Embed Size (px)
Citation preview
University of Nigeria Research Publications
AKANIRO, Ebere Gregory A
utho
r
PG/LL.M/88/6619
Title
Major Rule and Minority Protection in Company Law
Facu
lty
Law
Dep
artm
ent
Commercial and Property Law
Dat
e January, 1992
Sign
atur
e
MAJORITY RULE AND MINORITY PROTECTION I N COMPANY LAW
AKANIRO, EBERE GREGORY ( ~ ~ / ~ ~ . ~ . / 8 8 / 6 6 1 9 )
A D I S S E R T A T I O N SUBMITTED TO THE FACULTY OF L ~ W U N I V E R S I T Y O F N I G E R I A , NSUKKA I N P A R T I A L FULFILMENT OF THE REQUIREMENTS FOR THE AWARD O F T H E DEGREE OF MASTER O F LAWS
JANUARY , 1992
CERTIFICATION
A K A N I R O , Ebere Gregory, a p o s t g r a d u a t e
s t u d e n t i n t h e Department of Commercial and
P r o p e r t y Law and w i t h t h e ~ e g i s t r a t i o n Number,
~ ~ / ~ ~ . ~ . / 8 8 / 6 6 1 9 , h a s s a t i s f a c t o r i l y completed
t h e r e q u i r e m e n t s f o r c o u r s e and r e s e a r c h work
f o r t h e Degree of Mas te r o f Laws,
The work embodied i n t h i s d i s s e r t a t i o n i s
o r i g i n a l and h a s n o t been sub~c i i t t ed i n p a r t o r
f u l l f o r any o t h e r diploma o r d e g r e e o f t h i s
o r any o t h e r u n i v e r s i t y ,
PROFESSOR Co Q o OKONKWO PROFESSOR G, EZEJIOFOR (SUPERVISOR)
DR. C. U. ILEGBUNE (HEAD OF DEPARTMENT)
his d i s s e r t a t i o n i s d e d i c a t e d to my l a t e mother, Mrs. ~ u n i c e ~ k w a u g o Akaniro o k o r o , i n a p p r e c i a t i o n of a l l s h e d i d for m e .
AKANIRO , EBERE GREGORY
iii
ACKNOWLEDGEMENT
I s i n c e r e l y wish t o acknowledge my
i n d e b t e d n e s s t o ~ l m i g h t y God f o r is g u i d a n c e
and p r o t e c t i o n t h r o u g h o u t t h e p e r i o d o f my
academic c a r e e r . I am a l s o d e l i g h t e d t o u s e
t h i s o p p o r t u n i t y t o r e g i s t e r my i n d e b t e d n e s s t o
a l l my t e a c h e r s , dead o r a l i v e , f o r t h e i r immense
c o n t r i b u t i o n towards my men ta l e m a n c i p a t i o n ,
p h y s i c a l and s p i r i t u a l s t a b i l i t y . I l a c k
a p p r o p r i a t e words t o e x p r e s s my g r a t i t u d e b u t
p r a y t h e Almighty God t o reward them a b u n d a n t l y .
I n p a r t i c u l a r , I wish t o e x p r e s s my s i n c e r e s t g r a t i -
t u d e and t h a n k s t o p r o f e s s o r C, O. okonkwo f o r h i s
f a t h e r l y g u i d a n c e , p a i n s t a k i n g s u p e r v i s i o n and
k i n d d i s p o s i t i o n . I am h e a v i l y i n d e b t e d and s h a l l
e v e r remain' g r a t e f u l , ~ l s o , i t i s most g r a t i f y i n g
f o r m e t o be a s s o c i a t e d w i t h G. 0. S. Amadi Esq.
H i s s i m p l i s t i c , unassuming and humane r e l a t i o n s h i p ,
n o t w i t h s t a n d i n g my lower s t a t u s a s a s t u d e n t , is
a model fo r which I am v e r y g r a t e f u l .
E q u a l l y uppermost i n my mind, i s t h e k i n d
a s s i s t a n c e r e c e i v e d from D r . E. 0, Akanki and
D r . 0. A. Osunbor of t h e F a c u l t y o f Law,
u n i v e r s i t y of Lagos. I s h a l l e v e r remain
g r a t e f u l fo r t h e numerous j o u r n a l a r t i c l e s i n
Company Law r e c e i v e d from b o t h , his acknow-
ledgement w i l l n o t be c o m p l e t e w i t h o u t p l a c i n g
on r e c o r d t h e g e n e r o u s a s s i s t a n c e r e c e i v e d from
P r o f e s s o r G o A. Olawoyin, who, d e s p i t e h i s v e r y
b u s y s c h e d u l e , s t i l l found t i m e t o make some
c o n s t r u c t i v e s u g g e s t i o n s . I am v e r y much o b l i g e d
and s i n c e r e l y g r a t e f u l . F u r t h e r m o r e , I wish t o
acknowledge my i n d e b t e d n e s s and g r a t i t u d e t o a l l
l e g a l t e x t - w r i t e r s and commenta tors from whose
works I drew g r e a t i n s p i r a t i o n . I may have c i t e d
j u s t a f e w owing t o c o n s t r a i n t i n s p a c e , b u t s h a l l
e v e r r ema in g r a t e f u l t o a l l too numerous t o list.
I am a l s o g r a t e f u l t o S i s t e r ~ d i t h U. AgOmUO
and M r . Anike Thomas Ik . f o r t h e i r commitment i n
t y p i n g t h i s t h e s i s .
F i n a l l y , I s i n c e r e l y acknowledge t h e g r e a t
s a c r i f i c e made by my d a r l i n g w i f e , ~ g o z i , who
i n s p i t e of t h e newness of o u r m a r r i a g e , was v e r y
accommodating f o r a l l t h e time s p e n t on t h i s
d i s s e r t a t i o n . I am, and s h a l l ever remain
g r a t e f u l .
AKANIRO , EBERE GREGORY
v i i
TABLE OF CONTENTS
~ i t l e P a g e ... ... * o m
C e r t i f i c a t i o n . * . . . . * e m
~ e d i c a t i o n *.* ..* ... Acknowledgement . . . ... T a b l e o f C o n t e n t s ... . o m
T a b l e o f C a s e s . .. ... . o m
T a b l e of S t a t u t e s ** . *..
~ b b r e v i a t i o n s . ..*
CHAPTER ONE
PAGE -
iii
i v
v i i
X
x x v i i i
xxxx i ii
x x x x v i i
CORPORATE PERSONALITY
1. The p h i l o s o p h y o f c o r p o r a t e p e r s o n a l i t y 1
2- T h e C o r p o r a t e P e r s o n a l i t y P r i n c i p l e ( G e n e r a l ) *.. ... . . 2
3. ~ p p l i c a t i o n o f t h e C o r p o r a t e P e r s o n a l i t y p r i n c i p l e i n ~ i g e r i a
4. ~ e g i s t r a t i o n o f Companies u n d e r t h e Companies ~ c t m o o
5 , E s s e n c e o f C o r p o r a t e p e r s o n a l i t y p r i n c i p l e . . ..* ...
6 , Consequences o f I n c o r p o r a t i o n
v i i i
E x c e p t i o n s t o t h e p r i n c i p l e o f C o r p o r a t e p e r s o n a l i t y . .. C a p a c i t y and Powers o f Companies - The U l t r a vires R u l e .. . ..o
CHAPTER TWO
MANAGEMENT OF THE COMPANY
N e c e s s i t y of ana aging a Company Through t h e Agency o f N a t u r a l P e r s o n s
P o s i t i o n and N a t u r e of o f f i c e o f Directors . . 0 . 0
P r o c e e d i n g s o f Directors ... E x e r c i s e o f t h e powers o f t h e Company
D u t i e s of Directors t o t h e Company
~ i a b i l i t y of t h e Company f o r t h e ~ c t s of i t s o r g a n s and o f f i c e r s ..O Conc lus ion . . . ... ...
CHAPTER THREE
THE PRINCIPLE OF MAJORITY RULE I N COMPANY LAW
I n t r o d u c t i o n ... . .. Companies AS Democracies 0 . 0
The R u l e I n F o s s v, H a r b o t t l e 0 0 0
~ r t i c l e s of ~ s s o c i a t i o n AS C o n t r a c t of Membership and t h e R i g h t o f t h e ~ a j o r i t y t o ~ l t e r them ... 18 1
5. G e n e r a l ~ e e t i n g s and ~ e s o l u t i o n s
CHAPTER FOUR
MINORITY PROTECTION I N COMPANY LAW
1. I n t r o d u c t i o n ... . a . 2 3 1
2 0 A G e n e r a l S t a t e m e n t o f t h e R u l e i n FoSS v o H a r b o t t l e a* . a a 233
3. E x c e p t i o n s t o t h e R u l e i n F o s s v. ~ a r b o t t l e ... m e . ... 2 3 7
4. ~ o r m s o f ~ i n o r i t y ~ c t i o n ... 2 6 9
5. S t a t u t o r y p r o v i s i o n s on M i n o r i t y P r o t e c t i o n . . . .. ... 298
6 , A B r i e f c r i t i q u e o f p r o v i s i o n s o f t h e Companies ~ c t on ~ i n o r i t y p r o t e c t i o n . .. ..* o*. 334
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS . 1. c o n c l u s i o n ... 0 . .
BIBLIOGRAPHY 0 0 0
TABLE OF CASES
A. & B e C. chewing Gum ~ t d . , R e : (Totps Chewing Gum Inc. v. Coakley) L 9757 1 WoLoRo 579 o o o 0 . 0 329
~ b u b a k r i & O r s . v. Smith & O r s . (1973) 6 SoCoR. 31 0 . . 0 0 0 159
Agbonmagbe Bank Ltd. v. General Manager, G. B. o l i v a n t ~ t d . (1961) 1 ~ l l NeLeRe 166 e o * e m * 30
~ l e x a n d e r v. ~ u t o m a t i c ~ e l e p h o n e Co. - /?go07 - 2 Ch. 56 e.0 e o e 124
Alexander ward & Co. Ltd. v. Samyang ~ a v i g a t i o n Co. Ltd. /79757 1 WeLeRe 6 73
- - * e m e e 125, 221
A l l e n v. old Reefs of west Afr ica ~ t d . /39007 1 Ch. 656 . . . - 184, 204, 207
Alma Spinning CO., R e (1880) 16 c~ .D. 681 115
Alpha Co. Ltd., R e ~ ? 9 0 3 7 1 ch. 203 284 . Amaye v. Associated Cont rac tors (1990) 6
SeCeNeJ. 149 90, 92, 161, 165, 174, 266
Andrews v. Gas Meter COO - /?8927 1 Ch. 361 19 7
Ashbury ail way Car r i age and I r o n Co. v. 69, 70, ~ i c h e (1875) L.R. 7 H.L. 653 ... 158, 169
~ s h b u r y v. watson (1885) 30 Chat), 376 203
Att.-Gen. v. Davy (1741) 2 Atk. 212 ... 81, 210
~ t t . - G e n . v. Great Eas te rn ~ y . (1880) 5 ~ p p . c a s e 473 ... ... 7 1
~ t w o o l v. Merryweather (1876) L.R. 5 ~ q . 464 n -.. 165, 180, 285, 287
A u s t r a l i a n Coal e t c . Employees* Fedn. v. Smith - /79377 - 38 S.R. (N.s.w.) 48 15 6
Automatic Se l f - c l eans ing F i l t e r Synd ica t e Co. v. ~un inghame - /39067 - 2 ch. 34 101, 120
aill lie v. ~ r i e n t a l Telephone & ~ l e c t r i c 164, 169, COO - /19127 1 ch. 503 170, 181, 262, 272
~ a i l y v. ~ r i t i s h quita able Assurance Co. /39047 1 Ch. 374 ( r e v e r s e d by HL, 7390G7 A.C. 35) ... - - a m . 184
Bamford v. ~ a m f o r d /39707 Ch. 212 ( a f f i rming /%687-3 W.L .R. 317) 40, 126,
0 . . a m . 247, 249
Banque D e ~ ' A f r i q u e o c c i d e ~ t a l e v. Habu, 11l iasu and Savage /19647 - - N.N.L.R. 30 7
B a r n e t t , Haares & Co. v. South London Tram- ways Coo (1887) 18 Q-B-D- 815 .-. 132
Barron v. p o t t e r 179147 - 1 Ch. 895. l l a p 115, 125, 221
eat tie v. B e a t t i e Ltd. /?9387 Ch. 70 8
- - .a. 174, 175, 187, 287
.Bedford-(~uk_e o f ) v. ~ l l i s and Others /190_1/ A.C. 1 - a a a . . 2 76
ell Houses Ltd. v. C i t y Wall p r o p e r t i e s ~ t d . ~ 3 9 6 5 7 2 Q-B. 656 m o o 71
Bel l ado r S i l k Ltd., R e 139627 1 A 1 1 E.R. 667
- ... ... Bentley-Stevens v. Jones and o t h e r s ... 1 3 9 7 ~ 7 2 A l l E.R. 653 - Beul ly v. Birkenhead ailw way Co. (1850)
BEAVm 433 m e * 0..
Birch v, S u l l i v a n - /79587 - 1 ~ l l E e R o 56 ... ... ...
xii
304
16 7
236
252, 283, 287
Black, whi te and Grey Cabs ~ t d , v. Fox g 139697 ... ... N.Z.L.R. 824 - 272
Bloxham v. Metropol i tan ailw way ( 1868) L* R e 3 Ch* APP- 337 * e m 283
~ 0 l t 0 n ( ~ n g i n e e r i n g l Co. Ltd. v. Graham & Sons ~ t d . ~ 1 9 5 7 7 - 1 QoB. 159 ... 79, 145
B o n e l l i @ s ~ e l e g r a p h Co., R e (1871) L.R. 12 Eqe 246 e e e o o e 117
Bor landls T r u s t e e v. S t e e l Bros. & Co. ~ 1 9 0 2 7 1 Ch. 279 ... 188, 190
Boul t ing v. A S S O C ~ ~ ~ ~ O ~ o f Cinematograph, Tglev is ion and Al l i ed Technicians ... ~ 1 9 6 3 7 g 2 Q.B. 606 91, 100
* Boston Deep Sea F ish ing & Ice COO v e
A n s e l l (1888) 39 C ~ . D . 339 o.. 144
Bradford Banking Co, v. ~ r i g g s , Son & Co. (1886) 12 ~ p p . Case 29 0 . 0 185
B r h s v - Woolley - 139547 - A.C. 333 ... 137
~f i t i s h America ~ i c k e l Corporat ion ~ t d . v. ... o @ ~ r i e n Ltd. - 1-227 A.C. 369 271
~ r i t i s h Murac S n d i c a t e v. ~ l p e r t o n Rubber o o 184
B r o w n v. B r i t i s h A b r a s i v e w h e e l Co. /?9197 1 Ch. 290 ... 150,-180; 205, 207
B u g g l e P r e s s L t d . , R e - /39617 - Ch. 270 62, 208
B u r l a n d v. E a r l e ~19027 - A.C. 83 157, 160, 177, 179, 233, 251, 260, 280
C a n e v. J o n e s a n d ors. - /I9807 1 W.L.R. 1451 203
C a r g i l l v. B o w e r (1878) 10 c h . ~ . 502 97
C a r l e n v. D r U r y (1812) 1 V. & B. 154 19 1
~ a t e s b y v. ~ u r n e t t 1T9167 - 2 Ch. 325 278
C i t y quita able ire I n s u r a n c e Co., R e /39257 C h e 407 0 . . -89,-94, 138
C l a r k v. w o r k m a n - /T9207 1 I.R. 107 ... 174, 190
C l a r k s o n v. ~ a v i e s 139237 - A.C. 100 ... 283 . C l e m e n s v. C l e m e n s B r o s . ~ t d . fig767 2 ~ l l
E.R. 268 0 . . - 209, 272, 354, 355 C o l e m a n and O r s . v. Myers a n d ors. /?9777
2 NoZ.LeRe 225 coo 0 . 0 354
C o o k v. D e e k s /I9167 - 1 A.C. 554. 103, 141, 149, 150, 158, 179, 260, 285
C o t m a n v. B r o u g h a m 179187 A.C. 514 ... 70, 71
x i v
Dafen T i n p l a t e Co. Ltd. v. L l a n e l l y S t e e l Co. ~ 3 9 2 0 7 - 2 ch. 124 ... 150, 180, 205
~ a i m l e r Co. Ltd. v. Conkinen ta l Tyre and Rubber Co. ~ t d . - /19167 o 2 A.C. 307 60
Dan i e l s v. Dan ie l s - /?9787 - 2 ~ 1 1 E.R. 89 167, 243, 260, 285, 354
D e Beerg Conso l ida ted Mines Ltd. v. Howe ~ 1 9 0 5 7 A.C. 455 ... ... 65
Derry v, peek (1889) 1 4 ~ p p . Cas. 337 2 58
Dorman Long & Co., R e - /39347 Ch. 635 220
Dovey v. c o r y o / I9027 A.C. 477 ... 139
Duomatic Ltd., R e - /?9697 - 2 Ch. 365 .. . 126, 142
Durham Fancy Goods Ltd . v. Jackson (Michael) (Fancy Goods) ~ t d * - /19687 - 2 ~ 1 1 E * R * 987 52
. E -
E a s t v. Bennet t B ro the r s ~ t d . - / ? 9 1 m Ch. 163 m m m . m e 217
Ebbw Vale urban District c o u n c i l v. South wales T r a f f i c Area L icens ing ~ u t h o - r i t y - /19517 2 K.B. 366 ... 6 6
Ebrahimi v. Westbourne G a l l e r i e s - /39737 - A e C e 360 m m m . m e 3 2 9 , 3 5 4
~ d o k p o l o & coo ~ t d . v. Sem.- do Wire 168, 181, E n t e r p r i s e s Ltd. and O r s . (1984) 261, 263, 7 S.C. 119 0 . . 266
Edwards v. H a l l i w e l l 179507 2 A l l E.R. 149, 151, 1064. 156, 164, 163, 174, 200, 235, 263, 272
E l d e r v. E lder & Watson (1952) S.C. 49 304, 305
ley v. p o s i t i v e ~overnmenk S e c u r i t y L i f e 174, 175, ~ s s u r a n c e CO. (1876) 1 Ex. D O 88 18 7
Empress ~ n g i n e e r i n g C O O , R e (1880) 16 c h . ~ . 125 0 . . 0 . . 187
~ n g l i s h and Colon ia l Produce Co., R e - /?go67 - 2 Ch, 435 o m . o m . a 18 7
E s i v. S h e l l B. P O , Petroleum Development Company of ~ i g e r i a ~ t d . (1959) W.N.L.R. 3 1 0 . 0 30
~ s t m a n c o ( ~ i l n e g House) Ltd. v. Grea t e r London 181, Council L 1 9 8 ~ 7 1 W.L.R. 2 253, 258, 261,
3 54
Evans v. Brunner, Mond & C o o /?9217 1 ~ h . - - 359 0 . . 0 . .
Faure Electric Accumulator Co., R e (1888) 40 ChoD. 1 4 1 0.. 0 . . 89, 9 1
F e a t h e r s t o n e v. Cooke o /?8737 - LOR. 16 Eq. 298 0 . . 0 . .
Ferguson v. Wallbr idge - /?9357 - 3 D.L.R. 66 289
Ferguson v. Wilson (1866) L O R . 2 Ch. 77 91, 97, 98
x v i
F i reproof Doors ~ t d . , ~e /?9167 - - 2 ch. 152 118
F i r e s t o n e Tyre and ~ u b b e r Co. v. ~ l e w e l l i n /39577 - - 1 W.L.R. 464 0 . 0 60
ish her v. S t . John Opera House Co. (1937) 4 D.C.R. 337 0 . 0 0 . 0 256
F i v e ~ i p t e Car Wash S e r v i c e Ltd., R e 119657 1 ~ l l E.R. 242 - 0 . . 30 5
litc croft's Case, R e Exchange ank king Co. (1882) 2 1 c h . ~ . 519 ... 91, 158
F o r e s t of Dean c o a l ~ i n i n g C O O , R e (1879) 10 c h . ~ . 450 m . 0 ..a 88, 93
FoSs v. H a r b o t t l e (1843) 2 Hare 461; 30, 81, 140, 67 E.R. 189 m . 0 148, 151, 154, 155, 160,
172, 181, 196, 231, 262, 340, 360
F o s t e r v. F o s t e r - /?9167 - 1 ch. 532 ... 115, 126, 270, 274
Founta ine v. Carmarthen c ail way Co. (1868) L*R. 5 Eq. 316 . o m 14 2
General ~ c c i d e n t Corpora t ion v. idl land Bank - /79407 - 2 K.B. 338 ... 56
George Newman & C O O , R e ~ ? 8 9 5 7 - 1 ch. 674 96
G i l f o r d Motor Co. v. Horne - /?9337 - Ch. 935 m e * 0 . 0
Gordon adds & co. v. orris [?9457 - 2 ... ... A l l E.R. 616
~ ramophone & Typewri ter Ltd. v. S t an l ey \
/39087 2 K.B. 89 ... - - 0 . . 10
Grant v. u n i t e d Kingdom switchback ailw ways 123, 126, CO. (1888) 40 Ch.Dm 135 0 . . 173, 247
Greenhalgh v. Arderne Cinemas - /39507 - 2 A l l E.R. 1120 0 . .
Gresham L i f e ~ s s u r a n c e S o c i e t y , R e : ex. p a r t e Penney (1872) LOR. 8 Ch. APP* 446 m e . o m .
H a l i f a x Sugar ~ e f i n i n g corn ~ t d . v. Francklyn (1890) 59 L.J. Ch. 5 9 1
x v i i
19 8
150, 205, 207
124
113
Hallows v. ~ e r n i e , (1868) L.R. 3 ~ h . ~ p p . 467 269
Harben vw p h i l l i p s (1883) 2 3 c h . ~ . 14 174 '
~arrner (H.R.) ~ t d . , R e - /?9597 - 1 W.L.R. 62 247, 308
Haro ld Holdsworth & Co. Ltd. v. Caddies /39557 1 W.L.R. 3 5 2 - - m o o 56
Hawkesbury Development Co. Ltd. v. Land- mark F inance Pty. Ltd. (1970) 92 W.N. (N.S.W.) 199 . W e ... 15 6
Hayes v. ~ r i s t o l p l a n t ire ~ t d . - /39577 - 1 WoLoRo* 499 m o o o m . 149
H e l l e n i c and General T r u s t ~ t d . , R e - /?9767 - 1 W.L.R. 123 0 . 0 . e m 354
Hely-Hutchinson v. Brayhead Ltd. - /?9687 - 1 QoB. 549 0 . . o r n o 1 2 3
~ e y t i n g v. Dupont - /79647 - 2 ~ l l EwRw 273 263, 267
Hichens v. Congreve (1828) 4 ~ u s s 562; 38 ... E o R m 917 m o o 2 78
Hickman v. Kent o r Bomngy Marsh s h e e p b r e e d e r s @
~ s s o c i a t i o n L1912/ 1 Ch. 881. <374, 185, 188
Hogg v. Cramphorn L t d . ~ 1 9 6 2 7 ch. 2 54 a m . . . .
~ o o l e v, Great w e s t e r n ~ y . ( 1 8 6 7 ) L O R , 3 ~ h . APP- 262 m o o
Howard s m i t h ~ t d . v. ~ m p o l P e t r o l e u m L t d . 179747 - A.C. 8 2 1 . .
H u t h v. C l a r k e ( 1 8 9 0 ) 25 Q.B.D. 3 9 1
H u t t o n v. West Cork ailw way Co. ( 1 8 8 3 ) 2 3 c ~ - D - 654 - 0 . e - 0
x v i i i
124 , 249, 273, 277
1 6 9
2 73
1 3 1
9 9
Imperia l H y d r o p a t h i c Hotel Co., R e : B l a c k p o o l v. Hampson ( 1 8 8 2 ) 23 Ch.D. 1 ... . 1 0 2
I r v i n e v. Union Bank o f A u s t r a l i a ( 1 8 7 7 ) 2 APP. Cas. 3 6 6 . O m 1 2 6
I s h o l a - ~ i l l i a m s v. T.A. Hammond P r o j e c t s 79 , ~ i m i t e d ( 1 9 8 8 ) 2 s.c.N.J., ~ t . 2, 318 14 5
Isle of w i g h t ailw way v. T a h o u r d i n (1883 ) 25 c h . ~ . 320 - 0 . m o o 120
Jermyn Street T u r k i s h ~ a t h s Ltd. , R e / 2 9 7 g 3 A l l E.R. 57 ; r e v e r s e d , 21971/ - 3 ~ 1 1 E.R. 1 8 4 e o e 3 0 3
~ o h n Shaw & Sons ( S a l f o r d ) L td . v. Shaw 40 , 1 2 1 , /79357 2 K m B m 1 1 3 . ' - - m e 2 2 1
~ o h n s o n v. L y t t l e * s I r o n Agency ( 1 8 7 7 ) 5 ChmD. 687 m a - ... 1 7 4 , 272
x i x
Johnson (8.1 & Co. ( B u i l d e r s ) ~ t d . , R e /?9557 Ch. 634 - . a
Jones v. ~ i p m a n - /79627 1 W.L.R. 832
Kate E n t e r p r i s e s ~ i m i t e d v. Daewoo (Nig - ) Ltdo LT9857 2 N.W.L.R. 116 11, 79
Kaye v. Croydon Tramways Co. /?8987 1 Ch. 358
- - ... 0 . . 170
~ e h i n d e v. R e g i s t r a r of Companies ( 1979) 3 L0R.N. 213 0 . 0 129
err v. Mottram ~ t d . - /?9407 - ch. 657 188,
Kingston c o t t o n ill Co. ( N o . 21, R e /T8957 2 Ch. 279 - 9 1
Lady Gwendolen, The, 159657 - 2 ~ l l E.R. 283 9 1
~ a n d s ~ l l o t m e n t Co., R e /?8947 1 Ch. 616 88, 9 1
Lea v. Sheard - /79567 - 1 Q.B. 192 ... 100
Lennards Carryin CO. v. A s i a t i c pe t ro - 3 77 leum - / I915 A.C. 705 ... 91, 145
Lever Bro thers Ltd. v. B e l l - /?9317 - LK.B. 557. 9 1
Loch v. john lackw wood Ltd. - /79247 - A.C. 783 0 . . 329
London p l a t s Ltd., R e ~ ' i 9 6 u 1 W.L.R. 711. 2 17
London s c h o o l o f ~ l e c t r o n i c s ~ t d . , R e ~?9867 ch . 211 ... . * a 308
Lord v. he Governor and Company o f c o p p e r ~ i n e s 41 E.R. 1129 . . - 16 3
~ u n d i e B r o t h e r s Ltd. , R e - /T9657 - 2 ~ l l E.R. 692 304
Macaura v. N o r t h e r n ~ s s u r a n c e Co. Ltd. 5, 28, /?9257 A.C. 619 ..- - - m 56, 161
M a c ~ o u g a l l v. G a r d i n e r (1875) 1 Ch.D. 13 163, 192, 236, 248, 274, 279
~ a l l e s o n v. N a t i o n a l I n s u r a n c e and G u a r a n t e e C o r p o r a t i o n - /?8947 - 1 ch. 200 194, 197
Mar ina ~ominees ~ t d . v. F.B.I .R. - /?9867 - 2 NmWmLmRm, P t . 20, 48 o m 161
~ a r s h a l l l s Valve Gea r Coo-Ltd. v m Planning w a r d l e & CO. L td . - /19097 - 1 Ch. 267 121
Mason v. ~ a r g i s (1879) 11 c h m 97 ... 285
Maxwell ym Department o f T r a d e and I n d u s t r y /19747 2 W.LmR. 338 - - 328
Mbene v. O f i l i (1968) NmCmLmR. 293 m o r n 169
McCol l in V. G i l p i n (1881) 6 QmBmD. 516 98
M e n i e r v. Hooper t s T e l e g r a p h works (1874) 103, 141, L-Rm 9 Ch. APP. 350 0 . . 180, 252,
2 85
x x i
~ e r c h a n d i s e Transpor t Ltd. v2 ~ r i t i s h Transpor t commission - / 1 9 6 p a 3 W.L.R.
1358 m o o 0.. 66
Merchants of t h e S t a p l e of England v. Bank of England (1887) 21 Q.B.D. 106 2 10
... Moon v. Atherton - /39727 2 Q.B. 435 - 284
Moriar ty v. Regent 's Garage and Engineering Co. Ltd. /I9217 1 K.B. 423; reversed by 139227-2 KSB. 766 ... 88, 92
Mosely v. Koffyfontein M i n e s Ltd. - /?go47 243, 270, 2 Ch. 108 m a . 2 7 8 , 2 8 0 ...
Mutte r v. astern Midlands ~ l y Co. (1888) ... 38 c ~ . D . 92 . a 269, 273
N .I .P .C. Ltd. v. Thompson o r g a n i s a t i o n Ltd. (1968) NaCaLaRo 110 m a . 159
~ a t i o n a l Dwellings Soc ie ty v. Skyes - /38947 a
3 Ch. 159 . a m m o m 217
Niger ian ~ a t i o n a l supply Company ~ t d . v. A l h a j i Hamajoda sabena Co. Ltd. and O r s . (1988) 3 SoCmNaJ., P t . 1, 130 79, 146
~ j e m a n z e v. S h e l l 8 . PO, Por t Harcourt (1966) 1 A l l N.L.R. 8 0 . . 29
Nokes v. Doncaster Amalgamated Collieries ... /?9407 A.C. 1014 - - 56
x x i i
Normand v. Ind. Coope & Co. Ltd. / h o e 7 1 ch. 84 ... - - - 0 . 99
North-west ran sport at ion Co. v. Beat ty (1887) 12 ~ p p . Cas. 589 ... 103, 219
Nurcombs v. Nurcombe and Another / I9857 1 W-LOR. 370 - - 0 283, 288
~ b i k o y a v. Ezenwa (1964) 2 ~ l l N.L.R. 133 174
okeowo v. ~ i g l i o r e (1979) 11 S.C. 138 97, 125
Okoya and ors. v. S. S a n t i l l i and ors. (1990) 3 SoC-NOSO 83 o o e 16 6
o l i v e r v. Bank of ~ n g l a n d o /39027 - 1 Ch. 610 123
oshinowo v. Adebayo (1969) 1 A l l NOLOR. 176. 9 7
Panorama Developments (Gui ldford) Ltd. V. F iGel i s Furnishing Fabr i c s ~ t d . /397_1/ 2 Q-B. 711 - 0 . 0 13 2
Pav l ides v. J e n s e n - / I9567 - 2 ~ l l E o R o 518 139, 160, 166, 261, 265
x x i i i
P e e n o k I n v e s t m e n t s ~ t d . v, ~ 0 t e l P r e s i d e n t i a l ~ t d . 3 EoC.S.L.RO, P t * 1, 109 0 . . ... 10
~ e n d e r v. L u s h i n g t o n (1877) 149, 171, 174, 203, 214 6 C h o ~ . 70 .o 270, 272
p e r c i v a l v. w r i g h t - /?go27 - 2 Ch. 421 ... 13 7
P e t e r s , ~ m e r i c a n ~ e l i c a c y CO. v. H e a t h (1939) 61 C0L.R. 457 . o m 206
P o r t u g u e s e C o n s o l i d a t e d C o p p e r M i n e s L t d . , R e (1889) 42 Ch.D. 160 ... 112
P o w e l l v. K e m p t o n P a r k Race C o u r s e L t d . , /?a997 - - A.C. 143 o r n o ... ,243
P r u d e n t i a l A s s u r a n c e Co. L t d o vo Newman 141, 181, ~ n d u s t r i e s L t d . a n d ors. (NO. 2) 254, 259, /T9827 Ch. 204, r e v e r s i n g i n p a r t , 261, 263 739827 c h . 257 .. .
P u l b r o o k v. ~ i c h m o n d C o n s o l i d a t e d 149, 174, M i n i n g CO. (1878) 9 C ~ . D . 610 2 69
~ u l s f o r d v. D e v e n i s h /?go37 - - 2 Ch. 625 ... 332
p u n t v. s y m o n s & co. - /19037 - 2 c h . 506
i n & A x t e n s ~ t d . v. S a l m o n /?go97 121, 125, 151, AICI 442, a f f i r m i n g : 179097 - 164, 172, 185, 1 Ch. 311 m o m 221,
273
R a y f i e l d v. H a n d - /?9607 - Ch. 1
Regal (Has t ings) ~ t d . v. G u l l i v e r - 139427 - 1 A l l E.R. 378 m o o * o m
xxiv
~ i c h m o n d r s Case, R e Athenaeum L i f e Assurance s o c i e t y (1858) 4 K o & J o
305; 70 E o R . 127 o . 0 o o e 124
~ i g h t s and I s s u e s ~ n v e s t m e n t rust Ltd. v. s t y l o Shoes ~ t d . 179657 Ch. 250 - - 207
Road Haglage Co. Ltd, v. el ling ton /I9527 A.C. 337 - 0.0 10
Rotherham ~ l u m & Chemical Co., R e (1883) 25 ChoDo 103 o o 187
~ o y a l B r i t i s h Bank v, Turquand (1856) 6 Em & B. 327 *.. o o 75
uss sell v. Wakefield waterworks Coo 178, 181, 240, (1875) LOR. 20 Eqo 474, 244, 257, 263, 265, 290
Salomon v. Salomon & Co. ~ t d . 3, 11, 31, 47, 54, 178977 A.C. 22 0.0 - .. 66, 157, 161, 234
S c o t t V. S c o t t - /?9437 1 A l l E o R o 582 221
S c o t t i s h Co-operative Wholesale Soc ie ty 103, 305 Ltd. v. Meyer - /19597 - A.C. 324 308
~ c o t t i s h petroleum CO., R e (1883) 23 c h . ~ . 413 . e m m o o 115
Second Consolidated T r u s t Ltd. v. Ceylon Amalgagated Tea and Rubber states Ltdo - /I9437 - 2 A l l E o R o 567 . o m
XXV
S e l a n g o r u n i t e d Rubber E s t a t e s L t d . v. Cradock (No. 3) /39687 1 W.L.R. 155 5
- - o r n o 95, 143
S h a r p V e D a w e s (1876) 2 Q.B.D. 26 m o m 2 16
S h o r t v. ~ r e a s u r y commissioners - /39487 - 1 KOBO 116 - o m m a 27
S h u t t l e w o r t h v. Cox BrOS.-& Co. 194, 199, 205, a aid en head) L t d . - /19227 2 K.B. 9 207
S i d e b o t t o m v. Kershaw, L e e s e & bo. ~ t d . 150, 205, /?9207 1 Ch. 154 - 0 . . 207
s i m p s o n v. w e s t m i n s t e r p a l a c e Hotel COO (1860) 8 HoLmC. 712 24 2
S i n c l a i r v. Brougham - /79147 - A.C. 398 70, 144
S m i t h v. Anderson (1880) 1 5 ch.D. 247 91, 95
S m i t h , S t o n e & K n i g h t v. ~ i r m i n g h a m C o r p o r a t i o n - /39397 - 4 ~ l l E.R. 116 65
S o u t h e r n ~ r a z i l l i a n ~ i o ~ r a n d e d o s u l R ly . Coo Ltd . , R e - /39057 - 2 Ch. 78 202
s o u t h e r n c o u n t i e s D e p o s i t Bank ~ t d . v. R i d e r (1895) 73 LIT. 374 ... 236
souther^ F o u n d r i e s (1926) L t d . v. s h i r l a w /19407 A. C. 701 ... - - m o m 184, 271
S p a r k s ~ l e c t r i c s ( ~ i g . ) ~ t d . v. P o n m i l e /198_67 2 N.w.L.R., ~ t . 23, 516 . - 160, 163
s p o k e s v. G r o s v e n o r Hotel Co. - /'3[8977 2 165, 270, QoBm 124 o o o - 280, 281, 287
S t a r k e y v. Bank o f E n g l a n d - /'i9037 - AoCo 114 . o m 123
x x v i
S t r o u d v. Lawson - /?8987 - 2 Q.B. 44 . .. 284
~ u t t o n ' s ~ o s p i t a l c a s e (1612) 10 CO. Rep. 22b9 32, 77 €OR. 960 .e 3
T e c k C o r p o r a t i o n L t d . v. Miller (1972) 33 DOLOR. (3d) 288 0.e 261, 263
~ i e s s e n v. H e n d e r s o n /?8997 1 Ch. 8 6 1 - - 170, 215
T i k a - T o r e P r e s s L i m i t e d and O r s . v. 35, 174, 175, A b i n a and Ors . 3 E.C.S.L.R., P t . 176, 187, 1, 109 0 . . 277, 303
T o w e r s v. ~ f r i c a n Tug Company - /39047 - 1 Ch. 558 - 0 . a*. 283,288
T r a d e ~ u x i l i a r y Company v. v i c k e r s (1873) LOR. 16 Eq. 303 m e . 127
T r e n c o ( ~ i g . ) L t d . v. A f r i c a n Real E s t a t e ~ t d . (1978) 4 S.C. 9; (1978) 1 L0R.N. 146 * . . 0 . 0 97, 145
T r e v o r v. W h i t w o r t h (1887) 12 ~ p p . Cas. 409 29
T r u s s e d - S t e e l ' C o n c r e t e Co. L t d . v. Green / I9467 c h . 115 . . . - - 9 1
T u n s t a l l v. S t e i g m a n n - /T9627 - 2 Q.B. 593 8, 64
u n f t C o n s t r u c t i o n co. ~ t d . v. ~ u l l o c k /?9607 A.C. 351 .. . - - 0 . .
Wall v. London apd N o r t h e r n Assets C o r p o r a - t i o n /?898/ 2 ch . 469 117 - -
xxvi i
welton v. S a f f r e y - /?8917 - A.C. 299 ... 198, 201, 202
western Niger ia Finance Corporation v. West Cost ~ u i l d e r s Ltd. (1971) 1 U.IoL.Ro 93 m . 0 o m * 98
wincham Shipbui lding, w oiler and S a l t Co., R e t Poole, Jackson and bhyte*s Case (1878) 9 c h . ~ . 322 ... 91, 101
wood v. odessa waterworks Co. (1889) 174, 185, 42 c ~ ~ D . 636 0 . . 247, 272,
2 78
Yenidje Tobacco 426
York Tramways Co. v. willows (1882) 8 Q.B.D. 685 0 . . 115
t
~ o r k s h i z e ~ i n e r s f ~ s s o c i a t i o n v. ow den /19027 A.C. 256 0 . 0 - 0.. 243
Yorkshire woolcombers * A S S O C ~ ~ ~ ~ O ~ ~ t d . , R e LT9027 2 ch. 284 ... 37
Young v. Lad ie s* Imperia l Club - /39207 - 2 K.B. 523 0 . 0 0 . 0 112
Young v. South ~ f r i c a n & Aus t ra l i an ~ x p l o r a t ion and Development Syndicate - /38967 - 2 Ch. 268 ... 2 15
TABLE OF STATUTES
x x v i i i
PAGE -
x x i x
X X X
0 . .
l . . 0 . .
0 . .
0 . .
0 . .
0 . .
0 . .
0 . .
0 . .
0 . .
0 . .
0 . .
e..
-0.
0 . .
0 . .
. e. 0 . .
0 . .
0 . .
0 . .
... 225
... 86
... 39, 118
... 12 1
40, 82, 119, 122
83, 125
42, 82, 83, 130
27, 42, 76, 77, 145
... 14 6
. . . 73
0 . . 75
... 51
... 104
... 213
e.. 50
... 328
... 328
0 . . 59
0 . 0 32 8
0 . . 59
... 26
0 . . -15
xxxi
e..
me.
x x x i i
xxxi i i
(2) a..
xxx iv
xxxv
l . l 0 . .
0 . .
. . .
... m..
m..
0 . .
0 . .
m m .
xxxv i
xxxvii
S m 300 m o o
( a ) - ( f ... ( f . . o
Sm 303 . o m
( 1 ) . . o
( 2 ) 0 . 0
Sm 3 0 4 ( 2 ) . o m
( 2 ) ( d ) 0 . .
So 306
S. 307 ... S m 308
So 309 . o m
So 310 o m
( 1 ) . . . ( l ) ( b ) . o m
( 2 ) * 0 . .
s m 3 1 1 232, 299,
( 2 ) ( a ) ... (2)(c) 0 . .
S m 332 o . 0
( 1 ) 0 . .
( 1 ) & ( 2 ) 0 - 0
xxxviii
xxx ix
* * *
* * *
. * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
**.
*.
* * O
. **
o*.
* * *
0 . .
XXXX
COMPANIES ACT, 1968
S O 6 o o e a 0 0 314
So 7 0 . . e.. 3 14
Sm 16 o m . 174,w186, '187, 188
S1 22 0 . . * m e 316
S- 23 me. e m 315
So 74 m.. ... 3 16
Sm 124(2) o e o 0 317
Sm 125 m o o o e 317
Sm 128(1) o m . m o o 320
Sm 130 .me m e 320
(l)(b)(i) 0 m e em. 321
s m 133(2) e o e o e e 321
S. 157 o e o 0 m e 325
So 164 o e e 0.0 327 t
So 169(1) & (2) me. e e o 133
s. 171(a) & (b) ... 0 m e 133
Sm 174 o e m o o 323
Sm 201 298, 299, 302, 304, 305, 306, 308, 311
em. 298, 299, 328
xxxx i
1985 COMPANIES ACT ( U . K . )
So 1 4 ( 1 ) 0 . .
S. 35 0 . .
S . 459 ...
1980 COMPANIES ACT ( U . K . )
S . 75 0 . .
1948 COMPANIES ACT (u .K. )
1963 COMPANIES CODE ( G H A N A )
S. 210 0 . .
1965 COMPANIES ACT (MALAYSIA) '
1 9 6 7 COMPANIES ACT [SINGAPORE)
m o m
EUROPEAN COMMUNITIES ACT I 1972
PARTNERSHIP ACT, 1890
S. 3 1 m e *
x x x x i i
x x x x i i i
ABBREVIATIONS
Beav,
C a l m LmRm
Cap.
Chm APPm
CmLmRm
Co, Law
Appeal Cases
~ l l England Repor t s
A u s t r a l i a n Law Journa l
A u s t r a l i a n Law Journa l R e p o r t s
A f r i c a n Law Repor t s Commercial
~ l l ~ i g e r i a n Law Repor t s
Appeal Cases
~ t k y n s
Beavan
Companies ~ c t , 1968
Companies and A l l i e d Matters ~ c t , 1990
C a l i f o r n i a Law ~ e v i e w
C h a p t e r
Chancery Appeal
Chancery D i v i s i o n
Commonwealth Law ~ u l l e t i n
cambridge Law J o u r n a l
Commonwealth Law R e p o r t s
Company Lawyer
Dominion Law Repor t s
x x x x i v
EoCoSoLoRo - E a s t C e n t r a l S t a t e Law R e p o r t s
EoR - E n M i s h R e p o r t s
Ex - Exchequer
- G r a v i t a s Review o f B u s i n e s s P r o p e r t y Lawt N i g e r i a n and I n t e r n a t i o n a l
Harv. LOR. o r HoLoRo - Harva rd Law Review
H o & CO - ~ u r l s t o n e & Coltman
- I n t e r n a t i o n a l and C o m p a r a t i v e , ~ a w ~ u a r t e r l y
JoBoLo - J o u r n a l of B u s i n e s s Law
J O U r o P O p t y 0 L O - J o u r n a l o f p r i v a t e and P r o p e r t y Law
KOBO o r K o B o D o - ~ i n g q s Bench D i v i s i o n
LoJo Cho - Law ~ o u r n a l Chancery . LoJo EX. - Law J o u r n a l Exchequer
LOLOR. - Lagos Law R e p o r t s
LLoL0Ro or L l o y d ' s Rep, - ~ l o y d ' s ~ i s t ~ a w ~ e p 0 r t S
L 0.Q-R - Law q u a r t e r l y Review
LORON- - Law R e p o r t s o f N i g e r i a .
XXXXV
Oxfo J.L.S. . P e o p l e s ' Law
Law T i m e s Repor ts
Modern Law Review
Niger ian Bar Journa l
Niger ian Bus iness Law and P r a c t i c e Journa l
N i g e r i a n Commercial Law Repor t s
Niger ian Journa l of Contem- p o r a r y Law
~ i g e r i a n Law Journa l
~ i g e r i a Lawyers 8 Q u a r t e r l y
~ i g e r i a n Law Repor t s
~ o r t h e r n ~ i g e r i a Law Repor t s
Niger ian Weekly Law Repor t s
N e w Zealand Law Repor t s
Obafemi ~ w o l o w o u n i v e r s i t y Law Journ a 1
Oxford J o u r n a l of b e g a l S t u d i e s
A Journa l of Contemporary Niger ian and Af r i can Laws, J u s t i c e and ~ e g a l i t y
queen ' s Bench D i v i s i o n
South Af r i can Cases
Supreme Cour t of N i g e r i a Judgments
Supreme c o u r t of N i g e r i a ~ e p o r t s
x x x x v i
T0L.R.
The ~ a r r i s t e r
T h e j u r i s t
T h e Lawyer
- Times Law R e p o r t s
- J o u r n a l of The Law S t u d e n t s ~ s s o c i a t i o n , u n i v e r s i t y of N i g e r i a , Enugu Campus
- J o u r n a l of The Law S t u d e n t s S o c i e t y , u n i v e r s i t y of I l o r i n , I l o r i n - N i g e r i a
- J o u r n a l of The ~ a w S o c i e t y , u n i v e r s i t y of Lagos , Lagos - N i g e r i a
- u n i v e r s i t y of ~f e ~ a w R e p o r t s
- west ~ f r i c a n c o u r t of Appeal C a s e s
- West A u s t r a l i a n Law Review "1 - Weekly Law R e p o r t s
- Weekly R e p o r t s
x x x x v i i
ABSTRACT
INTRODUCTION
The d i s s e r t a t i o n is aimed a t c r i t i c a l l y
examin ing t h e p r i n c i p l e of m a j o r i t y r u l e and - m i n o r i t y p r o t e c t i o n i n Company Law i n ~ i g e r i a .
The i n t e n t i o n i s t o c r e a t e awareness i n t h e
g e n e r a l p u b l i c , of t h e v a r i o u s common l aw and
s t a t u t o r y p r o v i s i o n s p r o t e c t i n g m i n o r i t y
s h a r e h o l d e r s ' i n t e r e s t s . It i s hoped t h a t
w i t h s u c h a background knowledge and i n f o r m a t i o n ,
a p r o s p e c t i v e i n v e s t o r w i l l be more r a t i o n a l i n
h i s a t t i t u d e t o w a r d s i n v e s t i n g i n p u b l i c companies . C o r p o r a t e p e r s o n a l i t y d o c t r i n e and management
of t h e company a r e d i s c u s s e d i n e x t e n s o i n c h a p t e r s
o n e and t w o r e s p e c t i v e l y . C h a p t e r s t h r e e and f o u r
d e a l w i t h t h e p r i n c i p l e of m a j o r i t y r u l e and mino- t
r i t y p r o t e c t i o n i n Company Law, r e s p e c t i v e l y . I n
t h e l a s t c h a p t e r , t h e c o n c l u s i o n i s t h a t m a j o r i t y
r u l e i s n o t an a b s o l u t e and i n v i o l a t e p r i n c i p l e .
T h e problem of a d e q u a t e knowledge, i n f o r m a t i o n
and awareness on t h e p a r t of t h e i n v e s t o r s is
r a i s e d , w i t h some recommendat ions sugges t ed .
x x x x v i i i
METHODOLOGY
Method of r e s e a r c h i s by c o n s i d e r i n g
v a r i o u s E n g l i s h and ~ i g e r i a n j u d i c i a l d e c i -
s i o n s on t h e s u b j e c t m a t t e r , a s w e l l a s d e t a i l
and c r i t i c a l e x a m i n a t i o n of r e l e v a n t s t a t u t o r y
p r o v i s i o n s i n t h e new Companies ~ c t , ~ l s o ,
o r a l i n t e r v i e w s w i t h a c t u a l and p r o s p e c t i v e
i n v e s t o r s a r e i n t e g r a t e d i n t h e s t u d y , E q u a l l y ,
j o u r n a l a r t i c l e s and l e a d i n g t ex t -books on t h e
s u b j e c t - m a t t e r a r e c r i t i c a l l y examined, However,
t h e d i s s e r t a t i o n i s m a i n l y conce rned w i t h r e g i s -
tered companies ( p u b l i c and p r i v a t e ) , l i m i t e d
by s h a r e s .
RESULTS
Most of t h e common l aw p r i n c i p l e s and r u l e s
i n t h i s s p h e r e of Company Law h a v e been c o d i f i e d
by t h e Companies Act, M a j o r i t y r u l e is w e l l
p r o v i d e d fo r and t h e new ~ c t h a s made g r e a t improve-
ment i n t h e p o s i t i o n of m i n o r i t i e s ,
S e v e r a l s u g g e s t i o n s i n c l u d i n g c o r p o r a t e educa-
t i o n and i n f o r m a t i o n , f o r m a t i o n of s h a r e h o l d e r s
xxxxix
a s soc ia t ions and strict enforcement o f
d i rec tors f iduc iary dut i e s have been made
f o r further improvement.
CHAPTER ONE
CORPORATE PERSONALITY
1, THE PHILOSOPHY OF CORPORATE PERSONALIT?
