Solar Energe Advanced Power System Ltd V. Mr. Albert Oluwatoyin Ogunnaike & Anor (2008)
LawGlobal-Hub Lead Judgment Report
ISA AYO SALAMI, J.C.A.,
The plaintiff brought an action at the Lagos State High Court of Justice, sitting at Ikeja against Payless 2 Industrial and Commercial Services Limited, Mr. Vijay Mclwani, Mr. Albert Ogunnaike, United Bank for Africa Plc, respectively as first, second, third and fourth defendants claiming as per its writs of summons as follows-
(a) The sum of N863,740.00 (EIGHT HUNDRED AND SIXTY THREE THOUSAND SEVEN HUNDRED AND FORTY NAIRA ONLY) BEING THE SUM OWED THE PLAINTIFF BY THE DEFENDANTS, REPRESENTING VALUE OF GOODS TO WIT SOLAR PANEL/VENRNER 7 INVERTER GENERATORS AND PV MODULES SUPPLIED BY THE PLAINTIFF TO THE DEFENDANTS AS AT JULY 2000.
(b) INTEREST ON THE AFORESAID SUM OF N846,950.00 (EIGHT HUNDRED AND FORTY SIX THOUSAND AND NINE HUNDRED AND FIFTY NAIRA ONLY) AT THE RATE OF 2.25%PER MONTH UNTIL THE AS AGREED FROM AUGUST, 2000 UP TILL DATE JUDGMENT AND THEREAFTER AT THE RATE OF 15% PER ANNUM UNTIL THE ENTIRE JUDGMENT DEBT IS LIQUIDATED.
GENERAL DAMAGES OF N1,000,000.00 (ONE MILLION NAIRA ONLY)
THE COST OF THIS ACTION”
The substance of the plaintiffs case, enunciated in its statement of claim, is to the effect that at various times in 1999, at the instance of first and second defendants, it supplied goods to be sold on its behalf to the first defendant who was to sell and remit the proceed of sales to the plaintiff; on the basis that those defendants would be entitled to retention of N12% commission of the proceeds.
It was further averred in the statement of claim that as at July 2000, the sum of N863,740.00 remained outstanding and consequently, the first and second defendants issued two post dated cheques drawn on Chartered Bank respectively for N86,240.00 and N105,600.00 as part payment of the said sum. The two cheques were, however, not honoured and were returned unpaid, All steps taken to recover the proceeds of the cheques were to no avail.
It was further averred, in the statement of claim, that by a letter of 13th January, 2000, written by third defendant, the plaintiff was informed of the appointment of the third defendant as the receiver/manager of the first defendant by the fourth defendant. He requested for the details of first defendant’s indebtedness. The plaintiff forwarded an up to dale statement of the first defendant’s outstanding debt to the third defendant and thereafter made several abortive demands for the settlement of the said debt.
The third and fourth defendants failed to file a statement of defence or statements of defence. Rather they brought an application seeking for an order striking them out of the suits. The basis for praying for the relief was that the plaintiff had no cause of action against the two defendants as the third defendant had been relieved of his appointment as receiver/manager over the assets of the first defendant.
Learned trial judge, in a reserved and considered ruling, held that the plaintiff can only proceed against the first defendant on the alleged contract between them. Further if third defendant failed to perform its duties as receiver/manager, it is the first defendant that can properly pursue an action against him or the fourth defendant which appointed him.
Being dissatisfied with the decision of the court below, the plaintiff appealed to this court on 5 grounds of appeal.
Briefs of argument were filed and exchanged. There are appellant’s, appellant’s reply as well as respondents’ briefs.
In the appellant’s brief, the following issues were identified for determination-
“1. Whether on the face of the writ of summons and statement of claim of the Plaintiff/Appellant filed at the lower court a cause of action is disclosed against the Respondents herein to warrant an answer and/or make them necessary parties to suit No LD/2405/2000. Grounds 2 and 3 of the notice of appeal.
