Paul Iro Vs Robert Park & Ors (1972)
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The arguments on this appeal have been rather elaborate but the matters to be decided fall within a very narrow compass. The short question is whether an order made by Lambo, J., (High Court, Lagos) pursuant to the provisions of Section 128 of the Companies Decree, 1968 was justified by the powers conferred on the court by that section.
The 1st respondent before us was the applicant before the High Court, Lagos, and the Registrar of Companies was the original and only respondent to an application which was by way of an originating summons stated to have been taken out pursuant to the provisions of Order 120 Rules 2-3 of the English Rules of the Supreme Court. We shall advert later in this judgment to the implications of that procedure.
The application concerns the affairs of a company registered in Nigeria and known as Tarstone and Company Limited, and the amended originating summons was headed “In the matter of the Tarstone & Co. Ltd. and in the matter of Sections 31 and 128 of the Companies Decree, 1968”. The originating summons is endorsed in part as follows:-
“Let all parties concerned attend the Judge sitting in the High Court, Lagos, Tafawa Balewa Square, Lagos, on Monday, the 28th day of October, 1968 at 9 o’clock in the forenoon on the hearing of an application on the part of Robert Park, the applicant for an Order empowering the applicant to call, hold and conduct a meeting of the Company within the next one week in Lagos and for ancillary and consequential and directions as follows:-
(a) That the applicant be empowered generally to direct, manage and run fully the affairs of the company in accordance with the provisions of its Memorandum and Articles and the Companies Decree, 1968.
(b) That the applicant be empowered to appoint additional directors in place of Paul Iro, the only other member who had absconded since July, 1967.
(c) That the said applicant be empowered to appoint a reputable firm of auditors to value the shares of the company and pay to the credit of the said Paul Iro his full entitlements up to the end of 6 months after his abscondment.”
The summons is supported by an affidavit sworn to by the applicant, that is Robert Park. That affidavit deposed to facts showing that the applicant and the present appellant, i.e. Paul Iro, were the founders and only two shareholders and directors of Tarstone & Co. Ltd., that each of them held shares of 7 pounds,500 each in a paid-up capital set-up of 15 pounds,000 and that the present appellant was as well a creditor of the Company to the extent of the balance shown in the Account of the Company which he had invested in the Company. The affidavit further shows that during the absence of the applicant to Europe, the appellant, Paul Iro, “absconded from Lagos and made away with the Company’s money amounting to 1 pounds,400 without any authority by the Company”; that it had been impossible to get in touch with him; that debts were being incurred by the Company and those had to be paid; that a number of substantial contracts were due to be executed by the Company and in particular paragraph 10 of the accompanying affidavit states:-
“10. Since the disappearance of my only partner in the company I have been faced with immense difficulties as follows:-
(a) No valid statutory meetings of the company or its directors could be held;
(b) No valid appointment of the company’s auditors could be made;
(c) The company’s balance sheets, annual returns and other necessary statutory requirements by the Registrar of Companies could not be properly and legally authenticated;
(d) The company’s programme of expansion has been completely stultified;
(c) The company’s customers have been very wary in giving out major contracts simply because the number of members had been reduced to one;
(f) I am exposed to the danger of losing all my life’s savings if anything happens to my life without putting the company in a proper legal position.”
Copies of the Memorandum of Association and the Articles of Association (being an adaptation of Table A with some additional provisions) were attached to the affidavit as accompanying annexures. The present appellant was not in court nor was he represented when the application was heard in court. As stated before, he was not a party to the proceedings. At that time the only respondent was the Registrar of Companies. The application was not opposed in court and the learned trial Judge ruled thus:-
“Ordered as prayed in terms of the Originating Summons filed on the 15th October, 1968 as well as the Amended Originating Summons filed on the 23rd October, 1968.
3 pounds:3 : costs to respondent.”
Consequent upon this, a drawn-up order was prepared and was duly signed by the learned trial Judge. The drawn-up order reads in full as follows:-
“Upon Reading the Affidavit of Robert Park, British subject, Company Director of No.2, Point Road, Apapa, Lagos sworn to and filed on the 15th October, 1968. And upon Reading the Affidavit of Olu Babatunde Akin-Olugbade, Nigerian Legal Practitioner of No.2, Aggrey Avenue, Yaba sworn to and filed on the 23rd October, 1968 and After Hearing Chief O. B. Akin-Olugbade, of counsel for the Applicant and Owoyele Esquire, of counsel for the respondent not opposing:
It is Ordered:
1. That the Applicant be and is hereby granted leave to Amend the Originating Summons filed on the 15th October, 1968 to read as the Amended Originating Summons filed on the 23rd day of October, 1968.
2. That the Applicant be and is hereby empowered to call, hold and conduct a meeting of the Company within the next one week in Lagos.
3. That the Applicant be and is hereby empowered generally to direct, manage and run fully the affairs of the company in accordance with the provisions of its Memorandum and Articles and the Companies Decree, 1968.