The p h i l o s o p h y of c o r p o r a t e p e r s o n a l i t y i n
company l a w t o d a y may be t r a c e d f a r back t o w e l l
o v e r t w o h u n d r e d y e a r s a g o i n S i r w i l l i a m Black-
1 s t o n e 1 s commen ta r i e s on t h e Laws of Eng l and , a s follows:
we h a v e h i t h e r t o c o n s i d e r e d p e r s o n s i n t h e i r n a t u r a l c a p a c i t i e s , and h a v e t r e a t e d of t h e i r r i g h t s and d u t i e s , ~ u t , as ' a l l p e r s o n a l r i g h t s d i e w i t h t h e p e r s o n , and , a s t h e n e c e s s a r y forms o f i n v e s t i n g a series of i n d i v i d u a l s , o n e a f t e r a n o t h e r , w i t h t h e same i d e n t i c a l r i g h t s , would be v e r y i n c o n v e n i e n t , i f n o t i m p r a c t i c a b l e , i t h a s been f o u n d n e c e s s a r y , when i t is f o r t h e a d v a n t a g e of t h e p u b l i c t o h a v e any p a r t i c u l a r r i g h t s k e p t on foot and c o n t i n u e d , t o c o n s t i t u t e a r t i f i c i a l p e r s o n s who may m a i n t a i n a p e r p e t u a l s u c c e s s i o n and e n j oy a k i n d of l e g a l i m m o r t a l i t y , T h e a r t i f i c i a l p e r s o n s a r e c a l l e d b o d i e s p o l i t i c , b o d i e s c o r p o r a t e ( c o r p o r a c o r p o r a t a ) o r c o r p o r a t i o n s ; o f wh ich t h e r e i s a g r e a t v a r i e t y s u b s i s t i n g f o r t h e advancement o f r e l i g i o n , of l e a r n - i n g , and of commerce; i n o r d e r t o p r e s e r v e e n t i r e and fo r e v e r t h o s e r i g h t s and i m m u n i t i e s , w h i c h , i f
1, ( 1 7 6 5 ) vol. 1, p. 467
t h e y were g r a n t e d o n l y t o t h o s e I n d i v i d u a l s of which t h e bodv c o r p o r a t e i s c o m p o s e d ~ w ~ u ~ upon t h e i r d e a t h b e u t t e r l y l o s t and e x t i n c t . . ." ( u n d e r l i n i n g mine)
P u b l i c c o n v e n i e n c e i n commercial t r a n s a c t i o n s i s
t h e main r e a s o n f o r t h e development o f t h e corpo-
r a t e p e r s o n a l i t y d o c t r i n e ,
The law a c c o r d s t h e company a l e g a l p e r s o n a l i t y
s t a t u s and c o n f e r s i t w i t h r i g h t s and d u t i e s d i s -
t i n c t from t h o s e of t h e members who own i t , T h i s
i s a ma jo r d e p a r t u r e from t h e p a r t n e r s h i p and s o l e
p r o p r i e t o r s h i p forms o f b u s i n e s s , The c o r p o r a t e
p e r s o n a l i t y p r i n c i p l e , c o u p l e d w i t h t h e c o n c e p t o f
l i m i t e d l i a b i l i t y is t h e f o u n d a t i o n o f modern company
law, I t i s t h e r e f o r e c l e a r t h a t t h e overwhelming
i m p o r t a n c e o f c o r p o r a t e p e r s o n a l i t y p r i n c i p l e i n
t h i s a r e a of s t u d y c a n n o t be over-emphasizedo
2. THE CORPORATE PERSONALITY PRINCIPLE (GENERAL)
C o r p o r a t e p e r s o n a l i t y p r i n c i p l e h a s been d e s c r i b e d 2
f u n c t i o n a l l y a s a c o r n e r s t o n e of company l a w . T h e
f a c t . t h a t a c o r p o r a t i o n h a s a s e p a r a t e l e g a l pe r sona -
l i t y d i s t i n c t from i t s members i s a t i m e honoured
20 See E. 0. AKANKI, "The ~ e l e v a n c e of C o r p o r a t e P e r s o n a l i t y P r i n c i p l e f f ( 1977-1980) 11 N.L.J. 9
p r i n c i p l e . ~ p p l i c a t i o n of t h e v a l i d i t y o f t h e
p r i n c i p l e t o non-commercial c o r p o r a t i o n s can be
t r a c e d t o t h e s t a t e m e n t of S i r Edward Coke e a r l y
i n t h e s e v e n t e e n t h c e n t u r y . H e s a i d t h a t a
c o r p o r a t i o n was someth ing i n v i s i b l e , immor ta l ,
e x i s t i n g i n in t endmen t and c o n s i d e r a t i o n o f t h e
l a w a s a s e p a r a t e e n t i t y d i f f e r e n t f rom i t s 3 members .
~ u t t h e p r i n c i p l e o f c o r p o r a t e p e r s o n a l i t y i n
i t s modern form was f i r s t a p p l i e d to commercial
t r a n s a c t i o n s , namely, J o i n t - s t o c k Companies, by t h e
House of L o r d s i n t h e c a s e o f Salomon v. Salomon &
4 Co. L t d . M r . Salomon had f o r many y e a r s c a r r i e d
on a p r o s p e r o u s b u s i n e s s a s a l e a t h e r merchant .
L a t e r h e d e c i d e d t o c o n v e r t i t i n t o a l i m i t e d com-
pany and f o r t h i s p u r p o s e Salomon & Company L i m i t e d
was formed w i t h P k . Salomon, h i s w i f e and f i v e
c h i l d r e n as members, and M r . Salomon a s Managing
~ i r ec to r . The company p u r c h a s e d t h e b u s i n e s s a s a
g o i n g c o n c e r n f o r £39,000, The p r i c e was s a t i s -
f i e d by £10,000 i n d e b e n t u r e s , c o n f e r r i n g a c h a r g e
3. See S u t t o n * s ~ o s p i t a l Case, ( l 6 1 2 ) , 1 0 Coke Rep. 22b, p. 32; and a l s o 77 E.R. 960
o v e r a l l t h e company's a s s e t s ; £20,000 i n f u l l y
p a i d E l s h a r e s and t h e b a l a n c e i n c a s h , Seven
s h a r e s were s u b s c r i b e d to i n c a s h by t h e members
and t h e r e s u l t was t h a t M r . Salomon h e l d 20 ,001
of t h e 20 ,007 s h a r e s i s s u e d , and e a c h o f t h e
r e m a i n i n g s i x s h a r e s was h e l d by a member of h i s
f a m i l y , p resumably a s a nominee. The company a l -
most i m m e d i a t e l y r a n i n t o d i f f i c u l t i e s and b a r e l y
a y e a r l a t e r , went i n t o l i q u i d a t i o n , o n windinq
u p of t h e company, t h e c o u r t was i n v i t e d t o d e c i d e
w h e t h e r M r . Salomon, a s a p r e f e r r e d c r e d i t o r , c o u l d
h a v e h i s money r e p a i d b y t h e company, even i f , a s
was t h e e x a c t p o s i t i o n i n t h e c a s e , t h e unsecu red
o u t s i d e c r e d i t o r s of t h e company would g e t n o t h i n g
by p a y i n g M r . Salomon f i r s t . I t was h e l d t h a t t h e
company must be t r e a t e d a s a d i f f e r e n t and s e p a r a t e t
p e r s o n f rom M r , Salomon and t h e o t h e r s h a r e h o l d e r s
composing i t ; as s u c h , M r . Salomon b e i n g a p r e f e r r e d b e f o r e
c r e d i t o r , was e n t i t l e d t o r epaymen t o f h i s m n e y / t h e - u n s e c u r e d o u t s i d e c r e d i t o r s were pa id .
The c o u r t a l s o d e n i e d t h a t t h e company was an
a g e n t o f M r . Salomon. I n t h e words o f Lord H a l s b u r y
LO C., i t was s t a t e d a s followst
! 'E i the r t h e l i m i t e d company w a s a l e g a l e n t i t y o r i t was n o t , I f i t w a s , t h e b u s i n e s s be longed t o i t and n o t M r . Salomon, If i t was n o t , t h e r e was no p e r s o n and no t h i n g t o be an a g e n t a t a l l , and i t i s i m p o s s i b l e t o s a y a t t h e same t i m e t h a t t h e r e is a company and t h e r e is not5",
~ l s o , i n t h e same judgement, Lord McNaghton a p t l y
s t a t e d t h e a t t r i b u t e and consequences o f s e p a r a t e
l e g a l p e r s o n a l i t y a r i s i n g from i n c o r p o r a t i o n i n t h e
f o l l o w i n g words:
"The company i s a t l a w a d i f f e r e n t p e r s o n a1 t o g e t h e r f rom t h e s u b s c r i - bers . .,; and, though i t may be t h a t a f t e r i n c o r p o r a t i o n t h e b u s i n e s s i s p r e c i s e l y t h e same a s i t was b e f o r e , and t h e same p e r s o n s a r e managers , and t h e same hands r e c e i v e t h e p r o f i t s , t h e company i s n o t i n l aw t h e a g e n t of t h e s u b s c r i b e r s o r t r u s t e e s f o r them. Nor a r e t h e s u b s c r i b e r s a s members l i a b l e , i n any s h a p e or form, e x c e p t to t h e e x t e n t and i n t h e manner p r o v i - ded by t h e ~ c t 6 f f .
t
Sa lomon8s c a s e , t h e r e f o r e , g a v e r ise t o t h e j u d i c i a l .,
f o r m u l a t i o n o f t h e p r i n c i p l e of c o r p o r a t e p e r s o n a l i t y
i n company law, The p r i n c i p l e h a s been f o l l o w e d by
b o t h ~ n g l i s h and ~ i g e r i a n c o u r t s , I n Macaura v,
N o r t h e r n Assu rance Co. L t d ' , M. i n s u r e d h i s
company's p r o p e r t y i n h i s name. When h e t r i e d
t o c la im upon t h e o c c u r r e n c e o f t h e r i s k , he
f a i l e d , s i n c e , a s t h e c o u r t had p u t i t , t h e
p r o p e r t y b e i n g t h a t o f t h e company, h e had no
p r o p r i e t a r y i n t e r e s t t h e r e i n and a s such c o u l d
n o t claim. M. owned almost a l l t h e s h a r e s i n
t h e company, and t h e company owed him a good d e a l
of money, b u t n e i t h e r as c r e d i t o r n o r as s h a r e -
h o l d e r c o u l d h e i n s u r e t h e company's assets.
Accord ing t o Lord Buckmaster ,
t t . . . No s h a r e h o l d e r h a s any r i g h t t o any i t e m of p r o p e r t y owned by t h e company, f o r h e h a s no l e g a l or e q u i - t a b l e i n t e r e s t t h e r e i n . H e i s e n t i - t l e d t o a s h a r e i n t h e p r o f i t s w h i l e t h e company c o n t i n u e s t o c a r r y on b u s i n e s s and a s h a r e i n t h e d i s t r i b u - t i o n o f t h e s u r p l u s assets when t h e company i s wound up8tt.
., is c o n c l u s i o n g t h a t n e i t h e r a s ing le c r e d i t o r n o r
a s h a r e h o l d e r i n a company h a s any i n s u r a b l e i n t e r e s t
i n a p a r t i c u l a r asset which t h e company h o l d s is a
direct consequence of t h e c o r p o r a t e p e r s o n a l i t y
p r i n c i p l e , d i s t i n g u i s h i n g t h e company ' s p r o p e r t y
f r o m t h o s e o f t h e members. f t i s i n a p p r e c i a t i o n
of t h i s i m m u t a b l e r u l e o f l aw t h a t Lo rd wrenbu ry ,
i n t h e same judgment , o b s e r v e d t h u s g
H... The c o r p o r a t o r , e v e n i f h e h o l d s a l l s h a r e s , i s n o t t h e c o r p o r a t i o n and t h a t n e i t h e r h e n o r any c r e d i t o r of t h e company h a s any p r o p e r t y l e g a l o r a q u i t a -
t h e a s s e t s of t h e c o r p o r a * k:znf8 11
T h e o b s e r v a t i o n s of t h e Law L o r d s a r e v e r y
i n s t r u c t i v e t o some b u s i n e s s m e n who r e a d i l y o p t
f o r , and p r e f e r t h e f o r m a t i o n o f p r i v a t e companies
b e c a u s e o f t h e ove rwhe lming c o n t r o l t h e y e x e r c i s e
i n s u c h companies . The t r u e p o s i t i o n is t h a t t h e
company, e v e n t hough w h o l l y owned b y s u c h c o r p o r a -
t o r s , i s a d i s t i n c t p e r s o n f r o m s u c h owne r s , who may
be s u r p r i s e d a t t h e i r i g n o r a n c e when t h e l a w t a k e s
i t s f u l l c o u r s e . I n Banque D e ~ ' A f r i q u e o c c i d e n t a l e
v. Iiabu, 1 l l i a ; u and Savaqel', t h e d e f e n d a n t had
been a b u y i n g a g e n t of a g r o u n d n u t ~ a r k e t i n g Boa rd
i n t h e t h e n N o r t h e r n Region o f ~ i g e r i a t i l l h e s o l d
t h e b u s i n e s s t o * * f l l i a s u & Coo Ltdl l . ( a company h e
11. - /T9647 NNLR, 30
formed f o r t h a t p u r p o s e ) . I n t h e c o u r s e of t h e
b u s i n e s s t h e I l l i a s u Company became i n d e b t e d to
t h e p l a i n t i f f company b u t i n s t e a d of s u i n g t h e
company, t h e y s u e d ~ l l i a s u p e r s o n a l l y , c o n t e n d i n g
t h a t t h e b u s i n e s s and t h e man ( ~ l l i a s u ) w e r e o n e
and t h e same p e r s o n , T h a t t h e company was a s h e e r
set u p b y I l l i a s u t o e s c a p e h i s l i a b i l i t i e s . The
t r i a l judge h e l d t h a t t h e p l a i n t i f f s c o u l d n o t
s u c c e e d b e c a u s e t h e b u s i n e s s and t h e owner w e r e
t w o d i s t i n c t p e r s o n s i n Law. I n h i s judgment, h e
s a i d :
ff,.,It may w e l l be t h a t t h e judgment d e b t o r formed t h i s company s p e c i f i c a l - l y f o r t h e p u r p o s e of p r e v e n t i n g h i s c r e d i t o r s i n g e n e r a l , or t h e judgment c r e d i t o r i n p a r t i c u l a r , from g e t t i n g t h e i r hands i n t h e p r o c e e d s o f h i s g r o u n d n u t b u y i n g a c t i v i t i e s , ~t may w e l l be t h a t t h e whole t r a n s a c t i o n i s d e s i g n e d to h e l p him a v o i d p a y i n g h i s d e b t s , g hat d o e s n o t make i t i l lega112f1,
I n T u n s t a l l v. s te igrnann13, t h e i s s u e was w h e t h e r
u n d e r s. 3 0 ( 1 ) ( g ) of t h e L a n d l o r d and Tenan t ~ c t , 1954
( ~ n g l a n d ) , a l a n d l o r d c o u l d s u c c e s s f u l l y o p p o s e t h e
t e n a n t 1 s a p p l i c a t i o n for a new t e n a n c y upon p roo f
t h a t s h e ( t h e l a n d l o r d ) i n t e n d s t o occupy t h e h o l d i n g
f o r t h e p u r p o s e s o f a b u s i n e s s t o be c a r r i e d on by
a company o f which s h e h o l d s a l l b u t t w o o f t h e
s h a r e s and o v e r which s h e e x e r c i s e s c o m p l e t e c o n t r o l ,
W i l l m e r L. J., s a i d :
"There i s no e s c a p e f rom t h e f a c t t h a t a company is a l e g a l e n t i t y e n t i r e l y s e p a r a t e f r o m i t s c o r p o r a - tors ,., Here t h e l a n d l o r d and h e r company a r e e n t i r e l y s e p a r a t e e n t i t i e s . his i s no m a t t e r o f form; i t i s a m a t t e r of s u b s t a n c e and r e a l i t y , Each c a n s u e and be s u e d i n i t s own r i g h t ; i n d e e d , t h e r e i s n o t h i n g t o p r e v e n t t h e o n e f rom s u i n g t h e o t h e r . Even
. t h e h o l d e r o f 1 0 0 p e r c e n t o f t h e s h a r e s i n a company d o e s n o t by s u c h h o l d i n g become so i d e n t i f i e d w i t h t h e company t h a t h e or s h e c a n be s a i d t o c a r r y on t h e b u s i n e s s o f t h e companyl4cc
T h e r e c a n be no more an e m p h a t i c a t t e m p t t o stress
t h e c o n s e q u e n c e of i n c o r p o r a t i o n i n terms o f t h e
d i s t i n c t l e g a l p e r s o n a l i t y o f t h e company f rom t h e t
members or i n c o r p o r a t o r s ,
However, L e e v. L e e 1 s A i r Fa rming ~ i m i t e d " ,
shows t h e e x t e n t t o w h i c h t h e c o u r t s w i l l go i n
a p p l y i n g t h e d o c t r i n e of c o r p o r a t e p e r s o n a l i t y .
L e e , fo r t h e p u r p o s e o f c a r r y i n g on h i s b u s i n e s s
o f a e r i a l t o p d r e s s i n g had formed a company o f
which h e b e n e f i c i a l l y owned a l l t h e s h a r e s and was
s o l e "gove rn ing d i r e c t o r t t . H e was a l s o a p p o i n t e d
" c h i e f p i l o t c c , P u r s u a n t t o t h e companyls s t a t u t o r y
o b l i g a t i o n s h e c a u s e d t h e company t o i n s u r e a g a i n s t
l i a b i l i t y t o pay compensa t ion u n d e r t h e Workmen 8 s
compensa t ion ~ c t . H e was k i l l e d i n a f l y i n g a c c i -
d e n t . The C o u r t o f Appeal of N e w z e a l a n d h e l d t h a t
h i s widow was n o t e n t i t l e d t o compensa t ion f rom t h e
company (i.e. f rom t h e i n s u r e r s ) s i n c e Lee c o u l d n o t
b e r e g a r d e d a s a r'workerr* ( i . e . s e r v a n t ) w i t h i n t h e
meaning of t h e ~ c t , g u t t h e p r i v y Counc i l r e v e r s e d
t h a t d e c i s i o n , h o l d i n g t h a t Lee and h i s company were
d i s t i n c t l e g a l e n t i t i e s which had e n t e r e d i n t o con-
t r a c t u a l r e l a t i o n s h i p - u n d e r which h e became q u a - c h i e f p i l o t a s e r v a n t o f t h e company. I n h i s c a p a c i t y
t
o f g o v e r n i n g d i r e c t o r h e cou ld on b e h a l f o f t h e
company g i v e h i m s e l f o r d e r s i n h i s o t h e r c a p a c i t y
o f p i l o t , and h e n c e t h e r e l a t i o n s h i p between h i m s e l f ,
a s p i l o t , and t h e company was t h a t o f s e r v a n t and
16 m a s t e r . is w i f e was t h u s e n a b l e d t o c l a i m . 16. S e e , g e n e r a l l y , on t h e p r i n c i p l e : Gramophone
and T y p e w r i t e r Ltd . v. S t a n l e y , - /?908/ 2 K O B O 89; peenok I n v e s t m e n t s L i m i t e d v. ~ 0 F e l p r e s i - d e n t i a l 3 E.C.S.L,R. p a r t I, p. 109; Road ~ a u r a g e
3 APPLICATION O F THE CORPORATE PERSONALITY PRINCIPLE I N N I G E R I A
The r u l e e n u n c i a t e d i n t h e landmark c a s e of
Salomon v. Salomon & Co. Ltd. , t h a t a company
which h a s been v a l i d l y c o n s t i t u t e d u n d e r t h e
Companies ~ c t , i s a l e g a l p e r s o n d i s t i n c t f rom i t s
members, i s an e n t r e n c h e d p r i n c i p l e o f Company Law.
I t i s a p p l i c a b l e i n N i g e r i a , b o t h a s p a r t of t h e
r e c e i v e d E n g l i s h common law and by t h e p r o c e s s of
c o d i f i c a t i o n , which i n i t s e l f , i s a s t a t u t o r y ack-
nowledgement of t h e common law r u l e . I n ~ i g e r i a ,
companies a c q u i r e d i s t i n c t l e g a l e x i s t e n c e f rom t h e
members or c o r p o r a t o r s b y t h e a c t o f r e g i s t r a t i o n
u n d e r t h e Companies ~ c t . The consequence of s u c h
r e g i s t r a t i o n is t h a t t h e law r e c o g n i s e s and a c c o r d s
r i g h t s and d u t i e s t o s u c h c o r p o r a t e bod ie s . ~t is
from such l e g a l s t a t u s bestowed on t h e s e b o d i e s t h a t
t h e y a c q u i r e t h e n e c e s s a r y l e g a l c a p a c i t y to e n t e r
i n t o c o n t r a c t u a l r e l a t i o n s h i p s , b o t h w i t h t h e i r members
and t h i r d p a r t i e s .
. A l e a r n e d l e g a l w r i t e r , i n e x p l o r i n g t h e meaning
and i n c i d e n c e of companies u n d e r ~ n g l i s h Companies
A c t s , s a i d :
r e g i s t e r e d company, i.e., a company i n c o r p o r a t e d by r e g i s - t r a t i o n unde r t h e Companies ~ c t s , i s r e g a r d e d by t h e l aw a s a p e r s o n , j u s t a s a human b e i n g , . . . i s a person . T h i s a r t i f i c i a l or j u r i s t i c p e r s o n c a n own l a n d and o t h e r p r o p e r t y , e n t e r i n t o c o n t r a c t s , s u e and be s u e d , have a bank a c c o u n t i n i t s own name, owe money to o t h e r s and be a c r e d i t o r t o o t h e r p e o p l e and o t h e r companies , and employ p e o p l e to work f o r it. The company's money and p r o p e r t y b e l o n g to t h e company and n o t to t h e members or s h a r e h o l d e r s , a l t h o u g h t h e members or s h a r e h o l - d e r s may be s a i d to own t h e company. S i m i l a r l y , t h e company's d e b t s a r e t h e d e b t s o f t h e com- pany and t h e s h a r e h o l d e r s c a n n o t be compel led to pay them, a l - though i f , f o r example, t h e company is b e i n g wound up and i t s a s s e t s d o n o t r e a l i s e a sum s u f f i c i e n t t o pay i t s d e b t s , a s h a r e h o l d e r whose l i a b i l i t y i s l i m i t e d by s h a r e s is l i a b l e t o c o n t r i b u t e t o t h e a s s e t s u p t o t h e a h o u n t , i f any, u n p a i d on h i s s h a r e s . A company, o f c o u r s e , c a n o n l y a c t t h rough human a g e n t s , and t h o s e who manage i t s b u s i n e s s a r e c a l l e d d i r e c t o r s . But t h e d i r e c t o r s a r e o n l y a g e n t s of t h e company, w i t h t h e powers of management g i v e n by t h e company's a r t i c l e s o f a s s o c i a t i o n and u s u a l l y w i t h power t o d e l e g a t e any of t h e i r powers t o a managinq d i r e c t o r . And t h e company i s l i a b l e f o r t o r t s and crimes commit ted by
i t s s e r v a n t s and a g e n t s w i t h i n t h e s c o p e o f t h e i r employment o r a u t h o r i t y . his c o n c e p t i o n o f a
i t s members and d i r e c t o r s , i s t h e f u n d a m e n t a l p r i n c i p l e o f company law''*-1' ( u n d e r l i n i n g , mine) . -
We h a v e q u o t e d t h e a b o v e p a s s a g e i n e x t e n s o b e c a u s e
o f i t s c o m p r e h e n s i v e n e s s . ~t i s a l s o t h e p o s i t i o n
i n N i g e r i a . W e s h a l l b r i e f l y c o n s i d e r t h e p r o c e d u r e
o f r e g i s t r a t i o n of compan i e s i n ~ i g e r i a and t h e e f f e c t
o f s u c h r e g i s t r a t i o n u n d e r t h e Companies and A l l i e d
M a t t e r s A c t t 8 ( h e r e i n a f t e r f o r b r e v i t y r e f e r r e d to
4 - REGISTRATION O F COMPANIES U N D E R THE COMPANIES ACT
DOCUMENTS OF INCORPORATION
S e c t i o n 35 of t h e Companies ~ c t o u t l i n e s t h e
manner od f o r m i p g a company and s p e c i f i e s t h e app ro -
p r i a t e documents ( i n c l u d i n g f i l i n g f e e s and s t a m p
d u t i e s ) 1 9 t o be d e l i v e r e d t o t h e C o r p o r a t e ~ f f a i r s
Commission. Acco rd ing t o t h e s e c t i o n , t h e f o l l o w i n g
17. T. E. C a i n , C h a r l e s w o r t h and C a i n Company Law, 1 1 t h ed . pp. 2-3
18. See Decree ( N O . 1 ) 1990
19. S e c t i o n 632 and s c h e d u l e 1 7 , C.A.M,A
s h a l l be d e l i v e r e d t o t h e Commission:-
( i ) t h e memorandum o f a s s o c i a t i o n and a r t i c l e s
of a s s o c i a t i o n comply ing w i t h t h e p r o v i s i o n s
o f P a r t I1 o f t h e ~ c t ;
( i i ) t h e n o t i c e o f t h e a d d r e s s of t h e o f f i c e o f
t h e company and t h e h e a d o f f ice i f d i f f e r e n t
f rom t h e r e g i s t e r e d o f f i c e ( p o s t a l box a d d r e s s
or a p r i v a t e m a i l bag a d d r e s s , n o t a c c e p t a b l e
by t h e Commission a s t h e r e g i s t e r e d o f f i c e ) ;
( i i i ) a s t a t e m e n t i n t h e p r e s c r i b e d form c o n t a i n i n g
t h e l i s t and p a r t i c u l a r s , t o g e t h e r w i t h t h e
c o n s e n t of t h e p e r s o n s who a r e t o be t h e f i r s t
d i r e c t o r s of t h e company;
( i v ) a s t a t e m e n t of t h e a u t h o r i s e d s h a r e c a p i t a l
s i g n e d ' b ~ a t l e a s t one d i r e c t o r ; and
( v ) any o t h e r document r e q u i r e d b y t h e Commission
t o s a t i s f y t h e r e q u i r e m e n t s of any l aw r e l a t i n g
t o t h e f o r m a t i o n of a company, e.g. t a x c l e a -
r a n c e c e r t i f i c a t e .
~ l s o , t h e c o r p o r a t o r s a r e r e q u i r e d t o d e l i v e r a l o n g
w i t h t h e above documents , a s t a t u t o r y d e c l a r a t i o n i n
t h e p r e s c r i b e d fo rm by a l e g a l p r a c t i t i o n e r t h a t
t h e r e q u i r e m e n t s o f t h e ~ c t f o r t h e r e g i s t r a t i o n o f
a company h a v e been compl i ed w i t h .
The memorandum of a s s o c i a t i o n , which must b e
s u b s c r i b e d t o by a t l e a s t two p e r s o n s , s h a l l s t a t e
t h e amount o f a u t h o r i s e d s h a r e c a p i t a l , ( n o t b e i n g
less t h a n ~ 1 0 , 0 0 0 , O O ( t e n t h o u s a n d n a i r a ) i n t h e c a s e
o f a p r i v a t e company and n500,000.00 ( f i v e hund red
t h o u s a n d n a i r a ) i n t h e c a s e o f a p u b l i c company) 20
w i t h which t h e company p r o p o s e s t o b e r e g i s t e r e d ,
The s u b s c r i b e r s o f t h e memorandum s h a l l t a k e among
t h e m s e l v e s a t o t a l number o f s h a r e s o f a v a l u e n o t
less t h a n 25 p e r cent of t h e a u t h o r i s e d s h a r e c a p i t a l .
~ l s o , w o r t h y o f n o t e , i s t h e f a c t t h a t an i n f a n t can-
n o t j o i n i n t h e f o r m a t i o n o f a company u n l e s s two
o t h e r p e r s o n s n o t d i s q u a l i f i e d u n d e r s e c t i o n 20( 1 ) ( a )
2 1 h a v e s u b s c r i b e d t o t h e memorandum . T h e r e must b e
r e g i s t e r e d w i t h t h e memorandum, a r t i c l e s o f a s s o c i a t i o n 22
s i g n e d by t h e s u b s c r i b e r s t o t h e memorandum . ~ r t i - /
cles must con fo rm r e s p e c t i v e l y t o spec imen i n s c h e d u l e 1, \
20, S e e
21. S e e
22. S e e
s e c t i o n s 27 and 9 9 , C.A.M.A.
s e c t i o n 20 , C.A.M.A.
2 3 T a b l e A , ( p a r t s I , I T , 111, o r IV) . F o r t h e pur -
p o s e of t h i s s t u d y , p a r t I , f o r p u b l i c compan i e s
l i m i t e d by s h a r e s and p a r t 11, f o r p r i v a t e compa-
n i e s l i m i t e d by s h a r e s , a r e t h e a p p r o p r i a t e s p e c i m e n
a r t i c l e s f o r r e g i s t r a t i o n ,
On s a t i s f a c t o r y c o m p l i a n c e w i t h t h e above c o n d i -
t i o n s Cand o t h e r p r o v i s i o n s o f t h e ~ c t w i t h r e g a r d
t o i n c o r p o r a t i o n o f compan i e s and i n c i d e n t a l m a t t e r s ) ,
t h e C o r p o r a t e ~ f f a i r s commiss ion s h a l l r e g i s t e r t h e
memorandum and a r t i c l e s o f a s s o c i a t i o n o f t h e com-
Upon s u c h r e g i s t r a t i o n , t h e Commission i s s u e s
a c e r t i f i c a t e , a u t h e n t i c a t e d b y a s e a l p r e p a r e d u n d e r
s e c t i o n 3 6 ( 5 ) o f t h e Companies A c t . The Commission
s h a l l c e r t i f y u n d e r i t s s e a l t h e f a c k t h a t t h e company
i s i n c o r p o r a t e d w i t h t h e l i a b i l i t y o f members l i m i t e d
b y s h a r e s . The s t a t u s o f t h e company ( w h e t h e r p r i v a t e t
or p u b l i c ) s h a l l a l s o be s t a t e d by t h e commiss ion .
The name of a p r i v a t e company l i m i t e d b y s h a r e s s h a l l
e n d w i t h t h e word t tLirnited, t l f o r which t h e a b b r e v i a t i o n
"Ltd." may be u s e d ; w h i l e t h e name o f a p u b l i c company
l i m i t e d by s h a r e s s h a l l e n d w i t h t h e words t t p u b l i c >
23. See s e c t i o n 3 4 ( 1 ) , C.A.M.A.
24, S e e s e c t i o n 36, C.A.M.A.
~ i m i t e d Company," and f o r which t h e a b b r e v i a t i o n flPLCw
may be used25 . The c e r t i f i c a t e o f i n c o r p o r a t i o n ,
wh ich may be d e s c r i b e d a s t h e company 's b i r t h
c e r t i f i c a t e , i s p r i m a f a c i e e v i d e n c e t h a t a l l t h e
r e q u i r e m e n t s o f t h e Companies ~ c t i n r e s p e c t o f
r e g i s t r a t i o n and m a t t e r s p r e c e d e n t and i n c i d e n t a l
t o i t , h a v e been c o m p l i e d w i t h and t h a t t h e a s s o c i a -
t i o n i s a company a u t h o r i s e d t o be r e g i s t e r e d and d u l y
26 r e g i s t e r e d u n d e r t h e Companies ~ c t . B . EFFECT OF REGISTRATION
S e c t i o n 3 7 of t h e c o m p a n i e s ~ c t s t a t e s a s f o l l o w s :
"AS f rom t h e d a t e of i n c o r p o r a t i o n m e n t i o n e d i n t h e C e r t i f i c a t e , t h e s u b s c r i b e r s o f t h e memorandum t o g e - t h e r w i t h s u c h o t h e r p e r s o n s a s may, f r om t i m e t o t i m e , become members o f t h e company, s h a l l be a body c o r p o r a t e by t h e name c o n t a i n e d i n t h e memorandum, c a p a b l e f o r t h w i t h of e x e r c i ~ i n g a l l t h e powers and f u n c t i o n s o f an i n c o r p o r a t e d com- pany i n c l u d i n g t h e power t o h o l d l a n d , and h a v i n g p e r p e t u a l s u c c e - s s i o n and a common s e a l , w i t h s u c h l i a b i l i t y on t h e p a r t o f t h e members t o c o n t r i b u t e to t h e a s s e t s o f t h e company i n t h e e v e n t o f i t s b e i n g wound u p a s i s men t ioned i n t h i s Decree".
25. S e c t i o n 29, C-A-M-A-
26. S e c t i o n 3 6 ( 6 ) , C.A.M.A.
18
A brief summary o f t h e above p r o v i s i o n i s t h a t f r o m
t h e d a t e of i n c o r p o r a t i o n m e n t i o n e d i n t h e c e r t i f i-
c a t e o f i n c o r p o r a t i o n , t h e s u b s c r i b e r s and s u b s e q u e n t
members s h a l l be a body c o r p o r a t e , by t h e name i n
t h e memorandum, h a v i n g p e r p e t u a l s u c c e s s i o n and a
common s e a l , and c a p a b l e f o r t h w i t h o f : e x e r c i s i n g a l l
t h e powers and f u n c t i o n s o f an i n c o r p o r a t e d company.
I n t h e c a s e o f a r e g i s t e r e d company l i m i t e d by s h a r e s ,
w i t h l i m i t e d l i a b i l i t y on t h e p a r t o f t h e members.
T h i s shows t h a t t h e f o r m a l i t i e s o f r e g i s t r a t i o n and
f o r m a t i o n a r e c o m p l e t e and marks t h e e x i s t e n c e o f
t h e company a s a c o r p o r a t e l e g a l p e r s o n a l i t y . We
s h a l l , b r i e f l y c o n s i d e r i t s e s s e n c e i n o u r n e x t u n i t .
5 0 ESSENCE OF CORPORATE PERSONALITY PRTNCTPLE
The two most i m p o r t a n t c o n s e q u e n c e s o f i n c o r p o r a -
t i o n , i.e. d i s t i n c t l e g a l e x i s t e n c e and l i m i t e d l i a -
b i l i t y , c o n s t i t u t e t h e mos t d i s t i n g u i s h i n g a t t r i b u t e s
o f r e g i s t e r e d companies . T h e a t t r i b u t e o f d i s t i n c t
l e g a l p e r s o n a l i t y e n a b l e s t h e company t o e n j o y p e r p e -
t u a l e x i s t e n c e . The f l u c t u a t i o n s i n membersh ip , ( b y \
d e a t h , w i t h d r a w a l , i n c a p a c i t a t i o n , etc. ) d o n o t a f f e c t
t h e company. T h i s i s a m a j o r a d v a n t a g e i n t h e s t r u c -
t u r e o f a r e g i s t e r e d company when compared w i t h a
p a r t n e r s h i p o r sole p r o p r i e t o r s h i p , w h e r e s u c h f l u c -
t u a t i o n s may a d v e r s e l y a f f e c t t h e s t r u c t u r e , c o n s t i -
t u t i o n and e v e n t h e v e r y e x i s t e n c e o f t h e b u s i n e s s
a s s o c i a t i o n . Whereas a company c a n come t o an e n d
b y t h e p r o c e s s o f w i n d i n g u p or l i q u i d a t i o n ( o n t h e
o c c u r r e n c e o f o n e o f t h e s t i p u l a t e d s t a t u t o r y c o n d i -
t i o n s ~ ~ ~ , a p a r t n e r s h i p , s u b j e c t t o i t s d e e d s or
a r t i c l e s , may be a u t o m a t i c a l l y d i s s o l v e d a s a r e s u l t
o f t h e o c c u r r e n c e o f a n y c h a n g e o r f l u c t u a t i o n i n
membersh ip or c o n s t i t u t i o n o f t h e f i r m r e s u l t i n g f r o m
d e a t h , r e s i g n a t i o n , i n c a p a c i t a t i o n , etc. , I.*+? f c T h e
d e a t h o f a so le p r o p r i e t o r , o f c o u r s e , means t h e e n d
o f t h e b u s i n e s s a s s o c i a t i o n . ~t i s i n c u r b i n g t h e
a d v e r s e c o n s e q u e n c e s o f t h e s e f l u c t u a t i o n s i n member-
s h i p o f a b u s i n e s s a s s o c i a t i o n t h a t a company i s t h e
most d e s i r e d gnd i m p r o v e d f o r m o f b u s i n e s s a s s o c i a -
t i o n . The members may come and g o b u t
r e m a i n s t h e same. ~ n d e v e n i f a l l t h e
t h e company d o e s n o t d i e e x c e p t b y t h e
l i q u i d a t i o n .
t h e company
2 8 members d i e , p r o c e s s o f
27. S e e p a r t XV o f t h e Companies ~ c t
28. See e.g., R e Noel Tedman H o l d i n g P r o p e r t y L t d . , /?9677 ~ d . R. 561 , - -
C o n s e q u e n t 1 y , a r e g i s t e r e d company e n j oys
immense a d v a n t a g e i n t h a t i t s pe rmanen t s t r u c t u r e
n e c e s s i t a t e s e a s y t r a n s f e r a b i l i t y o f s h a r e s f o r
c h a n g e o f o w n e r s h i p w i t h o u t t h e a d v e r s e r e s u l t o f
f l u c t u a t i n g c a p i t a l . I n a p r i v a t e company t h e r i g h t
t o a t r a n s f e r o f s h a r e s i s r e s t r i c t e d 2 ' , b u t i n e
p u b l i c company, s h a r e s a r e f r e e l y t r a n s f e r a b l e and
i n f a c t , f o r s u c h compan i e s q u o t e d on t h e S t o c k
Exchange , e a s y t r a n s f e r a b i l i t y o f s h a r e s becomes a
n e c e s s i t y . c o m p a r a t i v e l y , i n a p a r t n e r s h i p , t h e
a s s i g n m e n t o f a p a r t n e r t s s h a r e s o r i n t e r e s t s d o e s
n o t c o n f e r a r i g h t o f membership t o t h e a s s i g n e e b u t
i n s t e a d , o n l y e n t i t l e s him t o t h e en joymen t o f bene-
f i t s a c c r u a b l e t o h i s a s s i g n o r . The c o n c e p t of
l i m i t e d l i a b i l i t y , o n t h e o t h e r h a n d , i s a most
c h e r i s h e d deve lopmen t i n company law. The i n t e r e s t s t
o f b o t h t h e members and c r e d i t o r s a r e p r o t e c t e d . On
t h e p a r t o f t h e members, t h e i r l i a b i l i t y i n t h e e v e n t
o f w i n d i n g u p i s a s c e r t a i n a b l e and i n f a c t l i m i t e d to
t h e amount u n p a i d o n t h e i r s h a r e s . So where a member
o f a r e g i s t e r e d company h a s f u l l y p a i d f o r t h e s h a r e s
s u b s c r i b e d t o , by him, h e s h a l l n o t be l i a b l e a g a i n
i n t h e c o u r s e of w i n d i n g u p t h e company, ~ n d of c o u r -
se, h i s l i a b i l i t y t o t h e company c a n n o t be i n c r e a s e d
by t h e a l t e r a t i o n o f memorandum o r a r t i c l e s e x c e p t
w i t h h i s w r i t t e n consen t30 . T h i s i s a good p r o t e c -
t i o n t o i n v e s t o r s who, h i t h e r t o , would h a v e b e e n
p e r s o n a l l y l i a b l e f o r t h e d e b t s o f t h e b u s i n e s s
a s s o c i a t i o n ,
T h e l i m i t e d l i a b i l i t y c o n c e p t a l s o c o n f e r s some
p r o t e c t i o n t o t h e c r e d i t o r s o f t h e company i n t h a t t h e y
a r e a d e q u a t e l y warned o f t h e l i m i t a t i o n o f t h e l i a -
3 1 b i l i t y o f t h e membersSof t h e company , ~t i s t h e
company t h a t t h e s e c r e d i t o r s l o o k f o r w a r d t o f o r
t h e s a t i s f a c t i o n o f t h e i r d e b t s . 1 f c o n v i n c e d f rom
t h e b a l a n c e s h e e t and o t h e r f i n a n c i a l s t a t e m e n t s t h a t
t h e company i s n o t f i n a n c i a l l y s t r o n g enough t o gua- . r a n t e e r epaymen t o f l o a n s , t h e n t h e c r e d i t o r s a r e
warned i n a d v a n c e and may n o t s t a k e t h e i r money.
his, a g a i n , i s an improvement on t h e p a r t n e r s h i p
fo rm of b u s i n e s s whe re t h e p a r t n e r s may be h e l d
30. See s e c t i o n 49 , C.A.M.A
31. See s e c t i o n 29, C.A.M.A
p e r s o n a l l y l i a b l e fo r t h e s a t i s f a c t i o n o f t h e
p a r t n e r s h i p d e b t s . T h e f o r m a t i o n o f a l i m i t e d
p a r t n e r s h i p d o e s n o t e n t i r e l y o b l i t e r a t e t h i s
a d v e r s e c o n s e q u e n c e s i n c e t h e r e mus t be a gene-
r a l p a r t n e r f o r s u c h a f i r m t o be r e g i s t e r e d a s
such . T h i s l e a v e s t h e g e n e r a l p a r t n e r even i n
a more p r e c a r i o u s f i n a n c i a l p o s i t i o n , I n t h e
n e x t u n i t , w e s h a l l c o n s i d e r t h e c o n s e q u e n c e s o f
i n c o r p o r a t i o n , h i g h l i g h t i n g a r e g i s t e r e d company
a s a most c o n v e n i e n t form of b u s i n e s s a s s o c i a t i o n .
6. CONSEQUENCES O F INCORPORATION
Under t h i s h e a d , w e i n t e n d t o d i s c u s s wha t
o t h e r w i s e , would amount t o t h e a d v a n t a g e s and
d i s a d v a n t a g e s of i n c o r p o r a t i o n . Here, t h e most
s t r i k i n g c o n s e q u e n c e s of i n c o r p o r a t i o n on t h e
a d v a n t a g e o u s & i d e a r e a s f o l l o w s :
s e p a r a t e l e g a l e x i s t e n c e ,
l i m i t e d l i a b i l i t y ,
s e p a r a t e p r o p e r t y ,
c a p a c i t y t o s u e and be s u e d ,
p e r p e t u a l s u c c e s s i o n ,
t r a n s f e r a b i l i t y of s h a r e s ,
( g 1 borrowing ,
( h ) o r g a n s of t h e company.
On t h e d i s a d v a n t a g e o u s s i d e , t h e m a j o r consequence
o f i n c o r p o r a t i o n i n v o l v e s f o r m a l i t i e s , p u b l i c i t y
32 and e x p e n s e , W e s h a l l c o n s i d e r s e r i a t i m , t h e
above consequences o f i n c o r p o r a t i o n .
A. SEPARATE LEGAL EXISTENCE
% i k e any j u r i s t i c p e r s o n , a company i s l e g a l l y an e n t i t y a p a r t f rom i ts members, c a p a b l e o f r i g h t s and d u t i e s o f i t s own, and endowed w i t h t h e poten- t i a l of p e r p e t u a l s u c c e s s i o n , It becomes an imated w i t h t h e b r e a t h of l i f e when t h e ~ e g i s t r a r of Companies a u t h e n t i c a t e s t h e c e r t i f i c a t e i n c o r p o r a t i o n w i t h t h e s e a l . " 3Yf
The p r i n c i p a l consequence of i n c o r p o r a t i o n high-
l i g h t e d i n t h e above p a s s a g e i s t h a t of d i s t i n c t
or s e p a r a t e l e g a l e x i s t e n c e of t h e company from
t h e members o r c o r p o r a t o r s who formed i t . AS p r o f e s -
s o r G o w e r h a s r i g h t l y p o i n t e d o u t ,
32. S e e g e n e r a l l y , L.C.B. GOWER, p r i n c i p l e s o f Modern 4 t h e d i t i o n , p a r t t w o , C h a p t e r 5,
33. See H a h l o ' s Casebook on Company Law, Second e d i t i o n , pp, 4 2 and 43
"... t h e f u n d a m e n t a l a t t r i b u t e o f c o r p o r a t e p e r s o n a l i t y - f rom w h i c h i n d e e d a l l t h e o t h e r c o n s e q u e n c e s f l o w - i s t h a t t h e c o r p o r a t i o n i s a l e g a l e n t i t y d i s t i n c t from i t s members. Hence i t i s c a p a b l e o f e n j o y i n g r i g h t s and b e i n g s u b j e c t t o d u t i e s which a r e n o t t h e same a s t h o s e e n j o y e d o r b o r n e by i t s members. I n o t h e r words , i t h a s l e g a l p e r s o n a l i t y and i s o f t e n d e s c r i b e d a s an a r t i f i c i a l p e r s o n i n c o n t r a s t w i t h human b e i n g , a n a t u r a l p e r s o n . 38
The c o r p o r a t e p e r s o n a l i t y p r i n c i p l e i s d e s i g n e d
t o t a k e c a r e o f t h e i n c i d e n c e o f f l u c t u a t i n g member-
s h i p i n companies . BY v i r t u e o f s u c h membership and
t h e number i n v o l v e d , i t i s n e c e s s a r y for t h e a s s o c i a -
t i o n to be g i v e n an a r t i f i c i a l l e g a l p e r s o n a l i t y
s e p a r a t e f rom t h a t o f t h e members, which e n u r e s
d u r i n g s u c h f l u c t u a t i o n o f membership. ~ l s o , i t i s
n e c e s s a r y s i n c e t h e a d m i n i s t r a t i o n o f t h e company
( e s p e c i a l l y p u b l i c c o m p a n i e s ) , may c o n s i s t of o r
i n c l u d e p e r s o n s o t h e r t h a n t h e members. gain, when
a wrong i s done t o t h e company, i t i s o n l y t h e company
t h a t c a n b r i n g an a c t i o n i n i t s c o r p o r a t e name t o
remedy t h e wrong. T h i s i s , o f c o u r s e , a s a r e s u l t
o f t h e s e p a r a t e l e g a l e x i s t e n c e of t h e company f rom
34. See G o w e r , s u p r a , p. 97
t h e members. T h i s p o i n t w i l l be d i s c u s s e d more
f u l l y u n d e r c o r p o r a t e l i t i g a t i o n o r t h e r i g h t t o
s u e and be s u e d ,
B. LIMITED - LIABILITY
L i m i t e d l i a b i l i t y p r i n c i p l e i s a v e r y i m p o r t a n t
c o n s e q u e n c e of i n c o r p o r a t i o n , I t i s o n e of t h e
d i s t i n g u i s h i n g f e a t u r e s o f a r e g i s t e r e d company
f r o m t h e p a r t n e r s h i p and so l e p r o p r i e t o r s h i p f o r m s
of b u s i n e s s , T h e i n c i d e n c e of t h e p r i n c i p l e d e p e n d s on
t h e t y p e o f company, F o r compan i e s l i m i t e d by s h a r e s
( w h i c h a r e t h e s u b j e c t m a t t e r o f t h i s d i s s e r t a t i o n ) ,
t h e members' l i a b i l i t y t o c o n t r i b u t e t o w a r d s t h e
company ' s d e b t s i s l i m i t e d t o t h e nomina l v a l u e of t h e
s h a r e s f o r which t h e y h a v e s u b s c r i b e d , and o n c e t h e
s h a r e s h a v e b e e n p a i d u p , t h e y a r e u n d e r n o f u r t h e r
l i a b i l i t y , I n o t h e r w o r d s , t h e l i a b i l i t y o f t h e members
i s l i m i t e d t o t h e amount r e m a i n i n g u n p a i d o n t h e s h a r e s
t a k e n by them, T h i s i s of g r e a t i n t e r e s t t o b o t h t h e
i n v e s t o r and t h e c r e d i t o r . ~t e n a b l e s t h e i n v e s t o r
t o l i m i t h i s f i n a n c i a l r i s k and w a r n s t h e c r e d i t o r a s
t o h i s a b i l i t y t o r e c o v e r h i s l o a n s , Now t h a t t h e
Companies ~ c t h a s s p e c i f i e d t h e minimum c a p i t a l
35 r e q u i r e m e n t f o r t h e f l o t a t i o n of companies i n N i g e r i a , i t w i l l be n e c e s s a r y t o i n s i s t on t h e minimum c a p i t a l
t o be s u b s c r i b e d b e f o r e t h e company commences b u s i -
n e ~ s ~ ~ . T h i s w i l l e n a b l e t h e c r e d i t o r t o know t h e
f i n a n c i a l v i a b i l i t y and s t r e n g t h of t h e company h e
i s d e a l i n g w i t h and t h e commitment t o i t s programme
by i t s i n v e s t o r s . AS r e g a r d s t h e i n t e r e s t o f a
member i n l i m i t a t i o n of h i s l i a b i l i t y , s e c t i o n 49
of t h e Companies ~ c t offers a d d i t i o n a l p r o t e c t i o n to
t h e member s i n c e h i s l i a b i l i t y t o c o n t r i b u t e to t h e
s h a r e c a p i t a l o f t h e compamy or o t h e r w i s e c a n n o t be
i n c r e a s e d w i t h o u t h i s w r i t t e n c o n s e n t .