- Whether in the circumstances of the application of the Respondents at the lower court, it was open to the learned trial judge to refer to and to rely on Exhibit TS2 attached to the application being a photo-copy of a Deed of Discharge made on May 2, 2001, a period of nine (9) Months after the suit of the Appeal out was commenced at the High Court of Lagos State, specifically on September 4, 2000. (Ground 2 of the Notice of appeal)
- Whether there was evidence before the learned trial judge to warrant her arriving at the conclusion that the 1st Defendant at the lower court was a going concern to which the appellant should have recourse for the recovery of its debts. Ground 5 of notice of appeal.”
It appears that the appellant abandoned its ground 4 of the grounds of appeal, having failed to relate it to any of the three issues it formulated. It is, therefore, deemed abandoned and is hereby dismissed.
The respondent in their brief framed the following two issues for determination-
“1, Whether the Defendants/Respondents’ application dated 23rd November 2001 at the lower court was a demurrer proceedings.
- whether the Plaintiff/Appellant has any right to be enforced against the Defendants/Respondents.”
The question calling for resolution in this appeal falls squarely within the purview of the appellant’s first issue and the respondent’s second issue. The resolution of this issue turns on the appellant’s statement of claim particularly paragraphs 6 – 14 and 18 thereof. The paragraphs are reproduced immediately here under.
“6. At various times in 1999 and at the 1st and 2nd Defendants request the Plaintiff/Applicant supplied goods to the 1st and 2nd Defendants whereby the 1st and 2nd Defendants sold same on behalf of the Plaintiff and remitted proceeds of sale back to the Plaintiff on an agreed 12% commission on goods sold by the Defendants.
- The Plaintiff avers that consequent upon the Agreement between the Plaintiff and the 1st and 2,d Defendants, it supplied several of its goods of the 1st and 2nd Defendant:; to sell same on behalf of the Plaintiff. The Plaintiff hereby pleads sales invoices evidencing various supplies.
- The terms of the supply were mutually agreed by the Plaintiff and the 1st and 2nd Defendants as follows:
a) Plaintiff shall supply to the Defendants Solar Panel/Nener 7 Inverter Generators and PV Modules on credit basis that is to say the Defendants will sell such goods and remit proceeds to Plaintiff immediately less commission due to Defendants.
b) The 1st Defendant was entitled to 12% Agency Commission on goods sold.
c) Goods supplied and sold in good condition are not returnable,
d) A service charge is payable on overdue accounts at 2.25% per month (or part thereof).
- It was also mutually agreed from the relationship of the parties thereby constituted or alternatively it was the duty of the Defendants to take all reasonable and proper steps and to exercise all due diligence to collect the proceeds of sale collected by him.
- The Plaintiff avers that as at July, 2000 the total sum money yet to be remitted by the Defendants to the Plaintiff representing the value of goods supplied by the Plaintiff to the Defendants in the course of their business relationship plus accumulated interest stood at the sum of N863,740.00.
- To defray some of the debt owed the Plaintiff the 1st Defendant issued two post dated Chartered Bank Cheques No 0265093 and 0263102 for the sum of N86,240 and N105,600 respectively in November, 1999.
- To the dismay of the Plaintiff on representation of the said cheques in paragraph II above both cheques were dishonoured. The Plaintiff hereby pleads the said dishonoured cheques.
- a) The Plaintiff avers that a letter dated January 13, 2000 was written to her by the 3rd Defendant intimating her of his appointment as the Receiver/Manager of the 1st Defendant by the 4th Defendant and requested from the Plaintiff a detail account of the indebtedness to the Plaintiff. The Plaintiff hereby pleads the said letter.
b) The Plaintiff upon receipt of the 3rd Defendant’s letter forwarded to the Defendants an update of the Defendant’s an update of the Defendant’s indebtedness to the Plaintiff.
- a) The Plaintiff after sending the Statement of Account referred to in paragraph 13(b) above also made several demands from the Defendants for payment of the aforesaid debt but the Defendants have till date refused and neglected to settle the Debt due to the Plaintiff.
b) The Plaintiff avers that the 3rd and 4th Defendants have since January, 2000 been running the affairs of the 1st Defendant and profiting thereon but have refused, neglected to pay the debt due to the Plaintiff,
- The Plaintiff avers that instead of the Defendants liquidating their indebtedness or returning in good condition the Plaintiff’s goods unsold by the Defendants, the Defendants commenced and concluded auction sales on all goods in possession of the 1st Defendant, including the Plaintiffs goods.”
