Tika-tore Press Ltd. & Ors. V.ajibade Abina & Ors. (1973)
LawGlobal-Hub Lead Judgment Report
G. B. A. COKER, J.S.C.
The appellants are the defendants to an action instituted in the High Court of Lagos by the following and under the designation shown hereunder- .
“1. AJIBADE ABINA
- MUIBI ABINA Plaintiffs
- RAIMI ABINA
- SIKIRU ABINA
As administrators of the estate of Monsuru Badaru Abina (deceased) for themselves and on behalf of other members of Tika-Tore Press Limited, excepting the individual defendants.”
The plaintiffs’ writ was endorsed thus-
“declaration that the allotment of 91 ordinary shares in the 1st defendant company made on the 18th day of January, 1968 by the 2nd, 3rd and 4th defendants as directors of the 1st defendant company and/or the acquisition by the individual defendants thereby resulting and the subsequent entry of their names in respect thereof in the register of members of the 1st defendant company is ultra vires void and of no effect and should be set aside.
“2. An injunction restraining the 2nd, 3rd, 4th, 5th and 6th defendants from enjoying or exercising any right in respect of the said shares. ”
The parties, pursuant to an order of court in that respect, filed their respective pleadings. The statement of claim filed by the plaintiffs describes them as “the administrators of the estate of one Monsuru Badaru Abina (deceased) late of 8 Moloney Street, Ebute Metta, Lagos State who died intestate on the 13th Day of March, 1967”. The statement of claim avers that the 1st defendant company was incorporated on the 10th April, 1948 with a share capital of 5,000(pounds) which was later increased to 10,000(pounds) divided into 400 shares of 25(pounds) each out of which 309 were allotted prior to the 10th January, 1968. The statement of claim further avers that of the allotted shares the late M.B. Abina held 120 “fully paid ordinary shares at the time of his death”, that on the 11th January, 1968 the plaintiffs as administrators of the estate of the late Mr Abina applied to be “entered in their names on the register of members of the 1st defendant company in respect of the said shares held by the deceased”, that the annual general meeting of the company was billed for the 20th January, 1968 for the purpose of deciding on the applications of the plaintiffs and other members who had applied for allocation of shares but that on the 18th January, 1968 before the proposed annual general meeting, the board of directors of the Tika-Tore Press Ltd., met and allotted 91 out of the remaining 93 shares among the 2nd, 3rd, 4th, 5th and 6th defendants. The statement of claim further avers that the annual general meeting was indeed held on the 27th January, 1968 that at that meeting the latest allotments were successfully challenged, that thereafter some of the defendants arranged for and held an extraordinary general meeting of the company at which the decisions of the 27th January, 1968 were set aside. The statement of claim finally states:
“33. The scheme of the individual defendants was to take over the control of and dominate the 1st defendant company by fraudulently and/or improperly allotting to themselves shares and by refusing to register persons entitled to be registered.
34 The scheme of the individual defendant was to take over the control of and dominate the 1st defendant “company in issuing and allotting the shares referred to in paragraph 19 above was not for the benefit of the company but merely for the benefit of the individual defendants themselves in order to secure for themselves unjust voting control in the general meeting and domination of the 1st defendant company’s affairs and in fraud of the other shareholders.
- Unless restrained the individual defendants have threatened to hold general meetings of the 1st defendant company in order to achieve their fraudulent objectives.”
On the other hand, the statement of defence of the 1st defendant company,i.e. Tika-Tore Press Ltd., avers that the plaintiffs are not members of the company and cannot and do not represent any member of the company. Paragraph 5 of the statement of defence reads as follows:
“The defendant admits paragraphs 7, 8, 9, 10 and 11 of the statement of claim and avers that an irregularity was created at the meeting of the 27th January, 1968 when the plaintiffs, wrongly exercising the right of membership under the articles of association, voted and were voted for.”
The statement of defence of this defendant further states that the Company is governed by Table A as its Articles, that the board of directors “as the competent authority to do so made an allotment of shares on the 18th January, 1968” according to law and in the interest of the company. Paragraphs 14 and 15 of the statement of defence read:
“14. The defendant denies paragraph 33 of the statement of claim, particularly the allegation of fraud, and avers that all the acts done were done in the interest of the company and after due considerations. The defendant further avers that the directors have the same right under the Articles of Association to decline registration in the matters of transmission as in transfer of shares. But the directors have not yet exercised the right as the plaintiffs’ solicitor did not accompany his clients application with all the relevant share certificates.
- The defendant denies paragraph 34 of the statement of claim and repeats paragraph 10 above. The defendant further avers that the late managing director of the company left the company in such a chaotic state financially and otherwise, that it became necessary to issue the remaining shares which had remained untaken in spite of advertisements.”