The i m p o r t a n c e o f l i m i t e d l i a b i l i t y i s t h a t i t
e n c o u r a g e s and a l l o w s t h e a g g r e g a t i o n o f s m a l l o r
c o m p a r a t i v e l y s m a l l sums i n t o g r e a t c a p i t a l , which
when employed i n commerc i a l p u r s u i t s e n h a n c e p roduc-
t i v i t y and s e ;v i ce f o r t h e w e l l b e i n g o f t h e g e n e r a l
p u b l i c . ~ l t h o u g h t h e l i a b i l i t y o f members may be
l i m i t e d , t h e l i a b i l i t y o f t h e company i s a lways
u n l i m i t e d and i t is w h o l l y l i a b l e f o r a l l i t s d e b t s
See s e c t i o n 2 7 ( 2 ) ( a ) ,
36. see s e c t i o n 97, C.A.M.A.
and o b l i g a t i o n s a s w e l l a s t h a t of i t s a g e n t s and
s e r v a n t s i n c u r r e d i n t h e c o u r s e of t h e i r employ-
37 ment . C- S E P A R A T E PROPERTY
AS a d i s t i n c t l e g a l p e r s o n a l i t y , a company i s
c a p a b l e of owning, e n j o y i n g and d i s p o s i n g o f p r o p e r t y
i n i t s own name. ~ l t h o u g h members own s h a r e s i n a
company and a l t h o u g h t h e c a p i t a l and a s s e t s of t h e
company may have been c o n t r i b u t e d by them, t h e y a r e
n o t t h e p r i v a t e and j o i n t owners of t h e p r o p e r t y of
t h e company. The company is t h e r e a l p e r s o n i n whom
a l l i t s p r o p e r t y i s v e s t e d and by whom i t is c o n t r o l -
l e d , managed and d i s p o s e d o f . According t o ~ v e r s h e d ,
38 L. J. i n s h o r t v. T r e a s u r y Commissioners ---.- , l ISha reho lde r s a r e n o t , i n t h e e y e o f
t h e Lawl p a r t owners of t h e unde r - t a k i n g . The u n d e r t a k i n g i s someth ing d i f f e r e n t f rom t h e t o t a l i t y of t h e s h a r e h o l d i n g s t t .
~ l s o , a s h a r e h o l d e r h a s no i n s u r a b l e i n t e r e s t i n t h e
37.- See s e c t i o n 65, C.A.M.A.
c o m p a n y t s p r o p e r t y 3 9 . L o r d Wrenbury i n Macaura v.
N o r t h e r n A s s u r a n c e Co. L t d . , s t a t e d a s follows:
"... The c o r p o r a t o r , e v e n i f h e h o l d s a l l t h e s h a r e s is n o t t h e c o r p o r a t i o n and t h a t n e i t h e r h e n o r a n y c r e d i t o r o f t h e company h a s any p r o p e r t y , l e g a l or e q u i t a b l e i n t h e assets of t h e c o r p o r a t i o n 4 0 ~ t .
One of t h e most o b v i o u s a d v a n t a g e s o f c o r p o r a t e
p e r s o n a l i t y , t h e r e f o r e , i s t h a t i t e n a b l e s t h e p r o p e r t y
o f t h e a s s o c i a t i o n t o be c l e a r l y d i s t i n g u i s h a b l e f rom 4 1
t h a t o f i t s members . his a c t s a s a p r o t e c t i o n t o
creditors b e c a u s e i t e n s u r e s t h a t t h e p r o p e r t y o f t h e
company would n o t be u s e d t o meet t h e l i a b i l i t y o f
i n d i v i d u a l members t o t h e i r c r e d i t o r s . T h e c r e d i t o r s
of t h e company, t h e r e f o r e , need n o t c o n c e r n t h e m s e l v e s
a b o u t t h e s h a r e h o l d e r s b e c a u s e t h e company h a s a s e p a -
r a t e a n d i d e n t i f i a b l e p r o p e r t y f o r s a t i s f a c t i o n of
t h e i r c r e d i t . . S i m i l a r l y , t h e c a p i t a l o f a r e g i s t e r e d
company i s g u a r d e d j e a l o u s l y fo r t h e p r o t e c t i o n of
c r e d i t o r s . F o r i n s t a n c e , i t i s u n l a w f u l f o r a company
39. S e e Macaura v. ~ o r t h e r n A s s u r a n c e Co. ~ t d . , s u p r a
40. bid. p. 6 3 3 - 41. S e e G o w e r , s u p r a , p. 1 0 3
t o p u r c h a s e i t s own s h a r e s s i n c e t h i s i n v o l v e s a
42 r e d u c t i o n of c a p i t a l ~ l s o , t h e Companies ~ c t
imposes s t r ic t rules f o r t h e ma in tenance o f t h e
companycs c a p i t a l . Among t h e s e r u l e s a r e , l i a b i l i t y
f o r pay ing d i v i d e n d o u t o f c a p i t a l 4 3 ; p r o h i b i t i o n
44. o f l o a n s t o d i r e c t o r s i n c e r t a i n c i r c u m s t a n c e s , p r o h i b i t i o n o f f i n a n c i a l a s s i s t a n c e by company f o r
a c q u i s i t i o n of i t s shares4 ' ; and p r o h i b i t i o n of
payment o f commissions and d i s c o u n t s o u t o f s h a r e s
4 6 and c a p i t a l . D o CAPACITY TO SUE A N D BE S U E D
A r e g i s t e r e d company, b e i n g a l e g a l p e r s o n can
47 s u e and be s u e d i n i t s r e g i s t e r e d name . An a c t i o n
42, S e e T r e v o r & Anor, v. Whitworth & ~ n o r . , ( 1 8 8 7 ) 12 A.C. 408
S e c t i o n 386, C.A.M.A.
4 5 , S e c t i o n 156 , C.A.M.A. (However, t h e s e c t i o n d o e s n o t a p p l y t o l o a n s made i n t h e o r d i n a r y c o u r s e of b u s i n e s s by companies
.whose o r d i n a r y b u s i n e s s i n c l u d e s t h e l e n d i n g of money, n o r t o f i n a n c i a l a s s i s t a n c e g i v e n t o employees o f t h e company t o e n a b l e them t o a c q u i r e s h a r e s i n t h e company whe the r u n d e r a scheme o r o t h e r w i s e . )
46. S e c t i o n 130 , C.A.M.A.
47. see Njemance v. S h e l l B.P., P o r t - ~ a r c o u r t ( 1 9 6 6 ) 3
a g a i n s t a company must be b r o u g h t a g a i n s t t h e
company i t s e l f . ~t i s n o t s u f f i c i e n t t o s u e a n
o f f i c e r of t h e company on b e h a l f o f t h e company.
I n Agbonmagbe ~ a n k L t d . v. G e n e r a l Manager , G. 8.
O l l i v a n t L td . ,48 t h e a c t i o n a g a i n s t t h e company was
b r o u g h t i n t h e name o f o n e o f t h e o f f i c e r s and was
s t r u c k o u t by t h e c o u r t . A c c o r d i n g l y , s e c t i o n 299
o f t h e compan i e s ~ c t p r o v i d e s a s f o l l o w s :
" s u b j e c t t o t h e p r o v i s i o n s o f t h i s Decree, whe re i r r e g u l a r i t y h a s been commit ted i n t h e c o u r s e o f a company's a f f a i r s o r any wrong h a s been d o n e t o t h e company, o n l y t h e company can s u e t o remedy t h a t wrong and o n l y t h e company c a n r a t i f y t h e i r r e g u l a r c o n d u c t v .
his i s a s t a t u t o r y c o d i f i c a t i o n o f t h e famous r u l e
i n F o s s v. ~ a r b o t t l e ~ ' t h a t t h e p r o p e r p l a i n t i f f i n an
a c t i o n t o r e d r e s s an a l l e g e d wrong t o a company on t h e t
p a r t o f anyone , w h e t h e r d i r e c t o r , member o r o u t s i d e r ,
o r t o r e c o v e r money o r damages a l l e g e d t o be d u e to
i t , i s p r i m a f a c i e t h e company and , whe re t h e a l l e g e d
~ 1 1 NLR 8; ~ s i v. S h e l l B.P.! P e t r o l e u m Development Company of N i g e r i a ~ t d . , ( 1959) WNLR 31
49. (1843) 2 Hare 461; 67 E.R. 189
a g a i n s t a company must be b r o u g h t a g a i n s t t h e
company i t s e l f . ~t i s n o t s u f f i c i e n t t o s u e a n
o f f i c e r o f t h e company on b e h a l f o f t h e company.
I n ~ g b o n m a g b e Bank L t d . v. G e n e r a l Manager , G. B.
O l l i v a n t L td . , 48 t h e a c t i o n a g a i n s t t h e company was
b r o u g h t i n t h e name o f o n e of t h e o f f i c e r s and w a s
s t r u c k o u t by t h e c o u r t . A c c o r d i n g l y , s e c t i o n 299
of t h e Companies ~ c t p r o v i d e s a s f o l l o w s :
f l S u b j e c t t o t h e p r o v i s i o n s o f t h i s Decree, whe re i r r e g u l a r i t y h a s been commit ted i n t h e c o u r s e o f a company's a f f a i r s or any wrong h a s b e e n d o n e to t h e company, o n l y t h e company can s u e t o remedy t h a t wrong and o n l y t h e company c a n r a t i f y t h e i r r e g u l a r c o n d u c t 1 ' .
T h i s i s a s t a t u t o r y c o d i f i c a t i o n o f t h e famous r u l e
i n F o s s v. H a r b ~ t t l e * ~ t h a t t h e p r o p e r p l a i n t i f f i n an
a c t i o n t o r e d r e s s an a l l e g e d wrong t o a company o n t h e
p a r t o f anyone , w h e t h e r d i r e c t o r , member o r o u t s i d e r ,
o r t o r e c o v e r money or damages a l l e g e d t o be due t o
i t , i s p r i m a f a c i e t h e company and , where t h e a l l e g e d
A 1 1 NLR 8; ~ s i v. S h e l l B . P . P e t r o l e u m Development Company of N i g e r i a ~ t d . , (1959) w N m 31
48. 179627 , 1 A l l NLR 116
49 . (1843) 2 Hare 461; 6 7 E.R. 189
wrong i s any i r r e g u l a r i t y which m i g h t be made
b i n d i n g on t h e company by a s i m p l e m a j o r i t y o f
members, no i n d i v i d u a l member can b r i n g an a c t i o n
i n r e s p e c t of i t ,
T h i s i n t r o d u c e s t h e i s s u e o f l o c u s s t a n d i
i n c o r p o r a t e a c t i o n s , The i m p l i c a t i o n h e r e , o f
c o u r s e , i s t h a t a m i n o r i t y s h a r e h o l d e r h a s no
r i g h t t o b r i n g an a c t i o n on b e h a l f o f t h e company
f o r wrong done t o t h e company. H e may, however ,
be g r a n t e d a u d i e n c e i n t h o s e e x c e p t i o n a l c i r cum-
s t a n c e s , o t h e r w i s e known a s e x c e p t i o n s t o t h e r u l e
i n F o s s v . H a r b o t t l e and which a r e f u l l y d i s c u s s e d
u n d e r c h a p t e r f o u r d e a l i n g w i t h t h e p r o t e c t i o n o f
m i n o r i t y i n t e r e s t , his i s t h e l o g i c a l i m p l i c a t i o n
o f t h e r e c o g n i t i o n o f t h e company a s a s e p a r a t e
l e g a l p e r s o n as e s t a b l i s h e d i n Salomon v , Salomon &
Coo L t d . S i n c e t h e company i s i n l a w deemed t o be
a p e r s o n s e p a r a t e and d i s t i n c t f r om members who compose
i t , i t w i l l be i n c o n s i s t e n t w i t h t h e l e g a l p e r s o n a l i t y
c o n f e r r e d on r e g i s t e r e d compan i e s by t h e Companies ~ c t \
if a s h a r e h o l d e r is a l l o w e d t o s u e f o r wrongs d o n e
t o t h e company, his i s b e c a u s e t h e p e r s o n a l i t y o f
50 , S u p r a
t h e company i s d i f f e r e n t f rom t h a t o f t h e s h a r e -
h o l d e r , ~t i s , t o t h e o r g a n s of t h e company - t h e
g e n e r a l m e e t i n g and t h e b o a r d o f d i r e c t o r s - t h a t
t h e r e s p o n s i b i l i t y f o r s u i n g o n b e h a l f o f , and de -
f e n d i n g s u i t s a g a i n s t t h e company, i s e n t r u s t e d ,
A company c a n d o and h a v e d o n e t o i t most of t h e
t h i n g s t h a t may b e d o n e t o or by a human b e i n g ,
S e c t i o n 3 8 ( 1 ) o f t h e Companies ~ c t h a s c o n f e r r e d o n
a r e g i s t e r e d company a l l t h e powers o f a n a t u r a l
p e r s o n o f f u l l c a p a c i t y , f o r t h e f u r t h e r a n c e o f i t s
a u t h o r i s e d b u s i n e s s or o b j e c t s a s p r o v i d e d by t h e
memorandum, ~ l s o , a company e n j o y s t h e same r i g h t s and
o b l i g a t i o n s a s t o l i m i t a t i o n o f a c t i o n s , a s d o i n d i v i -
5 1 d u a l s ,
E PERPETUAL SUCCESSION
~ c c o r d i n g t o S e c t i o n 37 o f t h e Companies ~ c t , a
r e g i s t e r e d company i s a body c o r p o r a t e , c a p a b l e o f
e x e r c i s i n g a l l t h e p o w e r s and f u n c t i o n s s p e c i f i e d i n
t h e memorandum, h a v i n g a common s e a l a n d p e r p e t u a l
5 1 , S e e , e.g., The imitation Decree 1 9 6 6 ( N O , 88 o f 1 9 6 6 )
s u c c e s s i o n . u n l i k e a n a t u r a l p e r s o n , i t c a n n e v e r
d i e . I ts e x i s t e n c e i s u n a f f e c t e d by t h e d e a t h ,
i l l n e s s or c h a n g e s t h a t may t a k e p l a c e amongst i t s
membership. The members may come and g o , b u t t h e
company c a n g o on f o r e v e r u n l e s s i t i s l i q u i d a t e d
i n t h e manner p r o v i d e d b y t h e Companies *ctS2. ~ u s t
a s r e g i s t r a t i o n and i s s u a n c e o f t h e c e r t i f i c a t e of
i n c o r p o r a t i o n marks t h e b i r t h of a company, i t s li-
q u i d a t i o n o r w i n d i n g up b r i n g s a b o u t i t s d e a t h .
One o f t h e g r e a t e s t a t t r i b u t e s o f i n c o r p o r a t i o n ,
t h e r e f o r e , i s t h e a d v a n t a g e of p e r p e t u a l s u c c e s s i o n
w h i c h l i m i t s t h e a d v e r s e c o n s e q u e n c e s of f l u c t u a t i n g
membersh ip . his is w h e r e a r e g i s t e r e d company e n j o y s
a r e l a t i v e a d v a n t a g e o v e r t h e p a r t n e r s h i p fo rm o f
b u s i n e s s , s i n c e f l u c t u a t i o n b y i n c i d e n c e o f d e a t h ,
b a n k r u p t c y , r e s t g n a t i o n etc., wi 11 a d v e r s e l y a f f e c t
t h e e x i s t e n c e o f t h e f i r m u n l e s s p r o v i d e d o t h e r w i s e
i n t h e p a r t n e r s h i p deed . Even i f a l l t h e s h a r e h o l d e r s
5 3 d i e , t h e company l i v e s o n . p e r p e t u a l s u c c e s s i o n ,
i s a v e r t i a b l e h e r i t a g e o f t h e c o r p o r a t e p e r s o n a l i t y
54 p r i n c i p l e and i t s i m p o r t a n c e c a n n o t be o v e r - e m p h a s i z e d .
52. see P a r t x v , C.A.M.A.
53 . S e e s e c t i o n 2 4 8 ( 2 ) , C.A.M.A.
54. S e e Gower, s u p r a , p, 1 0 5 n o t e 45
F TRANSFERABILITY OF SHARES
The c a p i t a l of a company is d i v i d e d i n t o u n i t s
c a l l e d s h a r e s . T h e s e s h a r e s c o n s t i t u t e items o f
p r o p e r t y , w i t h r e a l i s a b l e i n v e s t m e n t v a l u e , and c a n
be e a s i l y t r a n s f e r a b l e b e t w e e n p e r s o n s o r t r a d e d o n
t h e S t o c k Exchange. S e c t i o n 151(4) o f t h e c o m p a n i e s
~ c t p r o v i d e s t h a t :
11Sub j e c t to s u c h o f t h e r e s t r i c t i o n s o f a companyls a r t i c l e s a s may be a p p l i c a b l e , a n y member may t r a n s f e r a l l or any of h i s s h a r e s by i n s t r u - ment i n w r i t i n g i n a n y u s u a l o r com- mon f o r m o r a n y o t h e r f o r m which t h e d i r e c t o r s may a p p r o v e n .
his e n s u r e s s t a b i l i t y fo r t h e company ' s c a p i t a l a s no
money i s w i t h d r a w n b y an o u t g o i n g member f rom t h e company.
However, t h e a r t i c l e s of a p r i v a t e company must res t r ic t
t h e r i g h t t o t r a n s f e r i t s s h a r e s . ~ c c o r d i n g to s e c t i o n
2 2 ( 2 ) of t h e ~ c t , t
" e v e r y p r i v a t e company s h a l l by i t s a r t i c l e s r es t r ic t t h e t r a n s - f e r o f i t s s h a r e s f ' .
s his i s b e c a u s e of t h e s t a t u t o r y r e q u i r e m e n t t h a t member-
s h i p s h a l l n o t e x c e e d f i f t y . o n t h e o t h e r hand , i n
most p u b l i c c o m p a n i e s , t h e s h a r e s a r e f r e e l y t r a n s f e r a b l e ,
p a r t i c u l a r l y w h e r e t h e y a r e q u o t e d on t h e s t o c k Ex-
c h a n g e . T h i s i s a n o t h e r a d v a n t a g e o f a company o v e r a
p a r t n e r s h i p f o r m of b u s i n e s s w h e r e a p a r t n e r c a n o n l y
t r a n s f e r h i s s h a r e s o r i n t e r e s t w i t h t h e c o n s e n t o f
5 5 t h e o t h e r p a r t n e r s . On t h e d e a t h o f a s h a r e h o l d e r o f a r e g i s t e r e d
company, h i s s h a r e s v e s t i n h i s p e r s o n a l r e p r e s e n t a -
t i v e who p r o d u c e s s u p p o r t i v e le t ters o f p r o b a t e o r
a d m i n i s t r a t i o n ( a s t h e c a s e may be ) , his i s known
a s t r a n s m i s s i o n o f s h a r e s a n d o c c u r s by o p e r a t i o n
l a w , BY v i r t u e o f s e c t i o n 1 5 5 o f t h e Companies
~ c t , s u c h a p e r s o n a l r e p r e s e n t a t i v e s h a l l be e n t i t l e d
t o r e c e i v e d i v i d e n d s a n d o t h e r b e n e f i t s , and s h a l l o n
e l e c t i o n t o be r e g i s t e r e d , be r e g i s t e r e d a s t h e
t r a n s f e r e e o f t h e s h a r e , o n c e r e g i s t e r e d , t h e p e r -
s ' o n a l r e p r e s e n t a t i v e e n j o y s a l l t h e r i g h t s o f a
5 6 s h a r e h o l d e r i n a p r i m a r y c a p a c i t y .
55, See s e c t i o n 3 1 o f t h e P a r t n e r s h i p ~ c t , 1 8 9 0
56. See, T i k a - t o r e P r e s s L i m i t e d and o t h e r s v. Abina & o t h e r s ; 3 E.C.S.L.R,, p a r t 1, p. l o r w h e r e t h e competence o f u n r e g i s t e r e d s h a r e h o l d e r s a s a d m i n i - s t r a t o r s of a d e c e a s e d s h a r e h o l d e r t o s u e o n b e h a l f
. o f r e g i s t e r e d members o f a company f o r a d e c l a r a t o r y a c t i o n a g a i n s t i r r e g u l a r a1 l o t m e n t o f o u t s t a n d i n g s h a r e s and r a t i f i c a t i o n by t h e g e n e r a l m e e t i n g was c h a l l e n g e d ) .
G o BORROWING
orr rowing i s o n e of t h e a t t r i b u t e s of i n c o r p o r a -
t i o n w h e r e a r e g i s t e r e d company h a s a r e l a t i v e
a d v a n t a g e o v e r a p a r t n e r s h i p . T h i s i s b e c a u s e a
company c a n bo r row more e a s i l y t h a n a p a r t n e r s h i p .
I n g e n e r a l , s u b j e c t to i t s memorandum and a r t i c l e s ,
a commerc i a l o r t r a d i n g company h a s an i m p l i e d power
t o bo r row t o any e x t e n t f o r t h e p u r p o s e o f i t s b u s i -
n e s s . S e c t i o n 166 of t h e Companies ~ c t p r o v i d e s t h a t
a company may bor row f o r t h e p u r p o s e o f i t s b u s i n e s s
o r o b j e c t s and may m o r t g a g e o r c h a r g e i t s u n d e r t a k i n g ,
p r o p e r t y and u n c a l l e d c a p i t a l , o r any p a r t t h e r e o f ,
a n d , i s s u e d e b e n t u r e s , d e b e n t u r e s t o c k and o t h e r
s e c u r i t i e s , w h e t h e r o u t r i g h t o r a s s e c u r i t y f o r any
d e b t , l i a b i l i t y o r o b l i g a t i o n o f t h e company o r o f a n y
t h i r d p a r t y . $ h i s c o m p a r a t i v e a d v a n t a g e o f a company
o v e r a p a r t n e r s h i p a s c o n c e r n s b o r r o w i n g i s enhanced
by means o f a f l o a t i n g c h a r g e wh ich i s n o t a v a i l a b l e t o
a p a r t n e r s h i p . I t i s by t h i s means t h a t a company is
o f t e n a b l e t o g r a n t a more e f f e c t i v e c h a r g e t o s e c u r e
i t s i n d e b t e d n e s s .
A f l o a t i n g c h a r g e h a s been d e f i n e d by s e c t i o n
178(1) o f t h e Companies ~ c t a s an e q u i t a b l e c h a r g e
o v e r t h e w h o l e o r a s p e c i f i e d p a r t of t h e c o m p a n y f s
u n d e r t a k i n g s and a s s e t s , i n c l u d i n g c a s h and u n c a l l e d .
c a p i t a l of t h e company b o t h p r e s e n t and f u t u r e , b u t
s o t h a t t h e c h a r g e s h a l l n o t p r e c l u d e t h e company
f r o m d e a l i n g w i t h s u c h a s s e t s u n t i l t h e f u l f i l m e n t
of s p e c i f i e d c o n d i t i o n s i n c l u d i n g t h e m a t u r i t y o f t h e
s e c u r i t y and t h e a p p o i n t m e n t o f a r e c e i v e r o r manager
f o r i t s e n f o r c e a b i l i t y , I n Re Y o r k s h i r e ~oo lcombers*
~ s s o c i a t i o n L td .57 , t h e c h a r a c t e r i s t i c s o f a f l o a t i n g
c h a r g e were
( i )
58 l a i d down by Romer, L, J., a s follows :
i t i s a c h a r g e on a c l a s s o f a s s e t s ,
p r e s e n t a n d f u t u r e ;
t h e c l a s s of a s s e t s i s o n e wh ich , i n
t h e o r d i n a r y c o u r s e o f b u s i n e s s ,
c h a n g e s f r o m t i m e t o time;
it 'is c o n t e m p l a t e d t h a t , u n t i l t h e
c h a r g e c r y s t a l l i s e s , t h e company may
d e a l w i t h t h e c l a s s o f a s s e t s i n t h e
no rma l way.
A f l o a t i n g c h a r g e i s , t h e r e f o r e , a n e q u i t a b l e c h a r g e
o n a company 's a s s e t s f o r t h e t i m e b e i n g , ~t may
be g i v e n o n t h e company 's u n d e r t a k i n g , or on i t s
r e a l a n d p e r s o n a l p r o p e r t y , o r e v e n on c u r r e n t
a s s e t s a l o n e ( s u c h a s s t o c k i n t r a d e o r book d e b t s ) .
when an i t e m w i t h i n t h e c l a s s o f a s s e t s is s o l d , t h e
c h a r g e c e a s e s t o a t t a c h t o i t ; when an i t e m w i t h i n
t h e c l a s s i s a c q u i r e d by t h e company t h e c h a r g e
i m m e d i a t e l y a t t a c h e s t o i t , I n t h e normal c o u r s e o f
e v e n t s t h e c h a r g e is d o r m a n t , i.e. t h e company may
d e a l w i t h a s s e t s w i t h o u t t h e c o n c u r r e n c e o f t h e
c h a r g e e , b u t o n c e t h e c h a r g e c r y s t a l l i s e s , i t becomes
f i x e d and t h e company ' s u n t r a m m e l l e d powers t o d e a l
w i t h t h e p r o p e r t y c e a s e . BY means o f b o r r o w i n g , a
company i s e n a b l e d t o augment i t s owned c a p i t a l and
e n h a n c e i ts o p e r a t i o n s w i t h o u t much f l n a n c i a l c o n s -
t r a i n t s .
H O R G A N S OF THE COMPANY
One of t h e l i m i t a t i o n s o f t h e d i s t i n c t l e g a l
p e r . s o n a l i t y o f a company i s t h a t u n l i k e a n a t u r a l
p e r s o n , i t i s an a r t i f i c i a l p e r s o n , which must o f
n e c e s s i t y a c t t h r o u g h t h e a g e n c y o f human p e r s o n s ,
C o n s e q u e n t l y , a company mus t h a v e i t s o r g a n s f o r
p e r f o r m i n g i t s f u n c t i o n s . The t w o main o r g a n s of
a company a r e :
( i ) i t s members i n g e n e r a l m e e t i n g , and
( i i) t h e b o a r d o f d i r e c t o r s .
I t a c t s t h r o u g h t h e s e o r g a n s . ~ c c o r d i n g t o s e c t i o n
63(1) of t h e Companies ~ c t ,
"A company s h a l l a c t t h r o u g h i t s members i n g e n e r a l m e e t i n g o r i t s b o a r d o f d i r e c t o r s o r t h r o u g h o f f i c e r s o r a g e n t s , a p p o i n t e d by , or u n d e r a u t h o r i t y d e r i v e d f r o m t h e members i n g e n e r a l m e e t i n g o r t h e b o a r d o f d i r e c t o r s " .
The company *s a r t i c l e s "of a s s o c i a t i o n d i v i d e s t h e
powers o f t h e company be tween t h e s e t w o p r i m a r y o r g a n s .
T h e company i n g e n e r a l m e e t i n g h a s u l t i m a t e c o n t r o l
t h r o u g h i t s powers t o amend t h e a r t i c l e s and to remove
t h e d i r e c t o r s and s u b s t i t u t e o t h e r s - more t o i t s t a s t e . t
T h e b o a r d members, o n t h e o t h e r hand , a r e t o manage t h e
b u s l n e s s o f t h e company and f o r t h i s p u r p o s e , t h e y
e x e r c i s e s u c h powers of t h e company a s a r e n o t r e q u i r e d
by t h e ~ c t o r t h e a r t i c l e s t o be e x e r c i s e d by t h e company \
i n g e n e r a l m e e t i n g . What u s e d t o be Article 80 of T a b l e
A ( o f t h e r e p e a l e d 1968 Companies ~ c t ) , which was u s u a l l y - a d o p t e d b y companies f o r t h e management of t h e i r a f f a i r s
i s now p r o v i d e d f o r b y s e c t i o n 6 3 ( 3 ) o f t h e new
Companies ~ c t . It s t a t e s a s f o l l o w s :
"Excep t a s o t h e r w i s e p r o v i d e d i n t h e Company's a r t i c l e s , t h e b u s i n e s s o f t h e company s h a l l b e managed b y t h e b o a r d o f d i r e c t o r s who may e x e r c i s e a l l s u c h powers of t h e company a s a r e n o t b y t h i s Decree or t h e a r t i c l e s r e q u i r e d t o be e x e r c i s e d b y t h e members i n g e n e r a l mee t ing ' ? .
I n Shaw & S o n s ( S a l f o r d ) ~ t d . v. shaw5', t h e e f f e c t o f
t h e a b o v e p r o v i s i o n , ( h i t h e r t o a d o p t e d b y c o m p a n i e s
a s Ar t ic le 80 of T a b l e A ) was c l e a r l y e x p l a i n e d b y
Greer L. J. when h e s a i d :
company i s a n e n t i t y d i s t i n c t a l i k e f rom i t s s h a r e h o l d e r s and i t s d i r e c t o r s . Some of i t s p o w e r s , may a c c o r d i n g t o i t s a r t i c l e s , be e x e r c i s e d b y d i r e c t o r s , c e r t a i n o t h e r powers may be r e s e r v e d f o r t h e s h a r e h o l d e r s i n g e n e r a l m e e t i n g . I f powers of management a r e v e s t e d i n t h e d i r e c t o r s , t h e y a n d t h e y a l o n e c a n e x e r c i s e t h e s e powers . T h e o n l y way i n which t h e g e n e r a l body o f s h a r e h o l d e r s c a n c o n t r o l t h e e x e r c i s e of t h e powers v e s t e d b y t h e a r t i c l e s i n t h e d i r e c t o r s i s b y a l t e r i n g t h e i r a r t i c l e s , o r i f o p p o r t u n i t y a r i s e s u n d e r t h e a r t i c l e s , b y r e f u s i n g t o re-elect t h e d i r e c t o r s o f whose a c t i o n s t h e y d i s a p p r o v e . They c a n n o t t h e m s e l v e s u s u r p t h e powers which b y t h e a r t i c l e s a r e v e s t e d i n t h e d i r e c - to rs any more t h a n t h e d i r e c t o r s c a n u s u r p t h e powers v e s t e d by t h e a r t i c l e s
59. /?9357 2 K.B. 1 1 3 ; see a l s o Bamford v. Bamford z?96g7, 3 WLR 317, ( a f f d . ~ B 7 0 / - Ch. 212)
i n t h e e n e r a l body o f s h a r e - 20 11 h o l d e r s
I t may n o t be p r e s u m p t u o u s to c o n c l u d e t h a t b o t h
t h e g e n e r a l m e e t i n g and t h e b o a r d of d i r e c t o r s a r e
o r g a n s , r s t h e r t h a n mere a g e n t s of t h e company. Profes-
sor G o w e r a p t l y s t a t e d t h e p o s i t i o n a s follows:
"It seems t h a t b o t h t h e g e n e r a l m e e t i n g a n d t h e b o a r d may be t h e company; t h e former when a c t i n g u n d e r t h e r e s e r v e d p o w e r s , t h e l a t t e r when a c t i n g u n d e r a n ex- press o r q e n e r a l d e l e q a t i o n . O r , t o p u t i t - i n a n o t h e r way, b o t h t h e a e n e r a l m e e t i n a and t h e b o a r d a r e .I 4
o r g a n s , r a t h e r t h a n a g e n t s , of t h e companybll l . ( u n d e r l i n i n g , m i n e ) .
T h e c o r p o r a t e n a t u r e o f a company h a s n e c e s s i t a t e d
t h e c r e a t i o n o f t h e s e o r g a n s f o r t h e c o n d u c t of i t s
a f f a i r s . T h i s i s t h e r e f o r e a f u n d a m e n t a l c o n s e q u e n c e
of i n c o r p o r a t i o n . I t w i l l be t r e a t e d more f u l l y i n
c h a p t e r t w o d e a d i n g w i t h t h e management of c o m p a n i e s .
However, i t must be n o t e d t h a t t h e a c t s of t h e g e n e r a l
m e e t i n g and t h e b o a r d o f d i r e c t o r s , i n c l u d i n g t h e mana-
g i n g d i r e c t o r , (who i s u s u a l l y d e l e g a t e d w i t h t h e
powe-rs of t h e b o a r d f o r t h e day- to-day management o f
I b i d . - 61. S e e , G O W e r , s u p r a , p. 1 4 6
62 t h e a f f a i r s of t h e company) a r e p resumed t o be
t h e a c t s of t h e company w h i c h is a c c o r d i n g l y
63 l i a b l e . DISADVANTAGEOUS CONSEQUENCES OF INCORPORATION
~ a v i n g c o n s i d e r e d t h e c o n s e q u e n c e s o f i n c o r p o r a -
t i o n b a s e d on t h e a d v a n t a g e s , w e s h a l l b r i e f l y
c c n s i d e r t h e d i s a d v a n t a g e o u s c o n s e q u e n c e s . F o r t h i s
p u r p o s e , w e s h a l l l o o k a t them t o g e t h e r a s f o r m a l i t y ,
p u b l i c i t y and e x p e n s e r e q u i r e m e n t s .
FORMALITIES, PUBLICITY A N D EXPENSES
P r o f e s s o r G o w e r h a s a p t l y commented on t h e
d i s a d v a n t a g e o u s c o n s e q u e n c e s o f i n c o r p o r a t i o n t h u s :
"An i n c o r p o r a t e d company, . . . n e c e s s a r i l y i n v o l v e s c e r t a i n f o r m a l i t i e s and e x p e n s e a t i t s b i r t h , t h r o u g h o u t i t s a c t i v e l i f e and 'on i t s f i n a l d i s s o l u - t ion641t.
T h e a d v a n t a g e o u s c o n s e q u e n c e s of i n c o r p o r a t i o n a r e
o f f s e t b y t h e s e f o r m a l i t i e s t h a t a t t a c h t o i t ,
63 . S e e s e c t i o n 6 5 , C.A.M.A.
64. S e e , G O w e r , s u p r a , p. 109
i n c l u d i n g l o s s o f p r i v a c y and i n c u r m e n t of e x p e n s e s .
T h e p r o c e d u r e f o r t h e f o r m a t i o n of a l i m i t e d
l i a b i l i t y company i s l a i d down i n t h e Companies ~ c t
wh ich mus t be c o m p l i e d w i t h . On r e g i s t r a t i o n
c e r t a i n documents i n c l u d i n g t h e memorandum and
a r t i c l e s o f a s s o c i a t i o n mus t be s u b m i t t e d t o t h e
C o r p o r a t e A f f a i r s Commission6'. S tamp d u t y , i n c l u -
d i n g f i l i n g and i n c o r p o r a t i o n f e e s must b e p a i d
b e f o r e t h e s e documents a r e r e g i s t e r e d by t h e Commis -
s i o n . The a p p r o p r i a t e f e e s and o t h e r i n c i d e n t a l
costs a r e e x p r e s s l y p r o v i d e d fo r by s e c t i o n 632 and
s c h e d u l e 1 7 of t h e compan i e s ~ c t . Some r e s o l u t i o n s ,
i n c l u d i n g a l l s p e c i a l r e s o l u t i o n s , must be f i l e d w i t h
t h e C o r p o r a t e A f f a i r s Commission w i t h i n f i f t e e n d a y s
a f t e r t h e p a s s i n g o r making o f t h e r e s o l u t i o n o r
6 6 a g r e e m e n t . There a r e a l s o s t r i n g e n t p r o v i s i o n s
r e l a t i n g t o t h e a c c o u n t s of t h e company, f o r i n s t a n c e ,
s e c t i o n 354 of t h e ~ c t p r o v i d e s f o r t h e p u b l i c a t i o n
o f f i n a n c i a l s t a t e m e n t s . O t h e r f o r m a l i t i e s and p u b l i -
6 7 6 8 c i t y i n c l u d e a n n u a l r e t u r n s , d i r e c t o r s t r e p o r t s ,
65 , See s e c t i o n 36, C.A.M.A.
66 . S e e s e c t i o n 237, C.A.M.A.
67. See P a r t XII , C.A.M.A.
68 . S e c t i o n 342, C.A.M.A.
69 r e g i s t e r o f d i r e c t o r s and s e c r e t a r i e s , and
70 r e g i s t r a t i o n o f c h a r g e s c r e a t e d b y t h e company . w h e r e t h e r e i s p u b l i c s u b s c r i p t i o n , s e c t i o n 548
p r o v i d e s f o r t h e i s s u a n c e of p r o s p e c t u s f o r s h a r e s
by p u b l i c c o m p a n i e s , and s e c t i o n 561 f o r s t a t e m e n t
i n l i e u of p r o s p e c t u s . F o r p u b l i c compan i e s q u o t e d
o n t h e S t o c k Exchange , t h e s t r i n g e n t r u l e s o f t h e
Exchange must be o b s e r v e d i n a d d i t i o n . ~ l s o , t h e r e
a r e s t r i n g e n t r u l e s g o v e r n i n g t h e powers , r i g h t s and
d u t i e s o f t h e d i r e c t o r s and t h e h o l d i n g of m e e t i n g s .
Summar i s i ng t h e s e d i s a d v a n t a g e o u s c o n s e q u e n c e s
of i n c o r p o r a t i o n , Professor Gower s a i d :
f t p u b l i c i t y w i l l h a v e t o be g i v e n t o t h e company 's c o n s t i t u t i o n , t o i t s d i r e c t o r a t e , t o i t s f i n a n c i a l p o s i - t i o n ( i f i t s l i a b i l i t y i s l i m i t e d ) and c h a r g e s on i t s a s s e t s , by f i l i n g t h e p r e s c r i b e d documents i n t h e p u b l i c r e g i s t r y , and p r o p e r m e e t i n g s s h o u l d be h e l d f r o m t i m e t o t i m e . C a r e w i l l a l s o h a v e t o be t a k e n t o e n s u r e t h a t a l l c o r p o r a t e a c t i v i t i e s a r e u n d e r t a k e n i n t h e p r o p e r name o f t h e company, w h i c h i f i t s l i a b i l i t y is l i m i t e d , mus t e n d w i t h t h e word t t l imi ted. t t his, . is. i n t e n d e d t o a c t a s a r e d f l a g , w a r n i n g t h o s e d e a l i n g w i t h t h e company of t h e d a n g e r s wh ich t h e y r u n . in ally, t h e r e
70. S e c t i o n 1 9 7 , C.A.M.A.
w i l l h a v e t o be a w i n d i n g u p o n d i s s o l u t i o n , b u t i f t h e company i s s o l v e n t t h i s c a n re- main a d o m e s t i c m a t t e r s u b j e c t o n l y t o c e r t a i n p u b l i c a d v e r t i s e - m e n t s and , o f c o u r s e t h e f i l i n g o f v a r i o u s documents31"-
The i m m e d i a t e r e s u l t o f t h e a b o v e d i s a d v a n t a g e o u s
c o n s e q u e n c e s o f i n c o r p o r a t i o n i s t h a t t h e o r d i n a r y
b u s i n e s s man, who w o u l d , o t h e r w i s e , want t o k e e p h i s
a f f a i r s o u t o f t h e v i e w o f o t h e r s , is d i s c o u r a g e d
f r o m f o r m i n g a company. his, most p r o b a b l y a c c o u n t s
f o r t h e r e a s o n why i n d i v i d u a l b u s i n e s s s t i l l h a s much
a p p e a l t o p e o p l e t o d a y , i n s p i t e o f t h e a d v a n t a g e s o f
d i s t i n c t c o r p o r a t e p e r s o n a l i t y and t h e p r i n c i p l e o f
l i m i t e d l i a b i l i t y . E q u a l l y , t h e f o r m a t i o n o f p a r t n e r -
s h i p s s t i l l k e e p t h e b u s i n e s s s u f f i c i e n t l y p r i v a t e .
T h e r e may be no n e e d t o r e g i s t e r t h e p a r t n e r s h i p , and
i n f a c t , some ?re n o t r e g i s t e r e d a t a l l , ~ e g i s t r a t i o n
i s o n l y n e e d e d w h e r e s e c t i o n 6 5 6 ( 1 ) o f t h e c o m p a n i e s
A c t on B u s i n e s s Names a p p l i e s ( i .e. , w h e r e t h e b u s i n e s s
name c o n s i s t s of a n y t h i n g more t h a n t h e s u r n a m e s o r
i n i t i a l s of a l l t h e p a r t n e r s ) . ~ l s o , t h e r e i s n o
r e q u i r e m e n t f o r r e t u r n s i n t h e c a s e o f a p a r t n e r s h i p ,
71. S e e Gower, s u p r a , p. 110
e x c e p t i n t h e c a s e o f a l i m i t e d p a r t n e r s h i p . Com-
p a r a t i v e l y , r e g i s t e r e d c o m p a n i e s a r e s u b j e c t t o
t e c h n i c a l r u l e s ( f r o m which p a r t n e r s h i p s a r e f r e e ) ,
r e s t r i c t i n g t h e r a n g e of t h e i r a c t i v i t i e s , f o r i n s -
t a n c e , t h e u l t r a v i r e s r u l e ( w h i c h i s now m o d i f i e d
f o r t h e p r o t e c t i o n o f i n n o c e n t t h i r d p a r t i e s 7 2 ) .
However, t h e a d v a n t a g e s o f i n c o r p o r a t i o n f a r o u t -
w e i g h t h e s e d i s a d v a n t a g e o u s c o n s e q u e n c e s .
7. EXCEPTIONS TO THE PRINCIPLE OF CORPORATE PERSONALITY
T h e e s s e n c e of t h e c o r p o r a t e p e r s o n a l i t y
p r i n c i p l e i s t o s h i e l d t h e p e r s o n a l i t y o r i d e n t i t y
of members o f t h e company f r o m t h e company. I n
l e g a l p a r l a n c e , i t i s s a i d t h a t t h e r e is a f f v e i l f f
c o v e r i n g t h e company f r o m i t s members. ~t i s n o t
common t o l i f t t h e f f v e i l f f and t h i s p r a c t i c e i s ad-
h e r e d t o f o r c o m p e l l i n g r e a s o n s a s t h e c o u r t s
g u a r d t h i s p r d n c i p l e j e a l o u s l y . AS p e n i n g t o n h a s
p o i n t e d o u t :
f l T h e r e h a v e b e e n o n l y a f e w c a s e s w h e r e t h e c o u r t h a s d i s r e g a r d e d t h e company ' s c o r p o r a t e p e r s o n a l i t y and p a i d a t t e n t i o n t o w h e r e t h e c o n t r o l a n d b e n e f i c i a l o w n e r s h i p
72. S e e s e c t i o n s 38( 1) and 39(3), CmAoMoA.
o f t h e company's u n d e r t a k i n g l a y , When i t h a s d o n e t h i s , t h e c o u r t h a s r e l i e d e i t h e r on a p r i n c i p l e o f p u b l i c p o l i c y or on t h e p r i n - c i p l e t h a t d e v i c e s u s e d t o p e r p e - t r a t e f r a u d s o r e v a d e o b l i g a t i o n s w i l l b e t r e a t e d a s n u l l i t i e s , o r on t h e p r e s u m p t i o n o f agency o r t r u s t e e s h i p which a t f i r s t s i g h t , Sa lomon ' s c a s e seems t o p r o h i b i t 7 3 f t .
Where t h e p r i n c i p l e o f c o r p o r a t e p e r s o n a l i t y e n a b l e s
t h e company to p e r p e t r a t e f r a u d , t h e c o r p o r a t e f f v e i l f l
w i l l be l i f t e d t o l o o k a t t h e economic r e a l i t y , Thus ,
t h e p r i n c i p l e o f c o r p o r a t e p e r s o n a l i t y i s n o t an
a b s o l u t e d o c t r i n e and c a n b e d i s r e g a r d e d whe re t h e
c i r c u m s t a n c e s o f a p a r t i c u l a r c a s e j u s t i f y s u c h a
c o u r s e . T h e s e c i r c u m s t a n c e s whe re t h e c o r p o r a t e " v e i l f f
i s l i f t e d c o n s t i t u t e e x c e p t i o n s t o t h e p r i n c i p l e of
c o r p o r a t e p e r s o n a l i t y a s e n u n c i a t e d i n Salomon v,
I Salomon R Co, L td . and g i v e n s t a t u t o r y b a c k i n g by
s e c t i o n 3 7 o f t h e Companies ~ c t ,
The p r e s e n t p o s i t i o n i s c o r r e c t l y s t a t e d by ~ l e c
S a m u e l s a s f o l l o w s :
"The s e p a r a t e l e g a l i d e n t i t y o f a company f rom i t s members h a s s t o o d a s a f u n d z m e n t a l p r i n c i p l e o f o u r law. T h e v e i l o f i n c o r p o r a t i o n is a s o p a q u e and i m p a s s a b l e a s an i r o n
73. See ~ e n i n g t o n ' s Company Law, 4 t h e d i t i o n , p, 42
c u r t a i n . N e v e r t h e l e s s , f r o m t i m e t o t i m e , t h e l e g i s l a t u r e a n d t h e c o u r t s h a v e l i f t e d , p a r t e d , r e n t e d , t o r n , b r e a c h e d , or p i e r c e d t h e v e i l , sometimes t o t h e a d v a n t a g e o f t h e members o f t h e company, sometimes t o t h e i r d i s advan t age74 '1 -
From t h e a b o v e o b s e r v a t i o n , t h e c o u r t s and t h e l e g i s -
l a t u r e s w h i l e r e s p e c t i n g a n d g u a r d i n g j e a l o u s l y t h e
p r i n c i p l e o f c o r p o r a t e p e r s o n a l i t y , h a v e n o t l o s t
s i g h t o f t h e h a r d s h i p w h i c h a s t r i c t o b s e r v a n c e o f
i t may c a u s e t o t h e members o f t h e p u b l i c , hey h a v e
o n t h e v a r i o u s g r o u n d s h i g h l i g h t e d , l i f t e d t h e v e i l
o f i n c o r p o r a t i o n , ~ u t w h e t h e r t h i s h a s b e e n d o n e on
a n y c l e a r c u t p r i n c i p l e s i s y e t n o t c e r t a i n , ~ n d o n
t h i s i s s u e of u n c e r t a i n t y , P r o f e s s o r Gower h a s a p t l y
s t a t e d t h u s :
f ? . , , t h e y r e v e a l n o c o n s i s t e n t p r i n c i p l e b e y o n d a r e f u s a l b y t h e l e g i s l a t u r e a n d j u d i c i a r y t o a p p l y t h e l o q i c o f t h e p r i n c i p l e l a i d - down i n - ~ a l o m o n c s c a s e w h e r e i t i s too f l a g r a n t l y o p p o s e d t o j u s t i c e , c o n v e n i e n c e or i n t h e i n t e r e s t s o f t h e ~ e v e n u e ~ ~ " =
B e f o r e e x a m i n i n g t h e v a r i o u s c a s e s w h e r e t h e v e i l o f
i n c o r p o r a t i o n h a s b e e n l i f t e d , an a t t e m p t would be made
t o r a t i o n a l i s e t h e wisdom b e h i n d s u c h e x e r c i s e ,
74, S e e , SAMUELS, ~ l e c , " L i f t i n g t h e V e i l " (1964) J.B,L. 107
75, See G o w e r , s u p r a , p, 1 1 2
" i n t h e c a s e s w h e r e t h e v e i l i s l i f t e d , t h e l a w e i t h e r g o e s b e h i n d t h e c o r p o r a t e p e r s o n a l i t y t o t h e i n d i v i d u a l members, o r i g n o r e s t h e s e p a r a t e p e r s o n a l i t y o f e a c h company i n f a v o u r o f t h e economic e n t i t y c o n s t i t u t e d b y a g r o u p o f a s s o c i a t e d companies761(.
From t h i s , t w o s i t u a t i o n s a r e e n v i s a g e d w h e r e t h e
c o u r t s may d raw e x c e p t i o n s t o t h e c o r p o r a t e p e r s o n a -
l i t y p r i n c i p l e , I n t h e f i r s t s i t u a t i o n , i n d i v i d u a l s
a r e members of t h e company and s u c h p e r s o n s a s a r e
members h a v e d o n e some w r o n g f u l a c t s o r o m i s s i o n u n d e r
t h e p r e t e x t o f a c t i n g i n t h e name o f t h e company, I n
s u c h c a s e s , t h e c o r p o r a t i o n o u g h t n o t t o be l i a b l e f o r
w r o n g f u l a c t s d o n e by i n d i v i d u a l s p u r p o r t i n g t o a c t o n
i t s b e h a l f o r i n i t s name, h e n c e , t h e l i f t i n g of t h e
v e i l . I n t h e s e c o n d s i t u a t i o n , t h e i n d i v i d u a l members t
a r e c o r p o r a t e r a t h e r t h a n human b e i n g s , Here, c o r p o r a t e
p e r s o n a l i t y p r i n c i p l e i s b e i n g d i s r e g a r d e d b e c a u s e t h e
c o u r t s a r e coming t o r e c o g n i s e t h e e s s e n t i a l u n i t y o f a
g r o u p e n t e r p r i s e r a t h e r t h a n t h e s e p a r a t e l e g a l e n t i t y
of e a c h company w i t h i n t h e g r o u p . w i t h t h i s b a c k g r o u n d
i n f o r m a t i o n , w e s h a l l e x a m i n e t h e v a r i o u s c i r c u m s t a n c e s
w h e r e t h e c o u r t may l i f t t h e c o r p o r a t e v e i l .
T h e s e a r e a s f o l l o w s :
I. W H E R E THE N U M B E R OF MEMBERS FALLS BELOW THE STATUTORY M I N I M U M
S e c t i o n 18 of t h e Companies ~ c t e x p r e s s l y
p r o v i d e s t h a t t w o or m o r e p e r s o n s c a n now form a
company ( w h e t h e r p r i v a t e o r p u b l i c ) . The minimum
number o f p e r s o n s , t h e r e f o r e , t h a t c a n v a l i d l y f o r m
a company i s t w o a n d i f a t any t i m e t h e number o f
members o f s u c h a company i s r e d u c e d t o o n e or n i l ,
i t w i l l t h e n b e s a i d t o be c a r r y i n g o n b u s i n e s s w i t h
a membersh ip less t h a n t h e s t a t u t o r y minimum r e q u i r e -
ment . The p e n a l t y f o r t h e c o n t r a v e n t i o n o f t h e
Companies ~ c t i n t h i s r e g a r d i s p r o v i d e d f o r i n
s e c t i o n 93 which s t a t e s t h a t :
U I f a comp,any c a r r i e s on b u s i n e s s w i t h o u t h a v i n g a t l e a s t two members and d o e s s o f o r more t h a n s i x m o n t h s , e v e r y d i r e c t o r or o f f i c e r o f t h e company d u r i n g t h e t i m e t h a t i t so c a r r i e s on b u s i n e s s a f t e r t h o s e s i x months who knows t h a t i t i s c a r r y i n g o n b u s i n e s s w i t h o n l y o n e o r n o member s h a l l be l i a b l e j o i n t l y and s e v e r a l l y w i t h t h e company f o r t h e d e b t s of t h e company c o n t r a c t e d d u r i n g t h a t per iodqt .
his amounts t o an e x c e p t i o n t o t h e c o r p o r a t e p e r s o n a l i t y
p r i n c i p l e b e c a u s e s u c h a d i r e c t o r o r o f f i c e r i n
d e f a u l t w i l l be l i a b l e for t h e company ' s d e b t s
i n s p i t e of t h e a d v a n t a g e o u s c o n s e q u e n c e of i n c o r -
p o r a t i o n t h a t i t i s t h e company a l o n e t h a t i s
l i a b l e f o r i t s d e b t s . The c o r p o r a t e l f v e i l l l w i l l
be d i s r e g a r d e d i n t h i s c i r c u m s t a n c e and t h e company 's
l i a b i l i t y imposed on an a g e n t o r o f f i c e r of t h e
company.