4. That the Applicant be and is hereby empowered to appoint additional Directors in place of Paul Iro, the only other member who had absconded since July, 1967.
5. That the said Applicant be and is hereby empowered to appoint a reputable firm of Auditors to value the shares of the Company and pay to the Credit of the said Paul Iro his full entitlements up to the end of 6 months after his abscondment.
It is further Ordered that the Applicant do pay 3 pounds:3s: costs to the respondent.”
It was common ground that the present appellant was a person of East-Central State origin and that during the material time there was a Civil War in this country and consequently a large exodus of such persons from other parts of the country to the East-Central State. In the events which had happened , the present appellant, in course of time, returned to Lagos, sought leave to appeal against the order of the High Court out of time and the present appeal is the sequel to these events.
At the hearing of the appeal, apparently in view of the implications of the order of the High Court now on appeal, the following persons sought to be joined as respondents to this appeal and they were respectively joined as follows:-
(a) Tarstone & Co. Ltd., as the 3rd respondent.
(b) D. V. Phillips as the 4th respondent.
(c) Mrs. H. Park as the 5th respondent.
(d) Mr. Akin Davies as the 6th respondent.
The 1st respondent is Mr. Robert Park and the 2nd respondent the Registrar of Companies. On the application for joinder, it was claimed for the 3rd respondent that the Company is directly interested in the outcome of the appeal as it relates to the re-organisation, management and operation of the said Company as directed by the order of the Lagos High Court. On the application of Mr. D.V. Phillips, it was claimed that the appeal relates to the reorganisation, management and operation of the 3rd respondent/Company and also that ” the applicant is one of the major shareholders” of the Tarstone & Co. Ltd., and as such he is directly interested in the outcome of the appeal. On the applications of Mrs. H. Park and Mr. Akin Davies, it was claimed that “as Directors and shareholders of the Company they are substantially interested in the outcome of this pending appeal”.
At the hearing before us, all parties were duly represented by counsel. For the appellant it was argued by learned counsel that Section 128 of the Companies Decree on which the application is based gives the court powers only to make an order for the holding and conduct of a meeting and does not postulate the other matters expressed in the drawn-up order. For the 2nd respondent, it was argued on behalf of the Registrar of Companies that the order as drawn up was manifestly outside the provisions of Section 128 of the Companies Decree and that it should be set aside. For the other respondents it was submitted by learned counsel (Chief Sowemimo and Mr. H. T.O. Coker) that the order was competent in as much as it was made in the interest of the company and at a time when in breach of the provisions of Section 31 of the Companies Decree, the Company was being illegally run by the only director available. It was further submitted by learned counsel on behalf of those respondents that at the material time the Company was in dire financial circumstances and in any case the several appointments to the directorate of the Company by virtue of which those respondents came into the Company were made in virtue of a meeting called pursuant to the drawn-up order.
The point in issue is whether the order of Lambo, J., made on the 28th October, 1968, in consequence of the originating summons filed by Mr. Robert Park, i.e., the 1st respondent, was in accordance with law. Section 128 of the Companies Decree provides as follows:
“128.(1) If for any reason it is impracticable to call a meeting of a company in any manner in which meetings of that company may be called, or to conduct the meeting of the company in the manner prescribed by the articles or this Decree, the court may, either of its own motion or on the application of any director of the company or of any member of the company who would be entitled to vote at the meeting, order a meeting of the company to be called, held and conducted in such manner as the court thinks fit, and where any such order is made may give such ancillary or consequential directions as it thinks expedient; and it is hereby declared that the directions that may be given under this subsection include a direction that one member of the company present or by proxy shall be deemed to constitute a meeting.
(2) Any meeting called, held and conducted in accordance with an order under subsection (1) of this section shall for all purposes be deemed to be a meeting of the company duly called, held and conducted.”
Thus, it is clear that the provisions of Section 128(1) should be invoked where “for any reasons it is impracticable to call a meeting of a company” and that in such circumstances as described in the section, the court may “order a meeting of the company to be called, held and conducted in such manner as the court thinks fit”. The sub-section also empowers the court to make “ancillary or consequential directions” as the court thinks expedient in circumstances in which it may be necessary for such directions to be given as would make the holding and conduct of the meeting possible and/or effectual. Section 128(2) validates the deliberations and decisions taken at such a meeting insofar as such meeting is held in accordance with the provisions of Section 128(1).
We reject without any hesitation whatsoever the argument that Section 31 of the Companies Decree creates an offence; indeed it does not. It merely prescribes the consequences that follow where in the events that had happened a company is being kept on for a period of six months after the number of members should have dropped below two in the case of a private company or seven in the case of a public company. Section 31 of the Companies Decree provides thus:-
“31. If at any time the number of members of a company is reduced, in the case of a private company, below two, or in the case of any other company, below seven, and it carries on business for more than six months while the number is so reduced, every person who is a member of the company during the time that it so carries on business with fewer than two members, or seven members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor.”
