M. A. Omisade & Ors V. Harry Akande (1987)
LawGlobal-Hub Lead Judgment Report
The suit culminating in this appeal was tried by the High Court of Lagos State. The first important issue for determination in the appeal is whether, having regard to the fact that the suit primarily involved a dispute between the directors of a company in connection with the affairs of their company, the matter was within the exclusive jurisdiction of the former Federal Revenue Court and the High Court of Lagos State had no jurisdiction to adjudicate on it. The issue was neither raised in the High Court, nor in the Court of Appeal. It has been taken for the first time in this Court.
It is relevant to point out that the writ of summons in the suit was dated 22nd October 1976. The appeal must therefore be determined in accordance with the law relating to the jurisdictions of the Federal Revenue Court and the State High Court as it was in 1976 and not on the law as it is today.
The salient facts giving rise to the case may now be stated. The present Respondent, hereinafter referred to as the Plaintiff, instituted the suit against the present Appellants, hereinafter referred to as the Defendants. The Plaintiff and the 1st Defendant are the only shareholders and directors of the 4th Defendant, a limited liability company incorporated under the Companies Act 1968, in which both hold equal shares.
On 23rd January 1976 the 4th Defendant entered into an agency agreement with the 3rd Defendant which is an American corporation based in Oakland, United States of America. Under the agreement, the 3rd Defendant appointed the 4th Defendant as its sole and exclusive agent in Nigeria for any Nigerian Pilgrims Hajj Movement in 1976 on commission basis. The 4th Defendant would represent the 3rd defendant in any negotiation in that respect with the Nigerian Pilgrims Board. It appears that since the execution of the agreement the working relationship between the Plaintiff and the 1st Defendant began to deteriorate and culminated in a final break down by the middle of the year. On that account as averred in paragraph 7 of his Statement of Defence, the 1st Defendant incorporated together with other person the 2nd Defendant company “for the purpose of retrieving and salvaging his good name in the 4th Defendant company, which company was being manoeuvred and manipulated by the plaintiff for acts and purposes acutely embarrassing to the 1st Defendant. ”
After the 1st Defendant had incorporated the 2nd Defendant, he went to Oakland in July 1976 whereat in his capacity as the chairman of the 4th Defendant company, he informed one Mr O’Brien, a director of the 3rd Defendant company, that the 4th Defendant company was being dissolved and also some legal problems had rendered the agency agreement between the 3rd Defendant company and the 4th Defendant company unenforceable. He requested the 3rd Defendant company to switch its agency agreement to his newly formed company, the 2nd Defendant. As a result of these representations, the 3rd Defendant entered into a new agency agreement with the 2nd Defendant company in identical terms with the agreement between the 3rd Defendant company and the 4th Defendant company.
In consequence of the foregoing, the Plaintiff instituted the suit against the Defendants claiming for:
“(1) A declaration that all sums of money payable by the 3rd Defendants to the 2nd Defendants under any commission agreement between the said Defendants are for the benefit of the New Africa Technical and Electrical Company Limited:
(2) An Order of Court:
(a) Restraining the 2nd Defendants from being paid any portion of such sums and
(b) Directing the 3rd Defendants to pay all such sums of money (or whatever portion thereof as remains payable) to the 4th Defendant.
(3) (if the 2nd Defendants have received the said sums or any portion thereof) an order of Court directing the said 2nd Defendants to pay over to the 4th Defendants any sum which it may have received;and
(4) N200, 000.00 damages against the 3rd Defendants for breach of the Agreement referred to in paragraph 4 of the Statement of Claim annexed herewith.”
