Badagry Petroleum Refinery Limited. It touches on the internal workings of the company – the 1st defendant/appellant.
The question that must be answered is, who, in law, can bring an action to remedy any acts of maladministration? The Separate personality posture which a company acquires on its incorporation means that whatever wrong is done or is alleged to have been done to the company, only the company is harmed by the wrongful act. Consequently, only the company can sue to remedy it. The next question is who can be said to have authority to begin, an action in the company’s name. This touches on the management and control of the company. The position of the law is that the powers of management in so far as they affect institution of litigation in the company’s name is divided in that either the directors can so institute the action see JOHN SHAW & SONS (Salford) LTD VS SHAW (1935)2 K.B. 113; or the company in, general meeting see MARSHALL’S VALVE GEAR CO. LTD VS MANNING WARDLE & CO. LTD (1909) 1 CH 267. It seems to me therefore that from this division of powers, a court of law will generally strike out any action brought by a shareholder to remedy a wrong done to the company. What I have just said in essence is the practical explanation of the rule in FOSS VS HARBOTTLE (1843) 2 HARE 461. In this case two shareholders brought an action on behalf of themselves and other shareholders except the shareholder – directors who had committed a wrongful act to the company (by selling property to it for an undisclosed profit) Sir James Wigram V. C. said in the judgment and I quote: “It was not nor could it be successfully argued that it was a matter of course for any individual members of a corporation thus to assume to themselves the right of suing in the name of the corporators. In law the corporation and the aggregate members of the corporation are not the same thing for purposes like this.”
Also, in MOZLEY VS ALSTON (1847)16 L.J. CH 217 where two shareholders brought an action in their individual capacity to restrain a wrong done to the company, as in the instant case, Lord Cottenham L. C. said:
“Not only does it appear that the plaintiffs have not the means of putting the corporation in motion, but the bill expressly alleges that a large majority of the shareholders are of the same opinion with them, and if that be so, there is obviously nothing to prevent the company from filing a bill in its corporate character to remedy the evil complained of.”
The only possible plaintiff that can stop any wrongful act done to it is the company itself. In COOTTER VS NATIONAL UNION OF SEAMEN (1929)2 CH 28, Russel L.J. said:
“The rule in Foss vs. Harbottle really works by means of something in the nature of a dilemma. The only possible plaintiff to stop an intra vires act is the corporation itself. If an individual is in a position to be able to use the name of the corporation then the majority are in agreement with him. If he is not in a position to use that name, then the majority are in disagreement with him, and he is not entitled to bring an action in his own name.
The rule in FOSS VS. HARBOTTLE was succinctly explained in EDWARDS & ORS VS HALLIWELL & ORS (1950)2 A.E. R. 1064 by Jenkains L. J. when in delivering the judgment of Court of Appeal (England) he at page 1066:
“The rule in Foss vs. Harbottle as I understand it comes to mean no more than this. First, the proper plaintiff in an action in respect of a wrong alleged to be done to a company or association of persons is, prima facie the company or the association of persons itself.
Secondly where the alleged wrong is a transaction which might be made binding on the company or association and on all its members by a simple majority of the members, no individual member of the company is allowed to maintain an action in respect of the matter for the simple reason that, if a mere majority of the company or association is in favour of what has been done, then cadit quoastio. No wrong has been done to the company or association and there is nothing in respect of which anyone can sue.”
Suffice it to say that the Supreme Court in YALAJU AMAYE VS A.R.E.C. LTD (1990)4 NWLR (pt. 145) 422 quoted with approval the above dictum of Jenkins L. J. In the judgment of this court CA/L/98/2001: KUNLE LADEJOBI & ORS v. ODUTOLA HOLDINGS LTD delivered on the 16th of July 2001, I said, fortified with the judicial decisions that I have referred to that vested with the power of management and control of a company, the majority of the shareholders can, in the exercise of that power, challenge the authority to bring an action in the name of the company of which they are the majority shareholders, because the company itself is the proper Plaintiff in all actions where there is an allegation of injuries done to it. The rule in FOSS VS HARBOTTLE is therefore essentially a statement of majority rule and where an action is brought by a minority shareholder to remedy a wrong done to the company the court may send the issue back to the company for a majority at a general meeting to decide whether or not to adopt the action see DANISH MERCANTILE CO. LTD VS. BEAUMONT – (1951) CH. 680. Back at home, in the case of TANIMOLA & ORS VS SURVEYS AND MAPPING GEODATA LTD & ORS (1995) 6 NWLR (pt. 403) 617 Uwaifo J.C.A. (as he then was) now J.S.C. delivering the leading judgment of the Court of Appeal (Lagos Division had observed that the operation of a company is principally by the will of the majority shareholders”.
Whether this approach will be adopted by the court or not will depend on the circumstances of each case. The majority rule is itself not absolute. For the majority can only authorize acts to be perfumed on the company’s behalf which are within the company’s lawful powers. It therefore follows that the rule in FOSS VS HARBOTTLE does not apply to prevent actions to restrain the commission by the company of illegal or ultra vires acts. I must not forget to say that the rule does not deprive a Shareholder of his personal rights under the Company’s articles. Where allegation of fraud is properly laid or where any act is purported to be done by ordinary resolution which by the Company’s constitution or the Act requires to be done by special resolution; the rule has no application see TANIMOLA’S case cited supra. For the umpteenth time reading the reliefs sought together with the relevant paragraphs of the plaintiff/respondent’s pleadings reproduced above those reliefs are clearly those which the 1st appellant (Badagary Petroleum Refinery Limited can seek by an action instituted by itself in addition to all the judicial decisions that I have referred to above. I also find support in Section 299 of CAMA. The result of all I have been saying is that the plaintiff/respondent lacks the legal capacity to institute this action. I therefore resolve issue No.2 on the appellants’ brief of argument in their favour. Ordinarily, I would have said that the resolution of this all important issue in favour of the ‘appellants puts an end to the resolution of the entire appeal but following judicial authorities I must still consider the remaining issues in both briefs of the parties.
