LEARNING OUTCOMES:

1. Identify the principles of Corporate Sovereignty and the scope of the Rule in Foss V. Harbottle.
2. Discuss various ways minority protection actions can be constituted/formulated
3. Prepare relevant petitions to CAC, resolutions and Court processes relating to the Institution of minority protection actions at the Federal High Court
4. Apply the procedure for litigating minority protection suits.
5. Discuss the necessity, procedure and consequences of investigation of company.

 

Foss v Harbottle - It is the company that can go to court to remedy the wrong or defend the action.

In the case two shareholders brought an action for and on behalf of the company against the directors of the company claiming that the actions of the directors and that of the solicitorsresulted in the company incurring so much loss. The court said they are not the company, that if the company is wronged the company is the proper plaintiff. This position has been codified in s299 of CAMA– only the company can sue to remedy the wrong and ratify the irregular conduct, not the shareholders.

How do you determine if the case before you is within the purview of the rule of Foss v Harbottle.

Ask:

1. Who is the proper plaintiff?
2. Are there any sufficient reasons for the court to interfere with the way the company is run?– is this a case where the court can interfere and step in on behalf of the shareholders, the courts have emphasized before the codification of the rule that the company would decide how the company is to be run. They decide by passing a resolution to which the minority must respect the wishes of the majority

 

• Elufioye & others v HALILU & OTHERS [1993]
• ABUBAKRI & ORS V SMITH & ORS [1973}- the first plaintiff was the general secretary of the society, the second plaintiff was the treasurer and they were elected under the constitution of the organization, they claimed that the defendants who were in control of the organization abrogated the constitution and set up other officers, retained , spending the monies belong to the organization and refused to account for same. They were asking the court to restrain the defendants from holding themselves out as members of the organization, because the plaintiff were the elected officers, they also asked for the monies belonging to the organization in the hands of the defendants, and the court should order that they should surrender all the documents belonging to the society to them the plaintiff. The SC  applying the rule in Foss v Harbottle said the claim must fail because they had no locus standi to sue, they didn’t sue as a representative action, or  join the society, they didn’t bring it in a derivative capacity or , they sued as themselves. This case shows that the principle applies to even non-company law matters.
• SHELL PETROLEUM V NWAWKA [2001] F.W.L.R (PT.48) – Mr nwakwa was asenior staff member of shell, his employment was terminated by shell and he was given compensation in lieu of notice, the matter should have ended there however he decided to go to court. He wanted a declaration that shell was engaged in dubious practices and thatshell was not entitled to render him redundant because of their sharppractices. Shell said he was not the proper person to make such allegation, he wasn’t shareholder, he wasn’t shell. The SC had to decide that 1) does the case come under the principle in FVH. The CA said that Nwaka had the locus to sue under the rule in FVH, but they said they however they do not want to force a willing employee on an unwillingemployer. The SC said the rule in FVH didn’t apply, that they would rather decide a case on whether the case brought by Mr Nwaka disclosed a cause of action – does it concern any of his rights of property; contract with shell; or any legal right at all
• AKINTOLA WILLIAMS V ADEMOLA EDU [2002] 3 NWLR (PT.754) 400

 

EXCEPTIONS:

1. Illegal or Ultra Vires Acts: section 300(a)

• Parke v Daily News [1961] 1 W.L.R – the minority shareholder can to go to court and seek an order of injunction or a declaration to restrain a company from engaging in ultra vires act. Here the will of the majority cannot prevent the minority from engaging the action. The minority can go to court to stop the act or set it aside.
• Yalaju AMAYE V AREC – Illegality is a clear exception to the rule in Foss v Harbottle. The ultra vires act addressed in this case was the appointment of new directors– the SC held that they had no such power under the company’sarticles and allowed the minorities sue.
• Sparks Electronic v Ponmil (1986)

2. Infringement of personal rights

Minority can bring a personal or representative action. Defendant is the company. Only join the directors if some specific relief is being sought against them: s 300(c).  Pender V Lushington (1877)

• Deny him right to inspectstatutory books
• Demand a charge for inspection.
• Audited profit and loss accounts, the auditors or the directors’report not sent to shareholders 14 days before the general meeting
• Right to attendmeetings
• Speak at meetings
• Receive notices
• Vote
• Right to demand
• Irregular procedures

