Nib Investment (West Africa) V. Chief a. O. Omisore & Ors (2005)
LawGlobal-Hub Lead Judgment Report
CLARA BATA OGUNBIYI, J.C.A.
The appeal at hand is against the ruling of the Federal High Court, Lagos Division, delivered by Honourable Justice Dan D. Abutu, on the 29th October, 2002, in suit No. FHC/L/CS/867/2001. The court upheld in the main, the defendant’s/respondent’s objection, dated 30th October, 2001, that the plaintiff/appellant’s had no locus standi to institute the action. The plaintiff was the respondent to that motion, at the lower court and is now the appellant in this court, and its action was instituted by writ of summons and statement of claim, dated 17th October, 2001 respectively, against the defendants/applicants, who are the respondents in this court. The lower court consequent to the objection struck out the appellant’s suit. The appellant is greatly dissatisfied and the reason for filing an appeal against the said decision.
For the purpose of better understanding of this case, the brief background facts would be necessary and needful. The plaintiff/appellant sometimes in 1957, came to Nigeria from the United Kingdom and set up the 6th defendant/ respondent (Glanvill Enthoven & Company (Nig.) Ltd.) in Nigeria, in conjunction with the old National Bank of Nigeria, which had a small share participation, and for the purposes of transacting insurance brokerage/broking services. Following the promulgation of the Nigeria Enterprises Promotion Decree 1976, which placed insurance business in Schedule 11 thereof, requiring Nigerians to hold at least 60% of the 6th defendant equity, 6th defendant shareholding was re-structured and allotted in the following particulars:-
(a) NIB Investment (West Africa) (plaintiff/appellant) – 40%
(b) Ometa Company – 55%
(c) Staff Trust of the 6th defendant – 5%
Further still and in 1991, there was a restructuring of the 6th defendant in the following particulars:-
(a) NIB Investment (West Africa) (plaintiff/appellant) – 28%
(b) Ometa company – 38%
(c) Staff Trust of the 6th defendant – 5%
(d) Kailash Weaving & Manufacturing – 17.25%
(e) Omis Investment Ltd. – 11.25%
On his Statement of claim, the plaintiff/appellant further claimed that by the same restructuring process, the following shareholders were entitled to appoint directors to the board of the 6th defendant in the following particulars.
(a) Investment (West Africa) (plaintiff/appellant) – 3 directors
(b) Ometa Company – 4 directors
(c) Kailash weaving Manufacturing – 2 directors
(d) Omis Investment Limited – 1 director
The Appellant further pleaded that the 5th respondent (Odua Investment Company Limited) who is not a shareholder appointed 1st, 2nd, 3rd and 4th respondents as directors to the 6th respondents. The appellant then challenged the nomination of 1st to 4th respondents into the board of the 6th respondents made in November, 1999, on the grounds that:-
(a) The 5th respondent is a stranger to the 6th respondent company.
(b) The 5th respondent wrongly nominated (appointed) the 1st to 4th respondents as directors of the 6th respondent.
The appellant further complained in its statement of claim that the 1st to 4th respondents misappropriated the funds of the 6th respondent by reason of their wrongful appointment and by:-
(i) Collecting directors’ fees.
(ii) Using the 6th respondent’s house for private use.
(iii) Appropriation of 3 company cars.
(iv) Misappropriating the funds of the 6th respondent.
(v) Removal of the Company Managing Director.
(vi) Frivolous use of lawyers.
(vii) Usurping of the company duties.
At paragraph 23 of its statement of claim, at pages 8-9 of the record of proceedings, the appellant then sought for various declarations and orders to the effect that the 5th respondent is not a member of the 6th respondent’s company. That the appointment of the 1st to 4th respondents as directors of the 6th respondent was irregular, null and void and of no effect. A further order was also sought to set aside the acts of the 1st to 5th respondents. There was also the appellant’s prayer for the refund by way of restitution to the 6th respondent, a total sum of N50,000,000, fifty million naira allegedly wrongly expended by the 1st to 5th respondents.
The Respondents herein by their joint statement of defence dated 30th October, 2001, at pages 1-13 of the supplementary record of appeal, denied the case of the appellant as generally stated or contained in the statement of claim. They however set out prolific caveat relating to points of law in paragraphs 5, 13 and 19 of their statement of defence thereof which inter alia challenged not only the locus standi of the appellant to institute the action, but also the jurisdictional competence of the court to entertain same.
By the respondent’s motion on notice dated 30th October, 2001, same prayed for the disposal of the points of law raised in the statement of defence and for purpose of dismissing or striking out the plaintiffs suit. Both parties filed various affidavits; to wit main, further, counter and further counter as well as replies to same respectively. Both main and supplementary records of proceeding are evidence in support. At pages 81 – 105 of the main record of proceeding, arguments of counsel were taken on the point of law set down for hearing and at the end of which the lower court by its ruling upheld the objection of the respondents on the issue of locus standi and struck out the appellant’s suit.
Being dissatisfied with the decision of the lower court, the appellant by its notice of appeal dated and filed on 12th November, 2002, appealed on three grounds at pages 119-121 of the record.
