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Citec Intl Estates Ltd & Ors V. Francis & Ors (2021)

LAWGLOBAL HUB Lead Judgment Report

KUDIRAT MOTONMORI OLATOKUNBO KEKERE-EKUN, J.S.C.

This appeal is against the judgment of the Court of Appeal, Abuja Division delivered on 7th July 2017, wherein the Court allowed the appeal filed by the present 1st – 4th respondents and set aside the decision of the trial Federal High Court, Abuja Division.

The facts are relatively simple and straight forward. The 1st appellant, CITEC International Estates Ltd. was duly incorporated on 16th February, 2001 as a limited liability company under the provisions of the Companies and Allied Matters Act (CAMA), with a share capital of 2 million ordinary shares. The 1st – 4th respondents owned 95% of the share capital while the 2nd Appellant, Bello Saka Oludare, owned the balance of 5%. The 1st, 2nd and 4th Respondents as well as the 2nd Appellant were the original directors of the company. By an ordinary resolution passed on 1st April 2002, the share capital of the company was increased to 10 million.

It was alleged that the company held board meetings on the 9th and 10th of March 2006 whereby the 1st respondent was removed as chairman and his

official residence and vehicle withdrawn. It was contended that due process was not followed in his removal. Another board meeting took place on 4th April 2006. It was alleged that notwithstanding the fact that the 1st – 4th respondents were not given notice of the meeting and the members present were unable to form a quorum, the following decisions were taken by the 2nd appellant:

(i) The allotment of the 8 million unallotted shares to members and non-members of the 1st Appellant without regard to the 1st – 4th Respondents’ right of first refusal.

(ii) A call for payment on shares allotted to the 1st – 4th Respondents, to be paid within 28 days; and

(iii) A resolution to the effect that the 2nd Appellant (Bello Saka Oludare) and the 5th Respondent (his wife) had paid N2million out of their called up capital on the basis that the 2nd Appellant incurred N2million as pre-incorporation expenses, whereas it was contended that it was the 1st Respondent who bore all the pre-incorporation expenses.

At another board meeting held on 6th October 2006, the names of the 1st – 4th respondents were removed as signatories to the company’s accounts.

The houses allocated to the 1st and 4th respondents were put up for sale. The 1st – 4th respondents were suspended and their salaries stopped. It was alleged that the 1st – 4th respondents, have by all the actions complained of, been deprived of their rights as shareholders, directors and management staff of the company without notice to them and without being given the opportunity of being heard.

As a result, they instituted an action before the Federal High Court, Abuja seeking the declaratory and injunctive reliefs reproduced below, aimed at restoring them to their original positions within the company and restoring their rights and entitlements.

The Plaintiffs’ claim against the Defendants Is for:

i. A declaration that once the 1st defendant has fully allotted its authorised shares, the shareholders to whom the same were allotted can only transfer the same to another person through a proper instrument of transfer and not by a resolution of the company.

II. A declaration that the Plaintiffs and the 2nd Defendant are the only members of the 1st Defendant.

iii. A declaration that the Plaintiffs own 95% of the total shares of the 1st

Defendant.

iv. A declaration that the 3rd, 4th, 5th, 6th and 7th defendants are not shareholders in the 1st defendant.

v. A declaration that the 4th, 5th, 6th and 7th defendants have no locus to vote on resolutions allotting shares of the 1st defendant to themselves or to any other person whosoever.

vi. A declaration that the 2nd Defendant cannot single handedly pass resolution to allot the shares of the 1st Defendant.

vii. A declaration that the allotment of the 8,000,000 unallotted ordinary shares of the 1st defendant by the 2nd to the 7th defendants on the 4th of April, 2006 is wrongful, illegal, unlawful, and accordingly null and void.

viii. A declaration that neither the provisions of CAMA nor the Articles of Association of the 1st Defendant empower the Board of Directors of the 1st Defendant to remove the 1st Plaintiff.

ix. A declaration that the suspension of the 4th Plaintiff who is a shareholder and a director is unknown to either CAMA or the Articles of Association of the 1st Defendant.

x. A declaration that a minority shareholder cannot retrieve, withdraw, sell or alienate properties allocated to the majority

shareholders by the 1st Defendant in their official capacities and/or remove them from their positions.

xi. A declaration that the resolution changing the signatories to the accounts of the 1st defendant is wrongful, unlawful and void.

xii. An order reversing to the former positions in respect of signatories to the account of the 1st defendant before the resolution of 6th of October 2005.

xiii. An order nullifying the resolution dated 24th day of April 2001 wherein the shares of the Plaintiffs were redistributed/re-allotted.

xiv. An order nullifying and or avoiding all the decisions contained in the Resolution dated 4h day of April, 2006 and likewise, all further Resolutions passed from the 4/4/06 by the 1st to the 7th Defendants and registered with the 8th Defendant be reversed and vacated forthwith.

xv. An order nullifying and/or voiding the resolution dated 10th day of March 2006 wherein the 1st Plaintiff was removed as the Chairman of the 1st Defendant and reinstating him forthwith.

xvi. An order nullifying and/or voiding the decision contained in the letter of the 1st Defendant dated 3rd of April, 2006 wherein the 4th Plaintiff

was suspended as Director of the 1st Defendant and reinstating him forthwith.

xvii. An order mandating the 1st Defendant to pay all outstanding salaries, allowances and emoluments due to the Plaintiffs forthwith.

xviii. An order of perpetual injunction restraining the 1st to the 7th Defendants, their agents, privies and representatives from selling and/or alienating the official quarters of the 1st and 4th Plaintiffs and/or dealing with the properties of the 1st Defendant allocated to the 1st and 4th Plaintiffs in their official capacities.

xix. An order of mandatory injunction directing the 8th defendant to remove or cancel from the 1st defendant’s company’s file held at the Corporate Affairs Commission in Abuja all documents reflecting the purported redistribution and re-allotment of the plaintiffs shares by resolution dated 24th of April, 2001.

xx. An order of mandatory injunction directing the 8th defendant to remove or cancel from the 1st defendant company’s file held at the Corporate Affairs Commission in Abuja all documents reflecting the purported allotment of the 1st defendant’s unallotted 8,000,000 ordinary shares by resolution

dated 4th of April, 2006.

xxi. An order that a proper and regular meeting of the bona fide members of the 1st defendant be summoned within twenty one days (21 days) of final judgment in this matter wherein all issues relating to the management and administration of the 1st defendant will be settled.