 300(b) a company purporting to do ordinary resolution any act which by its articles of CAMA requires to be done by special resolution. Edwards v HALLIWELL [1950] 2 ALL ER 1064.. if there is an irregular procedure it is very easy for the company to ratify , but if its illegal then the company cannot  ratify 

Forinstance when ordinary resolution is used for reduction of share capital, change of name and object clause. The minority shareholder can go to court and set aside the ordinary resolution

• Fraud on the minority – s 300 (d)

Minority to seek order of injunction or declaration to stop or set aside an act that is set to defraud him or the company: Parke v Daily news [1961] 1 W.L.R 493

Three key factors must be proved to succeed under this heading

The only remedies available under these exceptions are declaration and injunction- no damages – s 300 & 301 CAMA. There is absolutely no entitlement to damages. However the court can award him cost even if he loses the action. The action would be a personal action under 301(1) 

 

Examples: Fraud on the Minority

• Misappropriation of the company’s property
• Cook v Deeks [1916] 1 A.C. 554
• Daniels v Daniels: [1978] 2 All ER . Pavlides v Jensen [1956]
• Brown v British Abrasive Wheel C0 [1919] 1 Ch 290
• Expulsion of minority Brown v British Abrasive Wheel C0 [1919] 1 Ch 290 
• Inequitable use of majority power. Clemens v Clemens [1976] 2 All ER – it was small business and the issued share capital was shared between the plaintiff 45 %and her aunt 55%. The directors were to increase the share capital; the plaintiff didn’t like it as it would result in a drop in her share percentage. The aunt voted in favor of the scheme, the plaintiff immediately went to the court asked the court to declare the entire resolution passed invalid because it was done to defraud the company and wasn’t for the benefit of the company and they were done to oppress her as the minority shareholder.  The court granted that the resolution was passed to ensure she (the plaintiff) never had control of the company

There are three things a plaintiff must prove to succeed under fraud on the minority

1. You must show that the money belonged to the company
2. You must prove that it passed to those who are in control of the company

• They misappropriated the money in their control** Those who are in control of the company are the ones who misappropriated the money.

 

• Calling of company meeting

S 300(e), allows a minority action where a company meeting cannot be called in time to be of practical use in redressing a wrong done to the company or to minority shareholders.

 

• Directors deriving profit or benefiting from their negligence – s 300 (f)

So if you can’t prove fraud, you can say they were negligent , and they derived profit from it. It is not enough to say they were negligent, they also need to have benefitted from it   Cook v Deeks (supra) 

 

Other statutory minority protection:

• Variation of class rights: s142 – preference shareholders and ordinary shareholders.
• Schemes of reconstruction and amalgamation under s 538, a member may within
• S 235 – members representing not less than one-twentieth of total voting rights or minimum of members holding shares in the company in which an average sum of not less than N500, per member has been paid can requisition the company to give notice of member’s resolution: s
• Re-registration public – private limited by shares: members holding not less than 5 percent  of the issued shares  may apply to the court within 28 days after the passing of the resolution to cancel the change : s 53(3)
• Alteration of objects – holders of 15% of the company’s issued share capital may petition FHC within 28 days of the resolution to have the alteration set aside: s 46 (2) (a). See rule 4 Companies Proceedings rules 1992. The court may confirm or refuse the resolution: s 46(4). Parent tyre Co, Ltd, Re [1923] 2 Ch 22. CAC must be informed of the application within 15 days of the application: 47(7). Inform the CAC by filing CTC….. if no application is made to court, the company must within 15 days of the end of the 28-day period deliver to the CAC a copy of the resolution as passed, CAC may refuse to register it , it shall then give notice of its decision to the company. If this happens an appeal lies to the federal high court from CAC’s decision. Appeal - within 21 days of the receipt of the notice of rejection: s 46(7) (a)(ii)
• Winding up petition under “just and equitable” ground: any member may present a petition for the compulsory winding up of the company on the “just and equitable” : s 408
• Personal, derivative and representative actions: an aggrieved minority can bring one action or combine three types of actions i.e. personal, derivative and representative actions:
• Derivatives action: here the plaintiff’s right of action derives from that of the company. The company is not the plaintiff, but the person is borrowing the name of the company to sue. Estmanco (kilnerHouse) Limited v Greater London Council

Commencing derivative action: an applicant applies to the Federal High Court for leave to bring an action in the name or on behalf of the company, or to intervene in an action to which the company is a party, for the purpose of prosecuting, defending or discontinuing the action on behalf of the company: s 303(1). There are things that must be proven before the court can grant leave to a person – cause of action

Court to be satisfied with:

1. Directors (wrong doers) are in control
2. They will not take any action

• The applicant has notified the directors of his intention to apply to the court

1. He is acting in good faith; and
2. It appears to be in the best interest of the company. S 303(1)

They must all be in the verifying affidavit.