The grouse of the appellants as exposed in issue No. 1 is that the court below has not exercised its discretion judicially and judiciously in the grant of the first relief claimed by the plaintiff/respondent which is for an order of injunction restraining the defendants from collecting from the Ministry of petroleum Resources Licence to construct and operate petroleum Refinery issued to the 1st defendant/appellant – Badagry Petroleum Refinery Limited. From the way it is couched legs 1 and 2 of the prayers are for an order of perpetual injunction. Generally, an order of injunction because it never exists in vacuo, is always tied to an established right. And a perpetual injunction, the like of prayers 1 and 2 of the reliefs sought by the plaintiff/respondent for the reason that its operation is infinitum, is generally a post trial relief. It is often granted after the full trial of the case on the merits. Though, an ancillary relief, perpetual injunction is often aimed at protecting established right see
(1) IYIMOGA VS GOV. OF PLATEAU STATE (1994) 8 NWLR (pt. 360) 73 and (2) BIYO VS AKU (1996)1 NWLR (pt. 422)1. Consequently, if the substantive right has not been established, as in the instant case, an order of perpetual injunction must not be made see (1) LAWAL VS ADENIYI (1997)3 NWLR (pt. 494)457 and (2) YALAJU – AMAYE VS. A.R.E.C. LTD (1990)4 NWLR (pt. 145)422.
From what I have discussed in the resolution of issue No. 2 it is clear that the plaintiff/respondent has no right in this case which can call for legal establishment. See ADENIRAN VS ALAO (1992)2 NWLR (pt. 223)350. Issue No. 1 on the appellants brief of argument is therefore answered in the negative. On issue No 3 in the appellants’ brief having regard to all I have said above, the plaintiff/respondent’s claims ought to have been dismissed. However, the first leg of the counter- claim is praying this court to declare M. A. Sandius now deceased as the proper person to be appointed the Chairman and Managing Director to control the affairs of the 2nd defendant now the 1st appellant by reason of his being the majority shareholder. I have somewhere in this judgment said that the rule in FOSS VS. HARBOTTLE is essentially a statement of majority rule. Judicial authorities are ad idem that declaratory judgment should only be granted in circumstances in which the court is clear in its mind that the party seeking it, is, when all facts are taken unto consideration, fully entitled to the exercise of the court’s discretion. Let me say that declarations are not lightly to be granted. The power to so do must be exercised sparingly see ALHAJI AGBAJE & ORS VS. CHIEF AGBOLUAJE & ORS (1970)1 ALL N.L.R. 21. As I have said majority rule is the regulating phenomenon in the affairs or the running of a company. That being so, I am of the view that this is a proper case in which this court can exercise the type of discretion suggested by the Court of Appeal (England) in the BEAUMONT case referred to supra by sending the issue raised in leg 1 of the counter-claim back to the company for decision by a majority at a general meeting of the 1st appellant.
Therefore I answer the first arm of issue No. 3 in the affirmative while I proffer an answer in the negative in respect of the second arm of that issue. One important factor that will militate against the grant of the declaration sought in the first leg of the counter-claim is the fact that M. A. Sandius, the would-be beneficiary of the order that would be made thereunder, is no more. I have had another consideration of prayers 2, 3, 4 and 5 of the counter-claim, the view I hold about the first prayer is also applicable to them. These are matters to be tabled before the general meeting of the 1st appellant. Flowing from what I have been discussing; the two issues identified by the respondent in his brief must be answered in the negative and I so answer them from all I have been saying the only conclusion I can reach and which I now reach is that the appeal succeeds in part. The appeal is allowed in respect of that part of the judgment granting in favour of the plaintiff the reliefs set out in paragraph 16 of the further amended statement of claim. The Plaintiff/respondent lacks the locus standi to initiate the suit.
However, from what I have said that the reliefs sought by the appellants in their counter-claim are such that must first be resolved at the general meeting of the 1st appellant, the trill court ought not to have dismissed the counter-claim.
What order should I then make? In respect of the plaintiff/respondent’s suit the law is settled that where a plaintiff is adjudged to lack the necessary locus standi to initiate a proceedings the proper order to make is an order striking out the action and not an order of dismissal see (1) THE ROAD TRANSPORT EMPLOYEES ASSOCIATION OF NIGERIA VS. THE NATIONAL UNION OF ROAD TRANSPORT WORKERS (1992) 2 NWLR (pt. 224) 381, (2) OKAFOR & ORS VS ASOH & ORS (1999) 3 NWLR (pt. 593) 35 and (3) OGBUEHI VS GOV. IMO STATE (1995) 9 NWLR (pt. 417) 53. Applying this principle, I set aside the judgment of the court below with respect to the plaintiff/respondent’s suit and in its place, I enter an order striking out the entire suit. In the same vein, the appeal fails in the other part. The counterclaim of the defendants/appellants, for the reasons that I have adduced, is struck-out in its entirety. Each side shall bear their cost.
Other Citations: (2002)LCN/1082(CA)