The other defendants also filed a statement of defence containing substantially the same averment as are contained in the statement of defence of the Tika-Tore Press Ltd. and paragraphs 13 and 18 of the statement of the statement of defence of the other defendants aver as follows-
” 13. The defendants deny that they either jointly or individually agreed to surrender the shares allotted to them and aver that the said shares have been duly registered in their name.
- The defendants will contend that the plaintiffs’ action is misconceived in law inasmuch as the plaintiffs are not members of the 1st defendant company.”
In the course of the proceedings and before the trial, the plaintiffs applied to the court for a representation order in the designation in which they have been shown on the writ. The application was opposed and in the end the High Court made the following order:
“IT IS HEREBY ORDERED that the plaintiffs/applicants be and are hereby granted leave to prosecute this action in a representative capacity, to wit, for themselves and on behalf of (1) Chief Victor A. Solanke (2) Abdul Rafiu Balogun (3) Muritala Aromashodun (4) Suraju Iyanda Bello and (5) Rafiu Musa, the shareholders enumerated in the schedule attached to the motion paper.”
The action then went to trial and the parties called witnesses in support of their pleadings. The Memorandum and Articles of Association of the Tika-Tore Press Ltd., was produced and admitted in evidence as exhibit A and the minute book of the company as exhibit F. The 1st plaintiff testified that he was one of the directors of the Tika-Tore Press Ltd. and that the defendants are members as well of the company. He testified that he attended the meeting of the 27th January, 1968 voted and was voted for at that meeting. He was cross-examined by learned counsel for the defence as to the fact of his registration in the company.
He stated at first as follows:
“I was appointed a director of the company on 27-1-68. I was allotted 14 shares out of my father’s shares. I would not know if I was registered. I am not in a position to dispute whether or not I was registered in respect of the shares as on 27-1-68 a letter was written about the shares before 27-1-68.”
Learned counsel later pressed the question and he answered thus;
“Up till now I and my co-administrators have not been registered in respect of my father’s shares. Those transferred to me have not been registered in my name. None of the plaintiffs is on the register of members. All the powers of the company are in exhibit A.”
Two other witnesses gave evidence for the plaintiffs, Mohammed Umar and the Administrator-General of Lagos State, Victor Solanke, before the plaintiffs closed their case at the trial. Umar conceded that although the names of the plaintiffs should be on the register of members of the company he had never seen their names there even though he was the Secretary of the company for some thirteen years. Solanke testified that the late Mr A. G. Oriola, whose estate he was administering, held 46 fully-paid shares in the company but that he had not received any confirmation from the company that the shares had been transferred to him, the Administrator. He stated that he was not ware of Clause 23 of the Articles of Association to which his attention was drawn in court during his cross-examination.
No evidence was called on behalf of the 1st defendant company but on behalf of the other defendants two witnesses gave evidence. The 3rd defendant Alhaji Ibrahim Oguntade Adeniyi, Chairman of the board of directors of the company, testified describing the method and procedure adopted in allotting the shares at the meeting of the 18th January, 1968. He stated that the plaintiffs were present with the other shareholders at the meeting of the 27th January, 1968 and that they voted (even though they were not entitled to do so) and concerning the membership of the plaintiffs he testified thus;
“The letter of administration granted to the plaintiffs was not produced by them at the meeting of 27-1-68. They showed a paper. The plaintiffs have not been registered up till now in respect of the shares of the late M. B. Abina. The Public Trustee has not been registered in respect of the shares of the late Oriola. The 1st plaintiff is an employee of the defendant company.”
The 6th defendant, who was the General Manager of the company, also gave evidence.
In a reserved judgment, Adedipe, J. acceded to the claims of the plaintiffs. Concerning the voting at the meeting of the 27th January, 1968, the learned trial judge observed:
”At the meeting of the board of directors held on 18-1-68, at which all the defendants were present, the directors allotted all the 91 shares among themselves and the 5th and 6th defendants. I refer to exhibit F the minutes book of the board of directors, pp. 32 and 33.
“The adjourned annual general meeting took place on 27-1-68 and 2 directors were appointed, voting was by poll. The 3rd and 6th defendants were nominated but lost to the 1st plaintiff and another. The defendants attempted to make use of their newly acquired 91 shares when voting took place but this was successfully resisted by the plaintiffs.”
At a later stage in the judgment, the learned trial judge directed himself as follows:
“There is no doubt that the directors had the prerogative to allot shares as they liked.”