The appellants, upon being served with the Writ of Summons, filed a motion on notice challenging the jurisdiction of the Court to entertain the suit. The grounds for the application were as follows:

The plaintiffs lack the locus standi to initiate, maintain and sustain the action as constituted.
The action is incompetent by reason of noncompliance with mandatory statutory provisions of the Companies and Allied Matters Act, Cap C20, LFN, 2004, as well as the Companies Proceedings Rules S.I.14 of 1992.
The suit is a derivative one and no leave of Court was sought or obtained from this Honourable Court before the action was commenced.
Mandatory conditions precedent necessary to be fulfilled before instituting the suit were not fulfilled or complied with.
The Writ of Summons and Statement of Claim are void as the

statutorily mandatory procedure for commencing the action was not fulfilled.

The suit does not disclose any cause of action [or] a reasonable cause, and the suit as constituted is an abuse of the process of this Honourable Court.
All the reliefs sought in the Statement of Claim are derivative in nature for the benefit of the 1st Defendant only.

The 1st – 4th respondents filed a counter affidavit to the motion, to which the appellants filed a reply. Written addresses were filed, exchanged and adopted in open Court. In his judgment delivered on 1st December, 2006, his Lordship A.I. Chikere, J. granted the application and held, inter alia:

a) The complaint in the suit relates to the affairs of the company allegedly being conducted in an illegal or oppressive manner. That under the Companies Proceedings Rules, 1992, the suit ought to have been commenced by way of Petition, not by way of a Writ of Summons;

b) On the issue of locus standi – that part of the claim relates to the allotment of shares. He held that since the shares belong to the company, it is only the company that can be aggrieved by the improper exercise of power by the

1st appellant. His Lordship held that a complaint could only be brought in the company’s name and therefore the plaintiffs had no locus standi.

c) That the suit is a derivative action for which leave ought to have been sought and obtained. That in the absence of leave, the suit was incompetent. It was accordingly dismissed.

On appeal to the lower Court, the decision of Chikere, J. was set aside. The Court held that the Plaintiffs/Appellants had the locus standi to sue the Defendants/Respondents for the infringement of their legal rights. The Court also rejected the finding that the suit was a derivative action requiring prior leave. The Court held that the essence of the suit was to protect the plaintiffs’ individual interests.

The respondents in that appeal are now the appellants before us. They were not surprisingly, aggrieved by the judgment. By their Notice of Appeal filed on 2/8/2017, they raised six grounds of appeal.

At the hearing of the appeal on 19/10/2020, A.M. Kayode Esq. adopted and relied on the appellant’s brief filed on 9/11/18 and deemed filed on 4/2/18, Appellant’s reply brief to 1st – 4th respondents’ brief deemed filed

on 19/10/20 and the Appellant’s Reply Brief to 6th Respondent’s brief also deemed filed on 19/10/20, in urging the Court to allow the appeal.

Kehinde Ogunwumiju, SAN adopted and relied on 1st – 4th Respondents’ brief filed on 24/2/20, while O.O. Olowolafe Esq. adopted the 6th Respondent’s brief filed on 3/3/20 respectively, in urging the Court to dismiss the appeal. Olayinka Adedeji Esq. for the 5th Respondent, had nothing to urge, as he did not file any process on his client’s behalf.

Also, at the hearing of the appeal, learned senior counsel for 1st – 4th Respondents moved a motion filed on 24/2/20 challenging Ground 6 of the Notice of Appeal. In support of the application he filed a written address. A further affidavit was deposed to on 16/10/20. He adopted and relied on all the processes in urging the Court to grant the application. In opposing the application, learned counsel for the appellants relied on their counter affidavit deemed filed on 19/10/20 and their written address filed therewith in urging the Court to dismiss the application. Learned counsel for the 5th and 6th respondents did not oppose the application.

In respect of the appeal, the appellant distilled 2 issues from the notice and grounds of appeal as follows:

(i) Was the Court below right in holding that the 1st – 5th respondents have the required locus to initiate the suit?

(ii) Was the Court below right in its decision that the respondents’ action was based on alleged breach of their rights and obligations under Section 300 of CAMA and as such, the requirement prior to leave of Court to institute the suit or the use of Originating Summons or Petition to commence the suit was inapplicable to the suit. (Grounds 2, 4 and 5).

For the 1st – 4th respondents, two similar issues were formulated thus:

(i) Whether or not the lower Court was right when it held that the 1st – 4th respondents possess the locus standi to institute this action?

(ii) Whether or not the Court below was right when it held that it was not necessary for the 1st – 4th respondents to seek and obtain leave of Court to institute the action, as same was not a derivative action? (Grounds 2, 4 and 5).

The issues formulated by the 6th respondent are substantially similar to the issues formulated by the appellants and 1st – 4th respondents

respectively. There is no need to reproduce them here. I find the issues formulated by the 1st – 4th respondents to be clear and concise. I shall adopt them in the resolution of this appeal.