11. WHERE AN OFFICER OF THE COMPANY SIGNS A BILL OF EXCHANGE, CHEQUE, ETC. ON REHALF OF THE COMPANY WITHOUT MENTION OF THE COMPANY'S NAME ON I T
T h e need f o r m e n t i o n i n g t h e name o f t h e company,
i n c l u d i n g t h e word " l i m i t e d l l , i s t o warn c r e d i t o r s t h a t
t h e y a r e d e a l i n g w i t h a l i m i t e d l i a b i l i t y company.
~ c c o r d i n g l y , s e c t i o n 73 o f t h e c o m p a n i e s ~ c t h a s
h i g h l i g h t e d t h e n e c e s s i t y of m e n t i o n i n g t h e company ' s
name i n b i l l s o f e x c h a n g e and p r o m i s o r y n o t e s . T h e r e -
f o r e , f o r a b i l l t o be a c c e p t a b l e and b i n d i n g o n t h e
company, s u c h must be made i n t h e name o f t h e company.
1 f o t h e r w i s e , i.e., i f a n y o f f i c e r of a company, o r any
p e r s o n on i t s b e h a l f i s s u e s or a u t h o r i s e s t h e i s s u a n c e
of any i n s t r u m e n t w i t h o u t t h e name o f t h e company so
m e n t i o n e d , h e w i l l be p e r s o n a l l y l i a b l e t o t h e
77 h o l d e r of any s u c h i n s t r u m e n t . 111. W H E R E THERE H A S BEEN FRAUDULENT TRADING
S e c t i o n 5 0 6 ( 1 ) of t h e Companies ~ c t p r o v i d e s
t h a t
'!If, i n t h e c o u r s e o f t h e w i n d i n g up of a company i t a p p e a r s t h a t any b u s i n e s s o f t h e company h a s b e e n c a r r i e d on i n a r e c k l e s s manner o r w i t h i n t e n t t o d e f r a u d c r e d i t o r s o f t h e company or c r e d i t o r s of a n y o t h e r p e r s o n o r f o r any f r a u d u l e n t p u r p o s e , t h e c o u r t may, o n t h e a p p l i c a t i o n of t h e o f f i c i a l r e c e i v e r or t h e l i q u i d a - t o r o r any c r e d i t o r o r c o n t r i b u t o r y of t h e company, d e c l a r e t h a t any p e r s o n s who were k n o w i n g l y p a r t i e s t o t h e c a r r y i n g on o f t h e b u s i n e s s i n t h a t manner s h a l l be p e r s o n a l l y r e s p o n s i b l e w i t h o u t a n y l i m i t a t i o n of l i a b i l i t y , for a l l o r any of t h e d e b t s or o t h e r l i a b i l i t i e s of t h e company a s t h e c o u r t may d i r e c t " .
his i s i n t h e b i d to o f f e r more p r o t e c t i o n t o c r e d i -
to r s . However, i t a p p e a r s t h a t t h e s e c t i o n now c o v e r s
o n l y f r a u d , e x c e p t i n g r e c k l e s s n e s s . T h i s i s b e c a u s e
s e c t i o n 5 0 6 ( 3 ) which p r o v i d e s f o r p e n a l t y i n s u c h c a s e s
e x p r e s s l y e x c l u d e d r e c k l e s s n e s s . It p r o v i d e s t h a t
77. S e e Durham Fancy Goods L t d . v. M i c h a e l J a c k s o n ( F a n c y ~ o o d s ) , ~ t d . - /1968/ 2 A l l E.R. 98'1
W h e r e any b u s i n e s s of a company i s c a r r i e d on w i t h s u c h i n t e n t or for s u c h p u r p o s e a s i s m e n t i o n e d i n s u b s e c t i o n (1) o f t h i s s e c t i o n ( o t h e r t h a n r e c k l e s s l y ) e v e r y p e r s o n who was knowing ly a p a r t y t o t h e c a r r y i n g on of t h e b u s i n e s s i n manner a f o r e s a i d , s h a l l be g u i l t y of an o f f e n c e , and l i a b l e o n c o n v i c t i o n t o a f i n e o f ~ 2 , 5 0 0 . 00 o r t o i m p r i s o n m e n t f o r a t e r m of 2 y e a r s , o r t o bo th" .
s u t , r a t h e r t h a n l i m i t t h e s c o p e of o p e r a t i o n of t h e
r u l e a g a i n s t f r a u d u l e n t t r a d i n g , i t s e f f e c t h a s b e e n
e x t e n d e d . T h i s i s b e c a u s e s e c t i o n 644 of t h e Companies
~ c t h a s p r o v i d e d t h a t t h e s u b - s e c t i o n which i m p o s e s
p e n a l t y f o r c e r t a i n o f f e n c e s c o n n e c t e d w i t h f r a u d u l e n t
t r a d i n g d i s c o v e r e d on w i n d i n g up a company s h a l l e x t e n d
and a p p l y to c a s e s whe re f r a u d u l e n t t r a d i n g i s d i s -
c o v e r e d i n c i r c u m s t a n c e s o t h e r t h a n on w i n d i n g u p a
company77a. Here, t h e p e r s o n s knowing ly p a r t i e s t o t h e . f r a u d s h a l l be p e r s o n a l l y r e s p o n s i b l e , w i t h o u t a n y l i m i -
t a t i o n o f l i a b i l i t y , f o r a l l o r a n y of t h e d e b t s o r
o t h e r l i a b i l i t i e s o f t h e company. T h i s i s so d e s p i t e
t h e f a c t t h a t t h e company i s a d i s t i n c t l e g a l e n t i t y and
c o n s t i t u t e s o n e of t h o s e i n s t a n c e s whe re t h e p r i n c i p l e
of c o r p o r a t e p e r s o n a l i t y i s d i s r e g a r d e d ,
77a. S e c t i o n 5 0 6 ( 3 L C.A.M.A. i n t e n d e d , n o t s e c t i o n 5 1 4 ( 3 ) w r o n g l y s t a t e d
IVm HOLDING A N D SUBSIDIARY COMPANIES OR GROUP ENTERPRISES
T h e c a s e of g r o u p e n t e r p r i s e s shows y e t a n o t h e r
e x c e p t i o n t o t h e p r i n c i p l e o f c o r p o r a t e p e r s o n a l i t y .
I n s u c h s i t u a t i o n s , w h e r e a p a r e n t company owns
s u b s i d i a r i e s , i f t h e p r i n c i p l e l a i d down i n Salomon
V. Salomon & Co. L t d . is t o be s t r i c t l y f o l l o w e d ,
i n j u s t i c e w i l l r e a d i l y a r i s e a s t h e p a r e n t company c a n
e a s i l y u s e s u c h s u b s i d i a r i e s t o p e r p e t r a t e f r a u d . T h e r e
i s a g r e a t t e n d e n c y f o r c o m p a n i e s t o d o b u s i n e s s t o g e -
t h e r a s a g r o u p or u n i t y . T h e e f f e c t o f t h i s h a s b e e n
i l l u s t r a t e d by p r o f e s s o r G o w e r t h u s :
',The most s t r i k i n g l i m i t a t i o n imposed b y t h e c o m p a n i e s ~ c t s on t h e r e c o g n i t i o n o f t h e s e p a r a - t e p e r s o n a l i t y o f e a c h i n d i v i d u a l company i s , however , i n c o n n e c t i o n w i t h a s s o c i a t e d c o m p a n i e s w i t h i n t h e same q r o u p e n t e r p r i s e . . . . I t h a s become, a h a b i t t o c r e a t e a pyramid o f i n t e r - r e l a t e d c o m p a n i e s , e a c h o f w h i c h i s t h e o r e t i c a l l y a s e p a r a t e e n t i - t y b u t i n r e a l i t y p a r t o f o n e c o n c e r n , r e p r e s e n t e d b y t h e q r o u p a s a w h 0 l e ~ ~ 1 1 .
T h e law a c k n o w l e d g e s and r e c o q n i s e s t h e e s s e n t i a l u n i t y
o f t h e g r o u p e n t e r p r i s e , t h o u g h i n many ways t h e s e p a -
r a t e i d e n t i t y o f t h e p a r e n t company and s u b s i d i a r y s t i l l
78. S e e G o w e r , s u p r a , p. 1 1 7
e x i s t s .
H his u n i t y i n t h e m i d s t o f d i v e r s i t y w i l l
b e i l l u s t r a t e d by some s t a t u t o r y p r o v i s i o n s a s
i n s t s n c e s whe re t h e p r i n c i p l e o f c o r p o r a t e p e r s o n a -
l i t y i s b e i n g d i s r e g a r d e d b e c a u s e t h e c o u r t s and
l e g i s l a t u r e a r e coming t o r e c o g n i s e t h e e s s e n t i a l
u n i t y o f a g r o u p e n t e r p r i s e r a t h e r t h a n t h e s e p a r a t e
e n t i t y o f e a c h company w i t h i n t h e g roup . F o r i n s -
t a n c e , w h e r e a t t h e end o f i t s f i n a n c i a l y e a r a
company h a s s u b s i d i a r i e s , g r o u p a c c o u n t s d e a l i n g w i t h
t h e s t a t e o f a f f a i r s and t h e p r o f i t a n d l o s s o f t h e
company and t h e s u b s i d i a r i e s a s r e q u i r e d by t h e Com-
p a n i e s ~ c t mus t , u n l e s s o t h e r w i s e p e r m i t t e d by t h e
~ c t , b e l a i d b e f o r e t h e company i n g e n e r a l m e e t i n g
when t h e company 's own b a l a n c e s h e e t and p r o f i t and
79 l o s s a c c o u n t a r e s o l a i d , F o r t h e p u r p o s e o f t h e
a b o v e p r o v i s i o n t h e ~ c t h a s d e f i n e d t h e meaning o f
h o l d i n g and s u b s i d i a r y compan i e s , s t a t i n g what p r e c i -
80 s e l y t h e r e l a t i o n s h i p i s , A c c o r d i n g l y , a company
s h a l l , f o r t h e p u r p o s e s o f t h e ~ c t be deemed t o be a
79. S e e s e c t i o n 336 , C.A.M.A.
80 . See s e c t i o n 338 , C.A.M.A.
s u b s i d i a r y o f a n o t h e r company ( o t h e r w i s e known a s
t h e h o l d i n g company) i f t h e company i s a member o f
i t and c o n t r o l s t h e c o m p o s i t i o n o f i t s b o a r d of
d i r e c t o r s ; o r h o l d s more t h a n h a l f i n nomina l v a l u e
o f i t s e q u i t y s h a r e c a p i t a l ; o r t h e f i r s t m e n t i o n e d
company i s s u b s i d i a r y of a n y company which i s t h e
81 o t h e r ' s s u b s i d i a r y ,
However, i n s p i t e o f t h i s d e t r a c t i o n f r o m t h e
i n d e p e n d e n t l e g a l p e r s o n a l i t y of e a c h of t h e c o m p a n i e s
f o r t h e u n i t y o f t h e g r o u p , i n many r e s p e c t s t h e s e p a -
r a t e i d e n t i t y o f p a r e n t company a n d s u b s i d i a r y s t i l l
o b t a i n s , F o r e x a m p l e , an e m p l o y e e o f t h e p a r e n t
company c a n n o t be r e q u i r e d t o work f o r t h e s u b s i d i a r y
i n t h e a b s e n c e of c l e a r words i n t h e c o n t r a c t o f
8 2 s e r v i c e . T h e p a r e n t company h a s no i n s u r a b l e i n t e - t 8 3 rest i n t h e p r o p e r t y of t h e s u b s i d i a r y , ~ l s o , a
s u b s i d i a r y company may n o t g i v e f i n a n c i a l a s s i s t a n c e
f o r t h e p u r c h a s e o f , n o r d i r e c t l y a c q u i r e s h a r e s i n
81. See s e c t i o n 3 3 8 ( 1 ) , C.A.M.A.
8 2 , See H a r o l d H o l d s w o r t h & Co, ~ t d . v. C a d d l e s ~79557 1 W.L.R. 352; Nokes v . D o n c a s t e r Amalgamated C o l l i e - r ies /19407 A.C. 1 0 1 4 - - -
8 4 t h e h o l d i n g company . And l o a n s may n o t be made by
8 5 a s u b s i d i a r y t o d i r e c t o r s i n t h e h o l d i n g company . T h e s e example s l i m i t t h e c o n c e p t o f g r o u p e n t e r p r i s e
and v i n d i c a t e t h e p r i n c i p l e of c o r p o r a t e p e r s o n a l i t y
a s a f u n d a m e n t a l p r i n c i p l e .
V - INVESTIGATION INTO THE AFFAIRS AND OWNERSHIP OF RELATED COMPANIES
The C o r p o r a t e ~ f f a i r s Commission may a p p o i n t o n e
o r more c o m p e t e n t i n s p e c t o r s t o i n v e s t i g a t e t h e
a f f a i r s of a company and t o r e p o r t o n them i n s u c h
8 6 manner a s i t may d i r e c t . 1 f an i n s p e c t o r a p p o i n t e d
u n d e r s e c t i o n 314 o r 315 o f t h e Companies ~ c t t o
i n v e s t i g a t e t h e a f f a i r s of a company t h i n k s i t
n e c e s s a r y f o r t h e p u r p o s e s o f h i s i n v e s t i g a t i o n t o
i n v e s t i g a t e a l s o t h e a f f a i r s o f a n o t h e r body c o r p o r a t e
which i s or a t .any r e l e v a n t t i m e h a s been t h e company ' s
s u b s i d i a r y o r h o l d i n g company or a s u b s i d i a r y of i t s
h o l d i n g company o r a h o l d i n g company of i t s s u b s i d i a r y ,
h e may do s o and r e p o r t o n t h e a f f a i r s o f t h e o t h e r
84. S e e s e c t i o n s 1 5 9 and 165 , C.A.M.A.
85 . See s e c t i o n 270, C.A.M.A.
86 . S e e s e c t i o n s 314 a n d 31S1 c.A.M.A.
company so f a r a s h e t h i n k s t h e r e s u l t s o f h i s
i n v e s t i g a t i o n t h e r e o f a r e r e l e v a n t t o h i s ma in
8 7 i n v e s t i g a t i o n . F o r t h e p u r p o s e s o f s u c h a n c i l -
l i a r y i n v e s t i g a t i o n s , t h e Companies ~ c t d i s r e g a r d s
t h e p r i n c i p l e o f c o r p o r a t e p e r s o n a l i t y .
s e c t i o n 326 of t h e ~ c t p r o v i d e s f o r t h e a p p o i n t -
ment of i n s p e c t o r s t o i n v e s t i g a t e t h e o w n e r s h i p of
a company. A c c o r d i n g t o t h e s e c t i o n ,
" w h e r e i t a p p e a r s t o t h e Commiss ion t h a t t h e r e i s good r e a s o n so t o do , i t may a p p o i n t o n e o r more c o m p e t e n t i n s p e c t o r s t o i n v e s t i g a t e and r e p o r t o n t h e membersh ip o f a n y company and o t h e r w i s e w i t h r e s p e c t t o t h e company f o r t h e p u r p o s e o f d e t e r m i n i n g t h e t r u e p e r s o n s who a r e or h a v e b e e n f i n a n c i a l l y i n t e r e s t e d i n t h e s u c c e s s o r f a i l u r e ( r e a l o r a p p a r e n t ) o f t h e company o r a b l e t o c o n t r o l o r m a t e r i a l 1
88tt t o i n f l u e n c e t h e p o l i c y o f t h e company . T h i s i n v e s t i g a t i o n o f t h e o w n e r s h i p o f t h e company is
n o t r e s t r i c t e d >by t h e p r i n c i p l e of c o r p o r a t e p e r s o n a l i t y
and t h u s a m a n i f e s t a t i o n o f y e t a n o t h e r s i t u a t i o n w h e r e /
t h e Companies ~ c t d i s r e g a r d s t h e p r i n c i p l e . T h e power
t o i n v e s t i g a t e t h e o w n e r s h i p o f a company i s a n a l o g o u s \
t o t h e o b l i g a t i o n of d i s c l o s u r e b y s u b s t a n t i a l s h a r e h o l d e r
8 7 . S e e s e c t i o n 3 l 6 ( l ) , C.A.M.A.
88. S e c t i o n 3 2 6 ( l ) , C.A.M.A.
8 9 i n a p u b l i c company . The Companies ~ c t h a s p r o v i -
ded t h a t b e n e f i c i a l owners o f 1 0 p e r c e n t o r more o f
t h e s h a r e s of a p u b l i c company s h o u l d be r e q u i r e d t o
90 n o t i f y t h e company o f t h e e x t e n t o f t h e i r h o l d i n g s . The r e a s o n f o r t h e removal o f s e c r e c y s u r r o u n d i n g sub-
s t a n t i a l nominee h o l d i n g s , i s based on t h e argument
t h a t d i r e c t o r s , s h a r e h o l d e r s and employees , a l l o f
whom may be m a t e r i a l l y a f f e c t e d , o u g h t to be a b l e t o
a s c e r t a i n t h e i d e n t i t y of any s u b s t a n t i a l h o l d e r of
t h e company's s h a r e s , p a r t i c u l a r l y , where t h a t p e r s o n
i s i n a p o s i t i o n to v e t o a s p e c i a l r e s o l u t i o n o r is
b i d d i n g f o r c o n t r o l .
V I . T A X A T I O N
The c o u r t s may d e c i d e t o l i f t t h e v e il i n t h e
a r e a of t a x a t i o n t o f i g h t t a x a v o i d a n c e d e v i c e s used . by some companies . The p r i n c i p l e o f c o r p o r a t e pe r sona -
l i t y i s n o t p e r m i t t e d to be used t o a c h i e v e t a x e v a s i o n .
I t i s i n t h e i n t e r e s t of t h e p u b l i c t h a t a s much r e v e n u e
a s p o s s i b l e s h o u l d be r a i s e d under e x i s t i n g t a x laws ,
and t h a t t h e t a x burden must be d i s t r i b u t e d e q u i t a b l y
89 , see s e c t i o n 9 5 ( 1 ) , C.A.M.A.
90, See s e c t i o n 9 5 ( 2 ) , C.A.M.A. -
amongs t t h e g e n e r a l body o f t a x p a y e r s , T h e r e f o r e ,
i n r e v e n u e c a s e s w h e r e t h e i s s u e o f r e s i d e n c e i s
m a t e r i a l t o l i a b i l i t y o f a company f o r payment o f
c e r t a i n t a x e s , t h e c o u r t s o f t e n i n v e s t i g a t e t h e
c o n t r o l s t r u c t u r e o f t h e company i n o r d e r t o d e t e r -
9 1 mine t h e q u e s t i o n o f r e s i d e n c e o f t h e company . An
example of t h e s e c a s e s i s t h e Income Tax ~ c t , i n c l u d i n g
t h e Companies Income Tax ~ c t o f 1961g2 , which is
d e s i g n e d t o p r e v e n t compan i e s b e i n g i n c o r p o r a t e d f o r
t a x a v o i d a n c e p u r p o s e s .
V I I . W H E R E I T I S BELIEVED THAT I N TIME OF WAR THE COMPANY I S CONTROLLED BY ENEMY ALLIENS
I n times of wa r , i n r e c o g n i t i o n o f t h e n e e d s o f
n a t i o n a l s e c u r i t y , t h e c o u r t w i l l a p p l y t h e c o n t r o l
t h e o r y i n o r d e r to a s c e r t a i n w h e t h e r t h e company h a s
an enemy c h a r a a t e r by r e a s o n o f t h o s e i n a p o s i t i o n t o
c o n t r o l t h e company. I n s u c h c a s e s , t h e c o u r t s h a v e
l i f t e d t h e v e i l o f i n c o r p o r a t i o n . F o r examp le , d u r i n g
t h e 1914-1918 wa r , i n D a i m l e r Company ~ i m i t e d v.
91, See u n i t /T96! -
92. See s e c t i o n s 2 and 18
c o n t i n e n t a l T y r e and Rubber Company ( G r e a t ~ r i t a i n )
~ i m i t e d ' ~ , a company which was i n c o r p o r a t e d i n ~ n g l a n d ,
was n e v e r t h e l e s s , h e l d by m a j o r i t y o f t h e House o f
L o r d s t o p o s s e s s enemy c h a r a c t e r b e c a u s e a l l i t s
d i r e c t o r s and s h a r e h o l d e r s e x c e p t one , were Germans.
V I I I . WHERE THZ COMPANY I S A MERE "SHAM-"
F r a u d , o r imprope r c o n d u c t o r t h e sham c a s e s
c o n s t i t u t e one of t h e c i r c u m s t a n c e s i n which t h e
c o u r t s h a v e f e l t t h e m s e l v e s f r e e t o d i s r e g a r d t h e
p r i n c i p l e o f c o r p o r a t e p e r s o n a l i t y . I n t h e s e c a s e s ,
t h e c o u r t s would l i f t t h e c o r p o r a t e v e i l i n t h e in teres t
o f j u s t i c e . The main r e a s o n g i v e n i n such c a s e s b e i n g
t h a t t h e i n t e n t i o n o f t h e l e g i s l a t u r e c a n n o t b e d e f e a t e d
b y t h e d e v i c e of i n c o r p o r a t i o n . Many i n s t a n c e s abound
where t h e c o u r t s h a v e l i f t e d t h e v e i l o f i n c o r p o r a t i o n *
t o a v o i d i t s b e i n g u s e d t o d e f e a t t h e essence o f a
l e g i s l a t i o n a s a c o v e r f o r i l l e g a l i t y o r imprope r
p u r p o s e s . F o r example , i n Jones v. Lipmang4, t h e
c o u r t r e f u s e d t h e a t t e m p t by t h e d e f e n d a n t t o e v a d e
t h e o b l i g a t i o n s imposed upon him b y a l e a s e agreement
by f o r m i n g a company and t r a n s f e r r i n g t h e p r o p e r t y
t o i t . I n o r d e r i n g b o t h t h e d e f e n d a n t and h i s company
s p e c i f i c a l l y t o p e r f o r m t h e c o n t r a c t w i t h t h e p l a i n -
t i f f , us sell J. ( a s h e t h e n was ) d e s c r i b e d t h e company . a s " t h e c r e a t u r e o f t h e d e f e n d a n t , a d e v i c e and a
sham, a mask which h e h o l d s b e f o r e h i s f a c e i n an
a t t e m p t t o a v o i d r e c o g n i t i o n b y t h e e y e o f equ i tyg5f1 .
The c o u r t s w i l l n o t a l l o w company p r o m o t e r s t o
c o n c e a l t h e p r o f i t s which t h e y a r e making by o p e r a t i n g
t h r o u g h dummy compan ie s , and w i l l i n s i s t t h a t d i s c l o -
s u r e o f p r o f i t s must be made n o t t o a b o a r d o f dummies
b u t t o t h e members, a c t u a l and i n t e n d e d . s i m i l a r l y ,
t h e c o u r t s w i l l n o t a l l o w t h e h o l d e r s o f 9 0 p e r c e n t
o f t h e s h a r e s o f a company t o a p p r o p r i a t e t h e 1 0 p e r
c e n t m i n o r i t y b y t h e d e v i c e o f f o r m i n g t h e m s e l v e s i n t o
a n o t h e r company which t h e n makes an o f f e r f o r a l l t h e t
s h a r e s . ~t i s a f u n d a m e n t a l r u l e t h a t t h e m a j o r i t y
may n o t e x p r o p r i a t e t h e m i n o r i t y . I n R e ~ u g g l e P r e s s
L t d O g 6 two s h a r e h o l d e r s h o l d i n g 9 0 p e r c e n t o f t h e - s h a r e s w i s h e d t o g e t r i d of t h e t h i r d . They fo rmed a
t r a n s f e r e e company which s o u g h t c o m p u l s o r i l y t o a c q u i r e
t h e h o l d i n g s o f t h e m i n o r i t y s h a r e h o l d e r . The c o u r t
I b i d . -
l o o k e d t h r o u g h t h e ? ' s c r e e n t t of t h e t r a n s f e r e e
company w h i c h Harman L, J, d e s c r i b e d a s a ? ? l i t t l e
h u t " b u i l t r o u n d t h e m a j o r s h a r e h o l d e r s , a n d r e f u s e d
t o a p p r o v e t h e p l a n s i n c e t h e t r a n s f e r e e company was
n o t i n d e p e n d e n t o f t h e m a j o r i t y ,
I n d e c i d i n g w h e t h e r i t i s j u s t a n d e q u i t a b l e
t h a t a company s h o u l d be wound u p , t h e c o u r t w i l l
9 7 l o o k b e h i n d t h e f a c t of i n c o r p o r a t i o n , I n G i l f o r d a 0
~ o t o r Co . v. ~ o r n e ' " , HOrne, a f o r m e r e m p l o y e e of t h e
p l a i n t i f f had c o v e n a n t e d n o t t o s o l i c i t i t s c&omers, - H e f o r m e d a company t o c a r r y on h i s b u s i n e s s a n d i t
u n d e r t o o k t h e s o l i c i t a t i o n , An i n j u n c t i o n was g r a n t e d
a g a i n s t b o t h him and t h e company t o r e s t r a i n him. T h e
company was v a r i o u s l y d e s c r i b e d i n t h e j u d g m e n t s a s
" a d e v i c e , a ~ t r a t e ~ e m , ~ ~ " and a s !'a mere c l o a k or
sham 100ff- he, i n t e r e s t i n g f e a t u r e of t h e c a s e is t h e
f a c t t h a t t h e company was n o t a p a r t y to t h e c o v e n a n t .
I n e f f e c t , t h e c o u r t t r e a t e d i t a s H o r n e t s a l t e r e g o ,
~ l s o , i n R e F. G. ( ~ i l m s ) ~ t d , IU I
a n American c o n c e r n
w h i c h made a n American f i l m was u n a b l e t o o b t a i n t h e
97. S e e R e y e n i d je T o b a c c o Co, L t d . -- /?9167 - 2 Ch, 429- 433
s t a t u t o r y a d v a n t a g e s a c c o r d e d t o a ~ r i t i s h ~ i l m by
t h e d e v i c e of c r e a t i n g a ~ r i t i s h company t o make t h e
f i l m when t h e company e x i s t e d p u r e l y a s an i n e r t f r o n t
o r sham, i t s r e a l p a r t i c i p a t i o n i n t h e making o f t h e
f i l m b e i n g p r a c t i c a l l y n e g l i g i b l e . S i m i l a r l y , w h e r e
a l a n d l o r d , h a v i n g g r a n t e d a l e a s e of b u s i n e s s p r e -
mises t o a t e n a n t , f o r m e d a company f o r t h e p u r p o s e
o f c a r r y i n g on h i s b u s i n e s s , t h e c o u r t h e l d t h a t t h e
l a n d l o r d c o u l d n o t res is t an a p p l i c a t i o n f o r a new
l e a s e b e c a u s e h e d i d n o t i n t e n d t o o c c u p y t h e p r e m i s e s
f o r t h e p u r p o s e s o f a b u s i n e s s to b e c a r r i e d on t h e r e ,
b u t f o r t h e p u r p o s e s o f a b u s i n e s s t o b e c a r r i e d on
1 0 2 t h e r e b y t h e company . IX. WHERE THE COMPANY I S ACTING AS THE AGENT
OF THE SHAREHOLDERS
A company may a c t a s an a g e n t f o r i t s s h a r e h o l d e r s , t
e s p e c i a l l y w h e r e t h e r e i s a n e x p r e s s a g r e e m e n t t o t h a t
1 0 3 e f f e c t . However, i t i s a q u e s t i o n o f f a c t w h e t h e r
an a g e n c y e x i s t s o r :whether a s u b s i d i a r y i s c a r r y i n g
S e e T u n s t a l l v. S t e i g m a n n /?9627 - - 2 Q.B.
103 . S e e S o u t h e r n v. Watson 1 7 9 4 0 7 3 ~ l l E.R. 439
1 0 4 o n t h e b u s i n e s s o f i t s p a r e n t company o r i t s own . ~ u t w h e r e t h e s h a r e h o l d e r s o f a company u s e t h e
company a s an a g e n t i n c e r t a i n t r a n s a c t i o n s , t h e y
w i l l b e d i r e c t l y l i a b l e f o r t h e d e b t s o f t h e company.
I n R e F. G. ( F i l m s ) ~ t d . 1 0 5 , a n American company
p r o v i d e d a l l t h e f u n d s f o r p r o d u c i n g a f i l m which
i t was s o u g h t t o r e g i s t e r a s a B r i t i s h f i l m on t h e
g r o u n d t h a t t h e f i l m was p r o d u c e d b y an a r r a n g e m e n t
w i t h a B r i t i s h company o f w h i c h t h e American company
owned £90 o f t h e £100 s h a r e c a p i t a l ; i t was h e l d t h a t
t h e B r i t i s h company was no more t h a n a nominee or
a g e n t o f t h e ~ m e r i c a n company w h i c h was t h e t r u e ma-
k e r o f t h e f i l m .
T h e a g e n c y c a s e s a s a n e x c e p t i o n t o t h e p r i n c i p l e
o f c o r p o r a t e p e r s o n a l i t y , a r e i n s t a n c e s w h e r e t h e
c o u r t s h a v e imposed some r e s t r i c t i o n s on t h e p r i n c i p l e
t o a l l o w j u s t i c e t a k e i t s c o u r s e . F o r i n s t a n c e , i n
1 0 6 S m i t h , S t o n e and K n i g h t v. ~ i r m i n g h a m C o r p o r a t i o n ,
104 . S e e D e Beers C o n s o l i d a t e d ~ i n e s L t d . v. H o w L19061 A.C. 435 a t p. 458 ; S m i t h , S t o n e a n d ~ n i g i i t v. Birmingham c o r p o r a t i o n - /1m/ - 4 E.R. 1 1 6
1 0 6 . S u p r a .
t h e c o u r t a p p l i e d t h e d o c t r i n e o f agency t o d e f e a t
t h e p r i n c i p l e o f c o r p o r a t e p e r s o n a l i t y when t h e
l a t t e r was b e i n g u s e d t o e v a d e l e g a l o b l i g a t i o n s .
gain, i n M e r c h a n d i s e T r a n s p o r t ~ t d . v. B. T. C. 1 0 7 9
~ a n c k w e r t s L. J. summed u p t h e p o s i t i o n a s f o l l o w s : 10 8
"Counse l r e l i e d s t r o n g l y on t h e t e c h n i c a l a n d i r r e f u t a b l e l e g a l d i s t i n c t i o n b e t w e e n a company formed u n d e r t h e Companies ~ c t s and t h e p e r s o n s who h o l d i t s s h a r e s , a s shown by Salomon v. Salomon R Co. L t d . , a company c a s e i n wh ich s p h e r e o f t h e l aw , t e c h n i c a l i t y i s no d o u b t o f t h e e s s e n c e . ~ u t ... w h e r e t h e c h a r a c - t e r o f a company, o r t h e n a t u r e of t h e p e r s o n s who c o n t r o l i t , i s a r e l e v a n t f e a t u r e t h e c o u r t w i l l g o b e h i n d t h e mere s t a t u s o f t h e company a s a l e g a l e n t i t y and w i l l c o n s i d e r who a r e t h e p e r s o n s a s s h a r e h o l d e r s o r e v e n a s a g e n t s who d i r e c t and c o n t r o l t h e a c t i v i t i e s o f a company which i s i n c a p a b l e o f d o i n g a n y t h i n g w i t h o u t human a s s i s t a n c e " .
However, ' in Ebbw V a l e U.D.C. v . S o u t h Wales T r a f f i c
Area L i c e n s i n g ~ u t h o r i t ~ ' O ~ , t h e c o u r t r e f u s e d t o i m p l y
a n a g e n c y r e l a t i o n and so h e l d t h a t :
" u n d e r t h e o r d i n a r y r u l e s o f l a w , a p a r e n t company and a s u b s i d i a r y company, e v e n a 1 0 0 p e r c e n t sub- s i d i a r y company, a r e d i s t i n c t l e g a l e n t i t i e s , a n d i n t h e a b s e n c e o f a n a g e n c y c o n t r a c t b e t w e e n t h e t w o com- p a n i e s o n e c a n n o t be s a i d t o be t h e a g e n t o f t h e 0 t h e r ~ ~ O t 1 .
I n a c c o r d a n c e w i t h t h e o b s e r v a t i o n a b o v e , e a c h c a s e
d e p e n d s o n i t s own f a c t s and p e c u l i a r c i r c u m s t a n c e s .
T h e v a r i o u s e x c e p t i o n s t o t h e p r i n c i p l e o f
c o r p o r a t e p e r s o n a l i t y show t h a t t h e r e a r e no common
o r g u i d i n g p r i n c i p l e s . his i s d e m o n s t r a t e d by t h e
a p t o b s e r v a t i o n s o f ~ l e c S a m u e l s w h i c h s u m m a r i s e and
j u s t i f y t h e v a r i o u s g r o u n d s f o r d i s r e g a r d i n g t h e
111 p r i n c i p l e . ~ c c o r d i n g to t h e l e a r n e d w r i t e r :
1 1 1 t i s d i f f i c u l t t o a p p r o a c h n e a r e r t o a g u i d i n g p r i n c i p l e t h a n t o s a y t h a t t h e d o c t r i n e o f t h e s e p a r a t e l e g a l p e r s o n a l i t y of t h e company p r i m a f a c i e w i l l be r e c o g n i s e d a n d a c t e d upon u n l e s s p u b l i c i n t e r e s t a n d p u b l i c p o l i c y r e q u i r e t h a t t h e v e i l o f i n c o r p o r a t i o n be l i f t e d ,
. . . w h e r e t h e v e i l h a s b e e n l i f t e d n o p a t t e r n i s d i s c e r n i b l e , t h o u g h t h e m o t i v e o f t h e c o u r t i s r e a d i l y appa- r e n t . C r i m e and f r a u d mus t be
. s u p p r e s s e d . T h e i n t e n t i o n o f p a r - l i a m e n t a s e x p r e s s e d i n s t a t u t o r y schemes s u c h a s l i c e n s i n q s c h e m e s
c a n n o t be a l l o w e d t o be t h w a r t e d by t h e d e v i c e o f i n c o r p o r a t i o n , n o r t h e l e g i t i m a t e e x p e c t a t i o n s o f p a r t i e s t o a c o n t r a c t . T h e t a x collector i s i n t e r e s t e d o n l y i n r a i s i n g r e v e n u e . T h e S t a t e h a s a n i n t e r e s t i n k e e p i n g c o m p e n s a t i o n a s l o w a s p o s s i b l e w i t h i n t h e con- f i n e s o f t h e s t a t u t o r y d u t y p r e s c r i - bed . E q u i t y w i l l p r o t e c t b e n e f i - c i a r i e s . The common l a w w i l l e n s u r e t h a t t h e p l a i n t i f f o b t a i n s h i s r i g h t - f u l damages i n t o r t , and t h a t t h e d e f e n d a n t d o e s n o t e s c a p e h i s t o r t i o u s l i a b i l i t i e s . p u b l i c ~ o l i c v s t i l l seems t o be most a c t i v e t o d a v i n
-a ~~
T h i s w h o l e b r a n c h o f t h e law". ( u n d e r l i n i n g , m i n e ) .
8. CAPACITY A N D POWERS OF COMPANIES - THE ULTRA VIRES RULE^^^
T h e o b j e c t s c l a u s e i s o n e o f t h e f o r e m o s t r e q u i r e -
m e n t s o f t h e memorandum o f a s s o c i a t i o n o f a r e g i s t e r e d
company. I t i s of g r e a t i m p o r t a n c e b e c a u s e i t d e t e r -
m i n e s t h e c a p a c i t y o f t h e company w h e n e v e r t h e d o c t r i n e
o f u l t r a v i r e s , a p p l i e s . T h e term u l t r a v i r e s i s u s e d
i n t h e s t r i c t s e n s e o f a c t s beyond t h e powers o f t h e
company. I n t h e c a s e of r e g i s t e r e d c o m p a n i e s t h i s
means a c t s o u t s i d e t h e s c o p e o f t h e o b j e c t s o f t h e
company, s e t f o r t h i n t h e o b j e c t s c l a u s e of i t s m e m o -
randum of a s s o c i a t i o n . F o r i n s t a n c e , s e c t i o n 2 7 ( l ) ( c )
of t h e Companies ~ c t p r o v i d e s t h a t t h e memorandum o f
112. See N. A. ast tin, i ~ ~ o m p a n y Powers and t h e u l t r a ires ~ o c t r i n e r l , ( 1 9 7 l ) , J.B.L., pp. 268-272
e v e r y company s h a l l s t a t e t h e n a t u r e o f t h e b u s i n e s s
or b u s i n e s s e s which t h e company i s a u t h o r i s e d t o
c a r r y o n , o r , i f t h e company is n o t formed f o r t h e
p u r p o s e o f c a r r y i n g o n b u s i n e s s , t h e n a t u r e o f t h e
o b j e c t o r objects f o r which i t i s e s t a b l i s h e d . T h i s
p r o v i s i o n d e - l i m i t s t h e s c o p e of t h e a c t i v i t i e s o f
a company and sets o u t t h e o b j e c t s o f t h e company.
If t h e company, t h r o u g h i t s o r g a n s o r a g e n t s , a c t s
o u t s i d e t h e s e objects , t h e t r a n s a c t i o n i s v o i d , The
o b j e c t s , t h e r e f o r e , l i m i t t h e i r c o n t r a c t u a l c a p a c i t y .
I f a t r a n s a c t i o n i s i n t r a v i r e s , i t i s w i t h i n t h e
o b j e c t s and t h e r e f o r e v a l i d ; i f a t r a n s a c t i o n is
u l t r a v i r e s , t h e n i t is i n v a l i d b e c a u s e i t is o u t s i d e
o r beyond i t s objects.
T h e e f f e c t o f t h e u l t r a v i r e s d o c t r i n e i s v e r y
s t r i n g e n t . F o r examp le , when a n a c t i s u l t r a v i r e s
and v o i d , i t c a n n e v e r be s u b s e q u e n t l y r a t i f i e d and
1 1 3 v a l i d a t e d , e v e n i f e v e r y s h a r e h o l d e r c o n s e n t s t o i t . ~ l l t h a t c a n b e done i s f o r t h e company t o a l t e r i t s
objects c l a u s e f o r t h e f u t u r e and s u c h a l t e r a t i o n
w i l l n e v e r h a v e a r e t r o s p e c t i v e e f f e c t . whe re t h e
113 . S e e ~ s h b u r y ailw way C a r r i a g e and I r o n Co. v. R i c h e ( 1 8 7 5 ) LOR. 7, H.L. 653
c o n t r a c t i s e x e c u t o r y , a p e r s o n who h a s a g r e e d t o
s u p p l y g o o d s o r p e r f o r m s e r v i c e s f o r t h e company
u n d e r an u l t r a v i r e s c o n t r a c t h a s no a c t i o n f o r
b r e a c h i f t h e company r e p u d i a t e d t h e c o n t r a c t
b e f o r e h e h a s p e r f o r m e d it . S i m i l a r l y , w h e r e t h e
c o n t r a c t h a s b e e n e x e c u t e d b y t h e o t h e r p a r t y b y
p e r f o r m i n g h i s own s i d e o f t h e b a r g a i n , h e d o e s n o t
h a v e a n y a c t i o n f o r t h e p r i c e o f g o o d s s u p p l i e d by
h im, n o r f o r s e r v i c e s r e n d e r e d b y him. The o n l y
r e d r e s s h e r e i s t h e common l a w remedy o f following'^
t h e g o o d s w h e r e t h e i d e n t i t y i s s t i l l i n t a c t or t h e
e q u i t a b l e d o c t r i n e s o f t r a c i n g , s u b r o g a t i o n a n d
114 r e s t i t u t i o n . However, t h e u l t r a v i r e s d o c t r i n e i s c o n c e i v e d
a s a p r o t e c t i o n f o r s h a r e h o l d e r s and c r e d i t o r s o f a
company. I n t h e c a s e o f i n v e s t o r s or s h a r e h o l d e r s ,
i t e n a b l e s them t o know t h e o b j e c t s i n which t h e i r
money i s t o be employed. o n t h e o t h e r h a n d , t h e
c r e d i t o r s a r e p r o t e c t e d by e n s u r i n g t h a t t h e company1 s
f u n d s , t o which t h e y must l o o k t o f o r payment a r e n o t
d i s s i p a t e d i n u n a u t h o r i s e d a c t i v i t i e s 1 1 5 . BU t t h i s
114. S e e R e ~ i p l o c k /?9487 - Ch. 4 6 5 ; S i n c l a i r v. rougha am /1914 / A.C. 398- - -
1 1 5 . P e r C a i r n s L.C.; ~ s h b u r y ailw way C a r r i a g e and I r o n Co . v. R i c h e , s u p r a , a t p. 667. See a l s o Cotman v. Rrouaham. /1918/ A.C. 514 a t P. 520
p r o t e c t i o n h a s become i l l u s o r y b e c a u s e t h e d o c t r i n e
of u l t r a v i r e s is a p p l i c a b l e b y t h e c o u r t s s u b j e c t
t o m o d i f i c a t i o n s i n c e r t a i n c a s e s i n r e s p e c t o f
1 1 7 i n c i d e n t a l m a t t e r s 1 1 6 , i n d e p e n d e n t o b j e c t c l a u s e s , s u b j e c t i v e l y worded c l a u s e s and t h e c o m p a n y f s
power o f a l t e r a t i o n o f t h e o b j e c t s . T h e s e a r e
d e v i c e s which e n a b l e a company p r a c t i c a l l y t o
embark o n a n y b u s i n e s s w h i c h it w a n t s and t o m i n i m i s e
t h e h a r s h e f f e c t s of t h e u l t r a v i r e s d o c t r i n e . The
r e s u l t , a s t h e J e n k i n f s Commi t tee o b s e r v e d , i s t h a t
t h e d o c t r i n e h a s become f l a t r a p f o r t h e unwary t h i r d
p a r t y and a n u i s a n c e t o t h e company i t ~ e l f 1 1 ~ ~ ~ . T h i s
h a s b e e n t h e p o s i t i o n i n N i g e r i a u n d e r t h e 1 9 6 8 Com-
p a n i e s A c t u n t i l i t s r e c e n t r e p e a l b y t h e new Companies
A c t wh ich m o d i f i e d t h e a p p l i c a t i o n o f t h e u l t r a v i r e s
d o c t r i n e . ~ t s m a j o r aim i s t o p r o t e c t i n n o c e n t t h i r d
p a r t i e s a n d e n h a n c e c o n v e n i e n c e a n d c e r t a i n t y i n
c o m m e r c i a l t r a n s a c t i o n s w i t h c o r p o r a t e b o d i e s . Accor-
d i n g l y , t h e p o s i t i o n o f t h e company is unchanged. T h i s
1 See ~ t t . - G e n . v. G r e a t E a s t e r n Ry. ( 1 8 8 0 ) 5 App. Cas . 473 , a t 4 7 8
1 1 7 . Cotman v. Brougham, s u p r a
118. B e l l u o u s e s L t d . v. C i t y w a l l p r o p e r t i e s t t d . /1966 / - - 2 Q.B. 656
1 1 9 . S e e R e p o r t o f t h e ' Company Law Commit tee ( J e n k i n s C o m m i t t e e ) , cmnd, 1.749/1962, p a r a . 36
i s b e c a u s e s e c t i o n 3 9 ( 1 ) o f t h e Companies ~ c t g i v e s
" A company s h a l l n o t c a r r y on any b u s i n e s s n o t a u t h o r i s e d by i t s memorandum and s h a l l n o t e x c e e d t h e powers c o n f e r r e d upon i t b y i t s memorandum or t h i s Decree".
S e c t i o n 4 0 ( 1 ) p r o v i d e s f o r l i m i t e d a p p l i c a t i o n o f u l t r a
v i r e s d o c t r i n e and a l s o s t a t e s t h a t :
"where t h e r e i s p r o v i s i o n i n t h e memorandum of a s s o c i a t i o n o f a company r e s t r i c t i n g t h e powers and c a p a c i t y o f t h e company t o c a r r y on i t s a u t h o r i s e d b u s i n e s s o r o b j e c t , t h e r e s t r i c t i o n may be r e l i e d on and h a v e e f f e c t o n l y f o r t h e p u r p o s e o f
( a ) p r o c e e d i n g s a g a i n s t t h e company by a d i r e c t o r o r member o f t h e company, o r whe re t h e company h a s i s s u e d d e b e n t u r e s s e c u r e d by a f l o a t i n g c h a r g e o v e r a l l o r any o f t h e company 's p r o p e r t y , b y t h e h o l d e r o f any o f t h e de- b e n t u r e s o r t h e t r u s t e e f o r t h e h o l d e r s o f t h e d e b e n t u r e s ; o r
( b ) p r o c e e d i n g s by t h e company o r a member o f t h e company a g a i n s t t h e p r e s e n t or f o r m e r o f f i c e r s of t h e company f o r f a i l u r e t o o b s e r v e any s u c h r e s t r i c t i o n ; o r
( c ) p r o c e e d i n g s by t h e Commission o r a member o f t h e company t o w ind up t h e company; o r
( d ) p r o c e e d i n g s f o r t h e p u r p o s e o f r e s t r a i n i n g t h e company o r o t h e r p e r s o n f rom a c t i n g i n b r e a c h o f t h e memorandum o r d i r e c t i n g t h e company o r s u c h p e r s o n t o comply w i t h t h e samevr -
~ o t w i t h s t a n d i n g t h e s e p r o v i s i o n s , a n i n n o c e n t
t h i r d p a r t y a c t i n g bona f i d e c a n e n f o r c e t h e u l t r a
v i r e s c o n t r a c t i f h e h a s p e r f o r m e d i t , T h i s i s
b e c a u s e o f t h e e x p l i c i t p r o v i s i o n o f s e c t i o n 3 9 ( 3 )
which p r o v i d e s t h a t :
I f N o t w i t h s t a n d i n g t h e p r o v i s i o n s o f s u b s e c t i o n (1) of t h i s s e c t i o n , no a c t o f a company and no c o n v e y a n c e o r t r a n s f e r o f p r o p e r t y t o o r by a company s h a l l be i n v a l i d by r e a s o n o f t h e f a c t t h a t s u c h a c t , convey- a n c e o r t r a n s f e r was n o t done o r made f o r t h e f u r t h e r a n c e o f any of t h e a u t h o r i s e d b u s i n e s s o f t h e com- pany o r t h a t t h e company was o t h e r - w i s e e x c e e d i n g i t s o b j e c t s o r powers? ' .
T h e e f fec t o f t h i s p r o v i s i o n is r emova l of t h e d e f e n c e . o f u l t r a v i r e s b y t h e company, To e n h a n c e t h i s p r o t e c -
t i o n , t h e d o c t r i n e o f c o n s t r u c t i v e n o t i c e h a s b e e n
abo l i shed120 . The t h i r d p a r t y i s no l o n g e r deemed
t o know t h e c o n t e n t s o f t h e memorandum and a r t i c l e s
o f a s s o c i a t i o n whe re h e h a s no a c t u a l knowledge o f
S e e s e c t i o n 68,
them. The p o s i t i o n o f i n n o c e n t t h i r d p a r t i e s i n
u l t r a v i r e s t r a n s a c t i o n s w i t h c o r p o r a t e b o d i e s i n
~ i g e r i a i s now v e r y much i n a c c o r d w i t h commerc ia l
p r a c t i c e i n some o t h e r commonwealth c o u n t r i e s w h e r e
1 2 1 t h e d o c t r i n e h a s e q u a l l y b e e n m o d i f i e d . I n t h e b i d t o m i t i g a t e t h e h a r s h e f f e c t s o f t h e
u l t r a v i r e s d o c t r i n e , t h e Companies ~ c t h a s a l l o w e d
compan i e s t o c o n t r a c t l i k e n a t u r a l p e r s o n s . his i s
r e f l e c t e d i n s e c t i o n 3 8 ( 1 ) wh ich , i n p r o v i d i n g f o r
powers o f compan i e s , s t a t e s t h u s :
' 'Except t o t h e e x t e n t t h a t t h e company ' s memorandum o r any e n a c t - ment o t h e r w i s e p r o v i d e s , e v e r y company s h a l l , f o r t h e f u r t h e r a n c e o f i t s a u t h o r i s e d b u s i n e s s o r ob- j e c t s , h a v e a l l t h e powers o f a n a t u r a l p e r s o n o f f u l l c a p a c i t y t l .