In its contemplation for the purpose of this appeal three issues were formulated by the appellant as follows:-
1) whether upon a calm view of the pleadings and reliefs contained in the statement of claim, which purport was to prevent the continuance of ultra vires acts by the 6th defendant in the continued directorship of the 1st – 4th defendants, appointed by the 5th defendant contrary to provisions of CAMA and the memorandum and articles of association, the court was justified when he held that it is only the company that can sue to remedy a wrong committed in the course of the company’s affair and ratify any irregular conduct against it.
2) Whether giving regard to the facts alleged by the appellant raising ultra vires issues, the court has not misdirected himself when he held that the rules in Foss v. Harbottle applied in utter disregard of the exceptions to the rule and whether in holding so, the court has not overridden provisions of the 1999 Constitution with the operation of the common law principles in Foss v. Harbottle and or CAMA.
3) Whether the Honourable Court was right, when he held that the wrong complained of is a wrong done to the 6th defendant and thereby striking out the plaintiff’s suit for want of locus standi.
In his perspective perception and on behalf of the respondents, their learned Counsel, Rotimi Jacobs, deemed it appropriate that the totality of the appellants grounds of appeal gave rise to only one issue as follows:-
“whether the appellant has locus standi to institute suit No. FHC/L/CS/867/2001 against the respondents and seek the reliefs stated therein.”
I have carefully scrutinized the three grounds of appeal filed by the appellant specifically at pages 119-120 of the record and in conjunction with the said motion on notice dated 30th October, 2001, at pages 25 and 26 of the same record. From all indications and having regard to the prayers sought and the grounds predicating same thereon, the crux of the application relates to issue of locus standi and the alleged absence which robbed the trial court of jurisdiction. In my humble opinion and as rightly submitted by the learned respondents’ counsel therefore, the three issues raised by the appellant amount to proliferation of issues which is very much unnecessary and consequent to which, I also see as appropriate that there is only one issue for determination and same which is as per the formulation by the respondents’ counsel. I would in this regard and for purpose of convenience consider together, the arguments made by the learned appellant’s counsel on his three issues.
For the substantiation of his arguments, the learned appellant’s Counsel related the application of the rule in Foss v. Harbottle and submitted that Agbaje, JSC’s statement in Okoya v. Santilli (1990) 2 NWLR (Pt. 131) 172 is apposite. That with the acts complained of being purely acts which are ultra vires the company and of fraud, a right is given the minority share holder to maintain action against the oppressive running of the company. That section 300(a) and (c) of the companies and Allied Matters Act (CAMA) applied and not section 299 of the Act as held by the lower court. Learned Counsel urged us that in deciding the issue of right to maintain this action, the only document the courts should consider is the writ of summons and the statement of claim. Reference in support was made to the authority in the case of Ayoola v. Baruwa (1999) 11 NWLR (pt. 628) 595. Counsel also drew our attention to the reliefs sought in the action. The learned Counsel reiterated the significance of Memorandum and Articles of Association pursuant to which a company must conduct its affairs the failure which would be ultra vires the company and therefore renders all acts done and which are beyond the powers of the company null, void and of no effect howsoever. Learned Counsel submitted that the issues raised in reliefs 1 and 2 are whether the action complained of are not ultra vires the defendants whose acts run foul of section 248 of CAMA. Reference was made in support to paragraph 12 of the statement to claim per the record. Learned Counsel urged us to hold that the rule in Foss v. Harbottle is inapplicable in the instant case having regards to the exceptions to the rule as set out under section 300(a), (c) and (d) of CAMA.
The Learned appellant’s Counsel in his submission on the 2nd issue raised, copiously addressed and restated the exception to the rule in Foss v. Harbottle and enunciated the situational instances wherein individual members can take action against their company or union. The exceptions which are:-
(a) Actions to restrain the company from doing an illegal or ultra vires act.
(b) Actions to prevent a fraud on a minority, e.g. to recover the company’s property from persons who have taken it for themselves, and who can, by using their controlling interest in the company/union prevent it from taking any such action.
(c) Actions to restrain the company which has power to do an act sanctioned by a special resolution from doing same by an improperly passed resolution; and
(d) Actions to protect the invasion of a member’s individual rights as a member.
The Learned Counsel principally predicated the plaintiff’s action on (a), (b) and (d) exceptions supra. That with the company having acted ultra vires its powers, the plaintiff herein being a shareholder has unfettered right to sue under the above listed exceptions. Reference was made to section 300 of the CAMA, the statement of claim and the reliefs sought at pages 5 – 9 of the record, particularly, paragraphs 9, 14, 15, 17, 18, 19, and 20 of the statement of claim relating to the investment of the plaintiff appellant in the 6th defendant. That the plaintiff has a right to proceed against person or persons who is/are managing the 6th defendant in rude and oppressive manner which is geared towards making the plaintiff lose its investment in the 6th defendant. That the plaintiff has a genuine cause of action. The authority in support was the case of Ecobank (Nig.) Plc. v. Gateway Hotels Ltd. (1999) 11 NWLR (Pt.627) 397 per Onalaja JCA. Further references were also made to Egbue v. Araka (1988) 3 NWLR (Pt.84) 598 and Ibrahim v. Osun (1988) 3 NWLR (Pt.82)257. That for the purpose of ascertaining whether a matter before the court discloses a reasonable cause of action, only the statement of claim must need be scrutinized and nothing more. The relevant authority to support is the case of Thomas v. Olufosoye (1986) 1 NWLR (Pt.18) 669. That having regard to the interpretation of section 6(6) (b) of the Constitution of the Federal Republic of Nigeria, 1999, it is clear that the Rule in Foss v Harbottle contravened the provision of the said Constitution and that it should be declared null and void to the extent of its inconsistency with the Constitution. That the provision of section 6(6) (b) of the Constitution is applicable and consequent to which the action is genuine and justiciable. That the said constitutional provision can by no stretch of imagination be subject to any common law rule or to section 299 of CAMA. Reference to buttress the submission was made to the case of Elufioye v. Halilu supra per their Lordships of the apex court at page 595. The learned Counsel on this issue urged us to consider the plaintiffs interest which is distinct from those of other shareholders.