MOTION ON NOTICE

As the 1st- 4th respondents have challenged Ground 6 of the Notice of Appeal, which along with Grounds 1 and 3, form the basis of issue 1, it is necessary to deal with the application first. This is because, in the event that Ground 6 is incompetent, the effect would be that issue 1 is incompetent because it is not the duty of the Court to sift the arguments in respect of the competent grounds from those in respect of the incompetent grounds. See: Jev Vs Iyortyom (2014) 14 NWLR (Pt. 1428) 575; Ogundipe Vs Adenuga (2008) ALL FWLR (Pt 330) 206.

The grounds for the application are that Ground 6 of the Notice of Appeal is an appeal against an obiter dictum of the lower Court and not the ratio decidendi of the decision. It is contended that the said ground and issue 1 formulated therefrom are consequently incompetent and should be struck out. Relying on the authority of K.R.K. Holdings (Nig) Ltd Vs FRN (2017) 3 NWLR (PL 1552) 342 D — E;

Omisore Vs Aregbesola (2015) 15 NWLR (Pt.1482) 263 – 264 G – B; and Ohakim Vs Agbaso (2010) 6 – 7 SC 86 @ 168 Line 20, learned senior counsel for the applicants submitted that the law is settled that a ground of appeal must arise from the ratio of the decision appealed against. He submitted that the ratio of the Court’s decision was not based on Section 36 of the Constitution, which was a remark made in passing but rather that the appellants were entitled to notice of meetings which was not given to them. He argued that Ground 6 is a misrepresentation of the Court’s decision.

In opposition, learned counsel for the appellants, in his written address referred to some inconsistences in the averments in the affidavit in support in relation to the date the deponent received the information he deposed to. It was observed that the affidavit was deposed to on 24th February, 2020, while in paragraph 5, it was averred that the information was received on 24th of March 2020. I must observe here that in the further affidavit filed by the appellants, it is averred that there was a typographical error and the correct date is 24th February 2020. That takes care

of the complaint.

On the substance of the application, it is conceded that grounds of appeal must be derived from the ratio of the decision complained of. Learned counsel submitted that a decision can have more than one ratio. See: Adetoun Oladeji (Nig.) Ltd. V. N.B. Plc (2007) 5 NWLR (Pt 1027) 415 @ 438 H – B. He submitted further that the Court below found the issue of fair hearing to be a fundamental issue in the appeal. He referred to pages 874 – 875 of the record, where the lower Court held thus:

“The meetings held without the mandatory notice to the appellants and the resolutions taken against them without given (sic) them a fair hearing is their complaint in this case. Issue of denial of fair hearing is fundamental, as it goes to the jurisdiction of the Court.”

Referring to paragraphs 4.16 and 4.16.04 of the appellants’ claim at pages 323 – 325 of the record, he asserted that Ground 6 properly arises from the ratio of the decision and not from an obiter dictum. He submitted that the said ground and issue 1 are therefore competent.

Both learned counsel are correct in their submission that a ground of appeal must find its anchor in

the ratio decidendi of the decision appealed against. It is also settled law that an issue for determination can only be distilled from a competent ground or competent grounds of appeal. As observed earlier, in a situation where an issue for determination is derived from both competent and incompetent grounds, the issue is liable to be struck out for incompetence. See:Jev Vs lyortyom (supra).

An obiter dictum is an expression of opinion made by a Judge in passing in the course of delivering judgment, but which does not decide the live issues in the matter. See: Oshodi Vs Eyifunmi (2000) 7 SC (Pt. II) 145; Babarinde Vs The State (2014) 3 NWLR (Pt. 1395) 568; N.D.P. V. INEC (2013) 6 NWLR (Pt. 1350) 392.

The ratio decidendi on the other hand, is the principle of law upon which a particular case is decided. It has the binding force of precedent. All lower Courts are bound by the ratio decidendi of the decision of a higher Court. The ratio decidendi has also been defined as “the reason for deciding.” See: Amobi v. Nzegwu (2013) 12 SC (Pt. 1) 142; UTC (Nig.) Ltd v. Pamotei (1989) 2 NWLR (Pt. 103) 244.

One of the issues argued before the lower

Court was whether the appellants possess the locus standi to institute the suit. The 1st – 4th respondents argued before that Court that the trial Court was wrong when it held that they lacked locus standi. They argued that they had the necessary locus because their claims and the reliefs sought were to enforce their rights or assuage injuries done to them personally and not to the company. The appellants, on the other hand, contended that the substance of the complaints was the alleged violation of the Memorandum and Articles of Association of the company and oppressive and discriminatory management of the 1st appellant’s affairs by the 2nd – 5th appellants. The finding of the lower Court was:

“The appellants are free to protect their rights and obligations which were being infringed. The meetings held without the mandatory notice to the appellants and the resolutions taken against them without giving them a fair hearing is their complaint in this case. Issue of denial of fair hearing is fundamental as it goes to the jurisdiction of the Court. A party’s right to fair hearing is provided under Section 36 of the Constitution of the Federal Republic of Nigeria 1999 (as amended)

is inviolable and as such cannot be denied on the grounds of technicalities.”

The appellants specifically challenged this finding in Ground 6 of the Notice of Appeal. I do not entertain any doubt whatsoever that this finding constitutes part of the ratio decidendi of the judgment appealed against. It is not an obiter dictum.

I therefore hold that Ground 6 of the Notice of Appeal and Issue 1 formulated partly from this issue are competent. The 1st – 4th respondents’ motion on notice filed on 24/2/2020 is without merit. It is hereby dismissed.

The ruling just delivered paves the way for the determination of the appeal.