The i m p l i c a t i o n o f t h i s i s t h a t when d i r e c t o r s and
members of t h e qompany a c t on b e h a l f o f t h e company,
t h e i r a c t s must b i n d t h e company n o t w i t h s t a n d i n g i t s
o b j e c t s . The company h a s r e m e d i e s a g a i n s t s u c h
d i r e c t o r s and p e r s o n s who c o n t r a c t i n e x c e s s o f i t s
powers . ~ n d t o make t h e p r o t e c t i o n o f bona f i d e t h i r d
p a r t i e s i n v o l v e d i n commerc i a l t r a n s a c t i o n s w i t h
121 . S e e , e x a m p l e s , ~ r i t a i n , Ghana and Canada. S e e a l s o s . 9 ( 1 ) of t h e European c o r n m u m ~ c t 1972 and s. 35 o f t h e ~ n g l i s h Companies A c t 1985
companies o r t h e i r a g e n t s more r e a l and p r a c t i c a b l e ,
t h e r e i s now e x p r e s s s t a t u t o r y p re sumpt ion of r egu -
l a r i t y 1 2 2 . T h i s i s i n a d d i t i o n t o t h e p r o v i s i o n
t h a t t h e l i a b i l i t y o f a company s h a l l n o t b e a f f e c t e d
1 2 3 by f r a u d o r f o r g e r y of an o f f i c e r . his i s an improvement on t h e r e p e a l e d 1968
compan ie s A C ~ u n d e r which t h e i n n o c e n t t h i r d p a r t y
would h a v e been met w i t h t h e d e f e n c e o f u l t r a v i r e s .
I n s u c h c a s e s , i n n o c e n t t h i r d p a r t i e s may o n l y c l a i m
d i r e c t l y f rom t h e company o f f i c i a l s who c o n t r a c t e d i n
e x c e s s of t h e company's powers. But t h i s i s f r a u g h t
w i t h two ma jo r o b s t a c l e s . I n t h e f i r s t p l a c e , t h e
remedy s o u g h t may n o t be o b t a i n a b l e from such o f f i c i a l s
who may b e f i n a n c i a l l y hand icapped . Second ly , t h e
p r i n c i p l e o f c o r p o r a t e p e r s o n a l i t y i s a s e r i o u s res-
t r a i n i n g f a c t o r as t h e s e o f f i c i a l s r e a d i l y p l e a d same
f o r d e f e n c e . I t is i n t h e l i g h t of t h e above h a r d s h i p
t h a t t h e p r o t e c t i o n now o f f e r e d t o bona f i d e t h i r d
p a r t i e s i n t h e i r c o n t r a c t u a l d e a l i n g s w i t h companies ,
s h o u l d b e a p p r e c i a t e d .
122. see s e c t i o n 69 , Companies ~ c t . See a l s o R O a 1 B r i t i s h Bank v. Turquand ( 1 8 5 6 ) 6 E. & 6. T k
123. see s e c t i o n 70, C.A.M.A.
The p r i n c i p l e o f c o r p o r a t e p e r s o n a l i t y h a s b e e n
r e v i e w e d e x t e n s i v e l y b e c a u s e o f i t s i m p o r t a n c e t o
t h i s s t u d y . I t i s t h e b a s i s f o r company management,
wh ich i s . t h e s u b j e c t m a t t e r o f o u r n e x t c h a p t e r . T h e
company b e i n g a d i s t i n c t e n t i t y f r o m t h e members, i s
s o l e l y r e s p o n s i b l e f o r t h e r u n n i n g a n d management o f
i t s a f f a i r s . But b e c a u s e i t s a r t i f i c i a l l e g a l p e r -
s o n a l i t y i m p o s e s some l i m i t a t i o n s , u n l i k e n a t u r a l
p e r s o n s , i t must o f n e c e s s i t y a c t t h r o u g h t h e agency
of human b e i n g s . T h e s e a g e n t s , o t h e r w i s e c a l l e d
o r g a n s o f t h e company, mus t be a p p o i n t e d by t h e com-
pany t h r o u g h t h e m a j o r i t y o f t h e s h a r e h o l d e r s and
t h e i r a c t s a r e t r e a t e d a s t h e a c t s of t h e company
i t s e l f l i 4 . T h i s i s s t r i c t l y i n c o n f o r m i t y w i t h t h e
p r i n c i p l e o f c o r p o r a t e p e r s o n a l i t y and a c c o u n t s f o r
t h e p r o m i n e n c e g i v e n t o it i n t h i s c h a p t e r . we s h a l l
c o n s i d e r t h e management of a company a s i t i s a l s o
r e l e v a n t t o t h e q u e s t i o n o f m a j o r i t y r u l e and m i n o r i t y
p r o t e c t i o n i n Company Law. T h i s i s s u b j e c t m a t t e r
of c h a p t e r t w o .
1 2 4 . See S e c t i o n 65, C.A.M.A.
CHAPTER TWO
MANAGEMENT OF THE COMPANY
1. NECESSITY OF M A N A G I N G A COMPANY THROUGH THE AGENCY OF NATURAL PERSONS
By s e c t i o n 3 7 o f t h e Companies ~ c t , a company
becomes a body c o r p o r a t e from t h e d a t e of i t s
r e g i s t r a t i o n . T t a c q u i r e s t h e c a p a c i t y of e x e r c i -
s i n g a l l t h e f u n c t i o n s o f a r e g i s t e r e d company.
~ u t b e i n g a n a r t i f i c i a l p e r s o n , i t c a n o n l y a c t
t h r o u g h t h e a g e n c y o f n a t u r a l p e r s o n s . A t common
l a w , s u c h a company i s a ' p e r s o n a f i c t a a n d c a n o n l y
a c t t h r o u g h i t s a g e n t s or s e r v a n t s . T h e a c t s o f 1
t h e s e human a g e n t s a r e a t t r i b u t e d t o t h e company . T h i s i s a d e v i c e t h a t h a s b e e n d e s i g n e d a n d c o n c e i v e d
t o e n h a n c e c o m m e r c i a l c o n v e n i e n c e i n t r a n s a c t i o n s t
w i t h c o r p o r a t e b o d i e s .
I t i s i n t h e l i g h t o f t h i s t h a t i n t h e l e a d i n g
c a s e of L e n n a r d t s c a r r y i n g company v. ~ s i a t i c P e t r o - - Z
leum L i m i t e d , V i s c o u n t H a l d a n e c s judgment a r t i c u l a t e d
1. S e c t i o n 6 5 , C.A.M.A.
2. - /?9157 A.C. 705
t h e a l t e r e g o d o c t r i n e , p e c u l i a r t o company l a w a s
o n e q u i t e d i s t i n c t f rom t h e o r d i n a r y p r i n c i p l e s o f
agency o r v i c a r i o u s l i a b i l i t y . I n t h e c o u r s e o f
h i s judgment , t h e Law L o r d o b s e r v e d t h a t :
I t . . . A c o r p o r a t i o n i s an a b s t r a c t i o n . I t h a s no mind o f i t s own any more t h a n a body o f i t s own, i t s a c t i v e and d i r e c t i n g w i l l mus t c o n s e q u e n t l y be s o u g h t i n t h e p e r s o n o f somebody who f o r some p u r p o s e s may be c a l l e d an a g e n t , b u t who i s r e a l l y t h e d i r e c t i n g mind and w i l l o f t h e c o r p o r a t i o n , t h e v e r y ego and c e n t r e o f t h e p e r s o n a l i t y o f t h e c o r p o r a - t ion311.
The l i m i t a t i o n imposed by t h e a r t i f i c i a l n a t u r e o f
t h e p e r s o n o f a company i s more v i v i d l y and g r a p h i -
c a l l y i l l u s t r a t e d by Lo rd ~ e n n i n g a s f o l l o w s :
' 'A company may i n many ways be l i k e n e d t o a human body. It h a s a b r a i n and n e r v e c e n t r e which c o n t r o l s w h a t i t d o e s . I t a l s o h a s hands which h o l d t h e t o o l s and a c t i n a c c o r d a n c e w i t h d i r e c t i o n s from t h e c e n t r e . Some o f t h e p e o p l e i n t h e company a r e mere s e r v a n t s and a g e n t s who a r e n o t h i n g more t h a n h a n d s t o d o t h e work and c a n n o t be s a i d t o r e p r e s e n t t h e mind o r w i l l . O t h e r s a r e d i r e c t o r s and managers who r e p r e s e n t t h e d i r e c t i n g mind and w i l l o f t h e company, t h e s e
m a n a g e r s a re t h e s t a t e of mind o f t h e company ~ n d i s t r e a t e d b y t h e l a w as s u c h ".
I n ~ i g e r i a , t h i s f a c t was b l u n t l y s t a t e d i n - ate 5 E n t e r p r i s e s ~ t d . v. Daewoo ( ~ i g . ) ~ t d . , t h u s :
"Companies h a v e n o f l e s h a n d b l o o d . T h e i r e x i s t e n c e i s a mere l e g a l a b s t r a c t i o n . T h e y m u s t t h e r e f o r e , o f n e c e s s i t y , a c t t h r o u g h t h e d i r e c - to r s , m a n a g e r s a n d o f f i c i a l s 6 n .
T h e managemen t o f t h e b u s i n e s s of a company i s n o r -
m a l l y e n t r u s t e d t o t h e a g e n c y o f human p e r s o n s . T h e
w o r d p e r s o n i n t h e above s t a t e m e n t i s u s e d i n i t s
g e n e r a l a n d n o t i n i t s t e c h n i c a l l e g a l s e n s e .
T h e l i m i t a t i o n s i m p o s e d b y t h e a r t i f i c i a l
n a t u r e o f t h e p e r s o n o f a company i s f u r t h e r i l l u s -
t r a t e d i n t h e a p p o i n t m e n t o f i t s a g e n t s . Agency
r e l a t i o n s h i p p r e s u p p o s e s t h e e x i s t e n c e o f a p r i n c i p a l
o n t h e o n e h a n d # a n d t h e a g e n t a p p o i n t e d b y t h e
4. S e e . ~ o l t o n ( E n g i n e e r i n g ) Co. L t d . v. Graham & S o n s L t d . /19Sbi / 1 Q.B. 1 5 9 , a t p. 1 7 2 . See also: ~ s h o l a - m i a i i s vy T. A. Hammond P r o j e c t s L i m i t e d (198- -Part a t p. -and, .c. L i m i t e d y . S a b a n a Co. ~ t d . & ors. ( 1 9 8 8 ) 3 S.C.N.J., P a r t 1, 130 a t p. 1 6 2
5. /?9857 2 N.W.L.R. 113 - - 6 . bid. p. 118 -
p r i n c i p a l on t h e o t h e r . ~ u t i t i s h e r e t h a t t h e
l i m i t a t i o n of c o r p o r a t e p e r s o n a l i t y m a n i f e s t s i t s e l f .
his i s b e c a u s e t h e company b e i n g an a r t i f i c i a l
p e r s o n , c a n n o t p h y s i c a l l y a p p o i n t i t s a g e n t s . Accor-
d i n g to P r o f e s s o r G o w e r
"The e a r l y l a w o f c o r p o r a t i o n s seems t o h a v e t r i e d t o a v o i d t h i s l o g i c a l d i lemma by a resort to f o r m a l i s m - t h e a c t s of t h e c o r p o r a t i o n w e r e t h o s e which w e r e a u t h e n t i c a t e d by
7 i t s common s e a l i t ,
he l o g i c b e h i n d t h i s a p p a r e n t l y , i n g e n i o u s a r g u m e n t ,
i s p u n c t u r e d by t h e f a c t t h a t someone h a s to a f f i x
t h e s e a l . ~ e s i d e s , i f t h e s e a l was a f f i x e d w i t h o u t
l a w f u l a u t h o r i t y , t h e c o r p o r a t i o n would n o t be bound,
T h e r e f o r e , a s o l u t i o n t o t h e p r o b l e m of a u t h e n t i c a t i n g
8 t h e a c t s o f t h e company r e m a i n s a d i lemma , However,
P r o f e s s o r G o w e r a r g u e s f u r t h e r t h a t a more s a t i s f a c t o r y
s o l u t i o n i s fourid by r e g a r d i n g t h e d e c i s i o n s of t h e
m a j o r i t y of t h e members o f t h e company i n g e n e r a l meet-
i n g a s t h e a c t of t h e company i t s e l f . Hardwicke , L. C.,
h a s e a r l i e r on l e n t h i s s u p p o r t t o t h i s v i e w when h e
7, See Gower, s u p r a , p. 139
"It c a n n o t be d i s p u t e d t h a t w h e r e v e r a c e r t a i n number a r e i n c o r p o r a t e d , a m a j o r p a r t o f them may d o any c o r p o r a t e a c t ; so i f a l l a r e summoned, and p a r t a p p e a r , a m a j o r p a r t of t h o s e t h a t a p p e a r may do a c o r p o r a t e a c t ... f t i s n o t n e c e s s a r y t h a t e v e r y c o r p o r a t e a c t s h o u l d be u n d e r t h e s e a l o f t h e c o r p o r a t i o n g f ~ .
The i m p l i c a t i o n and c o n s e q u e n c e o f t h e above
p a s s a g e i s t h a t t h e m a j o r i t y o f t h e members i n
g e n e r a l m e e t i n g c a n l e g a l l y b i n d t h e company and
a c t s p e r f o r m e d by s u c h m a j o r i t y w i l l r e m a i n v a l i d .
his p r i n c i p l e i s a t t h e root o f t h e r u l e i n
1 0 F o s s v. Harbott le . I n t h a t c a s e , Wigram V. C.,
r e f e r r e d t o t h e members i n g e n e r a l m e e t i n g a s
" t h e sup reme g o v e r n i n g body1'l1. ~ u t t h e company
b e i n g a commerc i a l e n t i t y , must of n e c e s s i t y
r e q u i r e a s m a l l e r . g r o u p of p e r s o n s f o r t h e d a y t o
d a y management o f i t s b u s i n e s s o p e r a t i o n s . The
m a j o r i t y o f members a t g e n e r a l m e e t i n g may n o t be
r e a d i l y a v a i l a b l e i n c a s e s o f e m e r g e n c i e s and e x i g e n -
cies. T h u s , i t becomes n e c e s s a r y t o s u p p l e m e n t t h e
9. S e e , ~tt.- en. v. Davy ( 1 7 4 1 ) 2 ~ t k . 212
10 . ( 1 8 4 3 ) 2 H a r e 4 6 1
11. I b i d . p. 4 9 3
e a r l i e r p r i n c i p l e o f m a j o r i t y r u l e . his i s w i t h
a v i e w t o e n h a n c i n g t h e p o s s i b i l i t y and e x p e d i e n c y
o f t a k i n g day- to-day d e c i s i o n s on b e h a l f of t h e
company i n t h e c o u r s e of i t s b u s i n e s s t r a n s a c t i o n s .
I n p r a c t i c e t h e a r t i c l e s o f a s s o c i a t i o n of t h e
company p r o v i d e s f o r t h e a p p o i n t m e n t o f a b o a r d o f
d i r e c t o r s and s u b j e c t t o t h e p r o v i s i o n s o f t h e
a r t i c l e s , d e l e g a t e s a l l powers o f management t o
them12. T h e b o a r d m e m b e r s a r e g e n e r a l l y empowered t o
1 3 s u b - d e l e g a t e t o a commi t tee or manag ing d i r e c t o r . P r o f e s s o r G o w e r summari ses t h e p o s i t i o n a s follows :
I t . . . n u t h o r i t y t o e x e r c i s e t h e companyts powers i s d e l e g a t e d n o t t o t h e members, n o r e v e n t o t h e i n d i v i d u a l d i r e c t o r s , b u t o n l y t o t h e d i r e c t o r s a s a b o a r d , a l t h o u g h i t may be s u b - d e l e g a t e d by t h e b o a r d t o i n d i v i d u a l manag ing d rectors
i 4 II and t o o ther o f f i c e r s . T h e a b o v e s t a t e m e n t i s correct b u t s u b j e c t t o t h e
p r o v i s i o n s o f t h e a r t i c l e s o f a s s o c i a t i o n o f t h e
company. his i s b e c a u s e some p o w e r s o f management
may be. r e s e r v e d f o r t h e members of t h e company i n
1 2 . See, s e c t i o n 6 3 ( 3 ) , C.A.M.A-
1 3 . See, s e c t i o n 6 4 , C.A.M.A.
1 4 . S e e G o w e r , s u p r a , p i 1 4 0
g e n e r a l m e e t i n g . ~ l s o , i n t h o s e e x c e p t i o n a l c i r cum-
s t a n c e s whe re t h e b o a r d o f d i r e c t o r s c a n n o t a c t , t h e n
t h e powers o f s u c h a b o a r d a u t o m a t i c a l l y r e v e r t t o
1 5 t h e m a j o r i t y o f t h e members i n g e n e r a l m e e t i n g . T h i s i s what i s o t h e r w i s e t e r m e d d e - f a u l t powers o f
t h e g e n e r a l m e e t i n g . I n c o n c l u s i o n r e g i s t e r e d com-
p a n i e s , e v e n t hough l e g a l p e r s o n s , a r e a r t i f i c i a l
p e r s o n s and mus t act t h r o u g h t h e agency of human
p e r s o n s . U s u a l l y , t h e s e human a g e n t s a r e t h e g e n e r a l
m e e t i n g and t h e b o a r d o f d i r e c t o r s , i n c l u d i n g s u c h
o t h e r o f f i c e r s a s may be empowered by t h e a r t i c l e s t o
a c t on t h e companycs b e h a l f . Such o t h e r o f f i c e r s o f
t h e company i n c l u d e t h e s e c r e t a r y 1 6 a n d t h e managing
d i r e c t o r i n c a s e s whe re t h e b o a r d s u b - d e l e g a t e s i t s
1 7 powers . It i s n o t e w o r t h y t o o b s e r v e t h a t i n t h e c a s e o f
a p r i v a t e company, t h e s h a r e h o l d e r s and d i r e c t o r s a r e
u s u a l l y t h e same p e r s o n s . T h e r e f o r e , t h e a c t u a l o p e r a -
t i o n o f t h e b o a r d i s p r a c t i c a l l y n o n - e x i s t e n t . A
15- S e e s e c t i o n 6 3 ( 5 ) , C.A.M.A.
16 . S e e s e c t i o n 2 9 3 ( 1 ) , C.A.M.A.
d o m i n a n t r e a s o n why t y p i c a l s m a l l company owne r s do
n o t a t t a c h much i m p o r t a n c e t o t h e b o a r d s b u t make i t
a f a m i l y b o a r d i s t h e i r d i s t r u s t o f o u t s i d e r s . HOW-
e v e r , t h i s i s n o t e x a c t l y s o i n t h e c a s e o f p u b l i c
c o m p a n i e s , e s p e c i a l l y t h o s e q u o t e d on t h e S t o c k
Exchange. I n some o f t h e s e p u b l i c compan i e s , t h e
d i r e c t o r s may h a v e f ew s h a r e s , o t h e r w i s e c a l l e d
q u a l i f i c a t i o n s h a r e s 1 8 . I n most c a s e s , management
i n p u b l i c compan i e s i s d i v o r c e d f r o m o w n e r s h i p of t h e
company. T h i s f e a t u r e o f management o f a p u b l i c com-
pany i s i m p o r t a n t b e c a u s e t h e company 's power i s
u s u a l l y d i v i d e d be tween t h e b o a r d o f d i r e c t o r s and
t h e g e n e r a l m e e t i n g i n t h e a r t i c l e s o f a s s o c i a t i o n .
his i s t h e i d e a l p r a c t i c a l p o s i t i o n i n managing t h e
a f f a i r s of companies . The o n l y r e s e r v a t i o n w h e r e mana-
qement i s d i v o r c e d f rom o w n e r s h i p i s t h a t s h a r e h o l d e r s
o f s u c h l a r g e p u b l i c compan i e s a r e u s u a l l y numerous
and u n o r g a n i s e d . 1t becomes o b v i o u s l y i m p o s s i b l e f o r
them t o t a k e any p a r t i n t h e i n t e r n a l management o f t h e
company s i n c e t h e y may l i v e a t c o n s i d e r a b l e d i s t a n c e s
f r om t h e r e g i s t e r e d o f f i c e a d d r e s s o f t h e company, I n
18, S e e s e c t i o n 251 (12 , C.A.M.A.
a d d i t i o n , t h e y may n o t h a v e i n t i m a t e knowledge o f
t h e company i n which t h e y h a v e i n v e s t e d t h e i r money.
T h e s e s h o r t c o m i n g s g i v e t h e b o a r d o f d i r e c t o r s u p p e r
h a n d i n t h e management o f t h e company, i n most c a s e s ,
t o t h e d e t r i m e n t o f t h e m a j o r i t y o f t h e members o f
t h e company. The i m m e d i a t e c o n s e q u e n c e o f t h i s i s
l a c k o f i n t e r e s t and a p a t h y . T h i s i s w h e r e c o r p o r a t e
i n f o r m a t i o n and e d u c a t i o n a r e h i g h l y commendable and
i n f a c t , o n e o f t h e m a j o r a ims f o r emba rk ing on t h i s
s t u d y .
F o l l o w i n g t h e n e c e s s i t y o f manag ing a company
t h r o u g h t h e agency of n a t u r a l p e r s o n s , t h e s e o r g a n s
a r e p r i m a r i l y r e s p o n s i b l e f o r t h e management of
companies :
t h e b o a r d o f d i r e c t o r s ;
t h 9 g e n e r a l m e e t i n g ;
t h e managing d i r e c t o r and s u c h o t h e r
o f f i c e r s , t o whom t h e b o a r d may sub-
d e l e g a t e i t s powers a c c o r d i n g t o t h e
a r t i c l e s ; and
t h e company s e c r e t a r y .
2. POSITION AND NATURE OF OFFICE OF DIRECTORS
A. N E E D FOR DIRECTORS
I t i s a b a s i c f a c t t h a t a company h a s t w o
p r i m a r y o r g a n s - t h e g e n e r a l m e e t i n g a n d t h e b o a r d
1 9 o f d i r e c t o r s . ~ c c o r d i n g l y , i t s p o w e r s a r e d i v i d e d
20 b e t w e e n t h e s e two b o d i e s . I n p r a c t i c e , t h e manage-
m e n t o f a company i s g e n e r a l l y e n t r u s t e d t o t h e b o a r d
o f d i r e c t o r s which u s u a l l y c o m p r i s e s o f a s m a l l g r o u p
o f p e r s o n s . T h i s i s b e c a u s e i t would n o t b e p r a c t i -
c a b l e , e x c e p t p e r h a p s , i n t h e c a s e o f s m a l l c o m p a n i e s ,
f o r day- to -day a d m i n i s t r a t i o n and management o f t h e
company t o b e u n d e r t a k e n by t h e g e n e r a l m e e t i n g , w h i c h
o f t e n , i s a l a r g e body. S t a t u t o r i l y , t h e r e f o r e , a
company mus t h a v e a b o a r d o f d i r e c t o r s n u m b e r i n g a t
2 1 l e a s t two . ~ n d w h e r e t h e r e i s a s h o r t f a l l i n t h e s
s t a t u t o r y minimum number o f directors, t h e n p e r s o n a l
l i a b i l i t y a t t a c h e s t o e v e r y d i r e c t o r o r member w i t h
w h o s e k n o w l e d g e t h e company t r a n s a c t s b u s i n e s s a f t e r
a p e r i o d o f s i x t y d a y s o f t h e o c c u r r e n c e of t h e
22 s h o r k f a l l .
1 9 , See Gower, s u p r a , p. 1 7
S e c t i o n 2 4 6 ( 1 ) ,
22. S e c t i o n 2 4 6 ( 3 ) , C.A.M.A.
A p a r t f rom t h e s t a t u t o r y p r o v i s i o n , t h e number
o f d i r e c t o r s and t h e way i n which t h e y a r e t o be
a p p o i n t e d is l e f t t o be r e g u l a t e d by t h e a r t i c l e s .
S e c t i o n 247 o f t h e Companies ~ c t p r o v i d e s t h a t t h e
number o f t h e d i r e c t o r s and t h e names of t h e f i r s t
d i r e c t o r s s h a l l be d e t e r m i n e d i n w r i t i n g b y t h e
s u b s c r i b e r s o f t h e memorandum o f a s s o c i a t i o n or a
m a j o r i t y of them. I m p l i e d l y , t h e r e f o r e , t h e Compa-
n i e s ~ c t d o e s n o t l a y down t h e maximum number o f
d i r e c t o r s , b u t t h e articles u s u a l l y g i v e t h e members
power t o v a r y t h e i r number. F o r i n s t a n c e , s e c t i o n
2 4 8 ( 1 ) o f t h e ~ c t p r o v i d e s t h a t t h e members a t t h e
a n n u a l g e n e r a l m e e t i n g s h a l l h a v e power t o re-elect
o r reject d i r e c t o r s and a p p o i n t new ones .
B. M E A N I N G O F DIRECTORS
~ l t h o u g h t h e p e r s o n s managing t h e company a r e
u s u a l l y c a l l e d d i r e c t o r s , o t h e r names a r e sometimes
u s e d , examp le , manage r s , g o v e r n o r s , o r c o m m i t t e e of
2 3 management . J u d i c i a l a t t i t u d e t o w a r d s t h e d e f i n i -
t i o n o f t h e e x p r e s s i o n i s i l l u s t r a t e d b y t h e obser-
23. See L e e v. L e e r s ~ i r Farming ~ t d . , s u p r a
v a t i o n o f Jesse1 M. R., t h u s :
'?Directors h a v e sometimes been c a l l e d t r u s t e e s , o r commerc i a l t r u s t e e s , and sometimes t h e y h a v e b e e n c a l l e d managing p a r t - n e r s . i t d o e s n o t m a t t e r what
I - - - - -
. vou c a l l them so l o n a as vou - - - * -
G n d e r s t a n d wha t t h e i r t r u e p o s i - t i o n is. which i s t h a t t h e v a r e r e a l l y commerc i a l men managing a t r a d i n g c o n c e r n f o r t h e b e n e f i t o f t h e m s e l v e s and o f 11 t h e o t h e r s h a r e h o l d e r s i n i tP4". ( U n d e r l i n - i n g m i n e ) .
gain, a d i r e c t o r h a s b e e n d e f i n e d a s i n f a c t , a
2 5 d i r e c t o r o r c o n t r o l l e r o f t h e company ' s a f f a i r s . The i m p l i c a t i o n of t h e above j u d i c i a l p ronouncemen t s
i s t h a t d i r e c t o r s i n v a r i a b l y b e a r o t h e r a p p e l l a t i o n s .
T h e r e i s n o p r e c i s e d e f i n i t i o n of t h e e x p r e s s i o n
d i r e c t o r s . I n t h i s r e g a r d , t h e r e f o r e , i t is p e r t i n e n t
t o n o t e t h e r e l e v a n t p r o v i s i o n s o f s e c t i o n 6 5 0 ( 1 ) o f
t h e Companies A C ~ which a r e t h a t t h e term f t d i r e c t o r t c
when u s e d i n t h e ~ c t is t a k e n t o i n c l u d e any p e r s o n s
o c c u p y i n g t h e p o s i t i o n o f d i r e c t o r by w h a t e v e r name
c a l l e d . A d i r e c t o r is a l s o an o f f i c e r o f t h e company.
24. S e e R e F o r e s t o f Dean C o a l ~ i n i n g Co. ( 1 8 7 9 ) 1 0 Ch. D. 450 , 4 5 1 - 452
2 5 . P e r McCardie J. i n ~ o r i a r i t y v. R e g e n t ' s G a r a g e and ~ n g i n e e r i n g CO. ~ t d . , 1 9 2 1 3 K.5, 423, a t p. 446 See a l s o , R e ~ a n d s ~ l l 6 t m e d Co. - / I 8 9 4 7 1 Ch. 616 , 6 3 1
I n t e r e s t i n g l y , u n l i k e t h e 1 9 6 8 Companies ~ c t ,
t h e d i f f i c u l t y e m a n a t i n g f r o m t h i s u n c e r t a i n t y and
i m p r e c i s e mean ing o f a d i r e c t o r h a s b e e n s i m p l i f i e d
by t h e new Companies ~ c t . his is b e c a u s e i t is now
n e c e s s a r y t h a t a p e r s o n t o be a p p o i n t e d a s d i r e c t o r m u s t
be o n e who a s s u c h d i r e c t o r s h o u l d be r e s p o n s i b l e f o r
t h e management o f t h e company. A c c o r d i n g l y , s e c t i o n
2 4 4 ( 1 ) of t h e new Companies ~ c t s t a t e s a s f o l l o w s :
rfDirectors of a company r e g i s t e r e d u n d e r t h i s Decree a r e p e r s o n s d u l 4 a p p o i n t e d by t h e company and a d m i n i s t e r t h e b u s i n e s s o f t h e
~ l s o , t h e ~ c t f u r t h e r p r o v i d e s t h a t t h e r e i s a r e b u t t a -
b l e p r e s u m p t i o n t h a t a l l p e r s o n s d e s c r i b e d by t h e company
a s d i r e c t o r s , w h e t h e r e x e c u t i v e o r o t h e r w i s e a r e d u l y
a p p o i n t e d and w h e n e v e r a p e r s o n h o l d i n g h i m s e l f o u t o r
t h e company h o l d s a p e r s o n o u t a s b e i n g a d i r e c t o r when *
s u c h a p e r s o n i s n o t d u l y a p p o i n t e d t h e g u i l t y p a r t y i s
26 l i a b l e . s i m i l a r l y , p r o v i s i o n i s made t o d e a l w i t h
shadow d i r e c t o r s who a p p a r e n t l y i n f l u e n c e t h e management
from o u t s i d e t h e b o a r d and on whose i n s t r u c t i o n s t h e
R e c i t y quita able ire I n s u r a n c e C o . /19257 Ch. 407 , 426. R e F a u r e ~ l e c t r i c ~ c c u m u l a t o r cZ. (3888) 4 0 Ch. D o 141, 150
26. See s e c t i o n 2 4 4 ( 2 ) , (3) & ( 4 1 , C.A.M.A.
a p p o i n t e d d i r e c t o r s a r e a c c u s t o m e d t o a c t . S u c h
p e r s o n s a r e c l e a r l y d i r e c t o r s and a r e l i a b l e a s
2 7 s u c h , u n l e s s t h e d i r e c t o r s a r e a c c u s t o m e d so t o
a c t o n l y b e c a u s e t h e p e r s o n c o n c e r n e d g i v e s t h e m
a d v i c e i n a p r o f e s s i o n a l c a p a c i t y 2 8 . P r o f e s s i o n a l
a d v i s e r s , s u c h a s l a w y e r s o r s o l i c i t o r s , and a c c o u n -
t a n t s a r e n o t , t h e r e f o r e , f o r t h a t r e a s o n a l o n e ,
s h a d o w d i r e c t o r s . 1 n c o n c l u s i o n , t h e r e is n o d e f i n i -
2 9 t i v e and p r e c i s e m e a n i n g o f d i r e c t o r s , I n g e n e r a l , t h e y c a n be d e s c r i b e d as t h e p e r s o n s who, i n accor-
d a n c e w i t h t h e p r o v i s i o n s o f t h e a r t i c l e s o f associa-
t i o n , , d i r e c t a n d c o n t r o l t h e a f f a i r s o f t h e company
a n d r e p r e s e n t i t i n i t s d e a l i n q s w i t h t h e o u t s i d e
30 w o r l d . Co THE LEG4L STATUS OR POSTTION OF DIRECTORS
I n t h e a b s e n c e of a n y p r e c i s e d e f i n i t i o n o f d i r e c -
t o r s , i t i s n o t e a s y t o a s c e r t a i n t h e i r e x a c t l e g a l
s t a t u s or p o s i t i o n . T h e d i f f i c u l t t a s k o f t r y i n g t o
27. S e e s e c t i o n 2 4 5 ( 1 ) , C.A.M.A.
S e e s e c t i o n 245( 3 ) , C.A.M.A.
29. See Amaye v. n s s o c i a t e d c o n t r a c t o r s , ( 1 9 9 0 ) 6 S.C.N.J. 149
30. I b i d . p. 185 -
9 1
f i x t h e l e g a l s t a t u s o r p o s i t i o n of a d i r e c t o r i s
g r a p h i c a l l y i l l u s t r a t e d b y P r o f e s s o r ~ l a w o y i n ,
t h u s :
rc... Directors h a v e b e e n v a r i o u s 1 3 3 d e s c r i b e d a s a e n t s 3 1 , t r u s t e e s ,
q u a s i - t r u s t e e 3 ~ , e m p l o e e s 3 4 , ser- 3 van t s .35 , a i d s e r v a n t s 6 , p a i d m a n a g e r ~ 3 ~ , m a n a g i n g a g e n t s 3 8 , m a n a g i n g p a r t n e r s 3 9 , o r g a n s 4 0 ,
See S m i t h v. A n d e r s o n , ( 1 8 8 0 ) 1 5 Ch. DO 2 4 7 , 280. See a l s o , F e r g u s o n v. W i l s o n ( 1 8 6 6 ) L.R. 2 Ch. ~ p p . 77 , 8 9
S e e R e L a n d s A l l o t m e n t Co. / T a g 4 7 1 Ch. 6 1 6 , 6 3 1 , 6 3 8 ; F e r g u s o n v. wilson, s u p r a , p, 9 0
S e e F l i t c r o f t ' s C a s e ( 1 8 8 2 ) 2 1 Ch. 5 1 9 , 5 3 4
S e e T r u s s e d S t e e l C o n c r e t e Co. L t d . v. G r e e n / 2 9 4 6 / 1 - - c h . 1 1 5 , 1 2 1
L e v e r rot hers L t d . v. B e l l /?9317 1 K.B. 5 5 7 , - - 3 8 6 , 593
S m i t h v. A n d e r s o n , s u p r a , p. 2 7 6
R e ~ i n ~ s t o h C o t t o n M i l l Co. (No. 2 ) 6 7 8 9 5 7 1 c h . 3319 345
R e F a u r e E l e c t r i c A c c u m u l a t o r Co., ( 1 8 8 8 ) 4 0 Ch. D. 1 4 1 , 1 5 1
R e Wincham S h i p b u i l d i n g Boiler a n d S a l t Co; P o o l e , J a c k s o n a n d W h y t e e s C a s e , (187) 9 c h . D. 322 , 3 2 8
T h e L a d y Gwendo len /?9657 2 ~ l l E.R. 283 , 295 , B o u l t i n g V. A.C.T.A,T. 7 3 9 6 3 7 2 Q.B. 6 0 6 , 6 2 4 , 6 4 6 L e n n a r d f s C a s e , /f - 9 7 5 / - Z.C. 7 0 5 , 713 , 7 1 5
and c o n t r o l l e r s 4 ' , o f t h e i r compan i e s42 f f .
T h e l e a r n e d a u t h o r c o n t e n d s t h a t t h e f a c t t h a t
s u c h a f a i r l y l a r g e number o f v a r y i n g d e s c r i p t i o n s
h a v e b e e n g i v e n t o t h e p o s i t i o n o f d i r e c t o r s
r e f l e c t s n o t o n l y t h e m u l t i f a r i o u s c h a r a c t e r o f
t h e i r o f f i c e b u t a l s o t h e c h a n g i n g v i e w s on t h e i r
p o s i t i o n 43 g u t t h e t r u t h is t h a t d i r e c t o r s a r e n o t
i n t h e s t r i c t s e n s e any o f t h e s e c a t e g o r i s a t i o n s
4 4 b u t t h a t t h e i r l e g a l p o s i t i o n i s u n i q u e i n i t se l f ,
And f o l l o w i n g f rom h i s c o n t e n t i o n above p r o f e s s o r
Olawoyin h a s s u c c i n t l y and a p t l y d e s c r i b e d t h e t r u e
p o s i t i o n of a d i r e c t o r , t h u s :
'!It seems t h a t t h e t r u e p o s i t i o n o f a d i r e c t o r i s s u i e n e r i s i n t h a t i t n e i t h e r f i t s i n -Pfl comp e e y w i t h t h a t o f an a g e n t , n o r o f a t r u s t e e , n o r o f any o f t h e o t h e r p o s i t i o n s ,,. 4511
~ l s o , i t h a s been ; a i d t h a t
~ o r i a r t y v. R e g e n t ' s G a r a q e CO. ~ t d , /?9217 1 K,B, 423
- -
S e e ~ l a w o y i n , G O A , , S t a t u s and ~ u t i e s of Compan D i r e c t o r s , ( U n i v e r s i t y of i f e p r e s s , i l e - i fe , 19815, 28
\
S e e Amaye v , A s s o c i a t e d C o n t r a c t o r s , s u p r a , p, 185
See Olawoyin , G, A , , s u p r a , pp, 28-29
" i t d o e s n o t much m a t t e r wha t you c a l l them so l o n g a s you u n d e r s t a n d wha t t h e i r t r u e p o s i - t i o n i s , which i s t h a t t h e y a r e r e a l l y commerc i a l men managing a t r a d i n g c o n c e r n f o r t h e b e n e f i t of t h e m s e l v e s and a l l t h e o t h e r s h a r e - h o l d e r s i n i t 46 t r .
I n t h e b i d t o c l e a r t h e a m b i g u i t i e s and e q u i v o c a -
t i o n s r e g a r d i n g t h e s t a t u s o f a d i r e c t o r , t h e Com-
p a n i e s A C ~ , s e c t i o n 2 8 3 ( l ) , h a s d e f i n e d t h e l e g a l
p o s i t i o n of d i r e c t o r s a s f o l l o w s :
" ~ i r e c t o r s a r e t r u s t e e s of t h e com- p a n y ' s moneys, p r o p e r t i e s and t h e i r powers and a s s u c h mus t a c c o u n t f o r a l l t h e moneys o v e r wh ich t h e y e x e r c i s e c o n t r o l and s h a l l r e f u n d any moneys i m p r o p e r l y p a i d away, and s h a l l e x e r c i s e t h e i r powers h o n e s t l y i n t h e i n t e r e s t of t h e company and a l l t h e s h a r e h o l d e r s , and n o t i n t h e i r own or s e c t i o n a l i n terestsft.
I t a l s o s t a t e s t h a t :
t t a d i r e c t b r may when a c t i n g w i t h i n h i s a u t h o r i t y and t h e powers of t h e company be r e g a r d e d a s a g e n t s of t h e company u n d e r P a r t I T 1 o f t h i s
46. - P e r Jesse1 M. R: R e F o r e s t of Dean Coal Min ing co. ( 1 8 7 9 ) , 1 0 c h . D. 451 - 9 453
S t a t u t o r i l y , t h e l e g a l s t a t u s o r p o s i t i o n o f a
d i r e c t o r i s e i t h e r t h a t o f a t r u s t e e o r an a g e n t .
~ l s o , i m p l i e d l y , f rom t h e p r o v i s o t o s e c t i o n 282,
an e x e c u t i v e d i r e c t o r w i t h an e x p r e s s o r i m p l i e d
c o n t r a c t t o t h a t e f f e c t i s an employee . his i s
b e c a u s e , a c c o r d i n g to t h e p r o v i s o , a d d i t i o n a l l i a -
b i l i t y and b e n e f i t may a r i s e u n d e r t h e m a s t e r and
s e r v a n t l a w i n s u c h c a s e s .
The q u e s t i o n t h a t l o g i c a l l y a r i s e s f o r c o n s i d e r a -
t i o n i s w h e t h e r t h i s s t a t u t o r y a n a l o g y o f a d i r e c t o r
w i t h a t r u s t e e , an a g e n t or by i m p l i c a t i o n , an emplo-
y e e , i s on a l l f o u r s w i t h t h e r e s p e c t i v e p o s i t i o n s
s t r i c t o s e n s u . An a t t e m p t t o answer t h i s q u e s t i o n
shows t h a t t h e l e g a l s t a t u s o r p o s i t i o n o f a company
d i r e c t o r i s n o t on a l l f o u r s w i t h t h a t o f a t r u s t e e ,
an a g e n t or emp loyee , s t r i c to s e n s u . T h i s i s b e c a u s e
some b a s i c d i f f e r e n c e s r e s u l t i n g f r o m t h e s e v a r y i n g
p o s i t i o n s e x i s t . T h e s e w i l l be i l l u s t r a t e d by showing
t h e s i m i l a r i t i e s and d i f f e r e n c e s c o n s e q u e n t i a l upon
a s suming t h e r e s p e c t i v e p o s i t i o n s .
DIRECTORS AS TRUSTEES
The t r u e p o s i t i o n o f d i r e c t o r s v i s - a - v i s t r u s t e e s
h a s been a p t l y d e s c r i b e d by Romer J. i n R e c i t y E q u i t a b l e
F i r e I n s u r a n c e a s follows:
U I t h a s sometimes been s a i d t h a t d i r e c t o r s a r e t r u s t e e s . I f t h i s means no more t h a n t h a t d i r e c t o r s i n t h e p e r f o r m a n c e o f t h e i r d u t i e s s t a n d i n a f i d u c i a r y r e l a t i o n s h i p t o t h e company t h e s t a t e m e n t is t r u e enough. ~ u t i f t h e s t a t e m e n t i s meant t o be an i n d i c a t i o n by way o f a n a l o g y of what t h o s e d u t i e s a r e , i t a p p e a r s t o m e t o b e w h o l l y m i s - 1 eadingl f .
T h e c o n c l u s i o n t o be drawn f rom t h i s s t a t e m e n t i s
t h a t even though i t i s t r u e t o s a y t h a t b o t h t r u s t e e s
and d i r e c t o r s a r e f i d u c i a r i e s who h a v e c e r t a i n o b l i -
g a t i o n s t owards t h e i r b e n e f i c i a r i e s , t h e i r d u t i e s
d i f f e r i n v e r y s i g n i f i c a n t r e s p e c t s b u t may o v e r l a p
i n some areas4'. F o r i n s t a n c e , t h e company's p r o p e r t y
d o e s n o t v e s t i n t h e d i r e c t o r s . T h i s i s a s a r e s u l t
o f t h e p r i n c i p l e o f c o r p o r a t e p e r s o n a l i t y . But
o r d i n a r y t r u s t e k s a r e v e s t e d w i t h p r o p e r t y u n d e r t h e
50 t r u s t a s t h e l e g a l owner , ~ l s o , d i r e c t o r s c o n t r a c t on
b e h a l f of t h e company which a l o n e can be s u e d , b u t t r u s - .(
tees c o n t r a c t i n t h e i r own names and a r e p e r s o n a l l y
48 , - /T9257 - 1 Ch. 407, 426
49. see ~ l a w o y i n , s u p r a , p. 6
50, S e e s m i t h v. Anderson, s u p r a , p. 275. But see: S e l a n q o r u n i t e d Rubber E s t a t e s L td . v. Cradock ( N O . 3 ) - /1968/ - 1 W.L.R. 1555
l i a b l e .
T r u s t e e s a v o i d t a k i n g r i s k s i n r e s p e c t of
t r u s t p r o p e r t i e s a d m i n i s t e r e d by them w h e r e a s
r i s k s , i n f a c t , c o n s t i t u t e t h e e s s e n c e o f a
d i r e c t o r ' s work. However, i t is o p e n t o a d i r e c -
t o r t o d e c i d e w h e t h e r o r n o t t o t a k e r i s k s i n
r e s p e c t o f b u s i n e s s v e n t u r e s . Though t r u s t e e s
m u s t a c t a s a body , a d i r e c t o r n e e d n o t be a
p a r t y t o e v e r y c o r p o r a t e a c t , p r o v i d e d t h e r e q u i s i t e
quorum i s fo rmed b e f o r e t h e a c t i s embarked upon by
t h o s e p r e s e n t . N e v e r t h e l e s s , t h e f o l l o w i n g s i m i l a r i -
t i e s e x i s t . ~ i r s t , b o t h d i r e c t o r s a n d t r u s t e e s a r e
r e g a r d e d a s f i d u c i a r i e s . S e c o n d l y , b o t h a r e e n t i t l e d
t o be i n d e m n i f i e d a g a i n s t e x p e n s e s i n c u r r e d by them
b o n a f i d e , i n t h e d u e e x e c u t i o n o f t h e i r d u t i e s . t
~ h i r d l y , b o t h a c t g r a t u i t o u s l y u n l e s s t h e r e i s an J 1
e x p r e s s a g r e e m e n t t o p a y them f o r t h e i r s e r v i c e s . DIRECTORS AS AGENTS
T h e a g e n c y a n a l o g y o f t h e l e g a l s t a t u s o f company
d i r e c t o r s d e r i v e s p r i n c i p a l l y f r o m t h e n a t u r e of t h e
51. See R e G e o r g e Newman & Co. - /78957 - 1 Ch. 6 7 4 , p a 686
p e r s o n a l i t y o f a c o r p o r a t e body. T h i s makes i t
n e c e s s a r y f o r a company t o a c t t h r o u g h t h e agency
o f n a t u r a l p e r s o n s , amongst whom a r e d i r e c t o r s , I n
F e r g u s o n v. w i l s o n , Lo rd C a i r n s L, J. d e c l a r e d :
"They ( i.e. d i r e c t o r s ) a r e m e r e l y a g e n t s o f a company, The company i t s e l f c a n n o t a c t i n i t s own p e r s o n , f o r i t h a s no p e r s o n ; i t c a n o n l y a c t t h r o u g h d i r e c t o r s , and t h e c a s e i s , a s r e g a r d s t h o s e d i r e c t o r s , m e r e l y t h e o r d i n a r y c a s e o f p r i n c i - p a l and a g e n t . Whenever an a g e n t i s l i a b l e , t h o s e d i r e c t o r s would be l i a b l e ; whe re t h e l i a b i l i t y would a t t a c h t o t h e p r i n c i p a l , and t h e p r i n c i p a l o n l y , t h e l i a - b i l i t y i s t h e l i a b i l i t y o f t h e c o m p a n y 5 2 ~ .
B U ~ t h e p o s i t i o n o f a company d i r e c t o r i s n o t on a l l
f o u r s w i t h an a g e n t s tr ict0 s e n s u and P r o f e s s o r Olawo-
y i n h a s e x p r e s s e d a c o n t r a r y v iew f rom t h a t o f Lo rd
C a i r n s a s f o l l o w s :
l f , , . t h e t r u e r e l a t i o n s h i p be tween a company and i t s d i r e c t o r s i s n e i t h e r t h a t o f p r i n c i p a l and a g e n t , n o r t h a t o f m a s t e r and s e r v a n t , n o r t h a t of c e s t u i q u e t r u s t and t r u s t e e , t h o u g h i n some r e s p e c t s a k i n t o a l l t h e s e , b u t a r e l a t i o n s u i g e n e r i s 5 3 " ,
52. S u p r a , pp. 89 , 90 , See a l s o : c a r g i l l v , Rower ( l 8 7 8 ) , 1 0 Ch. D. 502, 513; Okeowo v , ~ i g l i o r e (19'19)11 S.C. 138 , o sh inowo v. bdebayo ( 1 9 m ) 1 ~ l i NILOR. 176. T r e n c o ( ~ i g . ) L t d . v , ~ f r i c a n ~ e a l state ~ t d , ( 1 9 7 8 ) 4 S.C. 9
53 , ~ l a w o y i n , G O A, , s u p r a , p, 1 0
A compromise h e r e i s t h e f a c t t h a t t h e r e a r e more
s i m i l a r i t i e s i n t h i s p a r t i c u l a r c a s e t h a n t h e o t h e r s .
F o r i n s t a n c e , a s a g e n t s , d i r e c t o r s i n c u r no p e r s o n a l
l i a b i l i t y whe re t h e y d e a l w i t h t h i r d p a r t i e s on b e h a l f
of t h e company. gain, w i t h r e s p e c t t o c o n t r a c t s , b o t h
d i r e c t o r s and a g e n t s a r e g o v e r n e d by t h e p r i n c i p l e s o f
54 t h e l aw of agency . ~ l s o , d i r e c t o r s , l i k e a g e n t s ,
w i l l b e l i a b l e i n t h e same way, whe re i t a p p e a r s t h a t
5 5 t h e y u n d e r t o o k p e r s o n a l l i a b i l i t y i n any t r a n s a c t i o n . However, t h e r e i s t h i s s l i g h t d i f f e r e n c e be tween
t h e two r e s p e c t i v e p o s i t i o n s , i n t h a t p e r s o n a l l i a b i l i t y
a t t a c h e s on any o f f i c e r ( w h i c h i n c l u d e s d i r e c t o r s : sec-
t i o n 6 5 0 ( 1 ) ) o f a company who e n t e r s i n t o c e r t a i n d e a l i n g s
o n b e h a l f o f t h e company i n c i r c u m s t a n c e s u n d e r which
t h e name o f t h e company h a s been m i ~ d e s c r i b e d ~ ~ . Whereas
an a g e n t , u n d e r ,the law o f agency , w i l l n o t be l i a b l e
w h e r e t h e i d e n t i t y o f t h e p r i n c i p a l i s d i s c l o s e d b u t n o t
h i s name.