 

The unfair prejudicial remedy

To mitigate the hardships of the winding up on a just and equitable ground remedy.

• EBRAHIMI V WESTBOURNE GALLERIES LIMITED [1973] AC 360 

Nigerian law – s 310 & 311 CAMA

 

The death of the derivative action

AGIP NIGERIA LIMITED V AGIP PETROLI INTERNATIONAL & ORS (2010) 5 NWLR (Pt. 1187) 348

• Application for leave to commence contentious – appealable as well ( originating summons – r 2

 

The remedy on the grounds of unfair prejudice

An application to court, by way of a petition, on the ground that the affairs of the company are being conducted in an oppressive, unfairly prejudicial or discriminatory manner.

Court may grant remedies as it deems fit on a well- founded petition. S 310,311 & 312 CAMA

 

Who can apply? – s 310 CAMA

• Members (expands meaning under s.79) – s 310(2)
• Present or former directors & officers
• Creditors
• Commission i.e. CAC
• Any person deemed by the court to be a proper person to apply

 

Grounds of the application – s 312.

The application is brought by way of petition

Unfairness/disregard of applicant’s interests:

• Conduct of company affairs
• An act/omission or a proposed act/omission of the company

N.B: The corporate Affairs Commission guards interest of members as well as public at large.

 

Remedies

Where the court  is satisfied that a petition is well founded , it may order any relief as it thinks fit.

S 312(2) CAMA ; Olisa Adibua v. Storm 360 Ltd

• That the company be wound up
• Regulating future conduct of the company
• Purchase of share by other member(s)
• Company purchase of shares and consequ
• Directing company to institute proceedings or authorizing a derivative actions
• Directing an investigation to be made by the CAC

 

CASE LAW

• OMOLOLU-MULELE V IJALE PROPERTIES CO. LTD [2003] 27 WRN 43
• O’neil v Phillips (1999) W.L.R

 

Investigation of companies

What is “ investigation’ under CAMA ?

 

Commencing investigation – s 314& 315 CAMA

Investigation of a company can be initiated by any of the following:

1. An application by members of the company
2. An application by the company
3. An order by the federal high court
4. The corporate affairs commission suo moto

 

1. MEMBERS OF THE COMPANY?

The first question to ask is does the company have a share capital or does it not have one?

Companies with share capital – s 314(2)(a) CAMA

An application

Companies without Share Capital – s 314 (2)(b) CAMA

 

2. The company – s 314 (2) CAMA

Applications to CAC for investigation

Applications shall be supported by evidence as required by the CAC showing good reason for the investigation. S 314 (2) CAMA

 

3. The federal high court

The commission

 

4. The corporate affairs commission

The commission may appoint of its own motion where it appears that:

1. Company affairs conducted to defraud creditors or anyone
2. …

• A prejudicial (proposed) act or commission including one on its behalf or ,

1. The company was formed for a fraudulent purpose

 

POWER OF INSPECTORS – S 316 CAMA

• May investigate any other related company
• May summarily report findings tending to show the commission of an offence.

The inspectors can call for directors’ bank accounts upon reasonable suspicion of fraudulent or quasi-fraudulent activity.

 S 318 CAMA. Note: SECTION 330 CAMA

 

Duty of Co-operation

This duty may be extended to anyone who the inspector deems to be in possession of information required.

 

Breach of duty to co-operate – s 319 CAMA

The court may impose punishment as though he/she is guilty of contempt of court.

Note also s 330 CAMA

 

INSPECTORS REPORT

 

 

Diagram of investigation

The members will apply

 The court will apply

 The court will order

 

Investigation of company ownership – s 326 CAMA

Where the commission reasonably believes it necessary, it may appoint inspectors to investigate and report on the membership of the company to determine persons with a ‘real interest’ as well as persons in control.

 

Investigation is an administrative remedy

 

Examinable areas:

Draft the letter as a shareholder: the letter would be written on s314. S 315(2)