It can be garnered from the averments set out above that the goods had been supplied to the first defendant by the plaintiff before the appointment of the third defendant as receiver and manager. But the goods do not form part of the assets of the first defendant. On appointment of third defendant as receiver and manager of the company he can then enforce the security and recover the money by taking over the assets in the debenture only. His appointment causes the floating charge to crystallise: Re Crompton & Co Ltd (1914) 1 Ch D 954. The consequence of the appointment of a receiver is to paralyse the powers of the owners from dealing with it. The company does not forfeit its legal personality nor are the goods vested in the receiver on appointment. See Vine v Raleigh (1883) 24 Ch D 233, Govt Stock Co v Manilo 1897 AC 81, 86. Although he is entitled to the possession of the goods subject to all specific charges validly made in priority to the floating charge. See section 390( 1), 393(1) and (2) of the companies and Allied Matters Act.
I am unable to agree with the learned counsel for respondents’ submission about the position of the law with regard to the obligation to prior contracts of the company. In this connection learned counsel contended that the Companies and Allied Matters Act expressly provides for duties and functions but is silent on prior contract of the company. Learned counsel further contended that English Law further reveals, that receiver and manager appointed out of court on the basis of an instrument of appointment is not under any obligation to continue contracts of the company which were existing at the time of his appointment unless to disregard the contract would adversely affect the realisation of the assets or seriously affect the trading prospects of the company. In the absence of mala fide, he submitted, he could or might disregard it. He sought support for this submission of Kerr on the Law and Practice as to Receivers and Administrators, 17th Edition at p. 375 – 376.
The submission of the learned counsel for respondents is adroit but not candid. It is not honest. It is not borne out by paragraphs of the statement of claim particularly paragraphs 13, 14 and 18 which remained uncontroverted, The paragraphs had been read elsewhere in this judgment but for clarity and easy reference the same will be repeated here under-
“13(a) The Plaintiff avers that a letter dated January 13, 2000 was written to her by the 2nd Defendant intimating her of his appointment as the Receiver/Manager of the 1st Defendant by the 4th Defcndant and requested from the Plaintiff a detail account of the indebtedness of the Plaintiff. The Plaintiff hereby pleads the said letter.
(b) The Plaintiff upon receipt of the 3rd Defendant’s letter forwarded to the Defendants an update of the Defendant’s indebtedness to the Plaintiff.
14(a) The Plaintiff after sending the statement of account referred to in paragraph 13(b) above also made several demands from the Defendants for payment of the aforesaid debt but the Defendants have till date refused and neglected to settle the debt due to the Plaintiff.
(b) The Plaintiff avers that the 3rd Defendant have since January, 2000 been running the affairs of the 1st Defendant and profiting thereon but have refused and neglected to pay the debt due to the Plaintiff.”
Perhaps the coup dig race was delivered by paragraph 18 of the statement of claim in which it was averred thus-
“18. The Plaintiff avers that instead of the Defendants liquidating their indebtedness or returning in good condition the plaintiff’s goods unsold by the defendants, the Defendants commenced and concluded auction sales on all goods in possession of the 1st Defendant including the plaintiffs goods”
(underlining mine)
The substance of these averments was to the effect that, upon the appointment of the third defendant, first respondent herein, as the receiver/manager, by the fourth defendant, second respondent herein, he requested the plaintiff, now appellant, for a statement on the liability of first defendant to the appellant. It promptly provided the pieces of information sought. It could also be garnered from the averments, which were nowhere denied, that, at the time of appointment of the first respondent as receiver and manager, some of the appellant’s goods were still in the custody of the first defendant to the knowledge of the first respondent. The appellant requested the first respondent to return them, Rather than returning them to the owner, that is the appellant, first respondent proceeded to auction them thereby denying the appellant access to both its goods and the proceeds of the auction. It seems to me that learned counsel for respondents is caught in his own webs. By asking for the accounts on the transaction, the respondents have wittingly or unwittingly impliedly acquiesced or adopted the contract. It is consequently too late in the day to cry over a spill milk. The goods supplied by appellant to the first defendant does not form part of the assets of the company which he is to get over. The goods as could be gathered from the appellants statement of claim were given to third defendant, company, to sell on commission basis on behalf of the appellant. The company gave no consideration for them. They are, at best, analogous to goods bought on credit. They do not form part of the assets of the first respondent to be realised by the receiver. The receiver and manager was therefore, not entitled to dispose of them as he allegedly did when he met them in the store. They do not form part of the debenture and could not be got in by him.