He concluded thereafter that the allotment of 91 shares by the directors to themselves and their friends was not done in the interest of the company and stated;
“It is true that the directors are the only competent persons to allot shares, such a power, like any other power of the directors is a fiduciary power, and must be exercised in good faith to the advantage of the company.”
And the learned trial judge concluded his judgment as follows:
“In my opinion, the issue of the 91 shares in question was a breach on the part of the directors of their fiduciary power, and the allotment ought to be declared void.
I therefore declare the allotments of the 91 shares made by the directors of the 1st defendant company to the 2nd, 3rd, 4th, 5th and 6th defendants void and of no effect.
The 2nd, 3rd, 4th, 5th and 6th defendants are hereby restrained from enjoying or exercising any right in the company in respect of the said 91 shares.”
This appeal is from that judgment and before us on appeal the defendants contend, firstly, that the learned trial judge was in error of law because even if his conclusions of fact are justified and upheld the allotments would be only voidable and not void and, secondly, that the plaintiffs not being members of the Tika-Tore Press they were not competent to institute the present proceedings much less to obtain the reliefs therein claimed.
On the first contention learned counsel for the defendants submitted that however wrong the action of the directors in issuing the shares concerned, it was always possible for them to get their action ratified by the general meeting of shareholders, and that therefore the allotment at worst could only be voidable. Learned counsel for the plaintiffs on the other hand conceded that the allotments were only voidable and submitted that that was why he had asked for the allotments to be set aside. He also submitted that the plaintiffs had asked for the allotments to be declared ultra vires the directors.
We point out right away that the learned trial judge found that the directors were the competent authorities of the company to make the allotments complained about, no question therefore arises of the allotments being ultra vires the directors. We do not see the basis of the argument for the plaintiffs with respect to the declaration of invalidity of the allotments which they had sought. The writ clearly asked for a declaration that the allotments are void and of no effect and that they should be set aside. The address of learned counsel to the High Court was to the effect that the allotments were void and in his judgment given in favour of the plaintiffs, the learned trial judge described the allotments as void and of no effect after having first directed himself that the allotments “ought to be declared void.” The learned trial judge did not refer in his judgment to the other claims of the plaintiffs to the effect that the allotments were ultra vires or that they should be set aside and there has been no appeal or cross-appeal before us on these matters. It is not right to ask for the setting aside of a transaction which it is claimed is void for ex nihilo nihil venit so that if at the end of the trial it is found that the transaction complained about is void, a declaration to that effect might issue, but it is then not right thereafter to make an order to set it aside.
The learned trial judge in coming to his conclusion referred to the cases of Punt v. Symons & Co. Ltd. [1903] 2 Ch. 506 and Piercy v. Mills & Co. Ltd. [1920] 1 Ch. D. 77. In Punt’s case, supra, Byrne, J. held that if the directors of a company exercised their powers to allot shares improperly they ought to be restrained by injunction from exercising the rights conferred by the irregular allotments. In Piercy’s case, supra, Peterson, J. following the decision of Byrne, J. in Punt v. Symons & Co. Ltd., supra, decided in similar circumstances that the allotments so irregularly made were void and so declared them invalid. In the case of Hogg v. Cramphom Ltd. and Ors. [1966] 3 All E.R. 420, Buckley, J. considered these two authorities and agreed with them. It would appear, however, that Buckley, J. did not agree that the allotments were void and that he took the view that they were voidable for after agreeing with the principles of the two cases he observed with respect to the shares improperly allotted by the directors at p. 430 of the report that;
“If the company in general meeting elects to ratify what the board had done, there will be no objection to the trustees continuing to hold the shares which they have bought on the trusts of the trust deed.”
A note appearing in the report shows that after the judgment of Buckley, J. the shareholders in general meeting approved the allotments made by the directors.