Issue 1

Learned counsel for the appellants reiterated the settled position of the law regarding locus standi. He submitted that a claimant would only have locus standi where the reliefs sought would confer some benefit on him. That it is the statement of claim alone that determines whether he has the locus to institute the action. He also submitted that the locus standi of a claimant is fundamental and touches on the Court’s competence to adjudicate. See: Bakare Vs Ajose-Adeogun (2014) 6 NWLR

(Pt. 1403) 320 @ 350 – 351 H – B; Pam Vs Mohammed (2008) 16 NWLR (Pt. 1112) 1 @ 66 F. He referred to paragraphs 16, 17, 18, 19, 20 and 34 of the Statement of Claim and contended that the 1st – 4th respondents’ cause of action centres on irregularity in the allocation of unallotted shares of the 1st appellant, the change of signatories to the 1st appellant’s bank account and illegal conduct of the 1st appellant’s affairs by the 2nd – 5th appellants. He asserted that the complaints in the above-mentioned paragraphs reflect the wrong done to the 1st appellant by the 2nd – 5th Appellants. He contended that the wrongs do not reflect a violation of 1st – 4th respondents’ personal rights. He described them as corporate rather than individual wrongs. He submitted that the complaints relate to the internal management of the company and that it is not the practice of the Court to interfere with the internal management of companies.

In support of the contention that the proper plaintiff is the company itself, he referred to A.G. Lagos State Vs Eko Hotels Ltd. (2006) 18 NWLR (Pt. 1011) 378 @ 455 – 456 H – B; Section 299 of CAMA. He submitted further that

the fair hearing provisions of Section 36 (1) of the 1999 Constitution, as amended, do not apply to the Board Meetings and Annual General Meetings of the 1st Appellant, which is a company limited by shares. He argued that the said provisions are restricted to the proceedings before Courts and Tribunals established for the determination of the civil rights and obligations of litigants.

Learned counsel submitted that there are neither express nor implied provisions in the 1st Appellant’s Memorandum and Articles of Association, which guarantee fair hearing in the allotment/redistribution of shares, removal and appointment of Directors or charges in the signatories to the 1st appellant’s accounts. He posited that even if there were such provisions, they would only qualify as civil rights or a Director’s right, which is outside the scope of Section 36 of the 1999 Constitution, as amended.

Learned counsel submitted that the holding by the Court below, at page 885 of the record, that the failure of the appellants to respond to the allegation that they failed to notify the 1st – 4th respondents Board Meetings amounted to an admission, violates the principle

that Courts must not delve into substantive issues at the interlocutory stage, particularly as the 1st-4th respondents’ reliefs are declaratory reliefs, which cannot be granted on admission. He referred to Helzger Vs Dept. of Health & Social Welfare (1977) 3 ALL ER 444 @ 451; A.G. Cross Rivers State VS A.G. Federation (2012) 16 NWLR (PL 1327) 425 @ 479 B-C; Dumez Nig. Ltd. v. Nwakhoba (2008) 18 NWLR (Pt. 1119) 361 @ 386 B -C.

Countering the above submissions, Learned senior counsel for the 1st-4th respondents submitted that there are three provisions which govern locus standi, to wit:

(a) Section 6 (6) (b) of the 1999 Constitution, as amended;

(b) The Rule in Foss Vs Harbottle (1842) 2 KB 461, as codified in Section 299 of CAMA; and

With regard to Section 6 (6) (b) of the Constitution, he submitted that the settled position of the law is that the jurisdiction of a Court can only be invoked where the suit relates to the determination of any question as to the rights and obligations of the plaintiff, whether that plaintiff be a human being or an

artificial person.

He argued that while the general rule laid down in Foss Vs Harbottle (supra), as codified in Section 299 of CAMA, is that where there is an irregularity, which occurs in the course of a company’s affairs, only the company is competent to sue, there are exceptions to the rule, which have evolved through case law and eventually codified in Section 300 of CAMA, which protect the rights of members of a company who are personally aggrieved by the conduct of its affairs. He referred to: Pender Vs. Lushington (1877) 6 C.H.P 70; Northwest Transportation Co. Vs Beatty (1887) 12 A.C. 589; Edward Vs Halliwell (1950) 2 ALL EIR 1064. He submitted that in any of the circumstances set out in subparagraphs (a)-(f) of Section 300, an individual member of the company has the locus to approach the Court.

He submitted that the originating processes of the 1st-4th respondents disclose the necessary locus standi. He argued further that an incorporated company is a separate entity from its shareholders and therefore the rights and interests of the company are different from the personal rights and interest of its shareholders. He referred to:

Elufioye Vs Halilu (1993) 6 NWLR (Pt. 301) 570 @ 599 E. He submitted that the Memorandum and Articles of Association of a company represent the contract between the individual shareholders and the company and it is that document that spells out the rights and interests of the individual shareholders. He referred to Yalaju-Amaye V. A.R.E.C. Ltd (Supra) @ 445 A-D. He referred to the pleadings in paragraphs 1-3, 23, 25, 26, 31, 35, 36 and 38 of the Statement of Claim. He also referred to page 34 of the record, which details the shareholding of the 1st-4th respondents as contained in the Memorandum & Articles of Association of the company and clause 4 thereof relating to pre-emptive rights of shareholders at page 35. He argued further that reliefs (ii), (iii), (viii), (ix), (x), (xii), (xiii), (xv), (xvi), (xvii) and (xviii) were sought to enforce their personal shareholder rights.

Learned senior counsel referred to C.B.N. Vs Kotoye (1994) 3 NWLR (Pt 330) 66 @ 75-76 H-B and 77D, where it was held that the rule in Foss Vs Harbottle, which was derived from decisions of the Courts over the years, cannot override clear statutory provisions to the contrary or affect the

rights and obligations conferred by the Constitution. Furthermore, that it will not apply to an action instituted to protect the invasion of personal rights of an individual member qua member of a company, as in such cases the wrong ceases to be a wrong to the company and goes beyond the authority of the company, union or association or its majority members to rectify or seek redress in Court. He referred toYalaju Amaye Vs A.R.E.C. (supra) @ 459 A- B.