Should my finding that the first respondent had by his conduct agreed to continue with the contract entered into prior to his appointment be wrong, without so conceding, it is respectfully my humble view that the proposition of law contained in Kerr on the Law and Practice as to Receivers and Administrators, 17th Edition at Pp 375 and 376 is misconceived. It is not the correct position of the law in this country. The proposition in the book is rather too wide and at variance with judicial authorities. See Intercontractor Nigeria Ltd v N.P.F M.B (1988) 1 NSCC 759. In this country, the duty and function of a receiver appointed by court is not different from that of a receiver appointed by debenture holders. The position in England is very similar to what is presently prevailing in this country. Vide Viola vs Anglo- American Cold Storage Company (1912) 2 Ch 305, 311 where Swinfen Eady, J stated thus-
“The appointment of a receiver is a matter of discretion to be governed by the whole of the circumstances of the case:
See Lord Truro’s judgment in Owen v Homan (3). It is made in the first place for the protection of the estate and for the benefit of all concerned, and in sanctioning the receiver taking proceedings the court has regard to what it considers right and proper in the interest of all parties”
The peculiar situation of a receiver manager who is appointed the agent of the company but the property in the goods does not vest in him nor does company lose its personality makes it imperative on his part to obtain leave of court irrespective of the mode of his appointment. His appointment as agent of company enables him to sue or defend action in the name of the company or debenture holders entitle to the goods under the debenture See Intercontractors Nigeria Ltd v UAC Nigeria Ltd (1988)1 NSCC 737, 751 where Supreme Court per Karibi – Whyte JSC stated thus-
“Although the right to institute or defend actions in the name of the company is covered under the general authority to collect and take possession of the assets in the debenture, the legal effect of his appointment which paralysis the company in respect of dealing with the assets and the Receiver Manager not having any legal estate in the goods, and company retaining its title and legal personality renders it essential for the Receiver/Manager to seek leave of the court where he intend to bring or defend actions in the name of the company with respect to goods involved in his Receivership. Counsel for the Applicant/Appellant has submitted that the provisions of Section 337 of the Companies Act 1968 which requires the Receiver/Manager to seek direction is not applicable to a debenture holder not appointed by the court. He submitted that application was only required on exceptional cases. I think this is a too simplistic a view of the protection offered by the provisions of the section, It is well settled that where a Receiver/Manager has been appointed in a mortgage action, it is for the court to determine whether proceedings shall be taken at the expense of the mortgaged property. The Receiver cannot begin or defend actions on his own initiative without the direction of the court – see Bristowe v Needham (1847) 2 Ph, 190, The appointment of a Receiver/Manager is made not only to protect the interest of the debenture holders but also the estate involved in the debenture and for the benefit of all concerned, Thus in sanctioning the Receiver/Manager taking proceedings, the court will have regard to what it considers right and proper in the interest of all the parties – see Viola v Anglo American Cold Storage Company (1912) 2 Ch 305, 311. The question whether leave is to be granted a Receiver/Manager to institute or defend an actions in the name of Debenture holders is a matter of discretion to be exercised in accordance with the particular circumstance of each case. It is clearly not one for the private initiative of the Receiver/Manager as counsel for appellant seems to assume.”
(underlining mine)
On this authority, it is clear that the respondents required leave to defend the action in order to obtain protection for their conduct or action notwithstanding that the first respondent was appointed by the debenture holders outside court.