I think it is germane to the jurisdiction issue to point out that in the trial court learned counsel for the 1st and 2nd Defendants relying on the rule in Foss v. Harbottle challenged the standing of the Plaintiff to institute the suit on the ground that, since the wrong complained of was alleged to have been done to the 4th Defendant company, only the latter could sue. The trial judge rejected that submission and accepted the submission of Chief Williams for the Plaintiff that the Plaintiff properly instituted the action as a minority shareholder in these terms:
“The next question is whether the action is properly constituted as a minority Shareholder’s action to seek redress for wrongs done to his Company. Chief Williams also referred to Spokes v. Governors East End (1897) Q.JJ. 124 to illustrate that a minority shareholder can bring such an action in the event of fraud on it. The latest illustration of what now ranks as an exception to the rule in Foss v. Harbottle is to be found in Wallersterners v. Moir No.2 (1975) 2 W. L. R. 389, where the judges sitting on Appeal in the matter were prepared to treat a director’s breach of duty as a wrong on a company in respect of which a minority shareholder could bring a derivative action for redress in Court. This new exception to the Rule in Foss v. Harbottle embraces “fraud on minority” and comes close to an exception which may be made where interest of justice so required. (See Gower’s Modern Company Law page 585), of the rule itself, Lord Denning said as (1975) 1 A.E.R. 849,857;
“It is a fundamental principle of our law that a company is a legal person, with its own coorporate identity, separate and distinct from the directors or shareholders, and with its own property rights and interests to which alone it is entitled. If it is defrauded by a wrong doer, the company itself is the one person to sue for damage. Such is the rule in Foss v. Harbottle. The rule is easy enough to apply when the company is defrauded by outsiders. The Company itself is the only person who can sue. Likewise, when it is defrauded by insiders of a minor kind, once again the company is the only person who can sue. But suppose it is defrauded by insiders who control its affairs by directors who hold a majority of the shares who then can sue for damages Those directors are themselves the wrongdoers. If a board meeting is held, they will not authorise proceedings to be taken by the company against themselves. If a general meeting is called, they will note down any suggestion that the company should sue themselves. Yet the company is the one person who is damnified. It is the one person who should sue. In one way or another some means must be found for the company to sue. Otherwise the law would fail in its purpose. Injustice would be done without redress”. .
On these points, Mr Braithwaite for the Defendants submitted that apart from establishing that the wrong complained of comes within the exception to the rule, a Plaintiff should distinctly allege the true nature of the act complained of and the impossibility of getting the company to impeach. In Orojo’s Company Law at page 314 the point is put in these words:
“It must be shown that the alleged wrongdoers control the company and will not allow the company to sue. It is not necessary to convene a meeting of the Company to ascertain this provided this can be inferred from the circumstances.
(Italics is ours)
It seems to me clear that both the endorsement on the Writ as well as the statement of Claim make clear the true nature of the acts complained, that the 1st Defendant as the Director of the 4th Defendant/Company falsely represented to the 3rd Defendant/ Company that the 4th Defendant/Company was being dissolved and had such legal problems which made an agreement which it has entered into null and void. That is the nature of the complaint. It is clear that the disagreement between the two equal shareholders was such that it would be impossible to get the Company to sue. The Plaintiff got his Solictor to write to the 1st Defendant on the 10th August, 1978 Exhibit D that it has become impossible for them to work together and there was a threat of physical confrontation. He also complained that he was barred from entering the Company’s office. All these were accepted by the Defence. In the circumstances there is no wonder that it would have been impossible for the Company to take any decision to sue. ”
The same point was canvassed in the Court of Appeal which endorsed. the decision of the trial judge on the matter as follows:
“I think it is necessary that before I can properly consider the real issues that have arisen in this appeal which, as I see them, are of a very narrow compass, I recapitulate the main findings and conclusions of the learned Judge against which there is no appeal.
- On the competence of the action and proper constitution of the action as a minority shareholder’s action to seek redress for wrongs done to the 4th defendant company he said
“It is clear that the disagreement between the two equal shareholders was such that it would be impossible to get the company to sue.”
Thus he found that this was a case of an exception to the rule in Foss v. Harbottle (1843) 2 Hare 461, which has been applied in Abubakri v. Smith (1973) 5 S.C. 31. He stated that a breach of a director’s fiduciary duties is one of the recognized exceptions. It is of material significance that in the 3rd arm of the claim the appellant did not ask for payment over to himself but to the 4th defendant. The gist of the actions is relief on behalf of the 4th defendant, which on the above finding cannot sue by itself”.
For reasons which I do not consider relevant for the purpose of determination of the jurisdiction issue the trial Judge dismissed the items of claim against the Defendants other than the claim for damages against the 3rd Defendant company in respect of which he awarded N10,000 to the Plaintiff. The Court of Appeal in a well considered and meticulous judgment reversed the decision of the trial court other than the award of N10,000 against which the appeal was abandoned. It made the declarations and orders sought by the Plaintiff. I do not intend to set out the reasons for judgment of the Court of Appeal because I do not also consider them pertinent to the issue on jurisdiction.
Now, the jurisdiction issue being predicated by parts of the provisions of sections 7 and 8 of the Federal Revenue Court Act 1973, which provide:
“7. (1) The Federal Revenue Court shall have and exercise jurisdiction in civil causes and matters-
(e) Arising from-
(i) The operation of the Companies Decree 1968 or any other enactment regulating the operation of companies incorporated under the Companies Decree 1968.
