BLISS INTERNATIONAL LIMITED v. ZUMAX NIGERIA LIMITED & ORS
(2019)LCN/12870(CA)
In The Court of Appeal of Nigeria
On Tuesday, the 19th day of March, 2019
CA/L/361/2004
RATIO
ACTION: DERIVATIVE ACTION
“A derivative action must thus be brought or taken by a shareholder or minority shareholder of the company with the aim and poise or intention of protecting and/or enforcing the rights of the company neglected by the directors of the company in which the company is a defendant and the directors were given reasonable notice in advance of the intention of the minority shareholder to file the action and also, the leave of the Court was sought and obtained by the applicant/minority shareholder before the action would competently lie or be filed vide Ladejobi v. Odutola Holdings Ltd. (supra), Unipetrol (Nig.) Plc v. Agip (Nig.) Plc (supra), Williams v. Edu (supra), N.I.B. Investment W/A v. Omisore (supra) cited by the respondents.” PER JOSEPH SHAGBAOR IKYEGH, J.C.A.
JURISDICTION: WHETHER THE WRIT OR STATEMENT OF CLAIM DETERMINES JURISDICTION
“It is trite that the writ or statement of claim which supersedes the writ determines the jurisdiction of the Court and the type of action filed by a claimant vide Oni v. Cadbury Nig. Plc (2016) 9 NWLR (pt. 1516) 80 at 107 following Anya v. Iyayi (1993) 7 NWLR (pt. 305) 290, Anigboro v. Sea Trucks (Nig.) Ltd. (1995) 6 NWLR (pt. 399) 35 and the series of cases (supra) cited on the issue by the parties.” PER JOSEPH SHAGBAOR IKYEGH, J.C.A.
JUSTICES
JOSEPH SHAGBAOR IKYEGH Justice of The Court of Appeal of Nigeria
UGOCHUKWU ANTHONY OGAKWU Justice of The Court of Appeal of Nigeria
TOBI EBIOWEI Justice of The Court of Appeal of Nigeria
Between
BLISS INTERNATIONAL LTD – Appellant(s)
AND
1. ZUMAX NIGERIA LTD
2. CHIEF AZUKA UZOR
3. CHIEF KINGSLEY OKAFOR
4. ZUKUS NIG. LTD
5. ZUKUS INDUSTRIES LTD
6. ENERGY GAS AND PETROCHEMICAL SUPPORT SERVICES LTD
7. CHEVRON TEXACO LTD – Respondent(s)
JOSEPH SHAGBAOR IKYEGH, J.C.A. (Delivering the Leading Judgment):
The appeal is from the ruling of the Federal High Court sitting in Lagos (the Court below) striking out a minority shareholder action for non-compliance with the condition precedent for the initiation of the action.
The appellant had filed a derivative action at the Court below based on fraud and improper accounting principally seeking restitution for the plaintiff’s unjust enrichment by the directors of the 1st defendant who, directly or indirectly were at all material times endeavouring to appropriate to themselves money, property and advantages which belong to the 1st respondent’s company; and, also protect the appellant against the tyranny of the majority wrongdoers who are in control of the company who are the 2nd & 6th respondents.
The respondent raised a preliminary objection to the derivative action at the Court below on the ground that the Court below lacked the jurisdiction to entertain the action as the condition precedent had not been complied with in that the appellant being a minority shareholder failed to give the 2nd and 3rd respondents, being the majority shareholders notice of intention to seek leave of the Court to commence the action; and also that the appellant being a minor shareholder failed to obtain the leave of the Court below to bring the action herein on behalf of the 1st respondent.
The Court below considered the preliminary objection and upheld it and struck out the action in consequence.