54. S e e F e r g u s o n v. w i l s o n , s u p r a
55. S e e McCo l l i n v . G i l p i n (1881) 6 Q.B.D. 516
56. S e e W e s t e r n ~ i g e r i a F i n a n c e c o r p o r a t i o n v. west C o a s t ~ u i l d e r s L t d . (19'11) 1 U.I.L.R. 93
DIRECTORS AS SERVANTS OR EMPLOYEES
T h i s i s s u e h a s a r i s e n n o t so much i n r e l a t i o n
t o t h e d u t i e s o f d i r e c t o r s t o t h e i r compan i e s b u t
more i n r e l a t i o n t o r i g h t s o f e m p l o y e e s , e s p e c i a l l y
w i t h r e g a r d t o payment o f s a l a r i e s o f emp loyees o f
a company o r c o m p e n s a t i o n t o i t s o f f i c i a l s f o r loss
o f o f f i c e i n t h e e v e n t o f t h e w i n d i n g u p o f s u c h a
company. F o r i n s t a n c e , a s r e g a r d s c o m p e n s a t i o n f o r
w o r k e r s f o l l o w i n g t h e s a l e o f a companyf s u n d e r t a k i n g
t o a n o t h e r company i t h a s b e e n s a i d t h a t a d i r e c t o r i s
n o t a s e r v a n t o f t h e company and t h e r e f o r e n o t e n t i t l e d
5 7 t o s u c h payment . gain, i t h a s b e e n h e l d t h a t a
d i r e c t o r o r managing d i r e c t o r o f a company i s n o t a
p e r s o n i n t h e employment o f t h e company f o r t h e p u r -
p o s e s o f a c l a u s e wh ich a u t h o r i s e s t h e payment o f pen-
s i o n t o employees58. Bu t d i r e c t o r s may be s i m u l t a n e o u s l y
s e r v a n t s o f t h e i r company i f t h e y h o l d some o t h e r o f f i c e
59 wh ich b r i n g s them w i t h i n t h a t d e s c r i p t i o n . And t h e
a r t i c l e s o f a s s o c i a t i o n may p r o v i d e t h a t d i r e c t o r s may
57 . S e e 6 5 4
58. S e e
59. S e e 4 2 0
~ u t t o n v . West Cork R a i l w a y -- Co. ( 1 8 8 3 ) 2 3 Ch. D.
Normandy v. ~ n d . Coop%& co. - /39087 - 1 ch . 84.
L e e v. L e e l s ~ i r Fa rming ~ t d . -- /?9607 - 3 ~ 1 1 E.R.
h o l d any o t h e r o f f i c e or p l a c e o f p r o f i t u n d e r
6 0 t h e i r company e x c e p t t h e o f f i c e o f a u d i t o r . T h e modern p o s i t i o n a p p e a r s t o be t h a t s t a t e d
b y t h e ~ n g l i s h C o u r t o f Appea l i n ~ o u l t i n g v. A S S O C ~ ~ -
6 1 t e d C i n e m a t o g r a p h , ~ e l e v i s i o n and A l l i e d ~ e c h n i c i a n s , w h e r e L o r d u p j o h n s t a t e d a s f o l l o w s :
" T r u e i t i s , a s d i r e c t o r s , t h e y a r e n o t e m p l o y e e s , b u t i t c a n n o t , I t h i n k , b e d o u b t e d t h a t a mana- g i n g d i r e c t o r may f o r many u r p o s e s be r e g a r d e d a s an e m p l o y e e 6 s v .
B u t L o r d Denning M . R . d i s s e n t e d f r o m t h e d e c i s i o n of
t h e C o u r t o f Appea l on t h i s i s s u e a s h e d i d n o t t h i n k
t h a t t h e c h a i r m a n o r d i r e c t o r s o r managing d i r e c t o r s
6 3 o f a company c a n p r o p e r l y be c o n s i d e r e d p e r s o n s employed . evert he less d i r e c t o r - q u a d i r e c t o r , i s n o t an e m p l o y e e
of t h e company. However, an e m p l o y e e s t a t u s c a n be
i n f e r r e d f r o m t h e n a t u r e o f t h e d i r e c t o r ' s work and t h e
e x i s t e n c e of a s e r v i c e c o n t r a c t , w i t h o u t p r e j u d i c e t o
h i s o t h e r p o s i t i o n a s a d i r e c t o r . ,/
60. S e e . s e c t i o n 3 5 8 ( 2 ) ( a ) , C.A.M.A.
62 . I b i d . p. 634
63 . I b i d . p. 6 2 4 ; S e e a l s o : L e a v . S h e a r d m a t p. 1 9 6
DIRECTORS AS M A N A G I N G PARTNERS
he a n a l o g y o f a d i r e c t o r t o a manag ing p a r t -
n e r i s n o t v e r y common. T h i s term was o n l y u s e d t o
d e s c r i b e t h e p o s i t i o n o f d i r e c t o r s i n ~ u t o m a t i c S e l f -
64 C l e a n s i n g F i l t e r S y n d i c a t e co. ~ t d . v. cun inghame . WHAT, THEN I S THE TRUE STATUS OR POSITION - O F DIRECTORS?
The v a r i o u s a t t e m p t s made s o f a r i n f i n d i n g t h e
e x a c t l e g a l s t a t u s or p o s i t i o n of d i r e c t o r s show t h a t
e v e n t h o u g h s i m i l a r i t i e s e x i s t w i t h t h e r e s p e c t i v e
p o s i t i o n s , t h e r e h a s n o t been any d e f i n i t i v e s t a t u s
a s some b a s i c d i f f i c u l t i e s e x i s t . 1 n R e g a l ( ~ a s t i n g s )
65 L t d . v. ~ u i l l e r , L o r d R u s s e l l o b s e r v e d t h a t :
IqDirectors of a l i m i t e d company a r e t h e c r e a t u r e s of s t a t u t e a n d o c c u p y a p o s i t i o n p e c u l i a r t o t h e m s e l v e s . I n some r e s p e c t s , t h e y resemble t r u s - tees, i n o t h e r s t h e y d o n o t . I n some r e s p e c t s t h e y resemble a g e n t s , i n o t h e r s t h e y do n o t . I n some r e s p e c t s t h e y resemble managing p a r t n e r s , i n o t h e r s , t h e y do not66tq.
64. ~ 7 9 0 5 7 2 Ch. 34, a t p. 4 5 , p e r Cozens-Hardy, L. J.; See a l s o R e wincham s h i p b u i l d i n g oiler and S a l t C o o * ~ o o l e adso on and w h y t e t s C a s e (1878) 9 Ch. D. 32- 328
66. I b i d . p. 387 -
And e a r l i e r o n , L o r d Rowen L. J. i n R e I m p e r i a l
b -1 ~ y d r o p a t h i c Hotel Co., B l a c k p o o l v. Hampson , c o n c l u d e d t h a t :
lfDirectors a r e n o t e x a c t l y a g e n t s , n o r e x a c t l y s e r v a n t s - p e r h a p s n o t s e r v a n t s a t a l l - n o r e x a c t l y t r u s t e e s , n o r e x a c t l y manag ing p a r t n e r s , i f by t h a t i s meant t h a t t h e y a r e n o t h i n g more a n d n o t h i n g l e s s 6 8 t t .
I t i s i n t h e l i g h t o f t h i s u n c e r t a i n t y t h a t
P r o f e s s o r O l a w o y i n a t t e m p t s t o r a t i o n a l i s e t h e
v a r y i n g p o s i t i o n s by s t a t i n g a s follows:
"The t r u e v i e w of t h e p o s l t i o n of d i r e c t o r s i s p e r h a p s best e x p r e s - s e d i n t h e s t a t e m e n t t h a t a l t h o u g h i t c l o s e l y r e s e m b l e s i n many r e s p e c t s t h a t o f a g e n t s , and i s a k i n t o t h o s e of t r u s t e e s , e m p l o y e e s , s e r v a n t s and t h e 1 i k e , i n c e r t a i n c i r c u m s t a n c e s , d i r e c t o r s , n e v e r t h e l e s s , o c c u p y a p o s i t i o n w h i c h c a n n o t be c o m p l e t e l y c a t e g o r i s e d w i t h i n a n y o t h e r . heir p o s i t i o n ' i s i n f a c t u n i q u e . . . 6 r ( ~ m p h a s i s m i n e ) .
' T h i s u n i q u e p o s i t i o n i s s t a t e d i n ~ a l m e r t s Company ~ a w
67. ' ( 1 8 8 2 ) 2 3 Ch. D., 1
68. bid. pp. 1 2 and 1 3 - 69. o l a w o y i n , G. A., ( s u p r a ) pp. 29-30
1 0 3
t h u s : 7 0
' ( F o r most p u r p o s e s i t i s s u f f i c i e n t t o s a y t h a t Directors o c c u p y a f i d u c i z r y p o s i t i o n a n d a l l t h e p o w e r s e n t r u s t e d t o them a r e o n l y e x e r c i s a b l e i n t h i s f i d u c i a r y c a p a c i t y ? ? .
T h e r e f o r e , i n s u p p o r t of t h i s o b s e r v a t i o n , t h e t r u e
l e g a l s t a t u s o r p o s i t i o n o f a d i r e c t o r is t h a t o f
a f i d u c i a r y . T h i s i s t h e common f a c t o r b e t w e e n a
7 1 d i r e c t o r a n d t h e v a r y i n g p o s i t i o n s c o n s i d e r e d . However , t h i s i s w i t h o u t p r e j u d i c e to t h e r i g h t s o f
a d i r e c t o r i n h i s c a p a c i t y a s a member o f t h e company.
AS s u c h , i t h a s been r i g h t l y h e l d t h a t a d i r e c t o r may
v o t e upon any m a t t e r i n w h i c h h e i s p e r s o n a l l y i n t e -
72 r e s t e d ; a n d h i s v o t e c a n n o t b e c h a l l e n g e d u n l e s s
i t i s b e i n g e x e r c i s e d i n a manner o p p r e s s i v e to a
m i n o r i t y of t h e shareholder^^^. F o r t h e a v o i d a n c e o f
d o u b t , t h e Companies ~ c t h a s e x p r e s s l y s t a t e d t h a t :
S e e , s c h m i t t h o f f , w. and Thompson, J. H . p a l m e r l s Company Law, ( s t e v e n s & S o n s ~ i m i t e d , London , 3 9 6 8 ) p. 52'6
S e e , s e c t i o n 279, C.A.M.A
S e e , N o r t h west T r a n s p o r t a t i o n Co. v . ~ e a t t y ( 1 8 8 7 ) 1 2 App. Cas . 589
S e e , Cook v. Deeks /?9167 1 A.C. 554; M e n i e r v. H o o p e r f s T e l e g r a p h Works ( 1 8 7 4 ) L.R. 9 Ch. 350; See a l s o : S c o t t i s h C o - o w e r a t i v e W h o l e s a l e S o c i e t y
"a d i r e c t o r of a company s t a n d s i n a f i d u c i a r y r e l a t i o n s h i p towards t h e company and s h a l l o b s e r v e t h e u t m o s t good f a i t h towards t h e company i n any t r a n - s a c t i o n w i t h i t o r on i t s behal f74t t .
D. CAPACITY, APPOINTMENT AND DISQUALIFICATION OF hIR ECTORS
CAPACITY OF DIRECTORS
A p e r s o n t o be a p p o i n t e d a d i r e c t o r must h a v e
t h e l e g a l c a p a c i t y , F o r t h i s p u r p o s e , h e must be
o n e who i s q u a l i f i e d f o r t h e f o r m a t i o n and membership
o f a company u n d e r s e c t i o n 20 and 80, r e s p e c t i v e l y ,
o f t h e Companies ~ c t . , ~ l s o , h e s h a l l n o t b e a p e r s o n
d i s q u a l i f i e d u n d e r s e c t i o n 254 o f t h e ~ c t from b e i n g a
d i r e c t o r of a company. T h i s s e c t i o n r e s t r a i n s f r a u d u -
l e n t p e r s o n s from b e i n g a p p o i n t e d a s d i r e c t o r s . where
t h e a r t i c l e s of a s s o c i a t i o n p r o v i d e f o r s h a r e - q u a l i f i -
c a t i o n s , s u c h a p e r s o n mus t , w i t h i n two months of h i s
75 appo in tmen t o b t a i n h i s s h a r e q u a l i f i c a t i o n .
v. eyer /79597 - A.C. 324, p e r ~ o r d s imonds a t pp. 342 , 343; ~ o r 3 K e i t h a t pp. 362, 363 and Lord Denning a t pp. 367, 368 \
74. S e e s e c t i o n 2 7 9 ( 1 ) , C o A o M o A *
75. S e e s e c t i o n 2 5 1 , C.A~M.A.
APPOINTMENT OF DIRECTORS
( i ) APPOINTMENT OF FIRST DIRECTORS
S e c t i o n 247 o f t h e c o m p a n i e s ~ c t p r o v i d e s
f o r t h e a p p o i n t m e n t o f t h e f i r s t d i r e c t o r s . Gene-
r a l l y , t h e f i r s t d i r e c t o r s may h e a p p o i n t e d i n
e i t h e r o f two ways:
( a ) BY BETNG NAMED I N THE ARTICLES
T h i s i s o n e o f t h e m e t h o d s a p p r o v e d b y s e c t i o n 247
f o r t h e a p p o i n t m e n t o f t h e f i r s t d i r e c t o r s . It i s
s o m e t i m e s u s e d a s a n a 1 t e r n a t i v e t o t h e o t h e r p r o c e -
d u r e l a i d down i n t h e a r t i c l e s .
( b ) BY THE SUBSCRIBERS TO THE MEMORANDUM
S e c t i o n 247 a l s o p r o v i d e s t h a t t h e s u b s c r i b e r s t o t h e
memorandum, o r a m a j o r i t y o f them, may a p p o i n t d i r e c -
tors. T h i s method i s o f t e n u s e d t o a p p o i n t t h e f i r s t
d i r e c t o r s o f t h e company. T h e r e f o r e , b y e i t h e r o f
t h e s e t w o m e t h o d s , t h e f i r s t d i r e c t o r s may be a p p o i n t e d .
~ u t however t h i s f i r s t a p p o i n t m e n t i s made, i t w i l l n o t
be e f f e c t i v e u n l e s s t h e p e r s o n a p p o i n t e d is named i n
t h e s t a t e m e n t o f d i r e c t o r s w i t h h i s c o n s e n t a n d
p a r t i c u l a r s d i s c l o s e d . S t a t u t o r i l y , t h e l i s t and
p a r t i c u l a r s , t o g e t h e r w i t h t h e c o n s e n t o f t h e
p e r s o n s who a r e t o be t h e f i r s t d i r e c t o r s o f t h e
company m u s t be c o n t a i n e d i n a s t a t e m e n t i n t h e
p r e s c r i b e d f o r m and d e l i v e r e d t o t h e c o m m i s s i o n
76 a l o n g w i t h o t h e r r e g i s t r a t i o n documents . ( 1 1 ) SUBSEQUENT APPOINTMENT AS DIRECTORS
T h e members a t t h e a n n u a l g e n e r a l m e e t i n g
s h a l l h a v e power t o re-elect, o r r e j e c t d i r e c t o r s a n d
77 a p p o i n t new o n e s . It i s a l s o p r o v i d e d , u n l i k e t h e
1 9 6 8 Companies ~ c t , t h a t i n t h e e v e n t o f a l l t h e
d i r e c t o r s and s h a r e h o l d e r s d y i n g , a n y o f t h e p e r s o n a l
r e p r e s e n t a t i v e s s h a l l b e a b l e t o a p p l y t o t h e c o u r t
f o r an o r d e r t o c o n v e n e a m e e t i n g o f a l l t h e p e r s o n a l
r e p r e s e n t a t i v e s o f t h e s h a r e h o l d e r s e n t i t l e d t o a t t e n d
a n d v o t e a t a g e n e r a l m e e t i n g t o a p p o i n t new d i r e c t o r s t
t o manage t h e company. I n d e f a u l t o f t h i s power t o
c o n v e n e a m e e t i n g , t h e c r e d i t o r s , i f a n y , s h a l l b e
a b l e t o d o his shows t h e p e r p e t u a l e x i s t e n c e
o f a company, which c a n o n l y d i e by t h e p r o c e s s o f
76. S e e s e c t i o n 3 5 ( 2 ) (c) , C.A.M.A.
77. S e e s e c t i o n 2 4 8 ( 1 ) , C.A.M.A.
78. S e e s e c t i o n 2 4 8 ( 2 ) , C.A.M.A.
l i q u i d a t i o n o r w i n d i n g up. It d e m o n s t r a t e s t h a t t h e
company ' s e x i s t e n c e i s q u i t e d i s t i n c t f r o m t h a t o f
i t s s h a r e h o l d e r s a n d d i r e c t o r s . '* ,,
*!
( i i i ) APPOINTMENT BY THE B O A R D OF DIRECTORS T h e b o a r d may make a p p o i n t m e n t s i n t w o c a s e s .
F i r s t , t o f i l l c a s u a l v a c a n c i e s which may o c c u r o n
r e s i g n a t i o n , d i s q u a l i f i c a t i o n , r e m o v a l o r d e a t h o f a
member7'. S e c o n d l y , t o a p p o i n t a d d i t i o n a l d i r e c t o r s
u p t o a g i v e n maximum w h i c h may be set o u t i n t h e
c o m p a n y ' s a r t i c l e s . Any s u c h a p p o i n t m e n t s i n e x c e s s o f
t h e p e r m i t t e d maximum i; void8'. However, t h e g e n e r a l
m e e t i n g h a s power t o i n c r e a s e o r r e d u c e t h e number o f
d i r e c t o r s g e n e r a l l y and may d e t e r m i n e i n wha t r o t a t i o n
t h e d i r e c t o r s s h a l l ret i re . T h i s is w i t h o u t p r e j u d i c e t o
t h e p r e v i o u s a c t s o f d i r e c t o r s so removed a s a r e s u l t o f
81 *
a r e d u c t i o n . p e r s o n s a p p o i n t e d by t h e s e t w o ways
u s u a l l y h o l d o f f ice u n t i l t h e n e x t a n n u a l g e n e r a l
m e e t i n g when t h e i r a p p o i n t m e n t s a r e a p p r o v e d b y t h e
79. S e c t i o n 2 4 9 ( 1 ) , C.A.M.A.
80. See s e c t i o n 2 4 9 ( 3 ) , C e A o M . A o
g e n e r a l m e e t i n g , and if o t h e r w i s e , t h e y c e a s e t o
82 be d i r e c t o r s . The a r t i c l e s may g i v e t h e members
c o n c u r r e n t power t o a p p o i n t d i r e c t o r s t o f i l l c a s u a l
v a c a n c i e s . T h i s would i n v o l v e t h e c a l l i n g of an
e x t r a - o r d i n a r y q e n e r a l m e e t i n g . ~ u t most o f t e n , t h e
d i r e c t o r s e x e r c i s e t h i s power.
whe re a p e r s o n i s a p p o i n t e d a s a pe rmanen t
d i r e c t o r s 3 , f o r i n s t a n c e , i n a p r i v a t e company,
t h e r e i s n o need t o r e - a p p o i n t him a t g i v e n i n t e r -
v a l s o f t i m e . But i f h i s o n l y c o n t r a c t is i n t h e
a r t i c l e s , i t c a n be t e r m i n a t e d b y t h e a l t e r a t i o n o f t h e
a r t i c l e s ; and i n any c a s e , h e c a n be removed u n d e r - sec-
t i o n 2 6 2 ( 1 ) o f t h e Companies ~ c t o r by l i q u i d a t i o n o f
t h e company. Where a d i r e c t o r i s removed u n d e r s e c t i o n
2 6 2 ( 1 ) o f t h e ~ c t , t h e company may f a c e an a c t i o n f o r
damages i n r e s p q c t of t h e remova l ( s e c t i o n 2 6 2 ( 6 ) o f
t h e Companies ~ c t ) . U n l e s s t h e a r t i c l e s s o p r o v i d e ,
a l l t h e d i r e c t o r s s h a l l r e t i r e f rom o f f i c e a t t h e
f i r s t a n n u a l g e n e r a l m e e t i n g . ~ l s o , a t e v e r y s u b s e -
q u e n t a n n u a l q e n e r a l m e e t i n g , o n e - t h i r d o f t h e d i r e c t o r s
8 4 s h a l l r e t i re f rom o f f i c e . DISQUALIFICATION FOR DIRECTORSHIP
The a r t i c l e s u s u a l l y p r o v i d e t h e c o n d i t i o n s f o r
d i s q u a l i f i c a t i o n f o r d i r e c t o r s h i p and a l s o f o r vaca -
t i o n o f o f f ice by d i r e c t o r s o n t h e h a p p e n i n g o f
c e r t a i n e v e n t s . A p e r s o n d i s q u a l i f i e d f rom b e i n g
a d i r e c t o r c a n n o t a b i n i t i o be a p p o i n t e d a s one,
Whereas i n t h e c a s e o f v a c a t i o n o f o f f i c e , s u c h a
p e r s o n , h i t h e r t o a d i r e c t o r , c e a s e s t o b e o n e on t h e
o c c u r r e n c e o f t h e s p e c i f i e d e v e n t . The f o l l o w i n g
c a t e g o r i e s o f p e r s o n s a r e s t a t u t o r i l y d i s q u a l i f i e d
8 5 from b e i n g a p p o i n t e d d i r e c t o r s of compan i e s :
( i> an i n f a n t , t h a t i s , a p e r s o n u n d e r
t h e a g e o f 18 y e a r s ;
( i i ) a T u n a t i c o r p e r s o n o f unsound mind;
(iii) a p e r s o n d i s q u a l i f i e d f o r b e i n g i n s o l -
v e n t u n d e r s e c t i o n 253:
. ( i v ) f r a u d u l e n t p e r s o n s r e s t r a i n e d u n d e r
s e c t i o n 254:
84. s e c t i o n 259(1), C.A.M.A.
85. S e e s e c t i o n 257 , C.A.M.A.
( v ) a p e r s o n whose o f f ice a s d i r e c t o r
i s v a c a t e d u n d e r s e c t i o n 258;
( v i ) a c o r p o r a t i o n o t h e r t h a n i t s
r e p r e s e n t a t i v e a p p o i n t e d t o t h e
b o a r d f o r a g i v e n t e r m ,
A d i r e c t o r c a n b e removed by o r d i n a r y r e s o l u t i o n
o f t h e g e n e r a l m e e t i n q b e f o r e t h e e x p i r a t i o n of h i s
p e r i o d of o f f ice, n o t w i t h s t a n d i n g a n y t h i n g i n t h e
company i s a r t i c l e s o r i n any a g r e e m e n t b e t w e e n t h e
company and him. T h i s i s o n e o f t h e m e a s u r e s d e s i g n e d
t o e n s u r e u l t i m a t e c o n t r o l by t h e members i n g e n e r a l
mee t ing86 . N o t e w o r t h y i s t h e f a c t t h a t a t t e n d a n c e
a t t h e m e e t i n g s of t h e b o a r d f o r t h e p r e c e d i n g o n e
y e a r i s now an a s s e s s m e n t c r i t e r i o n f o r a d i r e c t o r
8 7 who i s s e e k i n g r e - e l e c t i o n ,
3 PROCEEDINGS OF DIRECTORS
A * BOARD MEETINGS
T h e powers of d i r e c t o r s m u s t be e x e r c i s e d collec-
t i v e l y a t a b o a r d m e e t i n g and n o t i n d i v i d u a l l y , S e c t i o n
8 6 . S e c t i o n 2 6 2 ( 1 ) , C.A.M.A.
8 7 , s e c t i o n 2 5 8 ( 2 ) , C.A.M.A.
2 6 3 ( 1 ) o f t h e Compan ies ~ c t p r o v i d e s t h a t t h e y may
meet t o g e t h e r f o r t h e d e s p a t c h o f b u s i n e s s , a d j o u r n
a n d o t h e r w i s e r e g u l a t e t h e i r m e e t i n g s a s t h e y t h i n k
f i t . However , an i n f o r m a l a g r e e m e n t made by a l l t h e
d i r e c t o r s w i l l b i n d t h e company. his i s p r o v i d e d b y
s e c t i o n 2 6 3 ( 8 ) o f t h e ~ c t , w h i c h r e q u i r e s t h e r e s o l u -
t i o n t o be r e d u c e d i n t o w r i t i n g and s i g n e d b y a l l t h e
d i r e c t o r s e n t i t l e d t o receive n o t i c e o f m e e t i n g . A
m e e t i n g o f t h e b o a r d c a n be c a l l e d b y a n y d i r e c t o r
u n l e s s t h e a r t i c l e s o t h e r w i s e p r o v i d e . ~ n t h i s res-
p e c t , s e c t i o n 2 6 3 ( 3 ) p r o v i d e s t h a t a d i r e c t o r may,
and t h e s e c r e t a r y s h a l l a t t h e r e q u e s t o f a d i r e c t o r
summon a m e e t i n g o f t h e b o a r d . ~t i s now m a n d a t o r y
t h a t t h e f i r s t m e e t i n g o f t h e d i r e c t o r s s h a l l be h e l d
n o t l a t e r t h a n s i x m o n t h s a f t e r t h e i n c o r p o r a t i o n of
88 ' t h e company .
T h e d i r e c t o r s a r e empowered t o elect t h e c h a i r m a n of
t h e i r m e e t i n g s and d e t e r m i n e t h e p e r i o d f o r w h i c h h e is t o
h o l d o f f i c e . ~ u t i f n o s u c h c h a i r m a n i s e l e c t e d o r i f a t \
a n y m e e t i n g t h e c h a i r m a n i s n o t p r e s e n t w i t h i n f i v e minu-
tes a f t e r t h e t i m e a p p o i n t e d f o r h o l d i n g t h e same, t h e
88. S e e p r o v i s o t o s e c t i o n 2 6 3 ( 1 ) , C.A.M.A.
d i r e c t o r s p r e s e n t may c h o o s e o n e o f t h e i r number t o
8 9 be c h a i r m a n of t h e m e e t i n g . I t i s a l s o p r o v i d e d t h a t
t h e d i r e c t o r s may d e l e g a t e any of t h e i r powers t o a
manag ing d i r e c t o r o r t o committees c o n s i s t i n g o f s u c h
9 0 member or members o f t h e i r b o d y a s t h e y t h i n k f i t . Where t h i s i s t h e c a s e , t h e v a r i o u s p r o c e e d i n q s a p p l i -
c a b l e t o d i r e c t o r s , s h a l l a p p l y t o s u c h a d e l e g a t e ,
m u t a t i s m u t a n d i s .
B - NOTICE O F BOARD MEETINGS
~ o t i c e o f a b o a r d m e e t i n g mus t be g i v e n t o a l l t h e
d i r e c t o r s u n l e s s a d i r e c t o r i s d i s q u a l i f i e d by a n y
r e a s o n u n d e r t h e ~ c t f r o m c o n t i n u i n g w i t h t h e o f f i c e o f
d i r e c t o r g 1 . Notice o f b o a r d m e e t i n g s i s i n d i s p e n s a b l e
and m u s t be g i v e n t o d i r e c t o r s b e c a u s e a n y b u s i n e s s
d o n e a t a m e e t i n g o f which some d i r e c t o r s h a d n o n o t i c e
i s i n v a l i d g 2 . I; h a s b e e n h e l d t h a t a d i r e c t o r h a s n o
9 3 power t o w a i v e h i s r i g h t t o s u c h n o t i c e . ~ u t i f a
90. S e c t i o n 2 6 3 ( 5 ) , C.A.M.A.
9 1 - S e e s e c t i o n 2 6 6 ( 1 ) , C.A.M.A.
92 . S e e s e c t i o n 2 6 6 ( 3 ) , C.A.M.A.
93. S e e R e P o r t u g u e s e c o p p e r ~ i n e s ( 1 8 8 9 ) 4 2 c h . D. 1 6 0 ; see a l s o : Young v . L a d i e s I m p e r i a l C l u b , - / T 9 2 ~ 7 2 K.B. 5 2 3
d i r e c t o r i s a b r o a d a n d o u t of r e a c h o f n o t i c e s , a
'94 m e e t i n g h e l d w i t h o u t n o t i c e t o h im i s v a l i d HOW-
e v e r , i f s u c h a d i r e c t o r h a s g i v e n a l o c a l a d d r e s s i n
~ i y e r i a , t h e n t h e n o t i c e s h a l l be s e n t to t h e l o c a l
a d d r e s s g 5 . A c a s u a l m e e t i n g o f d i r e c t o r s c a n n o t be
c o n v e r t e d i n t o a b o a r d m e e t i n g i f a n y o f t hem d e n i e s
t h a t i t i s a b o a r d m e e t i n g a n d h a s n o t r e c e i v e d
9 6 n o t i c e c a l l i n g s u c h a m e e t i n g . ~ o t i c e o f a b o a r d
m e e t i n g s h o u l d g i v e s u f f i c i e n t i n f o r m a t i o n a b o u t t h e
b u s i n e s s t o be c o n s i d e r e d so t h a t members w o u l d a d e -
q u a t e l y a d d r e s s t h e i r m i n d s t o s u c h i s s u e s b e f o r e t h e
m e e t i n g .
C. QUORUM
T h e o b j e c t o f f i x i n g a quorum i s t o e n s u r e t h a t a
c e r t a i n number o f members a t t e n d a m e e t i n g . H e n c e , a t
quorum c a n b e d e f i n e d a s t h a t number o f d i r e c t o r s who
m u s t be p r e s e n t t o make t h e p r o c e e d i n g s o f t h e b o a r d
v a l i d . T h i s number t h a t c o n s t i t u t e s t h e quorum i s
u s u a l l y s t a t e d or f i x e d b y t h e a r t i c l e s o f a s s o c i a t i o n ,
\
94 . S e e H a l i f a x S u g a r ~ e f i n i n g Co. L t d . v. F r a n k l y n , (1890), 59 L I J . Ch. S T 1
95 . S e e s e c t i o n 266C4) , C.A.M.A.
9 6 . See B a r r o n v. P o t t e r , / 7 9 1 4 7 - - 1 Ch. 8 9 5
s u b j e c t t o t h e a r t i c l e s o f a s s o c i a t i o n , t h e quorum
n e c e s s a r y f o r t h e t r a n s a c t i o n o f t h e b u s i n e s s o f
d i r e c t o r s s h a l l be two w h e r e t h e r e a r e n o t m o r e t h a n
s i x d i r e c t o r s , ~ u t w h e r e t h e r e a r e m o r e t h a n s i x
d i r e c t o r s , t h e quorum s h a l l be o n e t h i r d of t h e
number o f d i r e c t o r s , and w h e r e t h e number of d i r e c -
t o r s i s n o t a m u l t i p l e o f t h r e e , t h e n t h e quorum s h a l l
97 be o n e - t h i r d t o t h e n e a r e s t n u m b e r . w h e r e a c o m m i t t e e
o f d i r e c t o r s i s a p p o i n t e d by t h e b o a r d o f d i r e c t o r s ,
t h e b o a r d s h a l l f i x i t s quorum, b u t w h e r e n o quorum
i s f i x e d , t h e w h o l e c o m m i t t e e s h a l l meet and a c t b y
9 8 a m a j o r i t y ,
Where a quorum i s specified, i t seems t h a t t h e
p r e s e n c e o f a l l t h e d i r e c t o r s a t a b o a r d m e e t i n g is n o t
e s s e n t i a l . T h i s i s b e c a u s e t h e a c t s of a d u l y c o n s t i t u -
t e d b o a r d s h a l l be b i n d i n g on t h e company, However , i L
i s commendab le t h a t d i r e c t o r s s h o u l d e n d e a v o u r t o a t t e n d
b o a r d m e e t i n g s a s t h e company i s e n t i t l e d t o t h e c o l l e c -
t i v e wisdom of t h e b o a r d , ~ f a quorum i s n o t s p e c i f i e d ,
s e c t i o n 2 6 4 ( 1 ) ,
9 8 . s e c t i o n 2 6 4 ( 2 ) , C.A.M.A.
(wh ich i s v e r y r a r e ) , a m a j o r i t y o f t h e boa rd i s
9 9 r e q u i r e d t o a t t e n d . ~ l s o , whe re t h e number o f
d i r e c t o r s f a l l s s h o r t o f t h e quorum r e q u i r e d , s u c h a
s m a l l e r number of d i r e c t o r s c a n n o t a c t . ~ n y t h i n g t h e y
p u r p o r t t o do i s i n v a l i d , u n l e s s t h e a r t i c l e s p r o v i d e ,
a s t h e y u s u a l l y do , t h a t t h e c o n t i n u i n g d i r e c t o r s can
a c t n o t w i t h s t a n d i n g vacancies100. N e v e r t h e l e s s , t h e
c o n t i n u i n g d i r e c t o r o r d i r e c t o r s c a n f i l l c a s u a l
v a c a n c i e s s u b j e c t t o t h e a p p r o v a l o f t h e g e n e r a l
m e e t i n g a t t h e n e x t annua l g e n e r a l meeting101. ~ u t
where t h e b o a r d i s u n a b l e t o a c t b e c a u s e a quorum c a n n o t
b e formed, t h e g e n e r a l mee t ing may ac t i n p l a c e of t h e
b o a r d lo2 and where a committee i s u n a b l e to a c t b e c a u s e
a quorum c a n n o t b e formed, t h e b o a r d may a c t i n p l a c e
10 3 of t h e commi t t ee .
99. S e e york Tramways Co. v. W i l l o w s , ( 1 8 8 2 ) 8 Q,B.D. 685
100 , S e e R e s c o t t i s h p e t r o l e u m CO., ( 1 8 8 3 ) . 23 ~ h . D. 413: see a l s o : R e ~ l m a ~ p i n n i n s COO. i1880) 1 6
0 S e e s e c t i o n 249, C.A.M.A.
102 . S e e F o s t e r v. F o s t e r , /?9167 1 Ch. 532. S e e a l s o : Ba r ron v. p o t t e r , ~ 1 9 1 4 7 1-ch. 895
103 . S e e s e c t i o n 265, C.A.M.A.
D m VOTING AT BOARD MEETINGS
V o t i n g a t b o a r d m e e t i n g s i s u s u a l l y g o v e r n e d by
104 t h e a r t i c l e s and i s n o r m a l l y o n e v o t e p e r d i r e c t o r . D i r e c t o r s who h a v e p e r s o n a l i n t e r e s t s i n t h e b u s i n e s s
o r t r a n s a c t i o n b e f o r e t h e m e e t i n g a r e n o t a l l o w e d t o
v o t e . his p r o h i b i t i o n i s t o a v o i d d i v i d e d l o y a l t y o f
s u c h i n t e r e s t e d d i r e c t o r s . The p e r s o n a l i n t e r e s t of t h e
d i r e c t o r c a n be i n c o n s i s t e n t w i t h t h e e x e r c i s e o f h i s
i n d e p e n d e n t and u n b i a s e d judgment i n t h e management of
t h e a f f a i r s of t h e company. T h e r e is a l s o t h e l i k e l i h o o d
o f s w a y i n g t h e o t h e r d i s i n t e r e s t e d d i r e c t o r s a g a i n s t t h e
company ' s best i n t e r e s t s . T h i s i s b e c a u s e s u c h a p a r t i -
c i p a t i o n by i n t e r e s t e d d i r e c t o r s w i l l a t t r a c t t h e co-
o p e r a t i o n and sympathy o f h i s c o l l e a g u e s to t h e
d e t r i m e n t of t h e company.
S e c t i o n 263(2) o f t h e ~ c t p r o v i d e s t h a t q u e s t i o n s t
a r i s i n g a t a b o a r d m e e t i n g s h a l l be d e c i d e d by a majo-
r i t y of v o t e s , and t h a t i n c a s e o f an e q u a l i t y o f v o t e s ,
t h e c h a i r m a n s h a l l h a v e a s e c o n d o r c a s t i n g v o t e . his
c o n t r a s t s w i t h t h e common law p o s i t i o n w h e r e t h e c h a i r m a n
104. see s e c t i o n 263(9), C.A.M.A.
1 0 5 h a s n o c a s t i n g v o t e i n s u c h s i t u a t i o n s . However ,
i t i s p r o v i d e d b y s e c t i o n 2 6 3 ( 8 ) o f t h e c o m p a n i e s
~ c t t h a t a r e s o l u t i o n i n w r i t i n g , s i g n e d by a l l t h e
d i r e c t o r s e n t i t l e d t o r e c e i v e n o t i c e o f a m e e t i n g o f
t h e d i r e c t o r s , s h a l l b e a s v a l i d a s i f i t h a d b e e n
p a s s e d a t a b o a r d m e e t i n g d u l y c o n v e n e d a n d h e l d . T h e
1 0 6 p o s i t i c n i s t h e s a m e a t common l a w . Em MINUTES
1 0 5 . S e e W a l l v . London a n d N o r t h e r n ~ s s e t s C o r p o r a t i o n , ( 1 8 9 8 / , 2 C h - 469 \
1 0 6 . S e e R e ! 3 0 n e l l i ' s ~ e l e g r a p h C o o t ( 1 8 7 1 ) L.R. 1 2 Eq. 2 4 6
1 0 7 . S e c t i o n 2 4 1 ( 2 ) , C.A.M.A.
S e c t i o n 2 4 l ( l ) ( b ) , o f t h e C o m p a n i e s ~ c t p r o v i d e s
t h a t e v e r y ccmpany s h a l l c a u s e m i n u t e s of a l l p r o c e e -
d i n g s a t d i r e c t o r s ' m e e t i n g s t o be p r e p a r e d and e n t e r e d
i n a b o o k k e p t f o r t h a t p u r p o s e . It i s f u r t h e r p r o v i -
d e d t h a t when t h e m i n u t e s a r e s i g n e d b y t h e c h a i r m a n
o f t h e m e e t i n g , o r b y t h e c h a i r m a n o f t h e n e x t s u c c e e -
d i n g m e e t i n g , t h e y s h a l l b e p r i m a f a c i e e v i d e n c e o f t h e
p r o c e e d i n g s a t ' s u c h meet i n g l o 7 . w h e r e m i n u t e s a r e mede ,
t h e r e i s a p r e s u m p t i o n t h a t t h e m e e t i n g i s d u l y h e l d
a n d c o n v e n e d , u n t i l t h e c o n t r 3 r y i s proved108. T h e
1 0 8 . S e c t i o n 2 4 1 ( 3 ) , C.A.P.A.
m i n u t e s may be k e p t i n a bound b o o k , o r i n a loose-
l e a f book , p r o v i d e d t h a t a d e q u a t e p r e c a u t i o n s a r e t a k e n
t o g u a r d a g a i n s t f a l s i f i c a t i o n . I f t h e m i n u t e s a r e
incomple te , ' , a r e s o l u t i o n d u l y p a s s e d c a n be p r o v e d
1 0 9 by o t h e r e v i d e n c e . 4. E X E R C I S E OF THE POWERS OF THE COMPANY
A. DIVISION OF POWERS BETWEEN GENERAL MEETING A N D BOARD OF DIRECTORS
T h e company b e i n g an a r t i f i c i a l p e r s o n , i t c a n
o n l y a c t t h r o u g h human a g e n t s . A c c o r d i n g l y , s e c t i o n
63(1) o f t h e Companies ~ c t s t a t e s t h a t :
company s h a l l a c t t h r o u g h i t s members i n g e n e r a l m e e t i n g or i t s b o a r d of d i r e c t o r s o r t h r o u g h o f f i - cers o r a g e n t s , a p p o i n t e d by o r u n d e r a u t h o r i t y d e r i v e d f r o m , t h e members i n g e n e r a l m e e t i n g o r t h e b o a r d o f d i r e c t o r s 1 1 .
t
T h e b o a r d o f d i r e c t o r s and t h e q e n e r a l m e e t i n g a r e
t h e t w o main o r g a n s of t h e company. T h e powers o f
t h e company a r e d i v i d e d and e x e r c i s a b l e by them. HOW-
e v e r , t h e c o m p a n i e s ~ c t l e a v e s t h e d i s t r i b u t i o n o f
p o w e r s b e t w e e n t h e g e n e r a l m e e t i n g and t h e b o a r d o f
109 . S e e R e ire P r o o f Doors L t d . /?9167 - 2 Ch. 1 4 2
d i r e c t o r s t o t h e a r t i c l e s , w h i c h a l w a y s g i v e t h e
d i r e c t o r s e x t e n s i v e powers t o manage t h e b u s i n e s s
o f t h e company. T h e p r o v i s i o n s o f t h e ~ c t i n t h i s
r e s p e c t a r e a s f o l l o w s :
' 'Excep t a s o t h e r w i s e p r o v i d e d i n t h e company ' s a r t i c l e s , t h e b u s i - n e s s o f t h e company s h a l l b e managed b y t h e b o a r d o f d i r e c t o r s who may e x e r c i s e a l l s u c h powers o f t h e company a s a r e n o t b y t h i s Decree o r t h e a r t i c l e s r e q u i r e d t o b e e x e r c i s e d b y t h e members i n g e n e r a l m e e t i n g l l O f l .
his p r o v i s i o n is a m o d i f i e d a d a p t a t i o n o f t h e u s u a l
Article 801", (now c o d i f i e d by t h e new Companies ~ c t ) , w h i c h e n t r u s t e d t h e management o f t h e company t o t h e
b o a r d o f d i r e c t o r s ,
T h e d e l e g a t i o n o f management p o w e r s t o t h e b o a r d
o f d i r e c t o r s i s w i t h o u t p r e j u d i c e t o t h e p o w e r s r e s e r v e d
f o r t h e m e m b e r s ' i n g e n e r a l m e e t i n g , e i t h e r by t h e a r t i -
cles o r t h e Companies ~ c t , F o r i n s t a n c e , t h e d e l e g a t i o n
o f management powers t o t h e d i r e c t o r s would b e s u b j e c t
t o t h e p r o v i s i o n s f o r t h e a l t e r a t i o n o f t h e a r t i c l e s 1 1 2
1 1 0 . S e c t i o n 6 3 ( 3 ) , C.A.M.A.
111. S e e T a b l e A , P a r t I , S c h e d u l e I of t h e 1 9 6 8 Companies ~ c t
1 1 2 , S e e s e c t i o n 4 8 , C.W.M.A.
a n d c a p i t a l 1 1 3 , w h i c h s h a l l be d o n e o n l y b y t h e
members i n g e n e r a l m e e t i n g .
B- THE BOARD OF DIRECTORS A S AN AUTONOMOUS ORGAN
T h e q u e s t i o n of who c o n t r o l s t h e company - t h e
b o a r d o f d i r e c t o r s or t h e s h a r e h o l d e r s , h a s g i v e n
r i s e t o some c o n t r o v e r s y i n t h e p a s t . ~t i s a s s u m e d
t h a t t h e g e n e r a l m e e t i n g i s t h e company and t h a t t h e
d i r e c t o r s a r e mere a g e n t s o f t h e company who a r e
s u b j e c t t o t h e c o n t r o l of t h e company i n g e n e r a l
1 1 4 m e e t i n g . I n I s l e of W i g h t R a i l w a y v. T a h o u r d i n , C o t t o n L. J. s a i d :
" I t i s a v e r y s t r o n g t h i n g i n d e e d t o p r e v e n t s h a r e h o l d e r s from h o l - d i n g a m e e t i n g of t h e company , when s u c h a m e e t i n g i s t h e o n l y way i n w h i c h t h e y c a n i n t e r f e r e , i f t h e m a j o r i t y of them t h i n k t h a t t h e c o u r s e . t a k e n b y t h e d i r e c t o r s i n a m a t t e r i n t r a v i r e s of t h e d i r e c t o r s , i s n o t f o r t h e b e n e f i t o f t h e companyf f .
R u t i n ~ u t o m a t i c s e l f - c l e a n s i n g F i l t e r S y n d i c a t e C o .
-- 113.. see s e c t i o n 1 0 0 , C.A.M.A.
1 1 4 . ( 1 8 8 3 ) 2 5 c h . D. 3 2 0 , a t p. 3 2 9
L t d . v. ~ u n i n g h a m e ~ ' ~ , a c o n t r a r y d e c i s i o n was t a k e n
by t h e ~ n g l i s h C o u r t of ~ p p e a l t h a t when t h e manage-
ment of t h e company is v e s t e d i n t h e d i r e c t o r s , t h e
s h a r e h o l d e r s h a v e no power by o r d i n a r y r e s o l u t i o n t o
g i v e d i r e c t i o n s t o t h e b o a r d o r to o v e r r i d e i t s d e c i -
s i o n s . However, i n ~ a r s h a l l ' s v a l v e G e a r Co. L t d . v.
Manning w a r d l e & CO. ~ t d . 'I6, i t was h e l d t h a t i n t h e
a b s e n c e o f any c o n t r a c t t o t h e c o n t r a r y , t h e m a j o r i t y
o f t h e s h a r e h o l d e r s i n a company h a v e t h e u l t i m a t e
c o n t r o l o f i t s a f f a i r s .
his p rob l em is t a c k l e d by t h e combined e f f e c t o f
s e c t i o n 6 3 ( 2 ) and ( 4 ) of t h e Companies ~ c t , w h i c h
s t a t e t h a t t h e r e s p e c t i v e powers o f t h e members i n
g e n e r a l m e e t i n g and t h e b o a r d of d i r e c t o r s s h a l l b e
d e t e r m i n e d by t h e company 's a r t i c l e s . And t h a t u n l e s s
t h e d e c r e e p r o v i d e s o t h e r w i s e , t h e b o a r d o f d i r e c t o r s
w h i l s t a c t i n g w i t h i n powers c o n f e r r e d upon them by t h e
~ c t o r t h e a r t i c l e s , s h a l l n o t b e bound to o b e y t h e
115. /?go67 2 Ch. 34; see a l s o : n u i n & Axtens v. Sa lmon, - 779047 - A.C. 4 4 2 - John shaw & S o n s ( S a l f o r d ) ~ t d .
v . sfiawL - /7932? 2 K.B. 113
117 . his word i s o m i t t e d i n s e c t i o n 6 3 ( 4 ) , C.A.M.A. B u t see s e c t i o n 6 3 ( 4 ) o f t h e D r a f t Decree on Company Law
d i r e c t i o n s o r i n s t r u c t i o n s o f t h e members i n
g e n e r a l m e e t i n g . Here t h e d i r e c t o r s m u s t a c t i n
g o o d f a i t h a n d w i t h d u e d i l i g e n c e b e f o r e t h i s
s e c t i o n c a n a p p l y . T h i s p r o v i s i o n a p p e a r s t o
h a v e p u t an e n d t o t h e c o n t r o v e r s y o f who
c o n t r o l s t h e company. T h i s i s b e c a u s e d i f f e r e n t
o p e r a t i o n a l s p h e r e s o f t h e company a r e now e n t r u s t e d
t o t h e b o a r d o f d i r e c t o r s a n d t h e s h s r e h o l d e r s , res-
p e c t i v e l y . ~ y t h e p r o v i s i o n o f t h e a r t i c l e s , t h e
s h a r e h o l d e r s h a v e a s s i g n e d c e r t a i n f u n c t i o n s t o
t h e m s e l v e s a n d c e r t a i n o t h e r f u n c t i o n s t o t h e d i r e c -
tors . T h e r e f o r e i t i s a common e x p e c t a t i o n t h a t t h e
d i r e c t o r s m u s t be g i v e n a f r e e - h a n d i n t h e e x e c u t i o n
o f t h e i r f u n c t i o n s . T h e p o s i t i o n now i s t h a t w h e n e v e r
t h e p o w e r s o f managemen t of t h e company a r e e n t r u s t e d
t o t h e d i r e c t o r s a c c o r d i n g t o s e c t i o n 6 3 ( 3 ) o f t h e
C o m p a n i e s ~ c t , au tonomy i s c o n f e r r e d and t h e d i r e c t o r s
118. S e e G o l d b e r g : l fn r t ic le 8 0 of T a b l e A of t h e Com- p a n i e s ~ c t 1348' ' ( 1 9 7 0 ) 3 3 M.L.R. 1 7 7 ; a n d S u l l i v a n :
. f f D i r e c t o r - ~ h a r e h o l d e r ~ e l a t m ~ s ~ ~ ( 1 9 7 7 ) 9 3 L. Q.R. 569. See a l s o : B a k i b i n g a : f f C o n t r o l l i n g t h F \
Company a n d C o n t r o l l i n g t h e Management o f t h e Com- pany : A d i s t i n c t i o n f f ( 1 9 8 9 ) 2 G ~ R ~ B ~ P O L ~ No. 4 , p. 1 3
c a n n o t be d i v e s t e d o f s u c h powers e x c e p t by t h e
a l t e r a t i o n of t h e a r t i c l e s .
Cm LIMITATION A N D CONTROL OF POWERS OF DIRECTORS BY THE GENERAL MEETING
(I ) LIMITATION OF DIRECTORS' POWERS
T h e powers o f d i r e c t o r s w i t h r e s p e c t t o t h e
management o f t h e b u s i n e s s o f t h e company a r e n o t
a b s o l u t e . T h e r e a r e some b a s i c r e s t r i c t i o n s , F i r s t ,
b e i n g a g e n t s of t h e company, t h e d i r e c t o r s c a n d o
n o t h i n g which t h e company i t s e l f , t h e i r p r i n c i p a l ,
c a n n o t d o u n d e r i t s memorandum o f a s s o c i a t i o n . I f
o t h e r w i s e , any p u r p o r t e d a c t by them i s u l t r a v i r e s .
~ l s o , w h e r e t h e d i r e c t o r s a c t o u t s i d e t h e i r own powers
b u t w i t h i n t h e powers of t h e company, t h e i r a c t c a n o n l y
1 1 9 be v a l i d a t e d by t h e r a t i f i c a t i o n o f t h e g e n e r a l m e e t i n g .
t
B U ~ w h e r e e x c e s s i v e a c t s o f d i r e c t o r s , d e v o i d o f a u t h o -
r i t y , a r e n o t r a t i f i e d by t h e company i n q e n e r a l m e e t i n g ,
t h e y may be l i a b l e t o t h o s e w i t h whom t h e y d e a l on t h e
12C! a s s u m p t i o n t h a t t h e y a r e t a k e n t o w a r r a n t t h e i r a u t h o r i t y .