8.(1) In so far as jurisdiction conferred upon the Federal Revenue Court in respect of the causes or matters mentioned in the foregoing provisions of this Part the High Court or any other court of a State shall, to the extent that jurisdiction is so conferred upon the Federal Revenue Court, cease to have jurisdiction in relation to such causes or matters.”
Mr Awoniyi for the 1st and 2nd Appellants contended that, since the suit was founded on the breach by the 1st Defendant, as a director, of his fiduciary duties to the 4th Defendant’s company and the composition of the company is such that neither director constitutes the majority, both the trial court and the Court of Appeal were right in holding that the suit falls within one of the exceptions to the rule in Foss v. Harbottle (1843) 2 Hare 461 which accorded the minority shareholder the right to sue for the wrong committed on the company. He submitted that the rule and its exceptions are purely matters of company law within the jurisdiction of the Federal Revenue Court by virtue of the provisions of the section 7(1)(c)(i) of the Act.
In associating himself with the submission of Mr Awoniyi, Mr Sogbesan for the 3rd Appellant, further contended that the case was concerned with dispute between the shareholders of the 4th Defendant company over its control and management and hence falls within the provisions of the said subsection of the Act. He stated that the State High Court had ceased to have jurisdiction over the matter, its jurisdiction having been oustered by section 8(1) of the Act.
Responding, Chief Williams contended that the wording of section 7(1)(c)(i) makes it clear that the jurisdiction conferred in the Federal Revenue Court is not intended to embrace causes and matters arising from all the activities of a body incorporated under the Companies Act or of its directors, officers or other agents. He further submitted, however, that causes and matters arising from such activities will come within the scope of the jurisdiction of the Federal Revenue Court if they concern or are done pursuant to the operation of Companies Decree 1968 or any other enactment regulating the operation of companies incorporated under that Decree. In a nutshell, according to Chief Williams, the jurisdiction covers causes or matters arising out of the whole range of Company Law; but it does not cover causes and matters arising outside the Law in which incorporated companies or their directors or agents are somehow or otherwise involved.
While conceding that there was a practical impossibility of suing the name of the 4th Defendant’s Company because the shares were held 50 50 between the only two shareholders, Chief Williams further contended that even if the Plaintiff had been a minority shareholder, the fact remains as laid down in Wallersteiner v. Moir (1975) Q.B. 373 at. 390A to 391D that a “minority shareholder’s action” is merely a procedural device for suing on behalf of the company; that what determines whether or not the Federal Revenue Court has jurisdiction is the subject matter of the claim and not the procedure adopted in commencing the action.
Finally, Chief Williams contended that the action was not based on the provisions of the Companies Act and the Court of Appeal did not decide any issue or issues arising from the operation of the Act but the Court simply enforced “the broad principle of equity developed to ensure that trustees, agents or persons standing in such legal relationship shall not retain a profit made in the course of or by means of their office:” see Nasrv. Berini Bank (1968) 1 All N.L.R. 274 at 293.
The learned Senior Advocate of Nigeria further reinforced his argument by referring to Phipps v. Boardman (1965) Ch. 992 at 1020 wherein Lord Denning stated:
“This species of action is one action for restitution such as Lord Wright described in the Fibrosa case. The gist of it is that the defendant has unjustly enriched himself, and it is against conscience that he should be allowed to keep the money. ”
As regards the rule in Foss v. Harbottle which necessitated the derivative action procedure, the learned advocate submitted that the rule is not limited in its application to incorporated bodies alone but it also applies to unicorporated associations. He referred us to Edwards v. Halliwell (1950) 2 All E.R. 1064. He urged us to hold the state High Court had jurisdiction to deal with the matter.
In his reply to the submissions of Chief Williams, Mr Sogbesan conceded that minority shareholders actions or derivative actions are procedural devices but, nevertheless, contended that on the facts of the case the dispute before the trial court was really one about the operation of the 4th Defendant’s company and consequently of the Companies Act. Recalling the genesis of the dispute, the learned Senior Advocate reiterated the break down of the cordial relation between the Plaintiff and the 1st defendant over the management and operation of the 4th Defendant Company; the diversion of the Hajj contract by the Defendant in his capacity as the director of the company. The learned Senior Advocate argued that if the Plaintiff had had control over the 4th Defendant Company, he would have caused the company to sue the 1st Defendant for the wrong done to it. He said the Plaintiff had sued because he had had no control over the company. Accordingly, learned counsel concluded that the dispute was essentially one about the operation of a company incorporated under the Companies Act. Consequently, the State High Court had no jurisdiction.