The appellant was dissatisfied with the decision of the Court below and filed a notice of appeal with several grounds of appeal. The appellant argued in the brief of argument filed on 19.11.14 that considering the statement of claim and giving Sections 300 to 308 and 310 – 312 of the Companies and Allied Matters Act 1990 CAMA literally the claim of the appellant that determined the jurisdiction of the Court below insofar as it relates to reliefs 3, 5, 6 and 9 was a personal action and did not require the leave of the Court below to file it therefore the Court below should not have struck out the action citing in aid the cases of Egbe v. Alhaji (1990) NSCC Vol. 21 1306 at 328, Abel v. Lee (1871) LR. R. 6C 365 at 374, Amaonwu v. Ahaotu (1998) 9 NWLR (pt. 566) 454 at 457, Ege Shipping and Trading Ind. Co. and Ors v. Tigris International Corporation (1999) 4 NWLR (pt. 637) 70 at 74 read with Black’s Law Dictionary (6th Edition) on the definition of the phrase ‘without prejudice’; and that whether this issue is answered in the affirmative the Court below was right in striking out the action on the ground that pre-action notice was not given to the 2nd – 3rd respondents when they are the wrong-doers.
It was submitted in the alternative that the directors sued in the action are the wrong-doers therefore how can they prosecute the action diligently against themselves under Section 303(2) (b) of CAMA showing the answer to obviously be in the negative.
The appellant referred to reliefs 3, 5, 6, 7, 8 and 9 of the statement of claim to contend that the Court below was competent and had the jurisdiction to entertain the action in the light of the reliefs (supra) as reliefs 3, 5 and 9 are personal action not requiring the leave of the Court whilst reliefs 7 and 8 being a cause of action against the company itself does not require the leave of the Court for the personal action embodying them to be filed at the Court below not a corporate right citing in aid the cases ofMadukolu v. Nkemdilim (1962) 2 SCNLR 341, Adeyemi v. Opeyori (1976) 9 – 10 SC 31 at 49, Lagoon City Development Corp. Ltd. v. A. G., Federation and Ors. (2002) 14 NWLR (pt. 786) 19 at 28, Gower on Principles of Modern Company Law (Sixth Edition; Sweet & Maxwell) page 660, Section 251(1) (e) of the 1999 Constitution, Kadzi Int. Ltd. v. Kano Tannery Co. Ltd. (2004) 4 NWLR (pt. 864) 545 at 550.
The appellant contended that words are to be given their ordinary and literal meaning and once so given reliefs 7, 8 and 9 of the statement of claim read with Section 300 of CAMA would disclose that the said reliefs are against the company itself and therefore not derivative in nature and substance and covered under Sections 300 and 301 of CAMA citing in aid the cases of Egbe v. Alhaji (1990) NSCC Vol. 21 (pt. 1) 306 at 328, Abel v. Lee (1871) 1 LR. R. 6C 365 at 374, Mercy Docks v. Henderson (1888) 13 CASES 595 at 602, Crawford v. Spooner (1846) 6 Moore PC 1, Gwynee v. Bwinel (1840) 7 CL 2F 592, Jones v. Smart (1785) 1 T.R. 44, R. v. Cleworth (1864) 3 and 5 927 at 934, Rabiu v. State (1981) 2 SCNLR 293 at 304, 326, Abdulkarim v. Incar Nig. Ltd. (1992) 7 NWLR (pt. 251) 1 at 17; consequently, the appellant contended that the Court below filled the gap by adding the issue of leave in the said provisions of CAMA which was not its duty as its duty is to interprete the law not to make the law by supplying the cassus omissus of leave therein; upon which the appellant urged that the appeal should be allowed and the decision of the Court below set aside and reliefs 3, 5, 6, 7, 8 and 9 being personal actions which the law permits the appellant to institute without leave of the Court should be restored.
The 1st – 6th respondents’ amended brief was filed on 19.07.16. It was contended that looking at the totality of the statement of claim the action is to protect the interest of the 1st respondent company and is thus a derivative action at the instance of the appellant, a minority shareholder, requires the leave of the Court below and reasonable notice to the directors as condition precedent for filing the action as rightly held by the Court below and having not sought the leave of the Court below the action is incompetent and was rightly struck out by the Court below citing in aid Section 303 of CAMA read with the cases of Williams v. Edu (2002) 3 NWLR (pt. 754) 400 at 412, Unipetrol (Nig.) Plc v. Agip (Nig.) Plc (2002) 14 NWLR (pt. 787) 312 at 331, Ladejobi v. Odutola Holdings Ltd. (2002) 3 NWLR (pt. 753) 121 at 155 ? 156, UBN Plc v. Sogunro (2006) 16 NWLR (pt. 1006) 504 at 524.