The point arose again for determination in 1970. Minority shareholders had instituted an action against the directors of a company alleging impropriety in the allotment of shares which the directors were, as in this case, competent to allot asking for declarations that the allotments were invalid and that any resolutions passed by any general meeting of the shareholders adopting and/or ratifying the actions of the directors, were also invalid. The case was Bamford v. Bamford [1970] Ch. 212, Plowman, J. had held that any impropriety on the part of the directors in the allotment of shares which they always had the power to allot, could be and had indeed been waived by the general meetings of the shareholders which ratified the acts of the directors and he dismissed the action of the plaintiffs. The plaintiffs then appealed to the Court of Appeal and their appeal was dismissed. In the Court of Appeal the cases of Punt v. Symons & Ors. and Piercy v. S. Mills & Co. Ltd., were cited to the Court of Appeal but they were not followed by that Court. Boggs v. Cramphorn Ltd. was also cited but was distinguished by the Court of Appeal as being a case concerning a take over of assets and to be limited in its consideration and effect to such type of cases. Harman L.J. in the course of his own judgment, explained the law applicable to such circumstances in detail at p. 238 as follows
“So it seems to me here that these directors, on the assumptions which we have to make, made this allotment in breach of their duty mala-fide, as it is said. They made it with an eye primarily on the exigencies of the take-over war and not with a single eye to the benefit of the company and, therefore, it is a bad allotment. But it is an allotment. There is no doubt that the directors had power to allot these shares. There is no doubt that they did allot them. There is no doubt that the allottees are on the register and are for all purposes members of the company. The only question is whether the allotment, having been made, as one must assume,in bad faith, is voidable and can be avoided at the instance of the company-at their instance only and of no one else, because the wrong, if wrong it be, is a wrong done to the company. If that be right, the company, which had the right to recall the allotment, has also the right to approve of it and forgive it; and I see no difficulty at all in supposing that the ratification by the decision of 15th December in the general meeting of the company was a perfectly good “whitewash” of that which up to that time was a voidable transaction. And that is the end of the matter. ”
In the same vein, Russell L.J discussed in full the present legal position.
He observes at p. 242 as follows
“It is true that the point before us is not an objection to the proceedings on Foss v. Harbottle (1843) 2 Hare 461 grounds. But it seems to me none of the factors that admit exceptions to that rule appear to exist here. The harm done by the assumed improperly-motivated allotment is a harm done to the company of which only the company can complain. It would be for the company by ordinary resolution to decide whether or not to proceed against the directors for compensation for misfeasance. Equally, assuming that the allottee could not rely upon Royal British Bank v. Turquand (1856) 6 E. & B. 327. It would be for the company to decide whether to institute proceedings to avoid the voidable allotment; and against this decision would be one for the company in general meeting to decide by ordinary resolution.”
In the present case, there is no doubt, as found by the learned trial judge himself, that the board of directors had the power to allot the shares. The defendants in this case have attacked the regularity of what was described as the annual general meeting of the 27th January, 1968. We think that they have done so with success and the extraordinary general meeting which took place thereafter, as opposed to the meeting of the 27th January, 1968, was a properly constituted meeting of the Tika-Tore Press Ltd. The Articles of Association of the Company, exhibit A, have adopted the Regulations contained in Table A of the Companies Act, now replaced by the Companies Decree, as the governing Articles of the company with the exception of some regulations in Table A that are specifically excluded. Regulation 23 in Table A to the Companies Act, Cap. 37 (which was the law applicable at the time of these transactions) prescribed as follows:
“23. A person becoming entitled to a share by reason of the death or bankruptcy of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a member in respect of the share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the company.”
Therefore, when the plaintiffs turned up and voted at the meeting of the 27th January, 1968 they had no right to exercise voting rights and to that extent the meeting was clearly irregular. All parties agree that at the material time the plaintiffs were not registered members of the company and the order made on their representation motion was that they should represent other shareholders. They were not suing for the company and in the language of the Court of Appeal in Bamford v. Bamford, supra, only the company can institute an action to set aside allotments which are irregular and have not been ratified by the shareholders at a general meeting. If then the plaintiffs who could not vote had indeed voted, as they did, it would be wrong to uphold the validity of the meeting which was so clearly illegal. We are of the view therefore that the allotments made by the directors on the 18th January, 1968 were at worst only voidable, that to this extent the action of the plaintiffs, which seeks a declaration that the allotments were void, is misconceived as the allotments were not void but only voidable and that the learned trial judge was wrong in law to declare the allotments void.
With respect to the contention in the second limb of the appeal to the effect that the plaintiffs were incompetent to bring the action, we have already set out the view of the Court of Appeal on this issue in Bamford v. Bamford, supra. The shares that were allotted or purported to be allotted belonged to the company and understandably only the company could be aggrieved by an improper exercise of the power of allotment. We are in full agreement with the views expressed in Bamford’s case and we point out unhesitatingly that the plaintiffs not being members of the company were not competent to institute the present proceedings at the time when they did so.
The appeal therefore succeeds on both grounds on which the judgment of the learned trial judge was attacked. We allow the appeal and set aside the judgment of the learned trial judge, including the order for costs in Suit No. LD/125/68 (High Court, Lagos). We order that the plaintiffs’ case be dismissed with costs and this shall be the judgment of the Court. It is also ordered that the plaintiffs shall pay the costs of the defendants fixed in this Court at N260 and in the court below at N100.
Appeal allowed; plaintiffs’ case dismissed.
SC.276/1969