Now, both the trial court and the Court of Appeal held that the action herein was a minority shareholder’s action. There may be some force in the submission of Chief Williams that the action may not be strictly so having regard to the share holding structure of the company in that, since there is no evidence that the chairman had a casting vote, neither director could command majority or a minority of the company, then the Plaintiff has the right to sue as a minority shareholder: see Buckley On The Companies Acts, Vol. 1, 13th Ed. p.199.
Accordingly, I am inclined to agree with the conclusion of the trial court and of the Court of Appeal that the action is a minority Shareholder’s action. .
However, I agree with the submission of Chief Williams that a minority shareholder’s action or derivative action is a procedural device by means of which on the principle of equity a relief, such as restitution of unjust enrichment by its director, is sought on behalf of a company. The procedural aspect of the action was stated by Lord Davey in Burland v. Earle (1902) A.C. 83 at 93 thus:
“It is an elementary principle of the law relating to joint stock companies that the Court will not interfere with the internal management of companies acting within their powers, and in fact has no jurisdiction to do so. Again, it is clear law that in order to redress a wrong done to the company or to recover moneys or damages alleged to be due to the company, the action should prime facie be brought by the company itself. These cardinal principles are laid down in the well-known cases of Foss v. Harbottle (1) and Mozely v. Alston (2), and in numerous later cases which it is unnecessary to cite. But an exception is made to the second rule, where the persons against whom the relief is sought themselves hold and control the majority of the shares in the company, and will not permit an action to be brought in the name of the company. In that case the Courts allow the shareholders complaining to bring an action in their own names. This, however, is mere matter of procedure in order to give a remedy for a wrong which would otherwise escape redress, and it is obvious that in such an action the plaintiffs cannot have a larger right to relief than the company itself would have if it were plaintiff, and cannot complain of acts which are valid if done with the approval of the majority of the shareholders, or are capable of being confirmed by the majority. The cases in which the minority can maintain such an action are, therefore, confined to those in which the acts complained of are fraudulent in character or beyond the powers of the company. A familiar example is where the majority are endeavouring directly or indirectly to appropriate to themselves money, property, or advantages which belong to the company, or in which the other shareholders are entitled to participate.”
However, the substantive aspect of the minority shareholder’s action is an action for restitution based on the principle of equity which prohibits a trustee from making profit by his management either directly or indirectly. The principle extends to all fiduciaries who in breach of fiduciary duties to their beneficiaries unjustly enriched themselves: Phipps v. Boardman (1965) 1 ch. 992; Regal (Hastings) Ltd. v. Gulliver (1967) 2 A.C. 134; Nasr. v. Berini Bank (1968) 1 All N.L.R. 274 and Wallersteiner v. Moir (1975) 2 W.L.R. 389.
It now remains to consider the gravamen of the contention of Chief Williams that the State High Court had jurisdiction over the matter because the substance of the Plaintiffs case has been founded on the principle of equity and not on the provision of the Companies Act that being the case, according to Chief Williams, the matter was not within the jurisdiction of the Federal Revenue Court.
The question then for determination is whether the Plaintiffs case was “a cause or matter arising from operation of the Companies Act or the operations” of the 4th Defendant company as contempt by section 7(1)(c)(i) of the Act to bring the case within the jurisdiction of the Federal Revenue Court. It if was not connected with such operations, then it is within the jurisdiction of the State High Court.
It is pertinent to point out that the several decisions of the courts in England referred to us would hardly offer solution to the resolution of the dichotomy of jurisdiction between the Federal Revenue Court and the State High Courts. There is only one High Court in England and the jurisdiction vested in it belongs to all its three Divisions and any Judge has jurisdiction to deal with any action which has been assigned, even if wrongly, to the Division in which he sits: Pinney v. Hunt, 6 ch. 98. The Recepta (1893) p. 235 and section 4(4) of the Supreme Court of Judicature Act, 1925. Nevertheless, I find some of the cases shed some light showing the connection of the minority shareholders’ action with the operation of the Companies Act and of the operation of the minority’s company.