On issue no 3, the learned Counsel submitted that the plaintiffs’ standing to sue in this case is dependent upon its civil rights in relation to his investment. That the conclusion by the lower court that the plaintiff/appellant lacked locus to base its case was perverse and misconceived and which should be discountenanced. The counsel restated the meaning and connotation of locus standi in the term by the Court of Appeal in Elendu v. Ekwoaba (1995) 3 NWLR (Pt.386) 704 at 750 – 751. That there has been a serious injury to the investment of the plaintiff in the 6th defendant, as it has continued to be denied its entitlement, i.e. returns from his investment in the 6th defendant. On the disclosure of plaintiffs genuine and justiciable cause of action further reference were made to Adefule v. Oyesile (1989) 5 NWLR (Pt. 122) 377 and Adesanya v. President of Nigeria (1981) 5 SC. 112 – 191; (1981) 2 NCLR 358. Learned Counsel further re-stated the two tests, which are germane to the determination of whether or not, a person has locus standi. The first of the tests which counsel argued is whether the action is justiciable and secondly whether there is a dispute between the parties. The counsel urged us on the totality to set aside the decision of the lower court and restore the suit to the cause list.
The respondents’ counsel in his submission on the lone issue raised, unflinchingly relied on paragraph 5, 13 and 19 of the respondents’ joint statement of defence which same raised as grounds of objection, the issue of locus standi in limine as a point of law. That the effect of the absence of locus standi consequently divested the court of requisite jurisdiction. The learned respondents’ Counsel dwelt at great extent on the arguments by the appellant’s counsel and arrived at a conclusion and agreeing with the learned trial Judge in upholding that the appellant had no locus standi. That it is within the right of a trial court to take the issue of who is a proper plaintiff in the suit suo motu. The authority in support is the case of Georgewill v. Ekine (1998) 8 NWLR (Pt. 562) 454 at 464 and 468. The learned Counsel restated the rule in Foss v. Harbottle and submitted that the proper plaintiff in an action in respect of a wrong alleged to have been done to a company is the company itself. That the rule which was followed in a number of Nigeria courts in several cases before 1990 is now ratified and set down under the provisions of section 299 of CAMA. That with the appellant seeking to come under the provision of section 300 (a) & (c) of CAMA which served as an exception to the rule in Foss v. Harbottles, same, counsel argued is not applicable in the circumstance especially where the appellant does not come under the said provision as an individual member claiming by way of an injunction or declaration restraining the 6th respondent from entering into any transaction which is illegal or ultra vires. That with reference to the reliefs claimed by the appellant at pages 8-9 of the record, counsel argued none alleging any ultra vires acts or any invasion of personal right in its statement of claim. The learned respondent’s counsel out lined the situation when the rule in Foss v. Harbottle and the provisions of section 299 of CAMA would apply which are in the following circumstances:-
a) issue as to whether Directors ought or ought not to be removed.
b) issue whether Directors ought or ought not to have been appointed.
c) one managing the affairs of the Company who ought not manage them.
d) The company is being managed in way in which it ought not to be managed.