The goods in dispute do not form part of the first defendant’s floating assets belonging the debenture holders which had crystallised for the first respondent, in his capacity as receiver and manager to collect or get and dispose of. First respondent was appointed as receiver and manager to deal with as part of the assets in receivership: Central London Electricity Ltd vs Berners & Others 1985 1 KB 160. It is pertinent to note, at this stage, that the company, that is first defendant, by the mere fact of receivership does not loose it identity nor its title to the goods in receivership. The right of the directors of the company in receivership to deal with its assets not in receivership and other matters not suspended are not affected by the appointment of a receiver over the assets in receivership. The directors of the company are not by virtue of receivership rendered functus officio for all purposes of the first defendant company. The Privy Council, in Robinson Printing Co Ltd vs Chic Ltd (1905) 2 Ch. D 123, held that a receiver as agent of the company could be sued. The directors, consequently, are at liberty to deal with the assets of the company not in receivership. But their power to deal with assets in receivership are suspended.
The first respondent was not entitled to deal with the first defendant’s assets not in receivership contrary to instruction of the appellant. His meddling with those assets was improper, indeed it amounted to conversion. This court per Salami, J.C.A, in dealing with a not too dissimilar situation in Tanarewa (Nig.) Ltd v Arzai (2005) 5 NWLR (pt.919) 593, 641 observed as follows-
“When the goods had not formed part of the first appellants floating assets of the debenture holders any dealing with it contrary to the instruction of the first respondent amounts to conversion. In the case of Re Goldburg (No.2) Ex parte Page (1912) 1 K.B606 cited in, the first respondent’s brief it was held that where a receiver is appointed by debenture holders he and the debenture holders are liable as trespassers if he deals with the assets which are not property of the company because it was through the act of the debenture holders that he came in possession of the assets of the company. At page 611
“That which receiver takes possession of, as a receiver, he must account for, and he cannot set up any claim for anything he has usefully done – – – – He is merely accountable for those assets of the bankrupt, such as book, debts, sovereign or stock which are traced to his hands and he has either to deliver them or to pay for their conversion”
It is therefore immaterial whether the third appellant did it personally or otherwise he is liable with the people on whose behalf he was appointed since the goods upon which he committed trespass was not part of the assets of the receivership. See In re: Ely 82 L.T 501.”
(underlining mine)
The Supreme Court per Karibi Whyte in Intercontractors Nigeria Limited v. NPF MB (1988) 1 NSCC 759 at 769 (1988) 2 NWLR (Pt 76) 280 stated thus-
“The claim is not against any of the assets of the company in receivership. The directors can legally and properly deal with it and action can still lie against the company in respect thereof. Persons & Ors v The Sovereign Bank of Caned a (1913) A.C 160. The facts are that appellants are paper merchants. The Respondents are bankers. The Imperial Paper Mills which carried on the business of paper manufacture had business contracts with the Appellants prior to October 23, 1906. In a debenture holder action a Receiver/Manager was appointed by the court but business relations continued will the appellants, On September 4, 1906 the paper mill had made an agreement with its creditors including the Respondents to advance it some money on the terms that the accounts for goods sold should be hypothecated. A Receiver/Manager was appointed in October 27 with liberty to continue the business.
Appellant continued in business with the Receiver manager who subsequently cancelled the contracts. They were held liable in an action brought by the Respondents. It was held
“In the case of contracts to deliver paper such as existed in the present case, there appears to be no reason for saying that the possession of the undertaking and the assets given by the order of the court for the express purpose of carrying on the business, put an end to the contracts. The company remained in legal existence, so did its contracts, until put an end to otherwise.”
I think it is some what native to suggest that action cannot be brought against the company on receivership for claims arising from Torts.”
(Underlining mine)
The action brought by the appellant for conversion of its goods left in custody of the first defendant and damages respectfully is not only proper but also competent. The respondents are accountable jointly and severally for the disposal of the property of the appellant in custody of the first defendant not in receiverships notwithstanding the content of exhibit TS2. Exhibit TS2 is a letter written during the pendency of the action purportedly discharging the first respondent as the receiver/manager.
The appeal succeeds and is allowed. The case is remitted to the Chief Judge of Lagos State to re-assign to a judge of the High Court other than Okunu – Shu’aib for hearing on the merit.
Other Citations: (2008)LCN/2784(CA)