The Courts have realised since Spokes v. The Grosvenor Hotel (1897) 2 Q. B. 124 at 128 that the “voting power” of the directors of a company at a board meeting or of its majority shareholders at a general meeting is the very foundation of the minority shareholder’s action. In his characteristic graphic manner, Lord Denning M.R. aptly stated the premise on which derivative action was based in Wallersteiner v. Moir (No.2) 2 W. L.R. 389 at 395 in these terms:
“It is a fundamental principle of our law that a company is a legal person, with its own corporate identity, separate and distinct from the directors or shareholders, and with its own property rights and interests to which alone it is entitled. If it is defrauded by a wrongdoer, the company itself is the one person to sue for the damage. Such is the rule in Foss v. Harbottle (1843) 2 Hare 461. The rule is easy enough to apply when the company is defrauded by outsiders. The company itself is the only person who can sue. Likewise, when it is defrauded by insiders of a minor kind, once again the company is the only person who can sue. But suppose it is defrauded by insiders who control its affairs – by directors who hold a majority of the shares – who then can sue for damages Those directors are themselves the wrongdoers. If a board meeting is held, they will not authorise the proceedings to be taken by the company against themselves. If a general meeting is called, they will vote down any suggestion that the company should sue themselves. Yet the company is the one person who is damnified. It is the one person who should sue. In one way or another some means must be found for the company to sue. Otherwise the law would fail in its purpose. Injustice would be done without redress”.
Again, the dicta of Lord Davye in Burland v. Earle (supra), which I have earlier in this judgement set out, and of Jenkins, L.J. in Edwards v. Halliwell (1950) 2 All E.R. 1064 at 1067A clearly show that a minority shareholder’s action was designed to protect the minority against the tyranny of the wrongdoers who are “in control of the company.”
One may conclude from the foregoing that a minority shareholder’s action is an incidence of the control of a company by the majority. Consequently, it is associated and connected with the operation of a company.
The decision of this Court in Skenconsult Ltd. and Another v. Ukey (1981) 1 S. C. 6 is very relevant to the issue. In that case, as in the case in hand, following misunderstanding between the Plaintiff, who was a director of the Skenconsult Company, and the 2nd defendant who was its chairman and Managing Director, the plaintiff instituted an action in the Bendel State High Court against the company and its chairman claiming for declarations that the plaintiff was jointly entitled with the chairman to the administration and management of the company, operation of its accounts and discharge of its debts.
In holding that the State High Court had no jurisdiction to entertain the claim, my learned brother, Nnamani, J.S.C., states at p. 31 of the report as follows:
“As regards the word “operation” in Sect. 7(1)(c)(i) of the Revenue Court Act I am unable to find any authority directly in point as to its proper meaning (this Court was concerned specifically with the meaning of Section 7(i)(b )(iii) and generally with Section 7 of the Act in Jammal Steel Structures Ltd. v. African Continental Bank Ltd. (1974) (1) N.M.L.R.1 but I am inclined to agree with Chief Williams that “operation of the Companies Decree (now Act) in relation to companies incorporated there under. This would include management of such companies and their assets. ”
In conclusion, from the facts and circumstances of the case on appeal, I find that the Plaintiff’s claim arose from the control and operation of the 4th Defendant Company and, consequently, from the operation of the Companies Act, 1968. I hold the claim to be a matter within the jurisdiction of the Federal Revenue Court and the State High Court had no jurisdiction to entertain the suit by virtue of sections 7(1)(c)(i) and 8(1) of the Act.
Accordingly, the appeal is allowed. The judgments of the Court of Appeal and of the trial court including the orders as to costs are null and void and are hereby set aside. .
Section 22(3) of the Federal Revenue Court (Amendment) Act 1975 provides:
“(3) Notwithstanding anything to the contrary in any law, no cause or matter shall be struck out by the High Court of a State on the ground that such cause or matter was taken in the High Court instead of the Federal Revenue Court, and the judge before whom such cause or matter is brought may cause such cause or matter to be transferred to the appropriate Judicial Division of the Federal Revenue Court in accordance with such rules of court as may be in force in that High Court or made under any enactment or Law empowering the making of rules of court generally which enactment or Law shall by virtue of this subsection be deemed also to include power to make rules of court for the purposes of this subsection.” .
In exercise of the general powers of this Court under section 22 of the Supreme Court Act, 1960 of having “full jurisdiction over the whole proceedings as if the proceedings had been instituted in the Supreme Court as a court of first instance”, I order that the cause, i.e. the Plaintiff’s claim, be transferred to the Federal High Court, Lagos which as per section 230(2) of the Constitution of the Federal Republic of Nigeria 1979 replaced the Federal Revenue Court for hearing de novo.
The costs of this appeal shall abide the result of the hearing de novo.
The appeal having succeeded on the issue of jurisdiction, it is unnecessary to consider the other issues canvassed by learned counsel.
ANIAGOLU, J.S.C.: This appeal, in the main, concerns the good faith and confidence that should exist between partners in a business venture and the effect of a breach of that confidence by one of the partners.