That in the situations enumerated supra, the proper person to complain or proper plaintiff is the company itself and not a minority shareholder. The authority in support is the case of Macdougall v Gardiner (1875) 1 Ch. D. 13 at 23. That the appellant’s main reliefs fall within the provision of section 229 of the CAMA. Further reference was made to Ejekan v. Devon Industries Ltd. (1998) 1 NWLR (pt.534) 417 at 478. That same principle was also applied in the case of Tanimola v. S. & Mapping Geodata Ltd. (1995) 6 NWLR (Pt. 403) 617. The learned Counsel affirmatively re-echoed the applicability of the rule in Foss v. Harbottle (Supra) and consequent to which counsel further argued and reaffirmed that the appellant had no locus standi to bring the application. Reference by counsel was made to the locus classicus case of Adesanya v. Shagari (1981) 5 Sc. 112; (1981) 2 NCLR 358. That it is not the case at hand that the 1st – 5th respondents are in control of the 6th respondent or that they are majority shareholder who will not allow 6th respondent to sue. Furthermore, that a minority shareholder represented for fraud on the minority or the company can only be admitted if the wrong doers are in control of the company and the statement of claim must state that the wrong doers are in control. Several authorities cited in support are:- Birch v. Sullivan (1957) 1 WLR 1247 or (1958) 1 All ER 56; Harris v. A. Harris Ltd. (1936) 186; and in Heyting v. Dupont (1963) 1 WLR 1192. That in the instant case with the statement of a minority shareholder (appellant), not alleging that it was impossible for the company to sue because the 1st to 5th respondents are in control same is defective and discloses no standing to sue. The case in point was Georgewill v. Ekine (1998) 8 NWLR (Pt. 562) 454, where it was held that it is only the company that can sue to claim company’s property and not its directors or shareholders. Learned Counsel further argued the misconception and futility of appellant’s argument on the provision of section 300(a) & (c) of CAMA, which he maintained has no legal basis. That with the case of the appellant predicated on the wrong impression that it is the duty of the individual members of a company to appoint Directors, same is a clear misconception of the law. That the appellant has not therefore made out a case of any infraction of the provision of section 248 of CAMA from its pleadings. Also, that the appellant is wrong in placing heavy reliance on section 6(6) of the Constitution and the decision of Supreme Court in Elufioye’s case. That it is the right and obligation created under the Articles between the members and CAMA that can be enforced vide section 6(6) (b) of the 1999 Constitution. That the decision in Elufioye’s case cannot be of any assistance to the appellant. That the civil right and obligation of the appellant must be the right recognized by CAMA and the Articles and Memorandum of Association of the 6th respondent before section 6(6) (b) of the 1999 Constitution can be invoked to enforce such right or obligation. It follows therefore, that there is nothing unconstitutional in the provision of section 299 of CAMA which codified the rule in Foss v. Harbottle. That section 6(6) (b) merely recognizes and gives effect to the right created under the contract made between parties in their Articles and Memorandum of Association and the right of the members of the company recognized under CAMA. That the appellant had also failed to meet up the conditions specified under section 300 (d) of CAMA which also serves as an exception to Foss v. Harbottle. This learned Counsel argued because there is no particular of any fraud pleaded in the statement of claim. That the appellant had therefore failed to meet the condition precedent to the institution of the action by minority shareholders under section 300 (d) of CAMA.
That the appellant’s argument therefore lack any legal basis. Furthermore, that it is preposterous for the same appellant who moved the motion for the appointment of the 1st to 4th respondents as Directors of the 6th respondent to challenge the very appointment which it was actually involved in and participated. That the provision of sections 300 (a) (c) and (d) of CAMA cannot come to the aid of the appellant therefore.
Having regard to the issues formulated by both counsel and on behalf of their clients, it is my humble view that the appeal in this case is that which should be determined preferably on the lone issue formulated by the respondents’ counsel. The issue no doubt is simple and which questions the locus standi of the appellant to institute suit No. FHC/L/CS/867/2001 against the respondents and thus seeking the reliefs stated therein. It is apparent that with particular reference to the respondents’ motion on notice at pages 25 – 28 of the record, it is glaring from the grounds of objection stated that the issue of locus standi thus affecting the court’s jurisdiction is very paramount.
In a strenuous and emphatic contention, the appellant in no mincing words poised that it had locus standi to institute the action for the reasons that his complaints bordered on illegal or ultra vires act or acts affecting its individual right and therefore the action was sustainable under section 300 (a) & (c) of CAMA.
In its ruling at page 117 and 118 of the record, the learned trial Judge among others had this to say:-
“A cursory perusal of the reliefs of this action reveals that there is no prayer in terms of S.300 (a) of the Companies Act, 1990, for an order restraining the 6th defendant from entering into any transaction which is illegal or ultra vires. Also there is no prayer in terms of S.300 (c) of the Act for an order restraining the company from committing any act or omission affecting the plaintiff’s individual rights as a member. I think having regard to the pleadings and the reliefs that the rule in Foss v. Harbottle (1843) 2 Hare 461, which is that when an irregularity has been committed in the course of the company’s affairs or any wrong has been done to the company only the company can sue to remedy that wrong and only the company can ratify the irregular conduct is applicable. See Okoya v. Santili 1990) 2 NWLR (Pt. 131) 172 at 203, Elufioye v. Halilu (supra) at page 590, 597 – 598 …
when the rule in Foss v. Harbottle is applicable only the Company has locus standi to institute the action. The plaintiff in this case, which is a minority shareholder of the company certainly has no locus standi to institute the action. The plaintiffs’ want of locus standi no doubt has the effect of rendering this court incompetent to entertain the action. I hold that this court has no jurisdiction to interfere in this matter. In the result, the suit is struck out.”
In his submission, the learned appellant’s Counsel re-iterated that the acts complained of are purely acts which are ultra vires the company and of fraud, which gives a minority shareholder the right to maintain action against the oppressive running of the company. That in the circumstance section 300 (a) and (c) of the CAMA applied and not S.299 of the Act as held by the lower court. In other words that the rule in Foss v. Harbottle is inapplicable in the instant case giving regards to the exceptions to the rule as set out under section 300 (a) (c) and (d) of CAMA.
Contrary to that poised by the appellant however, it is the contention of the learned respondents’ counsel that as rightly arrived at by the lower court, the rule in Foss v. Harbottle (supra) applied and consequent to which the appellant neither had locus standi nor was the factual situation of the case brought within the exceptions to the rule. It is expedient to expantiate the term “locus standi” or “standing”, denotes legal capacity to institute proceedings in a court of law or tribunal or the right of a party to appear and be heard on the question before a court or tribunal. The authority in the case of Adesanya v. Shagari under reference supra is in point.
The learned appellant’s Counsel had also stressed on the meaning and connotation of locus standi as pronounced by their Lordships of the Court of Appeal in the case of Elendu v. Ekwoaba (supra) wherein Edozie (JCA) as he then was had this say at pages 750-751.