The 1st – 6th respondents contended that the principal reliefs sought in the action being incompetent the injunctive reliefs which are ancillary to them cannot stand on their own and that the Court cannot assume jurisdiction to try only the prayers for injunction citing in aid Gafar v. Govt., Kwara State (2007) ALL FWLR (pt. 360) 1415, Nwagwu v. Osemenam (2007) ALL FWLR (pt. 376) 779 at 793, N.D.I.C. v. Koleosho (2006) ALL FWLR (pt. 312) 2009 at 2115.
It was also contended by the 1st – 6th respondents that the other reliefs flow from the principal reliefs 1 and 2 which is a derivative actions or reliefs brought by a minority shareholder against majority shareholders to protect the interest of the 1st respondent company and such an action requires service of notice on the directors of the 1st respondent company before applying for the leave to institute the action under Section 303 (1) and (2) of CAMA read with the case of N.I.B. Investment W/A v. Omisore (2006) 4 NWLR (pt. 969) 172 at 196 – 197; consequently, the 1st ? 6th respondents contends that the Court below was right in striking out the action on ground of incompetence; therefore the appeal should be dismissed and the decision of the Court below affirmed.
The 7th – 8th respondents’ brief was filed on 14.04.10. The 7th – 8th respondents contended that the reliefs sought in the statement of claim are in respect of derivative action brought by a minority shareholder, the appellant, under Section 303 of CAMA not Section 300 thereof, to protect and enforce the rights of the 1st respondent company, therefore the failure of the appellant to give reasonable notice of he intending action to the directors of the 1st respondent company and obtain the leave of the Court below to file the action rendered the action incompetent ab initio and that the Court below was accordingly right in striking out the action citing in aid the cases of Pant Du United Lead Minin Co. Ltd. v. Merryweather (1864) 2 H and M 254, Spokes v. Grosvenor Hotel Co. (1897) 2 Q.B. 124 at 128, Unipetrol (Nig.) Plc v. Agip (Nig.) Plc (2002) 14 NWLR (pt. 787) 312 at 331, Williams v. Edu (2002) 3 NWLR (pt. 754) 400 at 412, UBN Plc v. Sogunro (2006) 16 NWLR (pt. 1006) 504 at 524, N.I.B. Investment W/A v. Omisore (2006) 4 NWLR (pt. 969) 172 at 196 – 197; upon which the 7th ? 8th respondents? brief which is substantially similar to the 1st – 6th respondents’ brief urged that the appeal should be dismissed and the decision of the Court below affirmed.
It is trite that the writ or statement of claim which supersedes the writ determines the jurisdiction of the Court and the type of action filed by a claimant vide Oni v. Cadbury Nig. Plc (2016) 9 NWLR (pt. 1516) 80 at 107 following Anya v. Iyayi (1993) 7 NWLR (pt. 305) 290, Anigboro v. Sea Trucks (Nig.) Ltd. (1995) 6 NWLR (pt. 399) 35 and the series of cases (supra) cited on the issue by the parties.
‘Pages 4 – 8 of the record of appeal (the record) contain the statement of claim thus:
STATEMENT OF CLAIM
1. Plaintiff is a company registered in Nigeria and having its principal place of business at 62/66 Broad Street, Lagos. The Plaintiff is a member of the 1st Defendant company in which it holds 35% of the equity capital.
2. The 1st Defendant is a company registered in Nigeria and having its principal place of business at 23 Airport Road, Warri, Delta State.
3. The 2nd Defendant is a businessman residing at 2 Masoje Estate, Effurun,Warri, Delta State.
4. Between 1982 and 1999 the 2nd Defendant was Managing Director and Chief Executive Officer of the 1st Defendant Company, in which he holds 30% of the equity capital.
5. The 3rd Defendant is a business man residing at 57, Adelabu Street, Surulere, Lagos.
6. Between 1982 and 1999 the 3rd Defendant was the Operations Director in the 1st Defendant Company, in which it holds 30% of the equity capital.