The Plaintiff (Akande) and the 1st defendant (Omisade) own and are shareholders of the 4th defendant-company – New African Technical and Electrical Company Limited. The 4th defendant-company and the 3rd defendant-company – Trans-International Airlines – have a contract with the 3rd defendant-company in respect of conveyance of pilgrims on Hajj to Mecca. The 1st defendant (Omisade), it was alleged, went and lied to 3rd defendant-company (Trans-International Airlines) that 4th defendant-company was being dissolved and that there were legal problems in the way of the said 4th defendant company.
As a result and relying upon this false representation, the 3rd defendant-company entered into a fresh agreement with the company belonging to the 1st defendant, namely, the 2nd defendant – New African development Company Limited – and proceeded with the Hajj business resulting in the 1st defendant pocketing the proceeds of the business which rightly belonged to him and the plaintiff.
The issues were:
(a) Can he be allowed to do that
(b) Will that court not lift the corporate veil with which the 1st defendant had covered himself in the formation of the New African Development Company Limited and directly order him to disgorge the ill-gotten gains he had made, upon the lies he had told the Trans-International Airlines that the 4th defendant-company had been wound up
The High Court found for the plaintiff for a technical breach and awarded N10, 000.00 as damages in favour of the plaintiff with N500.00 costs against the 3rd Defendant only. The plaintiff was not satisfied with the judgment and appealed to the Court of Appeal because what he was claiming was
(a) a declaration that all sums of money which the 1st defendant made on the deceitful deal should be accounted for to the 4th defendant-company belonging to him and the plaintiff;
(b) an order of court restraining the 1st defendant’s company New African Development Company Limited – from being paid any money by the 3rd defendant-company – Trans-International Airlines;
(c) An order directing the 1st defendant to pay all such money to the 1st defendant-company;
(d) an order of court directing the 1st defendant’s company New African Development Company Ltd. – to pay over to the 4th defendant-company belonging to the plaintiff and the 1st defendant all monies it had received upon the deceitful deal; and
(e) an order of court decreeing N200,000.00 against the 3rd defendant – Trans- International Airlines – for breach of agreement which it had entered with the 4th defendant-company.
The defence put up by the 1st defendant was that before he could be held that the 2nd defendant-company – New African Development Company Limited – was the alter ego of the 1st defendant (Omisade) there must be evidence establishing it beyond a mere statement that the 1st defendant was a shareholder and director of the 2nd defendant company – New African Development Company Limited. Also, that there was no claim for account.
The Court of Appeal ruled against this defence argument; allowed the appeal and granted the declaration sought by the plaintiff that all monies payable by the 3rd defendant-company to 2nd defendant company, under the commission agreement for airline Hajj operation, were for the benefit of the 4th defendant-company belonging to the plaintiff and the 1st defendant. The Court also restrained the 2nd defendant-company from receiving any monies in respect of that business from the 3rd defendant-company – Trans-International Airlines – and also restrained the said 3rd defendant from paying all such monies to anyone, else other than the 4th defendant-company belonging to the plaintiff and the 1st defendant. The Court further ordered the 2nd defendant-company to pay over the said 4th defendant company all monies it had already received from the 3rd defendant company – Trans-International Airlines. It finally ordered costs in favour of the plaintiff, assessed at N500.00 in the High Court and N400.00 in the Court of Appeal.
It was from this judgment of the Court of Appeal that the 1st defendant is now appealing to the Supreme Court – an appeal which from point of view of its merit on facts is a bogus appeal from which the deceitful 1st defendant is desiring to capitalise from his wanton lies and deceitful deal, to the detriment of the plaintiff, with whom he was in business and in breach of the confidence and uberrimae fidae which he owed to the plaintiff as a business partner.
But, the appellants have raised the issue of jurisdiction of the High Court of Lagos State to entertain the case arguing that since the promulgation of section 8(1) of the Federal High Court Act, the Federal Court was the court properly vested with jurisdiction to hear the case.
Mr Sogbesan,S.A.N., submitted that the High Court of Lagos State had no jurisdiction, The Respondent, Mr Akande, he argued, was one of the Directors of the 4th defendant-company, namely, the New African Technical and Electrical Company Limited. The dispute, he submitted, appeared to be between one of the owners and a Director of the 4th defendant-company. The original contract was between Harry Akande and Omisade in relation to the 4th defendant-company. The whole issue, he said, was a complaint by the plaintiff against the management and control of the 4th defendant-company. Whether it was a minority or a majority complaint, it was a break down in the management of the Company, and therefore section 8 of the Federal High Court Act would apply.