“The implication of the term locus standi is very clear. It literally means a “place to stand” hence, a standing to sue. In law, it denotes the legal capacity to institute proceedings in a court of law. In Nigeria, it is a constitutional requirement to enable a person to maintain an action and is limited to the prosecution of matters relating to the civil right and obligations of the plaintiffs be that plaintiff a person or persons, government or authority or any other juristic person vide 6(6)(b) of our 1979 Constitution. To entitle a person to invoke judicial power, he must show that either his personal interest will immediately be or has been adversely affected by the action or that he has sustained or is in immediate danger of sustaining an injury to himself and which interest or injury is over and above that of the general public what constituted a legal right, sufficient special interest or interest adversely affected will, of course, depend on the facts of each case.”
The absence of locus standi signifies that proper parties are not before a court which jurisdiction must therefore be called to question.
For the consideration of that before us therefore, while the appellant’s counsel on the one hand argued the inapplicability of the rule in Foss v. Harbottle, but section 300 of CAMA, the respondents on the other hand applauded the lower court’s decision that the rule squarely applied and that the factual situation of the case did not bring it within the ambit of the exceptions to the rule.
The locus classicus common law rule in Foss v. Harbottle (supra) is well founded with its articulated conceptual application restating that to redress a wrong done to a company or to the property of a company or to enforce the right of a company, the proper plaintiff is the company itself and the court will not entertain an action brought on behalf of the company by a shareholder. The said rule has widely been followed by Nigerian courts in a number of cases and thus culminating in the codification of same in our legal system by the provision of Section 299 of the Companies and Allied Matters Act. A number of Nigerian cases which applied the common law rule include Sparks Electronics Nig. Ltd. v. Ponmile (1986) 2 NWLR (Pt. 23) 516; Mbene v. Ofili (1968) NCLR 293; A.R.E.C. Ltd. v. Amaye (1986) 2 NWLR (Pt. 31) 653; Omisade v. Akande (1987) 2 NWLR (Pt. 55) 158.
The reproduction of Section 299 of CAMA which restates the Common law principle states as follows:-
“299 subject to the provisions of this Act, where an irregularity has been committed in the course of a company’s affairs or any wrong has been done to the company, only the company can sue to remedy that wrong and only the company can ratify the irregular conduct.”
There are however exceptions to the rule in Foss v. Harbottle as codified in the said section 299 of CAMA, and which are restated in section 300 of same CAMA. The learned appellant’s Counsel sought to seek leverage under the exceptions of section 300(a) (c) and (d) which counsel submitted applied to the transaction and not section 299 which he argued was wrongly misapplied by the lower court.
The reproduction of the exception provision section 300 relates to the protection of minority consequent to an application for an injunction and declaration and same which states as follows:-
“300. without prejudice to the rights of members under sections 303 to 308 and sections 310 to 312 of this Act or any other provisions of the Act, the court on the application of any member, may by injunction or declaration restrain the company from the following:-
(a) entering into any transaction which is illegal or ultra vires;
(b) …
(c) any act or omission affecting the applicant’s individual rights as a member;
(d) committing fraud on either the company or the minority shareholders where the directors fail to take appropriate action to redress the wrong done;
(Italics is mine for emphasis)
Deducing from the exceptions, reproduced it is expected that there must first be an application made by a member, to the court for an order of injunction or declaration to restrain the company. The injunction or declaration are the reliefs which must be sought or asked for, in the absence of which the court could not act in a vacuum. The question as rightly posed by the learned respondents’ Counsel and which is appropriate relates to whether there is a claim for declaration or injunction by the appellant seeking to restrain the 6th defendant/respondent from entering into any transaction which is illegal or ultra vires or to restrain the said 6th respondent from any act or omission affecting the appellant’s individual right as a member?
With reference to the briefs of parties, it is obvious that both counsel have called on us to consider the writ of summons, statement of claim and the relief’s sought in the action. The reliefs claimed by the appellant as contained in its statement of claim are reproduced at pages 8-9 of the record of proceedings wherein paragraph 23 reproduced states as follows:-
“23. Whereof the plaintiff claims against each and every defendant jointly and severally as follows:-
i. A declaration that the conduct of the 5th defendant in holding itself out and acting as a shareholder of the 6th defendant is wrongful and a gross violation of the Article and memorandum of Association of the 6th defendant and the Companies and Allied Matters Act, 1990.
ii. A declaration that the purported appointment of the 1st 2nd 3rd and 4th defendants as directors of the 6th defendant by the 5th defendant was irregular, wrongful, null and void and of no effect.
iii. A declaration that the 5th defendant is vicariously liable for all acts, omissions and declarations made by the 1st to 4th defendants in purportedly acting as directors of the 6th defendant.
iv. An order nullifying and setting aside the purported appointment of the 1st defendant as chairman and the 2nd – 3rd and 4th defendants as Directors of the 4th defendant.
v. An order nullifying and setting aside all acts and declarations made or exercised by the 1st, 2nd, 3rd and 4th defendants as purported Directors of the 6th defendant.
vi. An order restraining the 5th defendant from holding itself out or in any manner howsoever, exercising the powers, or acting as a shareholder of the 6th defendant.
vii. An order directing the 1st to 5th defendants to q refund by way of restitution the total sum of N50 million naira (Fifty million naira) to the 6th defendant being sums wrongfully expended by the 1st to 5th defendants.
viii. An order directing the 1st to 5th defendants to pay interest at the rate of 20% per annum on the sum set forth in 7 above from the date of filing this suit up to the date of judgment and thereafter at the rate of 10% per annum until the debt is finally liquidated.”