It was further argued that the contention of the appellants that several of the complaints in the suit relate to the shares of the company and therefore only the company was competent to sue in relation thereto, had been raised in a previous case, A.G. Lagos State Vs Eko Hotels Ltd. (2006) 18 NWLR (Pt 1011) 378. And rejected by this Court. He referred to pages 419 D-G and 445 A-H of the report. He submitted that in that case it was held that the company to whom the shares belong as well as the shareholders, who are beneficial holders of the shares, can initiate an action in respect of the company’s shares.

Learned senior counsel submitted, that contrary to the appellants’ contention that the cause of

action centers on the alleged violation of the corporate rights of the company, the suit falls not only within Section 300 (c) of CAMA, it also falls under Section 300 (a) and (d), which relate to ultra vires/illegal and fraudulent acts. He referred to paragraphs 16, 23, 25, 26 and 38 of the Statement of Claim. He also referred to reliefs (i), (v), (vii), (xi) and (xiii). He noted that the reliefs in paragraphs (xii) to (xxi) were sought to facilitate the enforcement of the declarations sought in paragraphs (i) to (xi).

Relying on Yalaju Amaye Vs A.R.E.C. (supra) @ 448 C, he submitted that the acts complained of are not mere irregularities but illegalities, which cannot be ratified by the company under Section 299 of CAMA and therefore the rule in Foss Vs Harbottle (supra) is inapplicable. He proceeded to advance arguments on why the decision of the trial Court should not be restored, basing his submission on the fact that the trial Court misconstrued and wrongly applied the decision of this Court in Edokpolor Vs. Sem-Edo Wire Ltd. (1984) NSCC Vol. 15 553. It is pertinent to remind learned senior counsel that the judgment of the trial Court is not on

appeal before us.

On the complaint that the lower Court delved into substantive issues at the interlocutory stage, he noted that the appellants, at the time they raised their preliminary objection, had not filed their defence, He submitted that in the circumstances, and for the purpose of determining the preliminary objection, they are deemed to have admitted all the averments in the statement of claim. See: C.B.N. Vs Interstella Communications Ltd (2017) 12 sc (Pt. iv) 87 @ 189 lines 30-5; Omnia (Nig) Ltd Vs. Dyktrade Ltd (2007) 15 NWLR (Pt. 1058) 576 @ 628 E-F; Sehindemi Vs. Gov. Lagos State (2006) 10 NWLR (Pt. 987) @ 29 G-H. He urged us to discountenance the appellants’ submissions on this issue.

On the contention that the fair hearing provisions of Section 36 (1) of the 1999 Constitution, as amended, are not applicable to company’s proceedings, he submitted that fair hearing at administrative proceedings, such as company meetings, is also guaranteed under the rules of natural justice. See: Adeniyi Vs Governing Council of Yabatech (1993) LPELR – 120 (SC) @ 30 B-P, Oyeyemi Vs Comm. for Local Govt. Kwara State (1992) 2 NWLR (Pt. 226) 661 @ 681-682

H-A. He submitted that the right to fair hearing at company meetings is expressly guaranteed by CAMA as well as the Company’s Articles of Association. He referred to Sections 262 (2) and 266 (1), (2) and (3) of CAMA; Longe VS F.B.N. Plc (2010) 6 NWLR (Pt.1189) 1 @ 30 F-G, 46-47 G-B; Re: GlaxoSmitKline Consumer Nig. Plc (2019) LPELR – 47498 (CA) @ 55-57 C-B.

Relying on the authority of Witt & Busch Ltd Vs Dale Power Systems Plc. (2007) 17 NWLR (Pt 1062) 1 @26 G – H and Adonike Vs The State (2015) & NWLR (Pt.1458) 237 @ 258 E – F, he submitted that assuming, without conceding that the appellants are correct in stating that Section 36 of the 1999 Constitution, as amended, is not applicable to the conduct of company meetings, the provisions of CAMA and the relevant clauses in the Articles of Association relating to notices of meetings, guarantee the 1st – 4th respondents’ right to fair hearing and the decision of the lower Court should not be set aside on this ground. Finally, he submitted that the alleged errors of the lower Court have not occasioned a miscarriage of justice.

The submissions of learned counsel for the 6th respondent are in

alignment with those made on behalf of the 1st – 4th respondents. I shall only make reference to those submissions not covered by the learned senior counsel for the 1st – 4th respondents. Learned counsel submitted that in order to ascertain the actual nature of the plaintiffs’ claim, the entire statement of claim must be considered as a whole and not selectively, as done by the appellants. He submitted that a holistic appraisal of the Statement of Claim reveals that the cause of action was the protection of the 1st – 4th respondents’ personal rights. He submitted that the pleadings are replete with instances of denial of fair hearing.

In the Appellants’ reply to 1st – 4th respondents’ brief, it was submitted that Section 300 of CAMA is restricted to suits designed to restrain a company from taking steps which are illegal or ultra vires. Learned counsel submitted that the provision is inapplicable to completed acts. He urged the Court to give the words in the statute their natural and ordinary meaning. He contended that most of the reliefs the 1st – 4th respondents are seeking are aimed at reversing completed acts.

He submitted that the authority of

A.G. Lagos State Vs Eko Hotels Ltd (supra) is inapplicable to the facts of this case because the plaintiffs in that case instituted the action vide an Originating Summons and not by Writ of Summons, as in this case. He maintained that the complaints of the 1st – 4th respondents relate to irregularities and not illegalities. I have discountenanced those submissions which are a rehash of the arguments in the main brief.