7. The Plaintiff avers that since 1999 the 2nd and 3rd Defendants have held the position of EXECUTIVE JOINT-CHAIRMEN of the 1st defendant company
8. The 4th and 5th Defendants are companies registered in Nigeria both with their principal places of business at 2, Edewor Shopping Centre Effurun, Warri, Delta State. The 2nd Defendant and members of his family own the entire equity capital in the 4th and 5th Defendant companies.
9. The 6th Defendant is a company registered in Nigeria with its principal place of business at Ekoh Estate Road, off Airport Road, Effurun, Warri, Delta State. The entire or greater part of the equity of the 6th Defendant company is held by the 3rd Defendant and members of this family.
10. The 7th Defendant is a multinational corporation duly registered in Nigeria and having its principal place of business at Lekki-Epe Express way, Lagos State. The 7th Defendant carries on business as a leading company in the oil and petroleum industry in Nigeria and several places outside Nigeria.
11. The 8th Defendant is also a multinational oil corporation duly incorporated in Nigeria and is also a leading company in the oil and petroleum industry. It has its principal place of business at 21/22 Marina Street, Lagos.
12. The 1st Defendant company, since its incorporation twenty years ago, has carried on business as a specialised service company rendering inter alia the following services to several oil companies:-
(a) Wire line services, (b) lift Barges (c) Hot oil/wax (d) Crane services (e) Memory Guages (f) Supply of Chemicals (g) Supply of Spare parts and (i) Supply of local and expatriate technicians.
13. The plaintiff avers that these services have been, and are still being rendered by the 1st defendant to the 7th and 8th Defendants.
14. The plaintiff avers that by virtue of privileged positions occupied by the 2nd and 3rd Defendants as Chief Executive and Operations Director, and later as Executive joint-chairmen, of the 1st defendant all the secrets, technology and specialized knowledge of the 1st defendant were placed at their full and exclusively disposal as trustees of the 1st defendants business and the plaintiff’s investments in the 1st defendant company.
15. The 2nd Defendant, using the secrets, information and specialized knowledge and skills he acquired while he was the Managing Director and Chief Executive Officer of the 1st Defendant company, put his family companies, the 4th and 5th Defendant companies, into the same business in which the 1st defendant is engaged. To that end, through the influence of the 1st Defendant, the 4th and the 5th Defendants were awarded contracts intended for the 1st defendant by the 1st defendant’s customers, and, in particular, the 7th and 8th Defendants. The plaintiff shall found upon all relevant papers and documents at the trial.
16. The plaintiff further avers that in the same manner the 3rd Defendant also applied the secrets, information, technology and specialized knowledge he had acquired as the 1st defendant’s Operations Director and Executive joint-Chairman to bid for and secure for the 7th and 8th defendants contracts, which otherwise were intended for and would have gone to the 1st defendant.
17. The plaintiff further avers that over the years, the 2nd and 3rd Defendants, by virtue of their positions as Managing Director and Operations Director respectively, and from 1999 Executive Joint- Chairmen, were each seen as the moving spirit and the very personality of the 1st defendant company. All its customers dealt with them as representatives, agents or owners of the 1st defendant company.
18. The plaintiff further avers that by the said actions of the 2nd and 3rtl Defendants, through the 4th, 5th and 6th Defendants, the 2nd and 3rd Defendants have undermined the business of the 1st defendant by diverting businesses due to the 1st defendant to the 2nd and 3rd Defendants private companies. The business of the 1st defendant has suffered a steady decline and is now at the verge of collapse.
19. The plaintiff further avers that by their acts the 2nd and 3rd Defendants are each in breach of their statutory duties as Directors of the 1st defendant company to act at all times in what ought to be the best interest of the company as a whole so as to preserve its assets, further its business, and promote the purposes for which it was formed and in such manner as a faithful, diligent, careful and ordinary skillful Director would act in the circumstances.
20. The Plaintiff further avers that the 2nd and 3nl Defendants, by their actions, are also in breach of their statutory duties as directors not to:- .
(a) in the course of management of the affairs of the 1st Defendant company or
(b) in the utilization of the company’s property, make any secret profit or achieve other unnecessary benefits.