On a more deeper interpretation of the implications of the exceptions to the rule in Foss v. Harbottle, by the provision of Section 300 (a) of CAMA, it denotes that any member may by application for injunction or declaration pray the court to restrain the company from entering into any transaction, which is illegal or ultra vires. The effect following therefore is that the majority can, in no way either condone or ratify an action which is wholly illegal or ultra vires the company. For instance the case of Hullon v. West Cork Railway Co. (1883) 23 Ch. D. 264, is a situation where shareholders resolved at a general meeting to spend part of purchase price of the sale of its undertaking as a Co. to another Co. and be wound up. The spending was for the purpose of compensating employees and part as remuneration for part service of Directors. A shareholder brought an action to challenge the payment as ultra vires, void and illegal. It was held that a company which is being wound up has no power to make such compensation as such power is not incidental to the business of the company at a winding up state and that the action must succeed.
For the purpose of relating this authority to the matter under consideration, it is as rightly submitted and argued by the respondents’ counsel that the appellant has not stated that the 6th respondent entered into any transaction that is contrary to its objects as provided in its Articles and Memorandum of Association.
I am however mindful of the argument by the appellant wherein he raised question of illegality or ultra vires act in reference to section 248 of CAMA and consequent to which relief’s 1 and 2 run foul of the said section of CAMA. It is pertinent to re-iterate that the said section 248 supra relates to subsequent appointment of directors which power is clearly exercisable by members at the general or the board of directors in the case of casual vacancy as provided under section 249 of the Act. By the said provisions of sections 248 and 249 of CAMA, therefore, the appointment of directors is the business of the general meeting or the board of the company and not that of an individual member. It follows conclusively that the conception by the appellant at paragraphs 9, 10, 11 and 12 of the statement of claim at page 6 of the record which gives an impression as if it is the duty of the individual member of a company to appoint Directors is wrongful. With reference to the appellant’s statement of claim at pages 5 – 8 of the record, it did not, as rightly submitted by the respondent company in any of the 23 paragraphs aver that the board or general meeting did not approve or appoint the 1st, 2nd, 3rd and 4th respondent, as directors of the 6th respondent. The appellant cannot in the circumstance therefore be heard to have made out a case under section 248 of the Act for purpose of making the appointment of the 1st to 4th respondents as directors illegal or ultra vires of the provision of the said section 248 therewith.
It is trite law and elementary, that parties are bound by their pleadings. The plaintiff will also succeed in the relief or remedy he seeks and no more. The case of Shell P.D.C of Nigeria Ltd. v. Nwawka (2003) 6 NWLR (Pt. 815) 184 at 209 is relevant and in support.There is no averment by the appellant which showed that it was deprived from nominating its three directors to the board of the 6th respondent; there is also no averment to show that the annual general meeting or the board of directors did not appoint the 1st to 4th respondents as directors of the 6th respondent. It follows therefore that the arguments by the appellant on the appointment of 1st to 4th respondents being contrary to section 248 of the Act cannot, as rightly submitted by the respondent, stand. Same is discountenanced and consequent to which the appellant cannot have the benefit of that exception as claimed.
Furtherstill and by the provision of section 300 (c) of CAMA also reproduced (supra), it relates to an invasion of personal right. In other words, it is open to a member who may wish to institute an action to redress a wrong done to him as an individual member of the company. He may in the circumstance apply to the court for declaration or an order of injunction restraining the company from any act or omission affecting the applicant’s individual rights as a member. The provision of Section 41(1) of the Companies and Allied Matters Act 1990 has defined the individual personal rights under the memorandum and articles of the company when registered. On the authority of Obikoya v. Ezenwa (1973) 8 NSCC, 504 for instance, it was held that the Memorandum and Articles of Association constitute a contract not merely between the shareholders and the company but between each individual shareholder and every other. A member is free and at liberty to seek redress for any infringement of his rights.
In the instant appeal at hand, the appellant had not pleaded on its statement of claim of its individual right that the respondent breached or invaded. The emphasis here is on the phrase “individual right”, which must be pleaded and with same having been conferred on it by the Articles and Memorandum of the 6th respondent, and being the subject matter of the breach thereof. It is pertinent to restate that the appellant did not indicate or plead the invasion of their right to nominate their allocated number of three directors. They did not also plead any deprivation occasioned, as a result of the appointment of the 1st to 4th respondent. It is also trite law that the properties and the funds of the 6th respondent’s company which the appellant alleged to be misused or misapplied are not the properties or funds of the appellant, who has no personal right to same. The authority in point is the case of Georgewill v. Ekine (supra), where the appellant and Ekine were directors and 2 shareholders of a company called Sotonye (Nig.) Ltd. Upon their separation, whilst the appellant claimed a property to be his personal, the respondent claimed that the property was joint through the company. The trial Judge gave judgment to the respondent. On appeal the appellant raised the issue of locus standi of the respondent to sue. It was held that a director or a shareholder of a company cannot sue, in its name with respect to a company property. At page 470 Nsofor, JCA, in his contribution to the lead judgment had this to say:-
“With respect to the trial Judge he does not appear to me to have fully comprehended the pleadings and the issues of law involved in the case before him. He missed the point wholly and entirely. The plaintiff, if I may repeat, is not Sotonye Nigeria Ltd. And the company is not Grace Ekine. Grace Ekine lacks the locus standi” to prosecute the action as if she were Sotonye Nigeria Ltd. But the rule in Foss v. Harbottle (1843) Hare 461, ought to be familiar to the learned trial Judge.”