Clearly the section does not prescribe the company affected or otherwise restrict or deny the existence of it as such a company: the section warns the management or existing member or members of the nature of the consequent liability to which he or they shall be exposed. With respect to the case in hand, it was not alleged that the appellant had ceased to be a member of the Company and there was consequently no basis for the invocation of Section 31 of the Companies Decree.
Turning again to the order now on appeal, it is impossible to find support for it within the plain provisions of Section 128(1) of the Companies Decree. That section postulates that the affairs of the Company have approached “an impracticable situation” and obviously includes and contemplates a situation where only one member is available to hold a meeting. See Jarvis Motor (Harrow) Ltd. & Anor. v. Carabott & Anor. (1964) 1 WLR 1101 (esp. per Ungoed-Thomas, J., at pp.1104/1105).
In re El Sombrero Ltd. (1958) Ch. D. 900, Wynn-Parry, J., dealing with the provisions of a section of the English Companies Act, 1945 (i.e. section 135 which is in pari materia with Section 128 of the Companies Decree) ordered the holding of a meeting at which one member present might constitute the quorum and such meeting to be held in the offices of the company’s solicitors.
The result is that the legislation had not interfered with the internal running of any company. That is a matter which the law had wisely kept in the hands of those who own the company and direct its affairs. What Section 128(1) says is that the court may direct the calling and holding of a meeting and give ancillary and consequential directions concerning such a meeting but the deliberations and the decisions remain that of the meeting and are specifically validated by the provisions of Section 128(2). Some ingenious arguments have been addressed to us to the effect that the respondents other than Mr. Park, the Tarstone & Co. Ltd., and the Registrar of Companies had been appointed members at a meeting of the Company. We completely reject this subtle suggestion which is neither contained in the affidavits accompanying the application for the joinder of these respondents nor based upon any information or material before us other than the ipse dixit of learned counsel appearing for these respondents.
The removal of the appellant as a director and member of the Company, the appointment of other members or directors and other such acts done by virtue of the order under appeal, are clearly not valid as the order on which they were all based is invalid insofar as it does more than authorise the holding of a meeting.Insofar as it empowers the applicant to hold and conduct a meeting, it gives no ancillary or consequential orders to make the meeting possible or effectual and considering the contents of the affidavit in support of the originating summons and the undisputed events and circumstances of the Company, including the abscondment of the only other member of the Company, the order must be considered of no real practical utility.
Thus, in respect of the only portion as to which the order was right, it lacks the necessary ancillary or consequential directions and in respect of the other portions of it the order was ultra vires the court and invalid. Learned counsel for the respondents has referred us to the cases of Baillie v. Oriental Telephone & Electric Co. Ltd. (1950) 1 Ch. D. 503 and In re Jermyn Street Turkish Baths Ltd. (1971) 1 WLR 1042 and argued strenuously that the action of the 1st respondent, Mr. Robert Park, should be regarded as having been taken in good faith and without oppression to anybody. The argument is untenable primarily because it cleverly begs the question at issue. It is not being enquired whether the action of the respondent was taken or done in good faith or whether it was oppressive; the question was whether it was competent for the order on which his actions were based to be made in the form in which it was made and executed and then one must refer to paragraph 12 of the affidavit in support of the originating summons which reads as follows:-
“12. The interest of the absentee partner will in no way be prejudiced by the order sought to enable the company to continue to serve the country.”
It is difficult to see the strength of an argument to the effect that an order which removes the present appellant from his post as a director of a company despite his share-holding of 7 pounds,500 and the money he had invested in the company as a loan did not operate to his prejudice.
Learned counsel for the appellant had also attacked the form of the originating summons and argued that it was not properly constituted with respect to the parties who should have been cited to it. In view of our findings and conclusions on the first part of the argument on appeal, we do not now propose to deal in full with this part of the argument. We will point out however that in the affidavit by which the joinder of Tarstone & Co. Ltd., as a party to this appeal was sought, it was stated on behalf of that respondent that the Company should have been made a party to the proceedings. So we think as well. It was the shares of the Tarstone & Co. Ltd., that are being arranged or re-arranged and the appointed members are expressed in their respective affidavits to belong to the Company or its directorate or subscribers. See the observations of this court in respect of necessary parties to proceedings in Amodu v. Olusanya, SC.313/68, delivered on the 23rd March, 1971.
We have come to the conclusion that the order of the High Court, Lagos, now on appeal cannot be justified and that it does not come within the provisions of Section 128(1) of the Companies Decree. The appeal therefore succeeds and it is allowed. The order of the High Court, Lagos, made on the 28th of October, 1968, including the orders for costs in Suit No. M/161/68 is set aside. In place of that order it is directed that the originating summons be dismissed with costs. This shall be the judgment of the court. The appellant is entitled to his costs in this court which we fix at 70 guineas against all the respondents jointly and severally. We make no order for costs in favour of the appellant in the court below since he was not a party to those proceedings.
Other Citation: (1972) LCN/1280(SC)