1 1 9 . See G r a n t v. u n i t e d Kingdom S w i t c h b a c k R a i l w a y Co,, ( 1 8 8 8 ) 40 c h , D. 135
1 2 0 . S e e O l i v e r v. ~ a n k o f Eng land /79027 1 Ch, 610 ; s t a r k e y v. Bank o f ~ n g l a n d , /7g037'n.cm 1 1 4 ; S e e a l s o : He ly-Hutch inson v . ~ r a y h e a a L t d , ~ ? 9 6 8 7 - 1 QmBe 549
The f i d u c i a r y p o s i t i o n o c c u p i e d by d i r e c t o r s
l im i t s t h e i r f r e edom t o e x e r c i s e t h e i r powers a c c o r -
d i n g t o t h e i r d i s c r e t i o n . T h e s e power s mus t be
e x e r c i s e d f o r t h e b e n e f i t o f t h e company. ~ c c o r d -
i n g l y , t h e c o u r t h a s i n t e r v e n e d t o p r e v e n t t h e a b u s e
1 2 2 o f a power t o f o r f e i t s h a r e s l 2 l , t o make c a l l s , t o 1 2 4 r e f u s e t o r e g i s t e r t r a n s f e r s 1 2 3 , t o i s s u e s h a r e s ,
t o i n c r e a s e c a p i t a l t o s e c u r e v o t i n g power125, among
o t h e r s . ~ l s o t h e d i r e c t o r s c a n n o t e x e r c i s e powers
r e s e r v e d by t h e a r t i c l e s f o r t h e g e n e r a l m e e t i n g .
F o r i n s t a n c e , a l t e r a t i o n o f a r t i c l e s and c a p i t a l a r e
a r e a s w h e r e o n l y t h e g e n e r a l m e e t i n g c a n e x e r c i s e power
t o t h e e x c l u s i o n o f t h e b o a r d o f d i r e c t o r s .
11- DEFAULT POWERS OF THE GENERAL MEETING
The power s o f management o f a company a r e . g e n e r a l l y v e s t e d i n t h e b o a r d o f d i r e c t o r s . ~ u t
2 . S e e ~ i c h m o n d t s Case , ( 1 8 5 8 ) , 4 K. & J. 305 , 325
122 . S e e ~ l e x a n d e r v. ~ u t o r n a t i c T e l e p h o n e Co., - /?go07 - . 2 C h . 56
1 2 3 - S e e R e Gresham L i f e A s s u r a n c e S o c i e t y , ex . p. penney , (18'12) L.R. 8 ~ h . 446, 449
124. S e e p u n t v. symons a co . , /79037 2 c h . 506 ; ~ o q g v. Cramphorn ~ t d . - /196'// - cFi. 254
125 . see p i e r c y v . S. ills co. , / 1 ? 2 ~ 7 - 1 ch . 77
n o t w i t h s t a n d i n g t h i s f a c t , t h e r e e x i s t s a r e s i d u a l
power i n t h e s h a r e h o l d e r s i n g e n e r a l m e e t i n g t o
e x e r c i s e c o n t r o l , ~ f f o r a n y r e a s o n , t h e b o a r d o f
d i r e c t o r s c a n n o t e x e r c i s e t h e p o w e r s v e s t e d i n them,
t h e g e n e r a l m e e t i n g may d o so, S u c h e x e r c i s e o f
power i s o t h e r w i s e known a s t h e d e f a u l t powers o f
t h e g e n e r a l m e e t i n g . his is p r o v i d e d f o r b y s e c t i o n
6 3 ( 5 ) o f t h e c o m p a n i e s ~ c t . I n t h e f o l l o w i n g c a s e s ,
a c t i o n b y t h e g e n e r a l m e e t i n g h a s b e e n h e l d e f f e c t i v e
v a l i d :
w h e r e t h e r e i s a d e a d l o c k on t h e board126. his
s h o u l d b e c o n t r a s t e d w i t h s i t u a t i o n s i n w h i c h a
b o a r d i s a b l e t o a c t b u t i s h e l d u p by t h e
o p p o s i t i o n o f o n e f a c t i o n a c t i n g w i t h i n i t s
1 2 7 p o w e r s u n d e r t h e a r t i c l e s . t
1 2 8 Where t h e r e a r e n o d i r e c t o r s ,
1 2 6 , see R a r r o n v , p o t t e r , s u p r a
1 2 7 . see ~ u i n & A x t e n s v. Sa lmon , s u p r a
1 2 8 , S e e A l e x a n d e r Ward & Co. v , Samyang ~ a v i g a t i o n CO,, /1957/ - 1 W.L.R, b'/3, ( p e r L o r d ~ a r 1 s h a m a t T 6 7 g ) . S e e a l s o : okeowo v. M i g l i o r e ( 1 9 7 9 ) 11 S.C. 1 3 8 , ( p e r I d i g b e J.s.c.)
w h e r e a n e f f e c t i v e quorum c a n n o t b e
3.2 9 o b t a i n e d .
w h e r e t h e d i r e c t o r s a r e d i s q u a l i f i e d from
1 3 0 v o t i n g . Where t h e d i r e c t o r s h a v e p u r p o r t e d t o
b o r r o w i n e x c e s s o f t h e amount a u t h o r i s e d
1 3 1 b y t h e a r t i c l e s . w h e r e t h e d i r e c t o r s a re a c t u a t e d by i m p r o p e r
1 3 2 m o t i v e . Where a l l t h e s a m e p e r s o n s a r e d i r e c t o r s
1 3 3 a n d s h a r e h o l d e r s . T h e c o u r t c a n a l s o s ' a p p o i n t a r e c e i v e r a n d
m a n a g e r w h e r e t h e company i s i n a c o n d i t i o n i n w h i c h
t h e r e i s n o p r d p e r l y c o n s t i t u t e d g o v e r n i n g body , o r
t h e r e a r e s u c h d i s s e n s i o n s i n t h e g o v e r n i n g body t h a t
i t i s i m p o s s i b l e t o c a r r y on t h e b u s i n e s s w i t h
1 2 9 . S e e F o s t e r v - F o s t e r , s u p r a
130.. S e e G r a n t v . U.K. S w i t c h b a c k ailw way C O . ~ S u p r a
1 3 1 . See ~ r v i n e v, 2 ~ p p . Cas .
1 3 2 . See Bamford v. ~ a n i f o r d , s u p r a
1 3 3 . See R e ~ u o m a t i c L t d - , - /?9697 - 2 Ch. 3 6 5
a d v a n t a g e t o t h e p a r t i e s i n t e r e s t e d , Such a n
a p p o i n t m e n t i s made f o r a l i m i t e d t i m e u n t i l a
m e e t i n g of t h e company c a n be h e l d and a g o v e r n i n g
body appo in t ed13* . T h e s e e x c e p t i o n s a r e l i m i t a t i o n s
t o a s t r i c t t h e o r y o f d i v i s i o n o f powers be tween t h e
b o a r d o f d i r e c t o r s and t h e g e n e r a l m e e t i n g a n d a r e
c o n v e n i e n t f o r p r o m o t i n g t h e commercial p u r p o s e of
t h e company,
111. ULTIMATE CONTROL OF THE MANAGEMENT OF THE COMPANY'S BUSINESS BY THE GENERAL MEETING
The n e e d t o a t t e n d t o t h e day- to-day a f f a i r s o f
a company makes i t i m p e r a t i v e fo r i t s rn8?@ge$ent t o t,. '
be v e s t e d i n t h e b o a r d o f d i r e c t o r s . un l Jke t h e . members i n g e n e r a l m e e t i n g , t h i s i s a s h a l l e r g r o u p
of p e r s o n s t h a t c a n e a s i l y a t t e n d t o t h e b u s i n e s s of
t h e company a s o c c a s i o n demands. B e s i d e s , t h e a r t i c l e s
o f a company u s u a l l y p r o v i d e t h a t t h e company 's b u s i n e s s
s h a l l be managed by t h e d i r e c t o r s , The company i n gene-
r a l m e e t i n g c a n n o t o r d i n a r i l y d e a l w i t h m a t t e r s r e l a t i n g
t o s u c h management. I f t h e members are d i s s a t i s f i e d
1 3 4 , see eath hers tone v , Cooke /T8737 L.R. 16 EU. 298
w i t h t h e way i n w h i c h t h e p o w e r i s b e i n g e x e r c i s e d ,
t h e y c a n c o n t r o l t h e d i r e c t o r s i n t h e m a t t e r o f
managemen t i n t h e f o l l o w i n g ways :
F i r s t , by a l t e r i n g t h e c o m p a n y ' s a r t i c l e s so a s t o
c u t down d i r e c t o r s ' powers'35. T h i s i s a n e f f e c t i v e
way o f r e - d i s t r i b u t i n g t h e e x e r c i s e o f p o w e r s b e t w e e n
t h e d i r e c t o r s a n d t h e members . ~ u t i t r e q u i r e s a
s p e c i a l r e s o l u t i o n w h i c h a m i n o r i t y c a n n o t o b t a i n .
S e c o n d l . ~ , b y r e f u s i n g t o re-elect d i r e c t o r s w h o s e
a c t i o n s t h e y d i s a p p r o v e 1 3 6 . T h i s c o u r s e o f a c t i o n
r e q u i r e s v o t i n g power i n e x c e s s o f t h a t p o s s e s s e d b y
a m i n o r i t y . T h i r d l y , b y r e c o u r s e t o t h e p r o v i s i o n s
o f s e c t i o n 2 6 2 ( 1 ) o f t h e C o m p a n i e s ~ c t . T h i s s e c t i o n
p r o v i d e s t h a t a company may b y o r d i n a r y r e s o l u t i o n
r e m o v e a n y d i r e c t o r b e f o r e t h e e x p i r a t i o n o f h i s
p e r i o d o f o f f i c e , n o t w i t h s t a n d i n g a n y t h i n g i n t h e
a r t i c l e s o r i n a n y a g r e e m e n t b e t w e e n t h e company and
h im.
T h e u s e o f t h i s p r o v i s i o n b y t h e g e n e r a l m e e t i n g
i s a n e f f e c t i v e means o f e x e r c i s i n g u l t i m a t e c o n t r o l .
1 3 5 . see s e c t i o n 4 . 8 , C.A.M.R.
1 3 6 . see s e c t i o n 2 5 9 ( 3 ) , Clh.Mlh.
I t e n a b l e s t h e g e n e r a l meeting t o remove r e c a l c i t r a n t
d i r e c t o r s and a p p o i n t o t h e r s who a r e more compl iant .
137 The new Companies ~ c t has a b o l i s h e d weighted s h a r e s . T h i s has t aken c a r e o f t h e awkward s i t u a t i o n i n
4
~ u s h e l l v. Faith138, where t h e o b j e c t of t h e p r o v i -
s i o n was f r u s t r a t e d by a c l a u s e i n t h e a r t i c l e s
a t t a c h i n g i n c r e a s e d v o t e s t o a d i r e c t o r ' s s h a r e s on
a r e s o l u t i o n t o remove him. But s p e c i a l n o t i c e 139
i s r e q u i r e d f o r t h e s e c t i o n t o app ly and a l s o payment
of damages f o r any b reach o f c o n t r a c t o f s e r v i c e . T h i s
e n s u r e s c a u t i o n and r e s t r a i n t on t h e a r b i t r a r y exer -
c ise of t h i s power by t h e members.
0. DELEGATION OF POWERS BY THE DIRECTORS
I n t h e running of t h e a f f a i r s of t h e company, t h e
board of d i r e c t o r s a r e expec ted t o a c t t o g e t h e r a s a . body. The b a s i s of t h i s i s t h e need t o e n s u r e t h a t
t h e c o l l e c t i v e wisdom o f t h e members o f t h e board o f
d i r e c t o r s i s a v a i l a b l e t o t h e company. However, i n
l a r g e p u b l i c companies, i t i s i m p r a c t i c a b l e f o r d i r e c -
t o r s t o manage e x c l u s i v e l y t h e a f f a i r s of t h e i r
137. See s e c t i o n 316, C.A.M.A.
1 3 8 - ~ 7 9 7 0 7 A.C. 1099. See a l s o : ~ e h i n d e v. R e g i s t r a r of Companies, (1979) 3 L . R . N . ~
139. s e e s e c t i o n 262(6) C.A.M.A. -9
c o m p a n i e s , T h i s i s b e c a u s e t h e b o a r d o f d i r e c t o r s
o f many s u c h c o m p a n i e s may meet o n l y a t r a r e i n t e r v a l s ,
e i t h e r m o n t h l y o r q u a r t e r l y a s t h e c a s e may be, I t
b e c o m e s n e c e s s a r y f o r a s m a l - l e r number o f t hem t o be
c o n s t i t u t e d i n t o a c o m m i t t e e o r e v e n an o u t r i g h t
a p p o i n t m e n t o f o n e o f them a s t h e m a n a g i n g d i r e c t o r ,
f o r t h e d a y - t o - d a y managemen t o f t h e a f f a i r s of t h e
company . p r o f e s s o r o l a w o y i n , i n s u p p o r t o f d e l e q a t i o n
o f p o w e r s b y d , i r e c t o r s , s t a t e s t h u s :
l f ~ i r e c t o r s o f l a r g e c o r p o r a t i o n s , e v e n t h o u g h t h e y d e v o t e t h e i r e n t i r e time t o i t s a f f a i r s , c a n n o t s u p e r - v i s e a l l o f t h e d e t a i l s o f c o r p o r a t e b u s i n e s s . T h e m a g n i t u d e a n d r a m i f i c a - t i o n s o f t h e b u s i n e s s j u s t i f y d e l e g a - t i o n o f t h e i r d u t i e s o f management t o s u b ~ r d i n a t e s l ~ ~ l f ,
s e c t i o n s 2 6 3 ( 5 ) a n d 64 o f t h e C o m p a n i e s ~ c t
a u t h o r i s e t h e d i r e c t o r s t o d e l e q a t e a n d e x e r c i s e t h e i r t
p o w e r s t h r o u g h a committee o r m a n a g i n g d i r e c t o r a p p o i n t e d
f r o m t h e i r number , T h e
d e t e r m i n e t h e a u t h o r i t y
d i r e c t o r , and t o r e v o k e
b o a r d , t h e r e f o r e , h a s power t o
o f i t s c o m m i t t e e s o r m a n a g i n g
a committee's a u t h o r i t y a s a
w h o l e o r t h a t o f a n y member, A d e l e s a t e i s a t best an
1 4 0 . S e e G. A. o l a w o y i n , s u p r a , pp. 249-250
a g e n t a n d h i s a u t h o r i t y c a n be r e v o k e d , o t h e r w i s e
1 4 1 t h e r e would be t w o c o n f l i c t i n g a u t h o r i t i e s . I n
~ u t h v. ~ l a r k e ' ~ ~ , L o r d C o l e r i d q e , C . J., s t a t e d t h e
l a w r e l a t i n g t o d e l e g a t i o n o f powers a s f o l l o w s :
" D e l e g a t i o n d o e s n o t i m p l y a d e n u d a t i o n o f power and a u t h o r i t y . The word I d e l e g a t i o n ' i m p l i e s t h a t powers a r e c o m m i t t e d t o a n o t h e r p e r s o n or body which a r e a s a r u l e a l w a y s s u b j e c t t o r e s u m p t i o n by t h e power d e l e a a t i n g and .. . u n l e s s , t h e r e f o r e , i t i s c o n t r o l l e d by s t a t u t e , t h e d e l e g a t i n g power c a n a t any t i m e r e sume i t s a u t h o r i t y 1 4 3 t f .
B U ~ t h e a r t i c l e s of a s s o c i a t i o n o f e a c h company u s u a l l y
c o n s t i t u t e t h e main s o u r c e of d e l e g a t i o n o f powers by
t h e d i r e c t o r s a s w e l l a s t h e a s c e r t a i n m e n t o f t h e p o w e r s
a n d d u t i e s t h a t may b e s o d e l e g a t e d , t o g e t h e r w i t h any
r e l a t e d However, t h e b o a r d of d i r e c t o r s ,
See Mantpn v, righto on C o r p o r a t i o n , /3951~7 - - 2 ~ l l E - R e 101
( 1 8 9 0 ) 2 5 O.R.D. 391. See a l s o s e c t i o n 279( 7 ) , Companies ~ c t
1 b i d . a t p. 394. See a l s o Gordon n a d d s R Co. v. M o r r i s , 1 7 9 4 5 7 2 AI 1 E .R. 6 1 6 , a t p. 6 2 1 ( p e r L y n s k e y J.)
S e e s e c t i o n s 2 6 3 ( 5 ) and 6 4 , C.A.M.A. see a l s o G . A. O l a w o y i n , s u p r a , p. 2 5 2
a g e n t a n d h i s a u t h o r i t y c a n b e r e v o k e d , o t h e r w i s e
1 4 1 t h e r e w o u l d b e two c o n f l i c t i n g a u t h o r i t i e s . I n
~ u t h v. ~ l a r k e ' ~ ~ , ~ o r d C o l e r i d p e , C. J., s t a t e d t h e
l a w r e l a t i n g t o d e l e g a t i o n of p o w e r s a s f o l l o w s :
" D e l e g a t i o n d o e s n o t i m p l y a d e n u d a t i o n of p o w e r a n d a u t h o r i t y . T h e w o r d c d e l e g a t i o n ' i m p l i e s t h a t p o w e r s a r e c o m m i t t e d t o a n o t h e r p e r s o n or b o d y w h i c h a r e a s a r u l e a l w a y s s u b j e c t t o r e s u m p t i o n b y t h e p o w e r d e l e a a t i n g and .. . u n l e s s , t h e r e f o r e , i t i s c o n t r o l l e d b y s t a t u t e , t h e d e l e g a t i n g p o w e r c a n a t a n y t i m e r e s u m e i t s a u t h o r i t y 1 4 3 t f .
B U ~ t h e a r t i c l e s of a s s o c i a t i o n of e a c h company u s u a l l y
c o n s t i t u t e t h e m a i n s o u r c e o f d e l e g a t i o n of p o w e r s b y
t h e d i r e c t o r s a s w e l l a s t h e a s c e r t a i n m e n t o f t h e p o w e r s
a n d d u t i e s t h a t may b e so d e l e g a t e d , t o g e t h e r w i t h a n y
re1 a t e d H o w e v e r , t h e b o a r d of d i r e c t o r s ,
1 . S e e Man tpn v. righto on C o r p o r a t i o n , / 3 9 5 1 7 - - 2 ~ l l E - R - 101
1 4 2 . ( 1 8 9 0 ) 2 5 O.R.D. 391 . S e e a l s o s e c t i o n 2 7 9 ( 7 ) , C o m p a n i e s ~ c t
1 4 3 . 1 b i d . a t p. 3 9 4 . S e e a l s o G o r d o n adds R Co. v . Morris, / 3 9 4 5 7 - 2 A I I E.R. 6 1 6 , a t p. 6 2 1 ( p e r L y n s k e y 3.)
1 4 4 . S e e s e c t i o n s 2 6 3 ( 5 ) a n d 64 C.A.M.A. S e e a l s o G . A. ~ l a w o y i n , s u p r a , p. 5 5 2
i n s p i t e of t h i s s t a t u t o r y a u t h o r i s a t i o n t o d e l e g a t e
some powers o r d u t i e s t o o t h e r s , s t i l l owes a d u t y
o f p e r s o n a l s u p e r v i s i o n and i t c a n n o t d e l e g a t e t h e
e n t i r e s u p e r v i s i o n and c o n t r o l o f t h e company t o
a n y o t h e r body o r p e r s o n .
E - THE COMPhNY SECRETARY
The company s e c r e t a r y i s o n e o f t h e p r i n c i p a l
o f f i c e r s of a company. T h i s i s b e c a u s e o f f i c e r i s
d e f i n e d b y s e c t i o n 6 5 0 ( 1 ) o f t h e c o m p a n i e s ~ c t a s
i n c l u d i n g a s e c r e t a r y and by s e c t i o n 2 9 3 ( 1 ) o f t h e
~ c t , e v e r y company i n N i g e r i a s h a l l h a v e a s e c r e t a r y .
ith her to, a company s e c r e t a r y i s c o n s i d e r e d a s a
s u b o r d i n a t e s e r v a n t w i t h o u t o s t e n s i b l e a u t h o r i t y t o
1 4 5 b i n d t h e company b y h i s a c t i o n s . However, i n
r e c e n t times, h i s p o s i t i o n h a s c h a n g e d a g r e a t d e a l . 9
his new t r e n d c a n be t r a c e d t o t h e d e c i s i o n o f t h e
E n g l i s h C o u r t o f Appea l i n Panorama D e v e l o p m e n t s
( ~ u i l d f o r d ) L t d . v . F i d e 1 . i ~ F u r n i s h i n g F a b r i c s ~ t d . 1 4 6
1 4 5 . S e e B a r n e t t , H o a r e s & Co. v. S o u t h London Tramways C o . , (1887) 18 Q.B.D. 815, a t p. 81'1 ( p e r L o r d Esher M.R. )
1 4 6 . ~ 3 9 7 1 7 2 Q.B. 7 1 1 a t pp. 716-717 -
Companies Acts i n ~ i g e r i a , b o t h p a s t and p r e s e n t h a v e
r e c o g n i s e d t h e i n c r e a s i n g i m p o r t a n c e o f t h e company
s e c r e t a r y . F o r i n s t a n c e , w h i l e t h e 1 9 6 8 Companies ~ c t
c o n t a i n e d r e l a t i v e l y f e w e r p r o v i s i o n s w i t h r e g a r d t o
1 4 7 t h e p o s i t i o n o f s e c r e t a r i e s , t h e new Companies p,ct
h a s augumented t h e s e p r o v i s i o n s by e x p r e s s l y p r o v i d i n g
3.49 f o r s u c h issues a s t h e i r appo in tments148 , q u a l i f i c a t i o n s , d u t i e s 1 5 1 and r emova l .
~t is t h e d u t y o f d i r e c t o r s t o e n s u r e t h a t t h e
s e c r e t a r y o f a company is a p e r s o n who a p p e a r s t o them
t o h a v e t h e r e q u i s i t e knowledge and e x p e r i e n c e t o d i s -
c h a r g e t h e d u t i e s of h i s o f f i c e l S 2 . I n t h e c a s e o f a
p u b l i c company t h e d i r e c t o r s a r e e n j o i n e d t o t a k e a l l
r e a s o n a b l e s t e p s t o e n s u r e t h a t i t s s e c r e t a r y h a s app ro -
p r i a t e p r o f e s s i o n a l q u a l i f i c a t i o n . ~t i s e x p r e s s l y
See, e g g . s e c t i o n s 1 6 9 ( 1 ) & ( 2 ) and 1 7 1 ( a ) & ( b ) , Companies ~ c t , 1968
s e c t i o n 296( 1 1 , C.A.M.A.
S e c t i o n 295 , C.A.M.A.
s e c t i o n 298 , C.A.M.A.
S e c t i o n 2 9 6 ( 2 ) , C.A.M.A.
p r o v i d e d t h a t t h e s e c r e t a r y m u s t b e
a member o f t h e I n s t i t u t e o f C h a r t e r e d
S e c r e t a r i e s a n d ~ d m i n i s t r a t o r s ; o r
a l e g a l p r a c t i t i o n e r ; o r
a member o f t h e I n s t i t u t e o f C h a r t e r e d
A c c o u n t a n t s o f N i q e r i a o r o t h e r b o d i e s
o f a c c o u n t a n t s e s t a b l i s h e d b y l a w ; o r
a n y p e r s o n who h a s b e e n s e c r e t a r y of a
p u b l i c company f o r a t l e a s t t h r e e y e a r s
o f t h e f i v e y e a r s i m m e d i a t e l y p r e c e d i n g
h i s a p p o i n t m e n t a s s e c r e t a r y o f a p u b l i c
company ; o r
a b o d y c o r p o r a t e o r f i r m c o n s i s t i n g o f
member s e d c h o f whom i s q u a l i f i e d u n d e r
1 5 3 p a r a g r a p h s ( a ) , ( b ) , (c) o r ( d ) a b o v e
e s s e n c e o f t h i s p r o v i s i o n i s t o i n t r o d u c e some
e l e m e n t of p r o f e s s i o n a l i s n i f o r s e c r e t a r y s h i p of com-
panics i n N i g e r i a a n d i s h i g h l y commendab le .
1 5 3 , S e e s e c t i o n 2 9 5 , C.A.M.A.
F GENERAL MEETINGS AND RESOLUTIONS
G e n e r a l m e e t i n g s and r e s o l u t i o n s a s a s p e c t s o f
t h e managemen t o f a company a r e i m p l i c i t i n t h e f a c t
t h a t c o r p o r a t e p o l i c i e s i n i t i a t e d b y t h e m a j o r i t y o f
members m u s t o f n e c e s s i t y be t h e o u t c o m e o f a p r o p e r l y
c o n v e n e d g e n e r a l m e e t i n g o f t h e members o f t h e company,
~ l s o b i n d i n g d e c i s i o n s of t h e g e n e r a l m e e t i n g mus t
h a v e b e e n a r r i v e d a t b y t h e v a r i o u s t y p e s o f r e s o l u -
t i o n s , T h e r e a r e t w o t y p e s o f r e s o l u t i o n s , t h e o r d i n a r y
r e s o l u t i o n and t h e s p e c i a l r e s o l u t i o n , e x t r a - o r d i n a r y
r e s o l u t i o n s h a v i n g b e e n a b o l i s h e d b y t h e new c o m p a n i e s
A C ~ a s an u n n e c e s s a r y s u r p l u s a g e , However , t h e s e i s s u e s
a r e more a p p r o p r i a t e l y d e a l t w i t h u n d e r c h a p t e r t h r e e
a s a s p e c t s of m a j o r i t y r u l e and a r e d i s c u s s e d i n f u l l
d e t a i l t h e r e u n d e r , B e s i d e s , t h e g e n e r a l m e e t i n g a s a
p r i m a r y o r g a n ofi t h e company h a s b e e n h i g h l i g h t e d a b o v e .
W e s h a l l now c o n s i d e r t h e d u t i e s of d i r e c t o r s .
5 , D U T I E S OF DIRECTORS TO THE COMPANY
A * GENERAL
I t i s b e y o n d d o u b t t h a t d i r e c t o r s a r e p r i m a r i l y
r e s p o n s i b l e f o r t h e management o f t h e a f f a i r s o f t h e i r
company. I n t h i s r e g a r d , c e r t a i n d u t i e s a r e i m p o s e d
u p o n them. T h e y owe a d u t y t o t h e i r company t o
m a n a g e i t i n a c c o r d a n c e w i t h t h e p r o v i s i o n s o f t h e
l a w g e n e r a l l y a n d t h e memorandum a n d a r t i c l e s of
a s s o c i a t i o n . T h e i r d u t i e s c o n s i s t p a r t l y of common
l a w d u t i e s , s u c h a s t h e d u t i e s of c a r e a n d s k i l l , a n d
f i d u c i a r y d u t i e s w h i c h a r e g o v e r n e d b y e q u i t a b l e
p r i n c i p l e s . T h e s e d u t i e s a r e now c l e a r l y s p e l t o u t
1 5 4 a n d c o d i f i e d . B. FIDUCIARY DUTIES
S e c t i o n 279 o f t h e C o m p a n i e s ~ c t r e s t a t e s a n d
c o d i f i e s t h e common l a w p o s i t i o n i n c o n n e c t i o n w i t h
d i r e c t o r s f i d u c i a r y d u t i e s a s f o l l o w s :
t o o b s e r v e u t m o s t g o o d f a i t h t o w a r d s t h e
1 5 5 . company ,
t o a c t a l w a y s i n t h e b e s t i n t e r e s t s o f t h e
1 5 6 . company ,
t o e x e r c i s e t h e i r p o w e r s f o r a p r o p e r
1 5 7 . p u r p o s e ,
1 5 4 . see s e c t i o n s 279-283, c.A.M.A.
1 5 6 . S e c t i o n 2 7 9 ( 3 ) , C.A.M.A.
1 5 7 . S e c t i o n 2 7 9 ( 5 ) , C.A.M.A.
( i v ) n o t t o f e t t e r t h e i r d i s c r e t i o n i n a
158. p a r t i c u l a r way ,
( v ) t o a v o i d c o n f l i c t o f d u t y and
1 5 9 i n t e r e s t . A l s o a d i r e c t o r owes a f i d u c i a r y d u t y w h e r e h e i s
1 6 0 a c t i n g a s a g e n t of a p a r t i c u l a r s h a r e h o l d e r . his i s a r e v e r s a l o f t h e r u l e i n p e r c i v a l v. W r i a h t 1 6 1
w h e r e i t was d e c i d e d t h a t t h e d i r e c t o r s owe no d u t i e s
t o t h e i n d i v i d u a l member, and a s t a t u t o r y c o d i f i c a t i o n
o f ~ r i e s v. w o l l e y 1 6 3 162 and ~ l l e n v. H y a t t . ~ g e i n ,
t h e f i d u c i a r y d u t y may a r i s e w h e r e , e v e n t h o u g h t h e
d i r e c t o r i s n o t a n a g e n t o f a n y s h a r e h o l d e r , b u t w i t h
r e l a t i o n t o s u c h s h a r e h o l d e r o r o t h e r p e r s o n s , h e i s
d e a l i n g w i t h company ls s e c u r i ties164. F u r t h e r m o r e , t h e
1 5 8 . s e c t i o n 2 7 9 ( 6 ) , C.A.M.A.
159. S e c t i o n 2 8 0 t C.A.M.A.
1 6 0 . S e c t i o n 2 7 9 ( 2 ) ( a ) , C.W.M.A.
1 6 1 . 2 Ch. 4 2 1
1 6 4 . S e e s e c t i o n 2 7 9 ( 2 ) ( b ) , C.A.M.A.
d i r e c t o r s m u s t e x e r c i s e t h e i r p o w e r s f o r t h e b e n e f i t
o f t h e company a s a who le . I n q e n e r a l terms, t h e
i n t e r e s t s o f t h e company means t h e i n t e r e s t s o f t h e
members ( i . e . b o t h p r e s e n t and f u t u r e members o f t h e
1 6 5 company) . C - DUTIES OF CARE A N D SKILL
T h e common l a w d u t i e s of s k i l l a n d c a r e r e q u i r e d
o f a d i r e c t o r a r e less s e v e r e . AS s t a t e d i n R e C i t y
E q u i t a b l e F i r e I n s u r a n c e Co. 166, a d i r e c t o r i s n o t
r e q u i r e d t o show g r e a t e r s k i l l a n d c a r e t h a n may b e
r e a s o n a b l y e x p e c t e d f r o m a p e r s o n o f h i s k n o w l e d a e and
e x p e r i e n c e . ~ n d s u b j e c t t o a n y c o n t r a c t h e may h a v e
w i t h t h e company, h e i s n o t bound t o g i v e c o n t i n u o u s
a t t e n t i o n t o t h e c o m p a n y ' s a f f a i r s n o r e v e n a t t e n d
b o a r d m e e t i n g s . T h i s p o s i t i o n h a s now b e e n a l t e r e d b y
t h e new C o m p a n i e s ~ c t i n t h e b i d t o make t h e d i r e c t o r s
m o r e r e s p o n s i b l e i n t h e i r d u t i e s . The s t a n d a r d s of s k i l l
a n d care r e q u i r e d o f d i r e c t o r s h a v e b e e n r a i s e d by
s e c t i o n 282 o f t h e ~ c t t o a much h i g h e r p o s i t i o n t h a n
t h a t s t a t e d i n R e C i t y quita able F i r e I n s u r a n c e Co.
1 6 5 . See R e S m i t h R r a w c e t t L t d . /?9427 Ch. 304 - - 1 6 6 . /?9257 Ch. 407 - -
T h e s t a n d a r d r e q u i r e d n o w . i s t h a t d e g r e e of
c a r e , d i l i g e n c e and s k i l l wh ich a r e a s o n a b l e and
p r u d e n t d i r e c t o r w o u l d e x e r c i s e i n c o m p a r a b l e
c i r c u m s t a n c e s . T h i s i s an o b j e c t i v e t es t a s a g a i n s t
t h e h i t h e r t o s u b j e c t i v e t e s t which d i s c o u r a g e d p r o f e s -
s i o n a l i s m i n d i r e c t o r s h i p . o t h e r h i g h l i g h t s on t h e
d u t i e s o f d i r e c t o r s u n d e r t h e new d i s p e n s a t i o n i n -
c l u d e t h e f a c t t h a t t h e same s t a n d a r d of c a r e i s now
1 6 7 r e q u i r e d of e x e c u t i v e and n o n - e x e c u t i v e d i r e c t o r s . ~ l s o , e v e r y d i r e c t o r i s now i n d i v i d u a l l y r e s p o n s i b l e
f o r t h e a c t i o n s of t h e b o a r d i n w h i c h h e p a r t i c i p a t e d .
R u t a b s e n c e from t h e b o a r d ' s d e l i b e r a t i o n s , u n l e s s
j u s t i f i e d , w i l l n o t r e l i e v e a d i r e c t o r f r o m s u c h
r e s p o n s i b i l i t y 1 6 8 . ~ e s i d e s , an a c t i o n f o r n e g l i g e n c e
c a n now be t a k e n a g a i n s t d i r e c t o r s f o r b r e a c h o f t h e
d u t i e s of c a r e 1 and T h i s i s a r e v e r s a l of
1 7 0 t h e d e c i s i o n i n p a v l i d e s v . J e n s e n .
1 6 7 . s e c t i o n 2 8 2 ( 4 ) , C.A.M.A.
168; s e c t i o n 282( 3 ) , C.A.M.A.
1 7 0 . /_?-9567 Ch. 565. S e e a l s o : DOVey v. C o r y , - / 79017 - A.c.-477
D * EFFECTS OF BREACH OF DUTY
~ c t i o n s a g a i n s t d i r e c t o r s f
may be b r o u g h t a s f o l l o w s :
o r b r e a c h o f d u t y
( i 1 BY THE COMPANY
T h e company c a n a l w a y s s u e a d i r e c t o r f o r
b r e a c h of f i d u c i a r y d u t y 1 7 2 17' o r n e g l i g e n c e , a n d t h e a c t i o n may be i n i t i a t e d b y t h e b o a r d
o f d i r e c t o r s o r b y t h e members , by o r d i n a r y
r e s o l u t i o n i n g e n e r a l m e e t i n g .
I n g e n e r a l , t h e r e is a r i g h t o f a c t i o n i n a
member t o s u e a d i r e c t o r f o r b r e a c h o f f i d u c i a r y
d u t y , b u t i n m o s t c a s e s , h e w i l l b e c o n f r o n t e d
w i t h t h e r u l e i n POSS v. H a r b ~ t t l e l ~ ~ . The
e f f e c t o f t h i s r u l e i s t h a t s i n c e t h e w r o n g i s
d o n e t o t h e company, t h e company i s t h e p r o p e r
p l a i n t i f f a n d n o t i n d i v i d u a l s h a r e h o l d e r s . n u t
s u c h a n a c t i o n may p r o c e e d w h e r e t h e member a l l e q e s
1 7 1 . S e e s e c t i o n 2 7 9 ( 9 ) , C.A.M.A.
1 7 2 , S e e s e c t i o n 2 8 2 ( 2 ) , C.R.M.A.
1 7 3 . S u p r a
f r a u d a s
f i d u c i a r ;
d i s t i n c t f r o m mere b r e a c h o f a
y duty174, o r w h e r e t h e d i r e c t 0 1
c o n t r o l g e n e r a l m e e t i n g s e i t h e r b y v o t i n g
p o w e r 1 7 6 175 o r i n o t h e r ways . ( i i i ) UNDER SECTIONS 5 0 6 A N D 6 4 4 OF THE COMPANIES
ACT
I n a w i n d i n g u p , a l i q u i d a t o r , o r a c r e d i t o r
o r a c o n t r i b u t o r y may b r i n g a n a c t i o n u n d e r
s e c t i o n 506 of t h e C o m p a n i e s ~ c t f o r f r a u d u l e n t
t r a d i n g a g a i n s t a d i r e c t o r . ~ l s o , b y v i r t u e of
s e c t i o n 6 4 4 of t h e ~ c t , t h e p e n a l t y f o r f r a u d u -
l e n t t r a d i n g i s e x t e n d e d t o o t h e r c i r c u m s t a n c e s
o t h e r t h a n o n w i n d i n g u p o f a company. I n t h e s e
c a s e s , a p p l i c a t i o n m u s t be made t o t h e c o u r t
f i r s t , a n d t h e g r o u n d b e i n g m i s f e a s a n c e . P e r -
s o n a l l i a b i l i t y is i m p o s e d upon a d i r e c t o r if
f o u n d g u i l t y .
174 . See ~ e n i e r v. H o o p e r f s T e l e g r a p h w o r k s L t d . ( 1 8 7 4 ) 9 Ch- A P P - 3 5 0
1 7 5 . 'see Cook v. D e e k s , - / ?9167 1 A.C. 554
1 7 6 . S e e p r u d e n t i a l A s s u r a n c e v. Newman I n d u s t r i e s , /?980/ 2 - - ~ 1 1 E.R. 8 4 1
( IV) BY AN OUTSIDER FOR BREACH OF WARRANTY
D i r e c t o r s owe no f i d u c i a r y o r c o n t r a c t u a l
d u t i e s t o p e r s o n s who d e a l w i t h t h e i r company.
However, a d i r e c t o r i s l i a b l e i n damages t o
a p e r s o n w i t h whom h e p u r p o r t s t o make a
c o n t r a c t which i s n o t b i n d i n g on h i s company
a t a l l , e i t h e r b e c a u s e t h e company h a s no power
t o make t h e c o n t r a c t o r b e c a u s e t h e d i r e c t o r
h a s exceeded h i s powers , I n s u c h a c a s e t h e
d i r e c t o r i s l i a b l e f o r b r e a c h o f w a r r a n t y o f
a u t h o r i t y a s an a g e n t and must compensa te t h e
1 7 7 o t h e r p a r t y i f l o s s r e s u l t s . AS r e g a r d s
e x e m p t i o n s , no p r o v i s i o n i n t h e a r t i c l e s , o r
r e s o l u t i o n s o f a company, o r p r o v i s i o n s o f a
c o n t r a c t may e x c u s e a d i r e c t o r f o r b r e a c h o f
duty17*. . ~ u t u n d e r s e c t i o n 641, o f t h e Companies
~ c t , t h e c o u r t may g r a n t r e l i e f i n s p e c i a l c i rcum-
179 s t a n c e s .
1 7 7 , S e e Weeks v . P r o p e r t ( 1 8 7 3 ) L.R. 8 C. P. 427. S e e a l s o : ~ o u n t a i n e v . Ca rmar then Rai lway Co. ( 1 8 6 8 ) L . R . 5 ~ q . 316
178. S e e s e c t i o n s 2 7 9 ( 8 ) and 6 7 ( 1 ) , C.A.M.A.
179. S e e I n R e ~ u o m a t i c /79697 1 A l l E.R. 1 6 1 - -
( v ) REMEDIES
~ e s i d e s , t h e f o l l o w i n g r e m e d i e s a r e a l s o
a v a i l a b l e :
( a ) INJUNCTION
his i s most u s e f u l where a b r e a c h o f d u t y
i s t h r e a t e n e d o r whe re i t is c o n t i n u i n g and
w i l l f o r b i d t h e b r e a c h on p a i n o f a f i n e o r
impr i sonmen t f o r c o n t e m p t o f c o u r t i f t h e
i n j u n c t i o n i s i g n o r e d .
( b ) DAMAGES
( o r c o m p e n s a t i o n , i n r e s p e c t o f e q u i t a b l e
c l a i m s f o r b r e a c h o f f i d u c i a r y d u t y )
r e s u l t i n mone ta ry compensa t ion f o r loss
a r i s i n g f rom t h e b r e a c h , I s s u e s r e l a t i n g
t o t h e r e m o t e n e s s and quantum o f damages a r e
t r e a t e d i n a c c o r d a n c e w i t h t h e g e n e r a l
p r i n c i p l e s o f t h e law of c o n t r a c t , t o r t s o r
t r u s t s d e p e n d i n g o n t h e n a t u r e of t h e b r e a c h
o f d u t y . T h i r d p a r t i e s who knowing ly p a r t i c i -
- p a t e i n a d i r e c t o r ' s b r e a c h o f f i d u c i a r y d u t y
180 a r e a l s o l i a b l e ,
180. See S e l a n g o r U n i t e d Rubber states t t d . v. c r a d o c k (NO. 3), /1968/ 2 ~ 1 1 E , R *
( c ) TRACING
Here p r o p e r t y c a n be r e c o v e r e d f rom t h e
d i r e c t o r s and f rom t h i r d p a r t i e s who a r e n o t
bona f i d e p u r c h a s e r s f o r v a l u e i f i t can b e
181 t r a c e d . ( d ) RESCISSION
C o n t r a c t s made w i t h t h e company i n which a
d i r e c t o r i s i n t e r e s t e d c a n b e r e s c i n d e d ,
p r o v i d e d t h e s t a t u s quo c a n b e r e s t o r e d and
t h e r i g h t s o f t h i r d p a r t i e s h a v e n o t a c c r u e d .
( e l ACCOUNT A N D / O R DISMISSAL
A d i r e c t o r c a n b e made t o a c c o u n t f o r secret
p r o f i t s and h i s b r e a c h o f d u t y may g i v e r i se t o
1 8 2 a r i g h t o f summary d i s m i s s a l . 6. 1,IABILITY OF THE COMPANY FOR THE ACTS
OF ITS ORGANS A N D OFFICERS
I n g e n e r a l , t h e l aw r e l a t i n g t o t h e l i a b i l i t y o f
t h e company, d i v i d e s i n t o t h o s e a c t s o f i t s p r i m a r y
8 S e e S i n c l a i r v. Brougham, /?9147 A.C. 398. S e e a l s o : R e ~ i p l o c k , /1948/ - cii. 495
182 . S e e Boston Deep S e a F i s h i n g Co. v. ~ n s e l l , ( 1 8 8 8 ) 39 ch. D. 339
o r g a n s wh ich a r e r e g a r d e d a s t h e a c t s of t h e
company i t s e l f , and t h o s e o f i t s a g e n t s and
o f f i c e r s , d u l y a u t h o r i s e d , i n r e s p e c t o f which
t h e company i s l i a b l e on t h e b a s i s o f r e s p o n d e n t
super io r183 . The l a w i n i t s wisdom r e g a r d s t h e s e
human a g e n t s a s t h e a l t e r ego 18 4 o f t h e company.
C o n s e q u e n t l y , t h e i r a c t s a r e t a k e n t o be t h a t o f
t h e company i t s e l f , f o r which t h e company i s pr ima-
r i l y l i a b l e . T h i s i s e x p r e s s l y p r o v i d e d f o r by
s e c t i o n 65 o f t h e Companies ~ c t a s f o l l o w s :
"Any a c t o f t h e members i n g e n e r a l m e e t i n g , t h e b o a r d o f d i r e c t o r s o r o f a manag ing d i r e c t o r w h i l e c a r r y - i n g o n i n t h e u s u a l way t h e b u s i n e s s o f t h e company s h a l l b e t r e a t e d a s t h e a c t o f t h e company i t s e l f and t h e company s h a l l be c r i m i n a l l y and c i v i l l y l i a b l e t h e r e f o r t o t h e same e x t e n t a s i f i t were a n a t u r a l p e r s o n i q .
The e f f e c t ' o f t h i s p r o v i s i o n is t h a t w h e r e a
t h i r d p a r t y h a s d e a l t w i t h t h e o r g a n s o r o f f i c e r s o f
t h e company i n good f a i t h and w i t h o u t knowledge o f t h e
184 . S e e , e.g., I s h o l a - w i l l i a m s v. T. A. ~ a m m o n d P ro - j ec t s ~ i m i t e d , (1988) 2 S.C.N.J. p t . 11. 318, a t P. 337
t r u e s t a t e o f t h e i r r e l a t i o n s h i p w i t h t h e company,
t h e company s h a l l be p r i m a r i l y l i a b l e . The l i a b i l i t y
o f t h e company a t t a c h e s i m m e d i a t e l y w h e r e t h e t r a n -
s a c t i o n i s b e t w e e n t h e g e n e r a l m e e t i n g , b o a r d o f
d i r e c t o r s o r t h e manag ing d i r e c t o r and t h e i n n o c e n t
t h i r d p a r t y . ~ u t w h e r e i t i s b e t w e e n an o f f i c e r o f
t h e company and an i n n o c e n t t h i r d p a r t y , t h e h t h e
o f f i c e r m u s t h a v e had a p r i o r a u t h o r i s a t i o n by any o f
t h e t h r e e p r i n c i p a l o r g a n s m e n t i o n e d a b o v e o r t h e act
i s s u b s e q u e n t l y r a t i f i e d . ~ f o t h e r w i s e , t h e a c t s o f
s u c h o f f i c e r o r a g e n t s h a l l n o t be deemed t o be t h e
a c t s o f t h e company185. I n t h i s r e g a r d , i t i s impor-
t a n t t o n o t e t h a t t h e b i n d i n g n a t u r e o f t h e a c t s o f
o f f i c e r s o f a company d e p e n d s on t h e s t a t u s of t h e
o f f i c e r 1 8 6 . ~ u t a company i s v i c a r i o u s l y l i a b l e f o r
t h e w r o n g f u l acts o f i t s s e r v a n t s w h i l e a c t i n g w i t h i n
18 7 t h e c o u r s e or s c o p e o f t h e i r employment .
185 . See s e c t i o n 6 6 ( 1 ) & ( 2 1 , C.A.M.A.
186 . see ~ i g e r i a n ~ a t i o n a l s u p p l y Company ~ t d . v. ~ l h a j i Hamajoda S a b e n a Co. L t d . & O r s . , ( 1 9 8 8 ) 3 S-C.NoJ* p t . I , 1 3 0 , a t p. 1 6 2
187 . S e e s e c t i o n 6 6 ( 3 ) , C.A.M.A.
CONCLUSION
T h e managemen t of a company i s a v e r y b r o a d t o p i c
of w h i c h e f f o r t h a s b e e n c o n c e n t r a t e d o n l y on t h e
a s p e c t s t h a t a r e d i r e c t l y r e l e v a n t t o t h e m a i n t o p i c
o f o u r d i s s e r t a t i o n . T h e c o n s t r a i n t h e r e i s t h e
n e c e s s i t y f o r t h e managemen t o f t h e a f f a i r s of t h e
company t h r o u g h t h e a g e n c y of n a t u r a l p e r s o n s , How-
e v e r , t h e f a c t t h a t t h e a f f a i r s o f a r e g i s t e r e d
company a r e r u n b y n a t u r a l p e r s o n s d o e s n o t d e r o g a t e
f r o m t h e p r i n c i p l e o f l e g a l c o r p o r a t e p e r s o n a l i t y
d i s c u s s e d i n c h a p t e r o n e a b o v e . T h e company i s s t i l l
a d i s t i n c t e n t i t y f r o m t h e members who formed it. ~ l l
t h e a c t s d o n e f o r a n d o n b e h a l f o f t h e company are b y
l e g a l f i c t i o n t h e a c t s o f t h e company i t s e l f . I t is
t h e company a n d t h e company a l o n e t h a t c a n c o m p l a i n
when i t i s wrong'ed. I t c a n s e e k l e g a l r e d r e s s t h r o u g h
i t s a u t h o r i s e d o r g a n s , u s u a l l y t h e g e n e r a l m e e t i n g o r
t h e b o a r d of directors. ~t i s t h e m a j o r i t y o f t h e
members p r e s e n t i n a g e n e r a l m e e t i n g t h a t c a n b i n d
t h e company, T h i s i s t h e r e l a t i o n s h i p b e t w e e n t h e
p r i n c i p l e of c o r p o r a t e p e r s o n a l i t y a n d t h e managemen t
of a company a s c o n c e r n s o u r d i s c u s s i o n ,
A m i n o r i t y s h a r e h o l d e r h a s no l o c u s s t a n d i t o
b r i n g an a c t i o n o n b e h a l f o f t h e company. H e i s
r e g a r d e d a s a d i s t i n c t p e r s o n f r o m t h e company.
H i s c o m p l a i n t may b e r e g a r d e d a s a n i r r e g u l a r i t y
i n v o l v e d i n t h e management of t h e company w h i c h c a n
be s e t t l e d b y t h e m a j o r i t y of t h e members i n g e n e r a l
m e e t i n g . his i s t h e l o g i c b e h i n d t h e r u l e i n ~ o s s - v. H a r b o t t l e . I t is o n l y w h e r e t h e c o m p l a i n t of a
m i n o r i t y s h a r e h o l d e r f a l l s w i t h i n t h e e x c e p t i o n s t o
t h e r u l e t h a t h e c a n h a v e a r i g h t t o m a i n t a i n a n
a c t i o n o r w h e r e a s t a t u t o r y p r o t e c t i o n a v a i l s him.
his is a n o t h e r a s p e c t o f t h e management of a company
t h a t i s v e r y r e l e v a n t t o t h e s u b j e c t matter of t h i s
p r o j e c t ,
S i n c e t h e m a j o r i t y , b y l e g a l f i c t i o n , i s s y n o n y -
mous w i t h t h e crompany f o r t h e p u r p o s e s of a d m i n i s t r a t i o n
and managemen t , w e now i n t e n d t o e x a m i n e f u l l y t h e
c o n c e p t o r p r i n c i p l e of m a j o r i t y r u l e i n Company Law
a s t h e s u b j e c t - m a t t e r o f t h e n e x t c h a p t e r , T h i s is w i t h
a v i e w t o f i n d i n g o u t w h e t h e r t h e i n t e r e s t o f t h e mino-
r i t y i s r e a s o n a b l y p r o t e c t e d .