The said authority establishes that it is only the company that can sue to claim company’s property and not its directors or shareholders. The same principle was applied in the cases of Tanimola V. S & Mapping Geoidata Ltd; Ejekmn v. Devcon Industries Ltd.; Gombe v. P. W (Nig) Ltd. all under reference (supra).
The appellant at paragraph 6.2 of its brief sought to rely on the Supreme Court’s authority of Elufioye v. Halilu (1993) 6 NWLR (Pt. 301) 570, wherein their Lordships laid down the exceptions to the rule in Foss v. Harbottle in the instances wherein individual members can take action against their company or union. The exceptions which include actions to restrain the company from doing an illegal or ultra vires act, and also action to prevent fraud on a minority among others. The appellant in its arguments claimed the invasion by the respondents of its personal interests involving its civil right and obligation which he is constitutionally entitled to challenge. For the appellant to be entitled to the benefit so advanced, such right of investment must exist under the Articles and Memorandum of the 6th respondent and the entitlement which cannot be presumed as a matter of course, but that which ought to be pleaded as a matter of fact. Parties are precluded from making a different case from that in their statement of claim but are bound therewith. The authorities in point are Echi v. Nnamani; Adesanya v. Aderounmu (supra). Furtherstill and as rightly submitted on behalf of the respondents, even if assuming the appellant had made out a case for the existence of personal right of investment, the absence of its pleading, or claiming for declaration or injunction to restrain the respondents against such invasion of the alleged right has defeated its argument. This principle has been enunciated in the case of Shell P.D.C. Nig. Ltd. v. Nwanka (2000) 6 NWLR (Pt. 815) 184. at 209. It follows therefore that the invocation of the provision of Section 6 (6) (b) of the 1999 Constitution does not avail the appellant in the absence of its proving the breach of its civil right and obligation. Hence, the authority in the case of Elufioye v. Halilu which was relied upon (supra) does not operate in the appellant’s favour. In that case, the Constitution of the Union specifically provided for any member the right to initiate an action at his own expense in connection with any breach of its Constitution. Furthermore, a provision was also made by section 16(1) of the Trade Union Act 1973 allowing five or more members of the union by way of an injunction to restrain any unauthorized or unlawful application of the funds of a trade union. The issue of locus standi was raised as preliminary objection by the defendants which same was overruled by all successive courts of trial, appeal and the apex court. The matter in that case is distinguishable with the appeal in issue. In other words, while the provisions of the Trade Union Act gave the plaintiff the right to sue where there is wrongful and unlawful application of the union funds, or breach of the constitution of the union, the same is not the case at hand. It is also apparent that the civil rights and obligations on parties which were clearly pleaded and located in the contract (the constitution or the law) and the statute governing the Trade Union, cannot in the same manner be traceable to section 6(6) of the Constitution relied upon by the appellant in this appeal. The authority in question and relied upon by the appellant does not help its case therefore. It is also obvious that mere reliance on the provision of the 1999 Constitution to establish a private right which same cannot be traceable to a contractual relationship unlike Elufioye v. Halilu’s case is in my humble view without foundation. It is pertinent to restate that when parties make a contract it is within their own prerogative to make their own law to which they are subject. Same also creates the rights and obligations which bind them. The general law in the circumstance only gives recognition and force. In other words, and relating to the issue at hand, it is the Articles and Memorandum of Association and CAMA that creates right and obligation which bind the members of the company. The Constitutional provision vide section 6(6) of 1999 therefore only gives recognition thereto as the general law.
I would again refer to the reliefs sought by the appellant at the lower court which serves the determining life wire of its claim. In other words, by its reliefs 1, 2, 3, 4, 5 and 6 the appellant was claiming that the 5th respondent could not appoint the 1st to 4th respondents as directors of the 6th respondents company. The said reliefs are seeking declaration and injunction to the effect that 1st to 4th respondents ought not to have been appointed as directors of the 6th respondent. It is not the appellant’s case therefore that the 5th respondent prevented it from nominating the appellant’s own set of directors. The appointment of the directors of the 6th respondent is governed by the Articles and Memorandum of Association of the company. There is no averment by the appellant on its pleading of any contract in the Articles and Memorandum or even in CAMA which gives it the right to sue. There is also no averment or even inference by the appellant of the infraction of its right having been breached under the Article or CAMA by the appointment of the 1st to 4th respondents as directors of the 6th respondent. In the circumstance and as rightly, in my humble opinion submitted by the Learned respondents’ counsel, the appellant cannot enforce a private right over the appointment of the 1st to 4th respondents, also the application or misappropriation of the 6th defendant’s properties or funds. The measure of seeking an enforcement by reliance on section 6(6) of the Constitution and the case of Elufioye (supra) as sought are not open to the appellant. This is more so because the section only enforces right and obligation existing under private law and not seeking to confer civil right and obligation, which duty lies in the Articles and Memorandum of Association of the company or the CAMA. In other words, it is the said right and obligation created under the articles between the members and CAMA that can be enforced vide section 6 (6) (b) of the 1999 Constitution which hereby recognizes and gives effect to right created under the contract made between parties in their Articles and Memorandum of Association and the right of the members of the company recognized under CAMA. It follows therefore that the provision of Section 299 of CAMA which codified the rule in Foss v. Harbottle cannot be unconstitutional as sought to be argued by the appellant’s counsel.