RESOLUTION OF ISSUE 1

Locus standi connotes the legal capacity to institute an action in a Court of law. It is a threshold issue that affects the jurisdiction of the Court to look into the complaint. Where the claimant lacks the legal capacity to institute the action, the Court, in turn will lack the capacity to adjudicate. See: Daniel Vs INEC (2015) LPELR – 24566 (SC) @ 47 A – D; Thomas Vs. Olufosoye (1986) 1 NWLR (Pt. 18) 669; Opobiyi & Anor. Vs. Muniru (2011) 18 NWLR (Pt. 1278) 387 @ 403 D – F; Nyesom Vs. Peterside (2016) LPELR – 40036 (SC) @ 39 – 40 C – A. In order to have locus standi, the claimant must have sufficient interest in the suit. For instance, it must be evident that the claimant

would suffer some injury or hardship or would gain some personal benefit from the litigation. See:Inakoju Vs Adeleke (2007) 4 NWLR (Pt. 1025) 423 @ 601 – 602 H – B; Thomas Vs Olufosoye (supra); B.B. Apugo & Sons Ltd. Vs O.H.M.B. (2016) 13 MWLR (Pt 1529) 206.

In determining whether the claimant has the necessary locus standi to institute the action, it is his pleadings that would be considered by the Court. Standing to sue does not depend on the merit of the claim but on the interest of the claimant in the subject matter of the suit. See: Basinco Motors Ltd. Vs Woermann – Lines & Anor (2009) 13 NWLR (Pt. 1157) 149; Fawehinmi Vs Akilu (1987) 12 SC 36; Musical Copyright Society of Nig. Ltd/Gte Vs Compact Disc Technology Ltd & Ors (2018) LPELR – 46353 (SC) @ 27 – 28 F – F.

The following paragraphs of the Statement of Claim give a glimpse into the complaints of the 1st – 4th respondents, which gave rise to their suit at the trial Court.

“1. The 1st Plaintiff is the Chairman, Chief Executive Officer, majority shareholder, the alter ego and the directing mind and will of the 1st Defendant hiding 70% of the

shares.

The 2nd and 3rd Plaintiffs are shareholders and directors of the 1st Defendant; they are also wife and child respectively of the 1st Plaintiff, they hold 10% of the shares each in the 1st Defendant.
The 4th Plaintiff is a shareholder and the Director of Administration of the 1st Defendant, he holds 5% of the share.
The Plaintiffs aver that in the course of their business, the shareholders of the 1st Defendant/company decided to increase the share capital of the 1st defendant from 2,000,000 ordinary shares to 10,000,000 ordinary shares. Consequently, on the 1st day of April, 2002 the 1st Defendant/Company with an ordinary Resolution increased its share capital by an additional 8,000,000 ordinary shares which shares were unalloted. The Certificate of Increase in Share Capital dated 9th April, 2002 is pleaded and annexed as “Afe 5″.
During the general meeting of the 1st defendant held on the 4th of April, 2006, the 2nd defendant unilaterally and without the concurrence of the other shareholders of the 1st Defendant claimed that the 4th, 5th, 6th and 7th Defendants (who were neither shareholders of the 1st Defendant nor

possess the right to attend or vote at the general meeting of the 1st Defendant) voted that the aforesaid 800,000,000 (sic: 8,000,000.00) unalloted ordinary shares of the 1st Defendant be allotted consequent upon which an ordinary Resolution was passed to distribute the unallotted shares in the following ways:

i. Josiah Oluwole Francis 3, 400,000 Ord. Shares

ii. Josiah Olusola Biodun (Mrs) – 400.000 ” ”

iii. Josiah Michael 200.000 ”

iv. Bello Saka Oludare 2, 880,000 ”

v. Fasubaa Albert Ademola 400,000 ”

vi. Bello Aderonke (Mrs), 400.000 ”

vii. Akin Fayinminu 80,000 ”

viii. Nurudeen Jinadu 80,000 ”

ix. Coke Odunlami 80,000 ”

x. Biodun Daniels 80,000 ”

The Form C02 and the Ordinary Resolution dated the 4th of April, 2006 and filed at the 8th Defendant are hereby pleaded and annexed as “Afe 6 (a) and (b).

Plaintiffs aver that the allotments of 4th April, 2006 unilaterally done by the 2nd Defendant are fraudulent, unlawful and illegal.
The Plaintiffs aver that the 2nd Defendant in his usual characteristics of acting contrary to the provisions of CAMA and the Article of Association of the 1st

Defendant/Company on 6th day of October, 2005 held a Board Meeting where signatories to the Account of the 1st Defendant were changed without complying with [the] rules.

On another occasion, the 2nd to the 7th Defendants held another unlawful and illegal board Meeting on the 9th and 10h March, 2006 where they purportedly removed the 1st Plaintiff as the Chairman of the 1st Defendant’s Board of Directors contrary to the Articles of Association of the 1st Defendant, the Companies and Allied Matters Act, common law and equity. The notice and the minutes of the said meeting of the 9th and 10th March 2006 and the resolution of 10th March 2006 removing the 1st Plaintiff as the Chairman of the 1st Defendant are hereby pleaded and annexed as “Afe 11, 12 and 13.”
The Plaintiffs aver that the 2nd to the 2th Defendants have completely taken over the management, control and administration of the 1st defendant and have thus excluded the plaintiffs despite their colossal investment in the 1st defendant.
As part of the 1st Defendant’s welfare policy for its director and shareholders, the 1st Defendant allocated the following houses to the 1st and 4h

Plaintiffs as follows:

i) The 1st Plaintiff – Duplex at 27, Oka Akoko Close, Garki II, Abuja.

ii) The 4h Plaintiff – House No. 3, 17 Road, Citec Villas, Gwarimpa, Team 5, Abuja, FCT

The 2nd to the 7th Defendants are making desperate bids to sell the official quarters of the 1st and 4th Plaintiffs described in paragraph 32 above and have in fact placed notice of sale in front of the said houses.
On the 3rd April, 2006, the 2nd to 7th Defendants becoming more and more daring purported to have illegally suspended the 4th Plaintiff as a Director of the 1st Defendant and ordered that his salary which has hitherto been withheld since September, 2005 remains withheld.