Mr. G.O.K. Ajayi, S.A.N. (Amicus Curiae) stated that the effect of the 1979 Constitution on Section 7 of the Federal High Court Act was to confer jurisdiction on both the Federal High Court and the State High Courts by virtue of section 236 of that Constitution which gave unlimited jurisdiction to the State High Courts. He opined that section 7 of the Federal High Court Act was inconsistent with the provision of section 236 of the 1979 Constitution and therefore must now be deemed to be unconstitutional.
Mr Sogbesan, S.A.N., in continuation of his argument on 19th January 1987, said that Chief Williams had stated that his argument was based on equity but, equity must be based on law. The 4th defendant company was the proper company to sue for injury done to the company. The case was one to be prosecuted by the company. The profits said to be due were profits due to the company. He referred to sections 180 to 200 of the Companies Act 1958. Also sections 309 and 386 of the same Act. Citing Diab Nasir v. Berini (Beirut-Riyad) (Nig.) Co. Ltd. (1968) 1 ALL N.L.R. 274 in support, he argued that the principle raised in the instant appeal arose out of the operations of the Companies Act in any event and therefore the Federal High Court would be the Court which had jurisdiction.
Mr Dele Awoniyi for the 1st and 2nd Appellants adopted Mr Sogbesan’s argument. He said that this Court should look into the substance of this case and not into the form. If this Court was satisfied that the substance of the case was the Companies Act 1968 the, he said, under section 8(1) of the Federal High Court Act, the Federal High Court would be the court seized with jurisdiction. If a party operated a company wrongly, the Federal High Court was the court to have recourse to. He emphasised that there had not been any claim against Omisade personally. He submitted that a minority shareholder’s account was a relief carved out in respect of limited liability companies for the purpose of controlling those in power who are controlling a company. But it is a matter of the operation of a company for which the Federal High Court has jurisdiction, he finally submitted.
Chief Williams, S.A.N., argued that the rule in Foss v. Harbottle has provided that when a wrong is done to a company it is the company that IS to sue. The cause of action may be anything so long as it is a wrong done to a company. He referred to Wallersteiner v. Moir (1975) 1 Q.B. 373 at 390 letter ‘A’ and page 391 letter ‘F with particular reference to the judgment of Lord Denning who said that the rule is easy to apply when a company is defrauded by outsiders, or the dispute is in respect of an internal trouble in a company where it is the minority members causing the trouble. The difficulty arises, he said, where it is the parties controlling the company who commit the wrong in which case they may block the company taking any action. The minority, in that case, is allowed to sue. This exception to the rule in Foss v. Harbottle is designed to do justice and it applies not only to companies but also to unincorporated associations. He referred to Edwards v. Halliwell (1950) 2 ALL E.R. 1064, in which it was not something that arose out of a company. It is, he said, a general rule.
He further argued that there is no provision in section 7 of the Federal High Court Act stipulating that everything brought in respect of a company should be brought in the Federal High Court.
The action the plaintiff has brought, he argued, is that the defendant has breached his obligation as a fiduciary. He referred to Golf and Jones Restitution, 2nd Ed. page 499 on the portion of the book dealing with “Transaction with a Third Party in Breach of a Fiduciary Duty”. He referred to the case of Rigall (Hastings) v. Gulliver and Others (1967) 2 A.C. 134, 139. The principle applies to all agents e.g. solicitors and directors. He referred particularly to page 138 per Lord Cranworth.
He also referred to the same Nasir v. Berini (1968) 1 All N.L.R. 274 saying that the minority could sue but that on the principle of Spoke v. Grosvernor Hotel Company (1897) 2 Q.B. 127 per Lord Chitty at page 128, what is recovered must not go to the minority but must go to the company. He argued that it has nothing to do with the operation of the Companies Act one had to go to the Federal High Court. The meaning is clear; it should not be complicated.
He finally submitted that the Federal High Court has no jurisdiction in this matter and that the action which was brought in the Lagos High Court was properly brought.
It has to be noted that this action was instituted in the Lagos High Court on 22nd October 1976 before the coming into force of the 1979 Constitution. The arguments of Mr Ajayi, S.A.N., amicus curiae, does not seem, therefore, to affect or apply to this case.
Loathsome, as the facts of this case must be as against the 1st defendant (M.A. Omisade), the fact remains that the issue of jurisdiction must be settled and if the court has no jurisdiction,. No amount of dwelling on the facts can avail the plaintiff. The court either has jurisdiction to entertain the matter or it has not.
As I had said, the summons in this case was commenced in the High Court of Lagos on 22nd October 1976 before the coming into force of the 1979 Constitution had been the subject of much debate and had found expressions in the decisions of this court, among others, in Chief P.I. Mokelu v. Federal Commissioner for Works and Housing (1976) 3 S.c. 35; Bronik Motors Ltd. v. Wema Bank Ltd. (1983) 6 S.c. 158; Alhaji Zanner Bukar Mandara v. Attorney-General of the Federation (1984) 4 S. C.8.