The said exception provided under section 300 (c) and relied upon by the appellant does not also operate in its favour.
The learned appellants’ Counsel in a bid to justify the status of his client also relied on the exception provided under section 300 (d) of the CAMA. By this provision, any member of a company may by injunction or declaration restrain the company from committing fraud on either the company or the minority share holders where the directors fail to take appropriate action to redress the wrong done. In the case of Edwards v. Halliwell under reference supra, Jenking L.J. for instance had the following to say:-
“where what has been done amounts to what is generally called in these cases a fraud on the minority and the wrong-doers are themselves in control of the company, the rule in Foss v. Harbottle is relaxed in favour of the aggrieved minority who is allowed to bring what is known as minority shareholders action on behalf of themselves and all others”.
In the decision of Alexander v. Automatic Telephone Co. (1900) 2 Ch. 56, it was laid down that in order to amount to fraud, the majority shareholders must propose to appropriate to themselves or for their own use or benefit, property belonging to their company. It follows therefore that before an individual member can bring an action under section 300 (d) of CAMA he must show the following:
1) That the action is one seeking for injunction or declaration to stop fraud.
2) That there has been an appropriation of the company’s property amounting to fraud.
3) That the wrong doers themselves control the company.
4) The directors themselves fail to take appropriate action to redress the wrong done.
The authorities in support of the foregoing principles are the cases of Birch v. Sullivan (1957) 1 WLR 1249; Heyting Dupont (1963) 1 WLR 1192; Edward v. Halliwell (1950) 2 All ER 1064 at 1067. The authority in the case of Burland v. Earle (1902) AC 83 at 93 gave the justification for the recognizance given the minority which is the only option to safeguard their suppression which could otherwise have been perpetually silenced. This in my humble opinion serve a measure of checks and balances on the majority who may as elephants wish to lord it over the ants. The measure is to instil sanity and at the same time serve as a watchdog. The other related authorities are also the case of Cook v. Deeks (1916) 1 AC 554; Omisade v. Akande (1987) 2 NWLR (Pt. 55) 158; 4 SC. 109 at 124 – 126 & 128, 129; Edward v. Halliwell (1957) 2 All ER 1064 at 1067.
Having regard to the record before us, it is not shown that the appellant had met the four conditions specified under section 300 (d) of CAMA supra. It is apparent that there is no claim for declaration or injunction to restrain the respondents from committing fraud on either the company or minority.
Relief VII and VIII at page 9 of the record had been reproduced earlier on supra. They are not injunctive or declaratory to restrain the respondents from committing fraud as required by the said section 300 of CAMA. There are also no particulars of any fraud pleaded in the statement of claim as required by the law and restated in the cases of: Usenfowokan v. Idowu (1969) 1 All NLR 125 at 131; Igbinosa v. Aiyobagbiegbe (1969) 1 All NLR 99 at 102.
As rightly submitted by the learned respondents’ Counsel, the appellant has also failed to plead that the 1st to 4th respondents are in control of the 6th respondent. It is on the record that the 1st to 4th respondents are just 4 out of 10 directors of the 6th respondent’s company. There is also a failure on the appellant to plead that the directors themselves have failed to take appropriate action to redress the alleged wrong as a condition specified under the law. It follows from the deduction therefore that the appellant cannot be said to have met the conditions precedent to the institution of the action by the minority shareholders under section 300 (d) of CAMA. The claim and aspiration by the appellant for fraud has no foundation as it is not substantiated.
Furtherstill and with reference to the records of appeal before us, there is no indication that any of the appellant’s three directors declined participating in their official capacities in the 6th respondent as a result of any form of dissatisfaction whatsoever. Their full participation signified contentment and approval. The appellant cannot therefore be heard to approbate and reprobate.
On the totality of the appeal before us, the appellant in the entire circumstance has not made out any claim for injunction or declaration seeking to restrain the 6th respondent from entering into any alleged illegal or ultra vires transaction. Hence the provisions of section 300 (a), (c) or (d) of CAMA cannot avail the appellant as sought. In my humble deduction therefore, the principle of the rule in Foss v. Harbottle, which is codified under the provision of section 299 of the Companies and Allied Matters Act is applicable to this case as rightly arrived at by the learned trial Judge.
In other words, the decision by the lower court stands firm per its findings and consequent to which I hold that there is no merit in this appeal which same should and therefore fails while the ruling of the Federal High Court, Lagos Division per Hon. Justice Dan. D. Abutu delivered on 29th October, 2002, in Suit No. FHC/L/CS/867/2001 is hereby affirmed. With costs following events, same is hereby assessed at N10,000 to the respondent.
Other Citations: (2005)LCN/1792(CA)