The letter of suspension is hereby pleaded and annexed as ‘Afe 19’.

The 2nd to the 7th defendants have ganged up against the plaintiffs and their family members to cheat them out their life investment and are even threatening the lives of the plaintiffs as a result.”

It is evident that the pleadings, along with the reliefs sought are to the effect that the plaintiffs have suffered personal injury arising from the interference by the appellants with their rights as

shareholders, directors and management staff of the 1st appellant, without recourse to them.

Learned counsel for the appellants rejects this assertion and contends that the complaints relate simply to the internal management of the 1st appellant, for which only the 1st appellant has the capacity to sue. The 1st – 4th respondents contend that the Memorandum and Articles of Association of the 1st appellant have been breached in so far as the actions and inactions complained of affect their personal rights.

It is necessary at this stage to consider Section 41 of CAMA, which provides for the effect of the Memorandum and Articles of Association of a company as follows:

“41(1) Subject to the provisions of this Act, the Memorandum and Articles of Association, when registered, shall have the effect of a contract under seal between the company and its members and officers and between the members and officers themselves whereby they agree to observe and perform the provisions of the memorandum and articles, as altered from time to time in so far as they relate to the company, members or officers as such.

If this provision is juxtaposed with the

paragraphs of the Statement of Claim reproduced above, it is clear that the suit is complaining about a breach of the obligations owed to the plaintiffs under the Memorandum and Articles of Association as individual members and officers of the company.

This brings me to the rule in Foss Vs Harbottle. In the case of Yalaju-Amaye Vs A.R.E.C. Ltd & Ors (1990) 4 NWLR (Pt 145) 422 @ 446 A . His Lordship Karibi Whyte, JSC reiterated the dictum of Jenkins, L.J. in Edwards Vs Halliwell (1950) 2 ALL ER 1084 @ 1066, where His Lordship held inter alia;

“The rule in Foss Vs Harbottle, as I understand it, comes to no more than this. First, the proper plaintiff in an action in respect of a wrong alleged to be done to a company or association of persons is prima facie the company or the association of persons itself. Secondly, where the alleged wrong is a transaction which might be made binding on the company or association and or all its members by a simple majority of the members, no individual member of the company is allowed to maintain an action in respect of that matter for the simple reason that if a mere majority of the company or association is in

favour of what has been done, then cadit quaestio. Thus, the company or association is the proper plaintiff in all actions in respect of injuries done to it. No individual will be allowed to bring actions in respect of acts done to the company which could be ratified by a simple majority of its members. Hence the rule does not apply where the act complained of was ultra vires the company, or illegal or constituted a fraud on the minority and the wrongdoers are in the majority and in control of the company… And finally, where a resolution has been passed by a simple majority, see Edwards Vs Halliwell (supra). These last mentioned circumstances are the generally recognized exceptions to the rule in Foss Vs Harbottle (supra).”

His Lordship Nnaemeka – Agu, JSC in the same case of Yalaju-Amaye Vs A.R.E.C. Ltd (supra) @ 465 D – H, held inter alia, that, notwithstanding the rule in Foss Vs Harbottle, it is permissible for a shareholder to maintain an action when it is clear that to deny him relief would be tantamount to allowing the rule to be converted into an engine of fraud or oppression. His Lordship stated further:

“…Apart from actions enforcing personal rights of an oppressed plaintiff shareholder, the Courts have always allowed actions, in spite of the rule, where the act in question is ultra vires the company or such that it cannot be sanctioned by a simple majority but by special resolution or is based on fraud.”

At page 466 B – C (supra), His Lordship further held:

“Although it is recognized that the word “fraud” is a term of so wide an import that it is idle to attempt to define it, it at least appears clear that any act which may amount to an infraction of fair dealing, or abuse of confidence, or unconscionable conduct or abuse of power as between a trustee and his shareholders in the management of a company is fraud, which may take the case out of the rule in Foss Vs Harbottle (supra).”

I agree with learned senior counsel for the 1st – 4th respondents that the rule in Foss Vs Harbottle (supra) is inapplicable in the present circumstances. The complaints are not complaints of wrongs done to the company. Their grievance is that they have been denied their rights to notice of meetings where decisions affecting their individual rights were taken. They also contend that

the allotment of 8 million unallotted ordinary shares of the 1st Appellant by the 2nd Appellant to members and non-members of the 1st Appellant without regard to their right of first refusal is ultra vires, illegal, unlawful and accordingly null and void. Another complaint is in relation to the intended sale of their official quarters, their suspension and the stoppage of their salaries. See: A.G. Lagos State Vs. Eko Hotels Ltd. (2006) 18 NWLR (Pt. 1011) 378 @ 419 D – G.

Section 300 (C) of CAMA provides:

“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 this Act, the Court, on the application of any member, may by injunction or declaration, restrain the company from the following –

The provisions are clear and unambiguous. Learned counsel for the appellant misconstrued the provision when he argued that it is only applicable to restrain a company from taking steps which are illegal or ultra vires and will not apply to completed acts. With respect to learned counsel, the

provisions relate not only to injunctive reliefs but also to declaratory reliefs relating to any act or omission affecting the applicant’s individual rights. I am of the considered view that the 1st – 4th respondents’ suit falls squarely within Section 300 of CAMA as well as the exceptions to the rule in Foss Vs Harbottle to confer them with the necessary locus to institute their action.