Under these decisions the exclusive nature of the jurisdiction of the Federal High Court in relation to matters contained in Section 7 of the Federal High Court Act, 1973, was recognised.
Since, however, the promulgation of the 1979 Constitution and the enactment of section 236 thereof giving unlimited jurisdiction to the State High Courts, the position has fundamentally changed as the State High Courts now enjoy concurrent jurisdictions with the Federal High Courts in some matters such as Admiralty as was decided by this Court in S. C. 139/1985 Savannah Bank of Nigeria Ltd. v. Pan Atlantic Shipping and Transport Agencies Ltd. and Nicannah Food Co. Ltd. decided on 30th January 1987 and reported in (1987) 1 N. W.L.R. 212. This decision was followed by another judgment of this Court in S. C. 255/1985 Western Steel Works Ltd. and Another v. Iron and Steel Works of Nigeria Ltd. and Another delivered on 6th February 1987 and reported in (1987) 1 N. W.L.R. 284.
The instant case on appeal, having been instituted in the High Court in October 1976, it must be governed as of that date, by the jurisdictional situation existing before the 1979 Constitution which required that it ought to have been instituted in the Federal High Court, being the Court then seized with jurisdiction. The contention of Mr Sogbesan, S.A.N., on that issue was, in my view, well founded.
But that is not the end of the matter. The suit, if it is legally possible should be saved, particularly having regard to the conduct of the 1st defendant. Section 22(2) of the Federal High Court Act has made provision for the saving of suits taken out in the Federal High Courts instead of the High Courts of the States. The sub-section reads:
“(2) No cause or matter shall be struck out by the Federal Revenue Court merely on the ground that such cause or matter was taken in the Federal Revenue Court instead of the High Court of a State in which it ought to have been brought, and the Judge of the Federal Revenue Court before whom such cause or matter is brought may cause such cause or matter to be transferred to the appropriate High Court of a State in accordance with rules of court to be made under section 43 of this Decree.”
But, that sub-section has not provided for the reverse situation, that is to say, suits taken out in a State High Court instead of the Federal High Court as in the instant case of appeal.
The general powers of this Court when exercising its appellate jurisdiction are contained in section 22 of the Supreme Court Act No. 12 of 1960 which before its amendment by Decree No. 42 in 1976 reads:
“22. The Supreme Court may from time to time make any order necessary for determining the real question in “controversy in the appeal, and may amend any defect or error in the record of appeal, and may direct the court below to inquire into and certify its findings on any question which the Supreme Court thinks fit to determine before final judgment in the appeal and may make an interim order or grant any injunction which the court below is authorised to make or grant and may direct any necessary inquiries or accounts to be made or taken and generally shall have full jurisdiction over the whole proceedings as if the proceedings had been instituted and prosecuted in the Supreme Court as a court of first instance and may rehear the case in whole or in part or may remit it to the court below for the purpose of such rehearing or may give such other directions as to the manner in which the court below shall deal with the case in accordance with the powers of that court, or, in the case of an appeal from High Court in its appellate jurisdiction, order the case to be reheard by a court of competent jurisdiction.”
The Schedule to that Decree (No. 42) of 1976) has, by its Schedule 3, amended the above section 22 of the 1960 Supreme Court Act by deleting the above italized, words in the section
“in the case of an appeal from the High Court in its appellate jurisdiction”.
With that amendment and deletion, section 22 of the 1960 Supreme Court Act now gives the Supreme Court the power to
“Order the case to be reheard by a Court of competent jurisdiction”
Whether or not it was a case which came on appeal from the High Court in its appellate jurisdiction. The result is that this Court has power to order that this case be reheard by the Federal High Court or by the High Court of Lagos State – each now, under the 1979 Constitution, being a court of competent jurisdiction. In any case section 1 (3) of the Federal Revenue Court (Amendment) Decree, 1975 gave specific power to a High Court of a State to transfer to the Federal High Court any case which was erroneously taken out in the State High Court, instead of the Federal High Court.
I have had the advantage of a preview, in draft, of the judgment just delivered by my learned brother, Bello, C.J.N., and I am in agreement with him that this appeal should be allowed on the issue of jurisdiction.
Accordingly, I would order, and hereby order, that this case be reheard by the Federal High Court, Lagos.
In the circumstances of this case, having regard to the facts of the case, I would order, and hereby order, that there should be no orders as to costs.