21. The Plaintiff further avers that the 2nd and 3rd Defendants, using the 4th, 5th & 6th Defendants, are now bidding for contracts from the 7th and 8th Defendants, for lift barges, self elevating work barges, supply vessels, wireline services, supply of down hole production hooks, mobile self elevating platform for well head construction, work over operations crane service and supply of miscellaneous oil drilling equipment and chemicals, which are the main areas of the 1st defendant?s business.
22. Unless the Defendants are restrained their actions would result in the total collapse of the 1st defendant’s business and loss of the Plaintiff’s entire investment in the 1st defendant company.
23. The Plaintiff further avers that in the course of the management of the 1st Defendant business, the 2nd and 3rd Defendants, some time in 1998 applied to International Merchant Bank Pic, a company carrying on the business of banking, for a loan in the sum of N200,000,000.00 to improve the 1st Defendant’s working capital. The loan was granted to the 1st Defendant and the said sum was mismanaged by the 2nd and 3rd Defendants. Same has risen, with interest, to over N400,000,000.00. The Plaintiff shall found upon all relevant applications, papers, letters or statements relating to this loan.
24. The said loan mismanagement brought the 1st Defendant into serious financial difficulties resulting to the inability of the company to service its operations within the limits of its internally generated revenue.
25. The said loan has remained unpaid and the indebtedness has diminished the chances of the Plaintiff ever recovering its investment in the 1st Defendant Company.
26. Plaintiff shall urge that upon proper interpretation of Section 290 of the Companies and Allied Matters Act, 1990 the 2nd and 3rd Defendants are jointly and severally liable in their personal capacities for the funds aforesaid mismanaged by them.
27. Plaintiff avers that it has brought this action as a minority shareholder to redress the wrong done to the 1st Defendant and to recover for the 1st Defendant money or damages due to the company because the 2nd and 3rd Defendants (the majority sharebolders) have endeavoured directly and indirectly and fraudulently to appropriate to themselves money, property, contracts and advantages, which belong to the 1st defendant company, and in which the Plaintiff is entitled to participate. The particulars of the fraud are as pleaded in paragraphs 14 to 26 (both inclusive) above.
28. The Plaintiff avers that the 1st Defendant company is joined in this suit because it is a necessary party to the action and it is most likely to be affected by the result of the action.
29. The Plaintiff avers that in order to totally silent the Plaintiff as a minority shareholder, the 2nd and 3rd Defendants, as majority shareholders, have now directed the company’s Secretary, by a letter dated 5th December, 2002, to summon a meeting to remove the Plaintiff’s sale representative from the company’s Board of Directors.
30. WHEREFORE the Plaintiff claims from the Defendants as follows-
(1) A declaration that by their acts the 2nd and 3rd Defendants are each in breach of their statutory duties as Directors of the 1st Defendant company to act at all times in what ought to be the best interest of the company as a whole so as to preserve its assets, further its business, and promote the purpose for which it was informed and in such manner as a faithful, diligent, careful and ordinary skilful Director would act in the circumstances.
(2) A declaration that the 2nd and 3rd Defendants, by their actions, are in breach of their statutory duties as Directors not to:-
(a) in the course of management of the affairs of the 1st Defendant company or
(b) in the utilization of the company’s property, make any secret profit or achieve other unnecessary benefits.
(3) A declaration that upon a proper construction of Section 281 of the Companies and Allied Matters Act, 1990 the 1st and 2nd Defendants are in breach of their fiduciary duties not to use the property, opportunity or information obtained in the course of the management of the 1st defendant company for the benefit of the 4th, 5th & 6th Defendant companies respectively.
(4) A declaration that the 2nd and 3rd Defendants are in breach of their duties to exercise the powers and discharge the duties of their office, as Directors of the 1st Defendant, in good faith and in the best interest of the company as a prudent Director would exercise in comparable circumstances.
(5) A declaration that upon a reasonable interpretation of Sections 283 (1) and 290 of the Companies and Allied Matters Act, 1990, the 2nd and 3rd Defendants are trustees of the 1st Defendant?s money, properties, powers and are liable to account for all moneys over which they exercise control, in particular, the loan taken on behalf of the 1st Defendant from International Merchant Bank Plc in the sum of Two Hundred Million Naira, now amounting, with interest, to over Four Hundred Million Naira, and are liable in their personal capacities, jointly and severally for the repayment of the said loan, which they mismanaged.