Learned counsel for the appellants has also argued that the fair hearing provisions under Section 36 (1) of the 1999 Constitution, as amended, do not apply to a company’s proceedings. The short answer is that in so far as the company’s Memorandum and Articles of Association make provision for the giving of notice for meetings to shareholders, it follows that those entitled to be given notice of such meetings are entitled to participate in and contribute at such meetings and to be part of whatever resolution might be reached thereat. See also Sections 262(2) and 266(1), (2) and (3) of CAMA. It is settled law that even the proceedings of a non-judicial or administrative body must be conducted in accordance with the principles of natural justice. See:

Adeniyi Vs Governing Council of Yabatech (1993) 6 NWLR (Pt. 300) 426; Denloye Vs Medical & Dental Practitioner Disciplinary Committee (1968) 1 ALL NWLR 306.

With regards to the contention that the lower Court delved into substantive issues at the interlocutory stage, I find myself unable to agree with that assertion. What the Court did was merely to observe that in circumstances where a defendant raises a preliminary objection without having filed his Statement of Defence, he is taken, for the purposes of the objection only, to have admitted the averments in the Statement of Claim. This is because, in order to determine the objection, the Court can only consider the averments in the Statement of Claim. I am not persuaded that any miscarriage of justice has occurred thereby.

In conclusion on this issue, I hold that the lower Court was right when it held that the 1st – 4th respondents had the requisite locus standi to institute the action. The issue is accordingly resolved against the appellants.

Issue 2

Learned counsel for the appellants contended that the 1st – 4th respondents’ suit is a derivative action for which the prior leave of the Court ought to have

been obtained before it was instituted. He argued that going by the various reliefs sought, they are not for the protection of the individual rights of the plaintiffs but are reliefs which are beneficial to the 1st appellant and seek to redress wrongs committed against the 1st appellant. He referred toAgip Nig. Ltd Vs Agip Petrol Int’l. (2008) 5 NWLR. (Pt 1187) 348 @ 393 G – H. He submitted that the action ought to have been commenced by Originating Summons and not by a Writ of Summons and Statement of Claim.

He submitted that where, by a rule of Court, the doing of an act or taking a procedural step is a condition precedent to the hearing of a case, the rule must be strictly complied with. He submitted that non-compliance is not a mere irregularity but a fundamental issue that goes to the root of the Court’s jurisdiction. He referred to Amaechi Vs INEC (2008) 5 NWLR (Pt 1080) 227 @ 437 H – A; Aladejobi Vs N.B.A. (2013) 15 NWLR (Pt. 13761) 66 @ 84B; Mainstreet Bank Capital Ltd. Vs Nigeria Reinsurance Corporation Plc (2018) 14 NWLR (Pt. 1640) 423 @ 455 B. He also referred to Section 303 (1) and (2) of CAMA. He submitted that on this issue, the trial

Court was right in holding that the suit was a derivative action and failure to commence the suit by Originating Summons rendered it incompetent. He urged the Court to set aside the decision of the lower Court, which held a contrary view, and to strike out the suit for incompetence.

In response, learned senior counsel for the 1st – 4th respondents submitted that a derivative action is an action brought to protect the interest of a company and that the reliefs in a derivative action are sought for the benefit of the company. He submitted that the resolution of Issue 1 against the appellant would lead to the inevitable conclusion that the suit is not a derivative action. He submitted that not only is the suit not a derivative action requiring prior leave, even if the suit was brought pursuant to a wrong mode of commencement, it was not sufficient to defeat the action. Learned counsel for the 6th respondent is of similar persuasion.

In view of my finding and resolution of Issue 1 against the appellant, I do not deem it necessary to reproduce the remaining submissions of learned counsel on this issue.

RESOLUTION OF ISSUE 2

Section 303 (1) of CAMA provides:

“303 (1) Subject to the provisions of subsection (2) of this Section, a applicant may apply to the Court for leave to an action in the name or on behalf of a company, or to intervene in an action to which company is a party, for the purpose of prosecuting or defending or discontinuing the action on behalf of the company.

(2) No action may be brought and no intervention may be made under Subsection (1) of this Section unless the Court is satisfied that –

(a) the wrongdoers are the directors who are in control and will not take necessary action;

(b) the applicant has given reasonable notice to the director of the company of his intention to apply to the Court under subsection (1) of this section if the directors of the company do not bring, diligently prosecute or defend or discontinue the action.

In Unipetrol (Nig.) Plc Vs. Agip (Nig) Plc (2002) 14 NWLR (Pt. 787) 312 @ G – N, the Court of Appeal per Aderemi, JCA (as he then was), in interpreting the above provisions, held, inter alia.

“It has now become accepted as settled in law that a derivative action is an action brought by a shareholder in the name of himself and all other shareholders to enforce the company’s rights. The company must be joined as a defendant to the action so that it becomes a patty to the action and judgment can be given in its favour so that it will be bound by the Court’s judgment.”

This position was affirmed by this Court in Agip (Nig) Ltd Vs. Agip Petrol International (2010) All FWLR (Pt. 520) 1198 @ 1230 – 1231 D – F.

In the course of resolving Issue 1, I held that the suit of the 1st – 4th respondents does not seek to redress any wrong done to the 1st Appellant but to protect and enforce their individual rights. The suit cannot, by any stretch of the imagination, be considered to be a derivative action. It follows therefore that they did not require prior leave for their suit to be properly instituted. I also held that the said suit was properly commenced by Writ of Summons and Statement of Claim and was therefore competent.

This issue is accordingly resolved against the appellants.

On the whole, I find no merit in this appeal.

I am not persuaded to interfere with the sound reasoning of the Court below. The appeal is hereby dismissed. The judgment of the Court of Appeal, Abuja Division delivered on 7th July, 2017 is affirmed.

Costs of N2 Million are awarded in favour of the 1st – 4th respondents against the appellants.

Appeal dismissed.

SC.720/2017

Citec Intl Estates Ltd & Ors V. Francis & Ors (2021) LLJR-SC

Citec Intl Estates Ltd & Ors V. Francis & Ors (2021)

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