(6) An injunction to restrain the 7th and the 8th Defendants from awarding any contracts to the 2nd and 3rd Defendants, through the 4th, 5th and 6th Defendants or any other person or persons, relating to or connected with the area of business in which the 1st Defendant is engaged.
(7) An order directing the 1st, 2nd and 3rd Defendant to produce all the company’s various bank statement from 1982 to date for the purpose of an independent audit.
(8) An order that the 1st Defendant company’s account be fully audited by a republic internationally recognised Chartered Accounting firm for the period of 1982 to date, to determine the true financial trend of the company and how the company’s incomes were spent, managed and/or mismanaged.
(9) An injunction restraining the 1st, 2nd and 3rd Defendants from removing the Plaintiff’s representative from the Board of Directors of the 1st Defendant.
A holistic and literal consideration of the statement of claim (supra) condescends to the bottomline that the action was brought by the appellant, a minority shareholder, to vindicate, protect and enforce the rights and interest of the 1st respondent company. It was not a personal action for the benefit of the appellant under Section 300 of CAMA. Section 303 of CAMA provides the precondition or condition-precedent for derivative action as the action is advisedly called because it is derived from the company for its protection where the directors or majority shareholders of the company for whatever reason refuse to sue to protect or save the company in these words
Section 303
(1) Subject to the provisions of Subsection (2) of this section, an applicant may apply to the Court for leave to bring an action in the name or on behalf of a company, or to intervene in an action to which action the company is a party, for the purpose of prosecuting, 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 directors 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
(c) the applicant is acting in good faith; and
(d) it appears to be in the interest of the company that the action be brought, prosecuted, defended or discontinued.
A derivative action must thus be brought or taken by a shareholder or minority shareholder of the company with the aim and poise or intention of protecting and/or enforcing the rights of the company neglected by the directors of the company in which the company is a defendant and the directors were given reasonable notice in advance of the intention of the minority shareholder to file the action and also, the leave of the Court was sought and obtained by the applicant/minority shareholder before the action would competently lie or be filed vide Ladejobi v. Odutola Holdings Ltd. (supra), Unipetrol (Nig.) Plc v. Agip (Nig.) Plc (supra), Williams v. Edu (supra), N.I.B. Investment W/A v. Omisore (supra) cited by the respondents.
In the present case, there was no evidence that the directors of the 1st respondent were given reasonable notice of the intention of the appellant to bring the derivative action; nor was the leave of the Court below sought and obtained to file the action at the Court below and the appellant having not satisfied the two conditions ? precedent with the former condition fulfilled before the latter condition precedent the derivative action was rightly struck out on ground of incompetence vide Madukolu v. Nkemdilim (supra), UBN Plc v. Sogunro (supra), Obasi v. Mikson Establishment Industries Ltd. (2016) 16 NWLR (pt. 1539) 335 at 378 following the cases of C.B.N. v. Okojie (2002) 8 NWLR (pt. 768) 68, Unity Bank Plc v. Bouari (2008) 7 NWLR (pt. 1086) 372, Okwuagbala v. Ikwueme (2010) 19 NWLR (pt. 1226) 54.
In conclusion, I find no merit in the appeal and hereby dismiss it and affirm the decision of the Court below (Shuiabu, J., (as he then was)) striking out the action at the Court below on ground of incompetence. Parties to bear their costs.
UGOCHUKWU ANTHONY OGAKWU, J.C.A.: I read the draft of the lead judgment of my Lord, Joseph Shagbaor Ikyegh, JCA, which has just been delivered.
Having also read the Records of Appeal and the briefs filed and exchanged by the parties, I avow my concurrence with the leading judgment that the appeal is devoid of merit. I therefore join in dismissing the same on the same terms as contained in the leading judgment.
TOBI EBIOWEI, J.C.A.: My learned brother. JOSEPH SHAGBAOR IKYEGH. JCA afforded me the priviledge of reading in draft the lead judgment just delivered. I agree and have nothing to add.
22
Appearances:
For Appellant(s)
Mr. C. Anya with him, C. Oyeniyi Esq. for the 1st-6th Respondents.
The 7th Respondent was served hearing notice but were unrepresentedFor Respondent(s)