CHAPTER THREE
THE PRINCIPLE OF MAJORITY RULE I N COMPANY LAW
1 INTRODUCTION
T h e a n a l o g y o f compan i e s w i t h o t h e r d e m o c r a t i c
i n s t i t u t i o n s , a s d e m o c r a c i e s , i s b a s e d on t h e
p r i n c i p l e o f m a j o r i t y r u l e . ~ i k e t h e s e o t h e r
i n s t i t u t i o n s , t h e w i l l o f t h e m a j o r i t y a lways
1 p r e v a i l s e x c e p t w h e r e t h e r e i s f r a u d , o r s h a r p
p r a c t i c e a g a i n s t t h e m i n o r i t y i n t e r e s t s . o r d i -
n a r i l y , i t a p p e a r s t h a t . m i n o r i t y i n t e r e s t s a r e
s u b j e c t t o t h e whim and c a p r i c e o f t h e m a j o r i t y .
However, t h e r e i s no a b s o l u t e m a j o r i t y r u l e i n
c o r p o r a t e a f f a i r s . A d i s t i n c t i o n be tween c o r p o r a t e
member sh ip r i g h t s and i n d i v i d u a l membersh ip r i g h t s
2 i s u s u a l l y d r a m . when an i s s u e c o n c e r n s c o r p o r a t e
membersh ip r i g h t s , t h e m a j o r i t y r u l e a lways p r e v a i l s .
S e e , e -g . , Cook v. Deeks ,
S e e P e n d e r v. L u s h i n q t o n ( 1 8 7 7 ) 6 ch . D. 70; p u l - 'brook v. Richmond C o n s o l i d a t e d Min ing Co. ( 1 8 m 9 Ch. D. 6 1 0 0 Edwards v. ~ a l l i w e l l /79507 2 A I ~ E.R. 1064 ; ~ a y k v. ~ r i s t 0 1 P l a n t ire-~tdy /79577 1 W.L.R. 499. S e e a l s o , p a l m e r . suDra . D, 498
An i n v e s t o r who h a s a g r e e d t o become a member of t h e
company i s t a k e n t o h a v e c o n s e n t e d t o be bound by
3 t h e w i l l o r d e c i s i o n s of t h e m a j o r i t y . ~ u t m T r i t y
d e c i s i o n s r e a c h e d o r t a k e n b y t h e p r o c e s s o f p a s s j n g
r e s o l u t i o n s must be b o n a f i d e and f o r t h e b e n e f i t
4 o f t h e company a s a w h o l e . Though t h i s i s a sub-
j e c t i v e t e s t a s t h e m a j o r i t y a r e e n t i t l e d t o an
h o n e s t o p i n i o n o f w h a t t h e y c o n s i d e r t o b e i n t h e
i n t e r e s t o f t h e company a s a w h o l e , s a f e g u a r d s ,
w h e r e b y d i s c r i m i n a t o r y 5 and f r a u d u l e n t 6 r e s o l u t i o n s
by t h e m a j o r i t y a g a i n s t t h e m i n o r i t y a r e e x c l u d e d
by t h e c o u r t s , a r e a c c e p t a b l e a s r e a s o n a b l e r e s t r a i n t
on t h e p r i n c i p l e .
S e e
S e e A 1 1
S e e Cho
P a l m e r ' s Company Law, s u p r a ,
G r e e n h a l g h v. ~ r d e r n e Cinemas ~ t d . , - /T9507 - 2 E o R e 1 1 2 0 , 1 1 2 6
Brown v. B r i t i s h A b r a s i v e w h e e l Co. /?9197 1 ~ a f e n T i n p l a t e CO. ~ t d . v. ~ l a n e l l y - ~ t e e l
Co. :?zb77 L t d . / 1 m 2 Ch. 124 . C o n t r a : S i d e b o t - tom v. Kershaw, Lees: R Co. L t d . /1920/ 1 Ch. 154
S e e cook v. Deeks , s u p r a
Where an i s s u e d e a l s m a i n l y w i t h i n d i v i d u a l
membersh ip r i g h t s , c o n f e r r e d b y t h e Companies ~ c t
and a r t i c l e s o f a s s o c i a t i o n , n o q u e s t i o n o f m a j o r i t y
r u l e a r i s e s . An a g g r i e v e d member c a n a l w a y s main-
7 t a i n an a c t i o n t o s e e k l e g a l r e d r e s s . T h e s e
i n d i v i d u a l membership r i g h t s a r e c o n s i d e r e d a s
q u a l i f i c a t i o n s on t h e p r i n c i p l e o f m a j o r i t y r u l e .
We s h a l l e x a m i n e t h e p r i n c i p l e o f m a j o r i t y r u l e
f r o m t h r e e m a j o r p e r s p e c t i v e s :
( a ) t h e r u l e i n F o s s v. ~ a r b o t t l e ;
(b) a r t i c l e s o f a s s o c i a t i o n a s c o n t r a c t o f
membersh ip and t h e r i g h t o f t h e m a j o r i t y
to a l t e r them; and
( c ) t h e g e n e r a l m e e t i n g and t h e v a r i o u s t y p e s
o f r e s o l u t i o n s .
2. COMPANIES AS DEF'IOCRACIES
" L e g a l t h e o r y c o n c e i v e s o f c o m p a n i e s a s democra-
cies ' i n w h i c h t h e m i n o r i t y s h a r e h o l d e r s h a v e to a b i d e ,
7. S e e P e n d e r v. L u s h i n g t o n , s u p r a . Edwards v . ~ a l l i - w e l l s u p r a . Q U I ~ & ~ x t e n s ~ t d . v. Salmon, /1909/ -9 - - 1 Ch. 311
however r e l u c t a n t l y , by t h e w i l l o f t h e m a j o r i t y 8 " .
T h e r e f o r e , compan i e s , l i k e e v e r y o t h e r d e m o c r a t i c
i n s t i t u t i o n , o p e r a t e o n t h e p r i n c i p l e o f m a j o r i t y
r u l e . ~ c c o r d i n g l y , a l e a r n e d l e g a l commen ta to r h a s
a p t l y d e s c r i b e d t h e d e m o c r a t i c s t a t u s o f a company
as f o l l o w s :
" A j o i n t s t o c k company, t h o u g h p r i v a t e l y g o v e r n e d , i s a democra- t i c b u s i n e s s o r g a n i s a t i o n . AS a p p l i e d t o t h e s e compan i e s , democracy h a s meant m a j o r i t y r u l e g t t .
~ x p l a i n i n g f u r t h e r t h e p r i n c i p l e o f m a j o r i t y r u l e
i n Company Law, a n o t h e r l e a r n e d l e g a l writer, T. E.
C a i n s t a t e d a s f o l l o w s :
"The members of a company c a n e x p r e s s t h e i r w i s h e s a t g e n e r a l m e e t i n g s by v o t i n g f o r or a g a i n s t t h e r e s o l u t i o n s p roposed . How- e v e r , t h e w i l l o f t h e m a j o r i t y o f t h e members u s u a l l y p r e v a i l s and i f t h e a p r o p r i a t e m a j o r i t i s o - e ~ o - l b d a l l t h e members, i n c l u d i n g t h o s e who v o t e d a s a i n s t i t l u l t . ( u n d e r - l i n i n g mine) .
8. 'see H . R. Hah lo and M . J. ~ r e b i l c o c k , ~ a h l o f s Case- book on Company Law, (London , Swee t & axw well, 197' 2nd ed . ) p. 533
9 . E. 0. ~ k a n k i , w C o n t r o l l i n g t h e V a g a r i e s o f Democracy i n Companies" ( 1 9 8 8 ) 1 5 ~ i g . J. o f c o n t . Law, p. 111
10. S e e T. E. C a i n , s u p r a , p. 382
T h e e f f e c t . o f t h e u n d e r l i n e d p o r t i o n a b o v e i s t h a t
t h e w i l l o f t h e m a j o r i t y s h a r e h o l d e r s is b i n d i n g and
t h e m i n o r i t y s h a r e h o l d e r s h a v e no o t h e r c h o i c e t h a n
t o comply.
However, a s t r i k i n g d i f f e r e n c e e x i s t s be tween
compan i e s and o t h e r d e m o c r a t i c i n s t i t u t i o n s . T h i s
i s b e c a u s e compan i e s , u n l i k e t h e s e o t h e r d e m o c r a t i c
i n s t i t u t i o n s , a r e f o r t h e mos t p a r t , t r a d i n g c o n c e r n s
wh ich s e r v e a s a v e n u e s t h r o u g h which i n d i v i d u a l s i n v e s t
t h e i r e a r n i n g s w i t h e x p e c t a t i o n s o f good r e t u r n s . I t
i s t h i s r e m a r k a b l e d i f f e r e n c e t h a t t h e l a w mus t t a k e
s p e c i a l c o g n i s a n c e o f i n i m p l e m e n t i n g t h e p r i n c i p l e
o f m a j o r i t y r u l e i n Company Law. I f t h i s c a u t i o n a r y
m e a s u r e i s n o t o b s e r v e d , p r o s p e c t i v e i n v e s t o r s may be
d i s c o u r a g e d , e s p e c i a l l y w h e r e t h e y a r e n o t f i n a n c i a l l y
c a p a b l e o f a c q u i y i n g m a j o r i t y s h a r e s i n t h e i r com-
p a n i e s .
everth he less, l i k e a l l d e m o c r a c i e s , m a j o r d e c i s i o n s
i n compan i e s a r e t a k e n by m a j o r i t y o f t h e members a t t e n d -
i n g and v o t i n g a t a p r o p e r l y convened g e n e r a l m e e t i n g . \
It i s t h r o u g h t h i s p r o c e s s t h a t t h e m a j o r i t y p a s s t h e
n e c e s s a r y r e s o l u t i o n s - o r d i n a r y o r s p e c i a l , as t h e
c a s e may b e , t o g i v e v a l i d i t y t o t h e i r d e c i s i o n s .
And t h e a c t s o f a p r o p e r l y convened g e n e r a l m e e t i n g
t a k e n by p a s s i n g s u c h r e s o l u t i o n s a r e c o n s i d e r e d a s
t h e a c t s o f t h e company i t s e l f . T h e s e a c t s b i n d t h e
company e x c e p t whe re f r a u d on t h e m i n o r i t y i s i n v o l -
ved. T h i s i s an e x c e p t i o n , r a t h e r t h a n t h e r u l e .
I n c o n c l u s i o n , c o r p o r a t e o r g a n i s a t i o n and management
a r e d e m o c r a t i c i n e s s e n c e . The c o n c e p t o f m a j o r i t y
p r i n c i p l e i s t h e g o l d e n r u l e . w h i l e g i v i n g e f f e c t
t o t h e w i s h e s of t h e m a j o r i t y , some d e v i c e s a r e e n t r e n -
c h e d f o r t h e p r o t e c t i o n o f m i n o r i t y i n t e r e s t s . T h e s e
c o m p l i m e n t t h e p r i n c i p l e o f m a j o r i t y r u l e .
3 . THE RULE I N FOSS Ve HARBOTTLE 11
Am N A T U R E AND CONTENT OF THE RULE
I n q e n e r a l , , t h e r u l e i n F o s s v. H a r b o t t l e s t a t e s
t h a t i n o r d e r t o r e d r e s s a wrong done t o a company o r
t o e n f o r c e r i g h t s o f t h e company, t h e p r o p e r p l a i n t i f f
i s t h e company i t s e l f , and t h e c o u r t w i l l n o t o r d i n a r i l y
e n t e r t a i n an a c t i o n b r o u g h t on b e h a l f o f t h e company
by a s h a r e h o l d e r . The f a c t s o f t h e c a s e a r e b r i e f l y
11. S u p r a
were s h a r e h o l d e r s i n a company c a l l e d VThe V i c t o r i a
Pa rk Company" which was fo rmed t o buy l a n d f o r u s e
a s a p l e a s u r e p a r k . T h e d e f e n d a n t s were t h e o t h e r
d r i e c t o r s and s h a r e h o l d e r s of t h e company. The p l a i n -
t i f f s a l l e g e d t h a t t h e d e f e n d a n t s had d e f r a u d e d t h e
company i n v a r i o u s ways , and i n p a r t i c u l a r t h a t
c e r t a i n of t h e d e f e n d a n t s h a d s o l d l a n d b e l o n g i n g
t o them t o t h e company a t a n e x o r b i t a n t p r i c e . The
p l a i n t i f f s now a s k e d t h e c o u r t t o o r d e r t h a t t h e
d e f e n d a n t s make good t h e losses to t h e company. It
was h e l d t h a t s i n c e t h e companycs b o a r d of d i r e c t o r s
was s t i l l i n e x i s t e n c e , and s i n c e i t was s t i l l p o s s i b l e
t o c a l l a g e n e r a l m e e t i n g of t h e company, t h e r e was
n o t h i n g to p r e v e n t t h e company f r o m o b t a i n i n g r e d r e s s
i n i t s c o r p o r a t e c h a r a c t e r , and t h e a c t i o n by t h e
p l a i n t i f f s c o u l d n o t be s u s t a i n e d .
The r u l e i n F o s s v. H a r b o t t l e i s a p r o c e d u r a l
d e s i g n t o e n t r e n c h t h e d o c t r i n e of c o r p o r a t e l e g a l
p e r s o n a l i t y and a l s o e n h a n c e t h e management of compan i e s
b y d e t e r i n g t h e c o u r t s f r o m i n t e r f e r i n g i n t h e i n t e r n a l
a f f a i r s o f companies a s t h i s would i n h i b i t b u s i n e s s
e f f i c a c y . ~ c c o r d i n g l y , i t h a s been s u g g e s t e d 1 2 t h a t
t h e r e a r e two b r a n c h e s o f t h e r u l e and t h e s e h a v e
1 3 b e e n d e s c r i b e d a s :
( $1 t h e p r o p e r p l a i n t i f f p r i n c i p l e , and
( i i ) t h e i n t e r n a l management p r i n c i p l e ,
However, a s y n o p s i s o f t h e r u l e c a n b e found i n t h e
f o l l o w i n g j u d i c i a l p ronouncemen t s . F i r s t , t h a t
f f t h e p r o p e r p l a i n t i f f i n an a c t i o n i n r e s p e c t o f a wrong a l l e g e d t o b e done t o t h e company o r a s s o c i a t i o n o f p e r s o n s i s p r ima f a c i e t h e company o r t h e a s s o c i a t i o n itself 141,,
S e c o n d l y , t h a t
"where t h e a l l e g e d wrong i s a t r a n s a c t i o n which m i g h t be made b i n d i n g on t h e company o r , a s s o c i a t i o n and on a l l i t s m e m b e r s by a s i m p l y m a j o r i t y o f t h e members, no i n d i v i d u a l member of t h e company i s a l l o w e d t o m a i n t a i n an a c t i o n i n res- p e c t o f t h a t m a t t e r f o r t h e s i m p l e r e a s o n t h a t , i f a mere m a j o r i t y o f t h e members o f t h e company o r a s s o c i a t i o n i s i n
\
1 2 , P e r J o r d a n C, J, i n ~ u s t r a l f a n Coa l etc. Employees r Fedn, v. s m i t h /7933/ 38 - - SIR, ( N * S * W - ) 48
1 3 , P e r S t r e e t J, i n Hawkesbury Deve lopment Co, L t d ; v, Landmark F i n a n c e P t y , L t d , ( 1 9 7 0 ) 9 2 W O N . (N.S.W.) 1 9 9
1 4 , S e e Edwards v. H a l l i w e l l , P I 9 5 0 7 2 ~ l l E,R, 1064 , - a t p, 1066 ( P e r J e n k i n s L. J , ) -
f a v o u r o f wha t h a s b e e n d o n e , t h e n c a d i t quaes t io15" .
T h e s e r e p r e s e n t t h e f i r s t and s e c o n d limbs o f t h e r u l e
r e s p e c t i v e l y .
F u r t h e r m o r e , L o r d Davey i n B u r l a n d v. ~ a r l e 1 6
a p t l y s t a t e d a f a i r r e p r e s e n t a t i o n o f t h e t w o l imbs
o f t h e r u l e a s f o l l o w s :
f l ~ t i s an e l e m e n t a r y p r i n c i p l e o f t h e l a w r e l a t i n g t o ~ 0 i n t S t o c k Companies t h a t t h e c o u r t s w i l l n o t i n t e r f e r e w i t h t h e i n t e r n a l management o f c o m p a n i e s a c t i n g w i t h i n t h e i r p o w e r s , and i n f a c t h a s no j u r i s d i c t i o n t o do so. Again i t i s c l e a r l a w t h a t i n o r d e r t o r e d r e s s a wrong d o n e t o t h e company t h e a c t i o n s h o u l d p r i m a f a c i e be b r o u g h t by t h e company i t s e l f l 1 .
T h e two l i m b s of t h e r u l e a r e i n t e r r e l a t e d and b a s e d
o n t h e p r i n c i p l e of m a j o r i t y r u l e . AS r e g a r d s t h e
f i r s t l i m b , t h e r u l e c o n f e r s a r i g h t t o s u e o r d e f e n d
s u i t s o n t h e company i t s e l f . his i s i n k e e p i n g w i t h
t h e d o c t r i n e o f c o r p o r a t e p e r s o n a l i t y w h i c h e s t a b l i s h e s
t h a t t h e company i s a d i s t i n c t l e g a l e n t i t y from i t s
members o r t h e c o r p o r a t o r s 1 7 . S i n c e t h e l e g a l p e r s o n a l i t y
1 7 , S e e Salomon v. Salomon & Co. ~ t d . s u p r a
of a company i s a l e g a l f i c t i o n , t h e m a j o r i t y of t h e
s h a r e h o l d e r s a r e t a k e n a s t h e company i t s e l f , Profes-
sor 01 awoyin r a t i o n a l i s e s t h i s a s follows:
If,. . S i n c e t h e a c t i o n of a company i s i n t h e f i n a l a n a l y s i s e x p r e s s i b l e by i t s s h a r e h o l d e r s and t h e s i g n i - f i c a t i o n of s u c h e x p r e s s i o n i s n o r - m a l l y b y t h e m a j o r i t y o f s h a r e h o l d e r s , t o s a y t h a t t h e company i s r i m a f a c i e t h e p r o p e r p l a i n t i f f i n a c t !i!--- o n s con- c e r n i n g i t s a f f a i r s i s o n l y a n o t h e r way of s a y i n g t h a t t h e m a j o r i t y , w i t h i n t h e l i m i t s o f t h e i r power t o r a t i f y , h a v e t h e so l e r i g h t t o d e t e r m i n e w h e t h e r o r n o t a d i s p u t e s h a l l be b r o u g h t before t h e c o u r t s l 8 ! ~ .
T h e s e c o n d l i m b of t h e r u l e p r e s u p p o s e s t h a t a n y
wrong d o n e t o a company or a n y i r r e g u l a r i t y i n t h e
management of t h e a f f a i r s of a company wW.& may be
r a t i f i e d by t h e m a j o r i t y i s n o t a c t i o n a b l e a t t h e
i n s t a n c e of an i n d i v i d u a l o r m i n o r i t y s h a r e h o l d e r ,
Bu t t h e r e a r e as number o f e x c e p t i o n a l c a s e s i n w h i c h
m i n o r i t y s h a r e h o l d e r s c a n a t t a c k a r e s o l u t i o n of t h e
m a j o r i t y o r a n a c t o f t h e d i r e c t o r s o r s u e f o r a wrong- I &- ---p 15
f u l a c t c o m m i t t e d a g a i n s t t h e company.
w h e r e t h e a c t i s i l l e g a l , u l t r a v i r e s , i n f r a u d of t h e
m i n o r i t y o r o p p r e s s i v e 1 9 , T h e s e d e v e l o p m e n t s h a v e
18, S e e ~ l a w o y i n , s u p r a , p, 260
1 9 , See. e.a. Cook v. Deeks. 139167 1 A .
i n t r o d u c e d some l i m i t a t i o n s i n t o t h e p r o p o s i t i o n i n
t h e s e c o n d l i m b o f t h e r u l e i n F o s s v. H a r b o t t l e ,
T h i s i s b e c a u s e i n t h e c a s e s , w h e r e t h e r u l e a d m i t s
o f e x c e p t i o n s , t h e c o u r t s h a v e a l l o w e d m i n o r i t y
a c t i o n s , e v e n t h o u g h t h e wrong o r i r r e g u l a r i t y which
o c c u r r e d c o u l d h a v e b e e n r a t i f i e d b y t h e m a j o r i t y ,
T h e s e e x c e p t i o n s a r e d e v i c e s t o p r o t e c t t h e
i n t e r e s t s o f t h e m i n o r i t y and a r e c o m p l i m e n t a r y t o
t h e r u l e , S i n c e t h e u n d e r l y i n g b a s i s of t h e r u l e i s
t h a t t h e c o u r t s s h o u l d a l l o w t h e w i l l o f t h e m a j o r i t y
w i t h i n a company t o p r e v a i l , a r i g i d a d h e r e n c e w i l l
o c c a s i o n i n j u s t i c e , However, t o t h e e x t e n t t h a t
i r r e g u l a r i t i e s which o c c u r i n a company r e l a t e o n l y
t o i t s i n t e r n a l management , t h e c o u r t s a r e d i s p o s e d
t o l e a v e i t t o t h e m a j o r i t y t o t a k e w h a t e v e r a c t i o n
20 t h e y d e s i r e ,*
T h e r i g h t c o n c e d e d t o t h e m a j o r i t y o f s h a r e h o l d e r s
i n a company t o manage i t s a f f a i r s a n d d e a l w i t h i t s
p r o b l e m s i n t h e way t h e y see f i t , j u s t i f i e s t h e d e s i r a -
b i 1 , i t y f o r t h e r u l e . H e n c e s e c t i o n 299 of t h e new
20. S e e ~ l i a s , C, J, N o ( a s h e t h e n w a s ) i n ~ b u b a k r i v. Smith ( 1 9 7 3 ) 6 S.C,R, 3 1 a t p, 44; see a lso , N,I,P.C. ~ t d . v. ~ h o m p s o n O r g a n i s a t i o n L t d , , ( 1 9 6 9 ) N.C.. LOR. 1 2 0 a t p. 1 2 1
Companies A C ~ h a s c o d i f i e d t h e two limbs o f t h e
r u l e t h u s :
" S u b j e c t t o t h e p r o v i s i o n s of t h i s Decree, w h e r e i r r e g u l a r i t y h a s b e e n commit ted i n t h e c o u r s e of a company 's a f f a i r s o r any wrong h a s b e e n done to t h e company, o n l y t h e company c a n s u e t o re- medy t h a t wrong and o n l y t h e company c a n r a t i f y t h e i r r e g u l a r c o n d u c t ' 1 .
T h i s i s an i n t e r e s t i n g d e v e l o p m e n t and v i n d i c a t e s t h e
r u l e i n FoSs v. H a r b o t t l e a s a f u n d a m e n t a l p r i n c i p l e
o f company law.
Bm BASIS OF THE RULE I N FOSS V. HARROTTLE
TWO m a j o r p r i n c i p l e s , synonymous w i t h t h e t w o
limbs o f t h e r u l e , seem t o be t h e b a s i s o f t h e r u l e a s
d e c i d e d c a s e s show. T h e s e a r e a s f o l l o w s :
( i ) THE RIGHT *OF THE MAJORITY TO RULE
A summary o f t h e d e c i d e d c a s e s 21 i n t h i s a r e a o f
company l a w i s t h a t an a c t i o n by a m i n o r i t y
s h a r e h o l d e r c a n n o t be e n t e r t a i n e d b e c a u s e t h e
. f e e l i n g o f t h e m a j o r i t y o f t h e members h a s n o t \
21. See, e.g., F o s s v. H a r b o t t l e L s u p r a ; Mozley v. A l s t o n L 41 E.R. 833; ~ u r l a n d v. E a r l e , s u p r a ; p a v l i d e s v.
Ch. , a t p.-575i S p a r k s E l e c -
b e e n t e s t e d , and t h e y may be p r e p a r e d , i f a s k e d ,
to w a i v e t h e i r r i g h t s t o s u e . T h e r e f o r e , t h e
company c a n o n l y s u e i f t h e d i r e c t o r s p a s s a
r e s o l u t i o n t o t h a t e f f e c t w h e r e t h e power i s
d e l e g a t e d to them; o r i f t h e company e x p r e s s e s
i t s d e s i r e to s u e by an o r d i n a r y r e s o l u t i o n i n
g e r ~ e r a l m e e t i n g , T h i s is t h e p r i n c i p l e of majo-
r i t y r u l e and a b a s i c i n g r e d i e n t o f t h c r u i e i n
F o s s v . H a r b o t t l e . -
Aga in , t h e c o u r t s h a v e r e p e a t e d l y s a i d t h a t
s i n c e a company i s a p e r s o n a a t l a w , t h e a c t i o n
i s v e s t e d i n i t , and c a n n o t be b r o u g h t b y a
s i n g l e member, T h i s i s an e n t r e n c h e d p r i n c i p l e
of company, law. I t is a l s o t h e h a l l m a r k and
d i s t i n g u i s h i n g a t t r i b u t e of compan i e s f rom t h e
o t h e r f o rms o f b u s i n e s s a s s o c i a t i o n s . The r u l e
23, 516; o m i s a d e v. ~ k a n d e /?9877 2 N.W.L.R. 158; Amaye v. A s s o c i a t e d c o n t r a c E o r s ; s u p r a ; see a l s o , s e c t i o n 299, C.A.M.A.
22. S e e , Salomon v. Salomon & Co. L td . , s u p r a ; L e e v L e e t s ~ i r ~ a r m i n g w a u r a v. N-rn ~ s s u r a n c e Co. s u p r a ; M a r i n a ~ o x n e e s L td . V . F . B . I .
N.W.L.R. p t . 20, 48. S e e a l s o , s e c t i o n
i n F o s s v , H a r b o t t l e i s b a s e d on t h i s p r i n c i p l e .
C. ADVANTAGES OF THE RULE I N FOSS V. HARBOTTLE
C e r t a i n p r a c t i c a l a d v a n t a g e s f l o w from t h e
o b s e r v a n c e and i n s i s t e n c e b y t h e c o u r t s , o f t h e
r u l e i n F o s s v. Ha rbo t t l e , F i r s t , i s t h e p r e v e n -
t i o n o f m u l t i p l i c i t y o f a c t i o n s . T h i s s i t u a t i o n
o c c u r s i f e a c h i n d i v i d u a l member i s a l l o w e d t o
commence a n a c t i o n i n r e s p e c t of a wrong d o n e t o
t h e company. T h e e f f e c t i s s u c c i n t l y s u m m a r i s e d b y s
P r o f e s s o r G o w e r a s follows:
" t h e company m i g h t be h a r r a s s e d b y a s u c c e s s i o n o f a c t i o n s s t a r t e d a n d d i s c o n t i n u e d b y i n n u m e r a b l e p l a i n t i f f s 2 3 n .
his u n d e s i r a b l e c o n s e q u e n c e i s summed u p also by
~ e l l i s h , L. J., who s t a t e s t h a t i f e v e r y i r r e g u l a r i t y
i n t h e managemeti t o f a company
f f g i v e s a r i g h t t o e v e r y member of t h e company t o f i l e a b i l l t o h a v e t h e q u e s t i o n d e c i d e d , t h e n i f t h e r e h a p p e n s t o be o n e c a n t a k e r o u s member, o r o n e member who l o v e s l i t i g a t i o n , e v e r y i r r e g u l a r i t y w i l l be l i t i g a t e d ;
- w h e r e a s , i f t h e b i l l m u s t be f i l e d i n t h e name of t h e company, t h e n , u n l e s s t h e r e is a m a j o r i t y who r e a l l y w i s h f o r l i t i g a t i o n , t h e l i t i g a t i o n
23. S e e G o w e r , s u p r a , p. 642 -
w i l l n o t go on. T h e r e f o r e , h o l d i n g t h a t s u c h s u i t s must be b r o u g h t i n t h e name o f t h e company d o e s c e r t a i n l y t e n d t o s t o p l i t i g a t i o n 2 4 t r .
S e c o n d l y , t h e c o u r t ' s o rd , e r may be made
i n e f f e c t i v e . Hence, i f t h e i r r e g u l a r i t y compla ined
o f i s o n e which can be e f f e c t i v e l y r a t i f i e d by t h e
g e n e r a l mee t ing , i t w i l l be f u t i l e t o h a v e l i t i g a -
t i o n abou t i t e x c e p t w i t h t h e c o n s e n t o f t h e g e n e r a l
mee t ing . 1f n o t , t h e c o u r t ' s o r d e r c o u l d b e o v e r r u l e d
by an o r d i n a r y r e s o l u t i o n o f members i n a s u b s e q u e n t
g e n e r a l meet ing. AS M e l l i s h L. J. a l s o s a i d i n - Mac-
25 Douoal l v. G a r d i n e r . t r . . . i f t h e t h i n g compla ined o f i s a t h i n g which i n s u b s t a n c e t h e m a j o r i t y o f t h e company a r e e n t i - t l e d to do, o r if someth ing h a s been done i r r e g u l a r l y which t h e m a j o r i t y o f the, company a r e e n t i - t l e d t o d o r e g u l a r l y , o r i f some th ing h a s been done i l l e - g a l l y which t h e m a j o r i t y of t h e company a r e e n t i t l e d t o do l e g a l l y , t h e r e can b e no u s e i n h a v i n g l i t i- g a t i o n abou t i t , t h e u l t i m a t e end
24. a S e e MacDougall v. G a r d i n e r , (1875) 1 Ch. D. 13, 25. S e e a l s o : Mozley v. A l s t o n , s u p r a , a t p. 837 . Lord v. The Governor and Company o f Copper Mines , 4 1 E.R. 1129 a t p. 1134
25. S u p r a , a t p. 25. S e e a l s o : S p a r k s Electrics (Nig.) L t d . v. Ponmi leL s u p r a ; and o m i s a d e v. ~ k a n d e , s u p r a
o f which i s o n l y t h a t a m e e t i n g h a s t o be c a l l e d and t h e n u l t i m a t e l y t h e m a j o r i t y g e t s i t s w i shes?? .
T h e r e f o r e , l i t i g a t i o n a t t h e i n s t a n c e o f m i n o r i t y
o f members i s f u t i l e i f t h e m a j o r i t y do n o t w i s h i t .
D. PROCEDURAL ASPECT~%F T H E R U L E IN FOSS V. H ARBOTTLE
T h e r e are c i r c u m s t a n c e s i n which t h e r u l e i n
F o s s v. H a r b o t t l e d o e s n o t a p p l y . F o r i n s t a n c e , i n
some s i t u a t i o n s , an i n d i v i d u a l member may b r i n g an
a c t i o n t o remedy a wrong d o n e t o h i s company or to
compel h i s company t o c o n d u c t i t s a f f a i r s i n accor-
d a n c e w i t h i t s c o n s t i t u t i o n and t h e compan i e s ~ c t o r
2 7 r u l e s o f l a w g o v e r n i n g i t . his is so even t h o u g h
no wrong h a s b e e n done to him p e r s o n a l l y , and t h e
m a j o r i t y o f t h e members o f t h e company d o n o t w i s h 1
t h e a c t i o n t o be b r o u g h t . However, t h e p l a i n t i f f d o e s
n o t s u e i n h i s own r i g h t a l o n e . c o n s e q u e n t l y , h i s
a c t i o n may be e i t h e r :
26. To b e d i s c u s s e d f u l l y u n d e r m i n o r i t y a c t i o n s i n c h a p t e r f o u r
S e e , e.g., Salmon v. ~ u i n & Axtens ~ t d . , s u p r Edwards v. H a l l i w e l l , s u p r a ; and B a i l l i e v. O r i e n t a l T e l e ~ h o n e CO. ~ t d . /T915/ 1 ~ h . 503
(i) REPRESENTATIVE
T h i s o c c u r s w h e r e t h e member s u e s f o r r e l i e f
a g a i n s t t h e m a j o r i t y and t h e company, a s w h e r e
h e i s a t t e m p t i n g t o p r e v e n t an u l t r a v i r e s
28 ac t ; o r
( i i ) DERIVATIVE 29
Here, t h e i n d i v i d u a l member i s s e e k i n g a c l a i m
a g a i n s t t h i r d p a r t i e s f o r t h e companyts b e n e f i t .
I n e f f ec t , h e i s t r y i n g t o e n f o r c e a c l a i m wh ich
b e l o n g s t o t h e company and h i s r i g h t t o s u e is
30 d e r i v e d f r o m i t . An i n t e r e s t i n g d i s t i n c t i o n
be tween a r e p r e s e n t a t i v e a c t i o n and a d e r i v a t i v e
a c t i o n i s , t h a t i n a r e p r e s e n t a t i v e a c t i o n t h e
company i s a r e a l and g e n u i n e d e f e n d a n t . Whereas
i n a d e r i v a t i v e a c t i o n t h e company i s j o i n e d as a s
nomina l d e f e n d a n t b e c a u s e t h e d i r e c t o r s or t h e
m a j o r i t y o f t h e members o f t h e company w i l l n o t
28. S e e , e - g . , Amaye v. ~ s s o c i s t e d C o n t r a c t o r s , s u p r a
29. S e e s e c t i o n 303, C.A.M.A. see a l s o : n twoo l v. M e r r y w e a t h e r 37 L.J. Ch. 35. Spokes v. G r o s v e n o r ~ 0 t e l CO. - / f a977 - 2 Q.B. 1 2 4 , 1-28
30. See w a l l e r s t e i n e r v. ~ o i r (NO. 2 ) ~ 5 9 7 5 7 2 W.L.R. 389
if!
b r i n g i t i n t o c o u r t a s a p l a i n t i f f . Hence, i t i s
made a p a r t y t o t h e a c t i o n by b e i n g b r o u g h t i n a s
a n o m i n a l d e f e n d a n t b y t h e p l a i n t i f f naming i t a s
a c o - d e f e n d a n t i n h i s w r i t .
E. APPLICATION OF THE RULE^' I N FOSS V. HARBOTTLE
T h e r u l e i n F o s s v . H a r b o t t l e h a s r e s u l t e d f r o m
t h e r e f u s a l o f t h e c o u r t s t o i n t e r f e r e i n t h e manage-
ment of a company a t t h e i n s t a n c e o f m i n o r i t y o f members
who a r e d i s s a t i s f i e d w i t h t h e c o n d u c t o f t h e company ' s
a f f a i r s by t h e m a j o r i t y o r b y t h e b o a r d o f d i r e c t o r s .
I n a c t u a l p r a c t i c e , t h e r u l e h a s g o n e beyond t h e
p r i n c i p l e o f n o n - i n t e r f e r e n c e i n management. 1t c a n
be i n v o k e d t o p r e v e n t t h e c o u r t f r o m r e m e d y i n g a wrong
w h i c h h a s b e e n d o n e t o t h e company3*, u n l e s s t h e
m a j o r i t y wan t it t o be r e m e d i e d . ~ e s i d e s , t h e r u l e
p r e v e n t s a n a c t i o n b y t h e m i n o r i t y w h e r e wha t i s com-
p l a i n e d o f i s a b r e a c h o f f i d u c i a r y d u t y b y d i r e c t0d3. I, ~ l s o , n e g l i g e n t mismanagement of t h e company 's a f f a i r s
34 i s n o t a c t i o n a b l e by a m i n o r i t y s h a r e h o l d e r . However,
w h e r e t h e d i r e c t o r s a r e l i k e l y to d e r i v e a p r o f i t o r
31. See Okoya & O r s . v. S . S a n t i l l i & O r s . ( 1 9 9 0 ) 3 S.C.N.J. 83
32. S e e
33. See
34. see
s e c t i o n 299 , C.A.M.A.
p a v l i d e s v . J e n s e n , s u p r a .
b e n e f i t , o r h a v e p r o f i t e d o r b e n e f i t e d f rom t h e i r
n e g l i g e n c e , or f r o m t h e i r b r e a c h o f d u t y , a m i n o r i t y
s h a r e h o l d e r ' s a c t i o n c a n be mainta ined3 ' . T h i s g i v e s
e f f e c t t o t h e d e c i s i o n i n o a n i e l s v . D a n i e l s 3 6 and
i s a welcome deve lopment . F u r t h e r m o r e , t h e r u l e
p r e v e n t s m i n o r i t y s h a r e h o l d e r s t a c t i o n w h e r e there
are some p r o c e d u r a l i r r e g u l a r i t y which an o r d i n a r y
37 r e s o l u t i o n c a n p u t r i g h t . Where t h e r u l e a p p l i e s , t h e c o u r t c a n n o t as a
m a t t e r o f p r o c e d u r e h e a r t h e c a s e e v e n i f t h e p a r t i e s
w i s h t h e a c t i o n t o be t r i e d . And i t a p p e a r s f r om t h e
o b s e r v a t i o n i n ~ e y t i n g v . ~ u ~ o n t ~ ~ t h a t t h e p a r t i e s
c a n n o t w a i v e t h i s p r o c e d u r a l r u l e . However, t h e r u l e
as i t s t a n d s would h a v e done t h e g r e a t e s t d i s s e r v i c e t o
company l a w a s i t m i g h t be u s e d a s a p r o t e c t i v e s h i e l d
by p e r s o n s who h a v e commi t t ed wrongs a g a i n s t t h e company.
35. See s e c t i o n s 282(2) and 3 0 0 ( f ) , C.A.M.A.
36. L19787 - 2 ~ l l E.R. 89
37. see ~ e n t l e y - s t e v e n s v. J o n e s , - /?9747 2 ~ 1 1 E.R. 653. S e e a l s o : s e c t i o n 299, C.A.M.A.
H e n c e , t h e r e a r e e x c e p t i o n s p r o v i d e d b y t h e l a w w h e r e
t h e r u l e would n o t be a p p l i c a b l e . T h e s e e x c e p t i o n s
p r o t e c t m i n o r i t y i n t e r e s t s and a r e c o n s i d e r e d h e r e -
u n d e r .
F. EXCEPTIONS TO THE RULE I N FOSS V. HARBOTTLE 39
F o r p u r p o s e s o f c o m p r e h e n s i v e n e s s , w e w i s h t o
b r i e f l y h i g h l i g h t t h e e x c e p t i o n s t o t h e r u l e i n ~ o s s - v . H a r b o t t l e , l e a v i n g a d e t a i l e d c o n s i d e r a t i o n f o r
c h a p t e r f o u r w h e r e t h e y more a p p r o p r i a t e l y f i t i n .
T h e s e e x c e p t i o n s which p r o t e c t m i n o r i t y i n t e r e s t s
u n d e r t h e common l a w a r e a s f o l l o w s :
( i ) u l t r a v i r e s a c t s ;
( i i ) s p e c i a l m a j o r i t i e s ;
( i i i ) p e r s o n a l r i g h t s ;
( i v ) f r a u d on t h e m i n o r i t y ; and
( v ) i n t e r e s t s of j u s t i c e ?
( i ) ULTRA VIRES ACTS
Where t h e c o m p l a i n t b y t h e m i n o r i t y s h a r e h o l d e r s
i s t h a t t h e company i s a c t i n g o r p r o p o s i n g t o a c t
t h e y u l t r a v i r e s , / c a n b r i n g an a c t i o n . T h i s i s
b e c a u s e an u l t r a v i r e s o r i l l e g a l a c t c a n n o t be
40 condoned o r r a t i f i e d . T h e r e f o r e , t h e m a j o r i t y
s h a r e h o l d e r s c a n n o t r e l y on t h e r u l e i n o p p o s i -
t i o n of such an a c t i o n .
( i i ) SPECIAL MAJORITIES
I f t h e r e i s a s p e c i f i c p r o v i s i o n by e i t h e r t h e
companies ~ c t , memorandum o r a r t i c l e s o f a s s o c i a -
t i o n , r e q u i r i n g an a c t t o bet done by a s p e c i a l
r e s o l u t i o n , t h e r u l e does n o t a p p l y t o an a c t i o n
4 1 a g a i n s t any i n f r i n g e m e n t . C o n s e q u e n t l y , J e n k i n s
L. J., i n Edwards v. H a l l i w e ~ l ~ ~ , h e l d t h a t any-
t h i n g which a c c o r d i n g t o t h e a r t i c l e s o u g h t t o be
done by s p e c i a l m a j o r i t y f e l l o u t s i d e t h e r u l e ;
o t h e r w i s e , *
40. S e e Mbene v. O f i l i , ( 1 9 6 8 ) N.C.L.R. 293. S e e also: H 0 0 l e v. rea at w e s t e r n ail way Co. (1867) L,R. 3 ch . / App. 262; ~ s h b u r y Ra i lway C a r r i a g e & I r o n Co. v. R i c h e , s u p r a
\ 4 1 , See aill lie v. o r i e n t a l ~ e l e p h o n e Co. /79157 1 Ch.
503, a t p. 515; C o t t e r v. N a t i o n a l u n i o n OF Seamen, /19297 2 Ch. 58, a t pp. 69-70; ~ d w a r d s v. ~ a l l i w e 7 1 9 5 ~ 7 - 2 ~ 1 1 E.R. 1064 , a t p. 1 1 , -
" a company which by i t s d i r e c t o r s h a d b r o k e n i t s own r e g u l a t i o n s by d o i n g s o m e t h i n g w i t h o u t a s p e c i a l r e s o l u t i o n which c o u l d o n l y b e done v a l i d l y b y a s p e c i a l r e s o l u t i o n , c o u l d a s s e r t t h a t i t a l o n e was t h e p r o p e r p l a i n t i f f i n any c o n s e q u e n t a c t i o n , and t h e e f f e c t would b e t o a l l o w a company a c t i n g i n b r e a c h o f i t s a r t i c l e s t o d o d e f a c t o by o r d i n a r y r e s o l u t i o n t h a t which a c c o r - d i n g t o i t s own r e g u l a t i o n s c o u l d o n l y be d o n e b y s p e c i a l r e s o l u t i o n . T h a t e x c e p t i o n e x a c t l y f i t s t h e p r e s e n t c a s e " .
I t f o l l o w s t h e r e f o r e t h a t w h e r e a r e s o l u t i o n c a n
b e v a l i d l y p a s s e d by a s p e c i a l m a j o r i t y , a s h a r e h o l d e r
c a n c h a l l e n g e t h e r e s o l u t i o n i f i t i s p a s s e d by o r d i n a r y
r e s o l u t i o n w i t h o u t i 4 , f r l n g i n g t h e r u l e i n FOSS V. Har-
bo t t l e . T h i s i s b e c a u s e t h e e f f e c t of s e e k i n g t h e a s s i s -
t a n c e o f t h e c o u r t b y t h e s h a r e h o l d e r i n t h i s r e g a r d d o e s
n o t i n t e r f e r e w i t h t h e i n t e r n a l management o f t h e company,
b u t r a t h e r t o compel c o m p l i a n c e by t h e m a j o r i t y and t h e
company i t s e l f w i t h t h e p r o v i s i o n s o f t h e a r t i c l e s o f
a s s o c i a t i o n . E q u a l l y i m p o r t a n t i s t h e a d e q u a c y of t h e
n o t i c e o f s u c h a r e s o l u t i o n , which mus t g i v e a f a i r and
r e a s o n a b l y f u l l s t a t e m e n t o f t h e f a c t s i f i t i s t o b i n d
4 3 t h e m i n o r i t y . 43. S e e aill lie v. o r i e n t a l T e l e p h o n e and ~ l e c t r i c Com-
wanv ~ i r n i t e d . suDra . see a l s o : Kave v. ~ r o v d o n +ramways Co. - '/?8987 - 1 c h . 358; - ~ i e i s e n v . ~ b n d e r s o n ~
(iii) PERSONAL RIGHTS
Another ' i n s t a n c e w h e r e t h e m i n o r i t y s h a r e h o l -
d e r c an s u e , b u t wh ich , i t h a s been s u g g e s t e d 4 4
d o e s n o t come u n d e r t h e e x c e p t i o n s t o t h e r u l e
i n F o s s v. H a r b o t t l e , i s w h e r e t h e p e r s o n a l
r i g h t s o f t h e s h a r e h o l d e r a r e i n f r i n g e d o r
a b o u t t o b e i n f r i n g e d . Here, wha t t h e p l a i n -
t i f f i s c o m p l a i n i n g o f i s n o t a wrong d o n e t o
t h e company. I n P e n d e r v. ~ u s h i n g t o n ~ ~ , t h e
c h a i r m a n o f a m e e t i n g w r o n g f u l l y r e f u s e d to
a c c e p t t h e v o t e s of nominees of a member of
t h e company and t h e p l a i n t i f f b r o u g h t an
a c t i o n s e e k i n g f o r an i n j u n c t i o n r e s t r a i n i n g
t h e d i r e c t o r s from g i v i n g e f f e c t t o t h e c h a i r -
m a n r s r u l i n g . The c o u r t u p h e l d t h e a p p l i c a t i o n
s t a t i n g t h a t h e c o u l d s u e a s an i n d i v i d u a l
member who i s e n t i t l e d t o h a v e h i s v o t e s
r e c o r d e d . T t was h e l d t h a t t h i s h a s n o t h i n g
t o do w i t h t h e i s s u e s r a i s e d i n F o s s v. H a r b o t t l e .
/?8997 1 Ch. 861 ; MacConnel l v. E. rill & Co. /?9167 - - - 2 ~ h z 57
44. S e e ~ e n d e r v. L u s h i n g t o n , ( 1 8 8 7 ) 6 Ch. D. 70, ( a t PP* 8 0 8 1 ) -
45. I b i d
is L o r d s h i p , Jesse1 M. R . , a p t l y s t a t e d t h e
p o s i t i o n t h u s :
" T h i s i s an a c t i o n by M r . P e n d e r f o r h i m s e l f . H e i s a member o f t h e company, and w h e t h e r h e v o t e s w i t h t h e m a j o r i t y o r t h e m i n o r i t y h e i s e n t i t l e d t o h a v e h i s v o t e r e c o r d e d - an i n d i v i d u a l r i g h t i n r e s p e c t o f which h e h a s a r i g h t to s u e . T h a t h a s n o t h i n g t o do w i t h t h e q u e s t i o n l i k e t h a t r a i s e d i n ~ o s s v. H a r b o t t l e and t h a t l i n e o f c a s e s . H e h a s a r i q h t t o s a y , ' w h e t h e r I v o t e i n t h e m a j o r i t y o r m i n o r i t y , you s h a l l r e c o r d my v o t e , a s t h a t i s a r i g h t o f p r o p e r t y b e l o n g i n g t o my i n t e r e s t i n t h i s company, and if you r e f u s e t o r e c o r d my v o t e I w i l l i n s t i t u t e l e g a l p r o c e e d i n g s a g a i n s t you t o compel you46u.
gain, w h e r e a member i s e n f o r c i n g c o m p l i a n c e
w i t h t h e c o n s t i t u t i o n o f t h e company w i t h r e g a r d t o
r i g h t s v e s t e d i n him by s e c t i o n 4 1 o f t h e Companies
~ c t , a g a i n s t t h e m a j o r i t y and t h e company i t s e l f ,
t h e r u l e d o e s n o t . s u t a m i n o r i t y s h a r e -
h o l d e r ' s r i g h t t o h a v e any p r o v i s i o n i n t h e a r t i c l e s
e n f o r c e d a s p a r t of h i s c o n t r a c t o f membership a p p e a r s
t o . b e c o n t r a r y t o t h e r u l e i n ~ o s s v. ~ a r b o t t l e . T h i s
i s b e c a u s e t h e r u l e i t s e l f p r e v e n t s a c t i o n by m i n o r i t y
46. I b i d , pp. 80-81
47. S e e Salmon v. ~ u i n a ~ x t e n s ~ t d . [?90271 ch . 311
s h a r e h o l d e r s f o r i n t e r n a l i r r e g u l a r i t i e s , i n c l u d i n g a
b r e a c h e s of t h e a r t i c l e s . However, t h e r e i s - / t e n o u s
d i s t i n c t i o n h e r e b e t w e e n a mere b r e a c h of t h e a r t i c l e s
4 8 and an i n v a l i d d e f a c t o amendment . C o n s e q u e n t l y ,
w h e r e t h e b r e a c h d o e s n o t i n v o l v e t h e i n f r i n g e m e n t
of t h e i n d i v i d u a l r i g h t s c o n f e r r e d upon a s h a r e h o l d e r ,
i t h a s b e e n h e l d t h a t a b r e a c h o f t h e a r t i c l e s may be
r a t i f i e d b y t h e m a j o r i t y 4 9 . o n t h e o t h e r h a n d , t h e
r u l e i n F o s s v. H a r b o t t l e h a s n o a p p l i c a t i o n t o a n y
s t a t u t o r y r i g h t c o n f e r r e d b y t h e Companies ~ c t , m e m o -
randum o r a r t i c l e s of a s s o c i a t i o n on i n d i v i d u a l s h a r e -
h o l d e r s o r a minimum number of them, F o r i n s t a n c e , t h e
r i g h t s of members i n r e s p e c t of m e e t i n g s a s t o n o t i c e
of s u c h m e e t i n g s S o , t h e r e q u i s i t i o n i n g o f meet ings5 ' , and
5 2 t h e c i r c u l a t i o n of r e s o l u t i o n s .
48. S e e G r a n t v. U.K. S w i t c h b a c k ailw ways (1888), 40 Ch. D. 1 3 5 ( a t pp. 138 - 139)
49, I b i d
B e s i d e s , a s i n g l e s h a r e h o l d e r may s u e i n h i s
own name t o r e s t r a i n a n a c t which i s an i n f r i n g e m e n t
o f h i s i n d i v i d u a l r i g h t 5 3 , e.g., a w r o n g f u l r e f u s a l
t o a c c e p t h i s v o t e a t a g e n e r a l m e e t i n g o f t h e company 54
o r a w r o n g f u l e x c l u s i o n o f him f r o m t h e b o a r d o f
5 5 d i r e c t o r s . B e f o r e t h e p r o m u l g a t i o n o f t h e new
Companies ~ c t , a member o f a company was e n t i t l e d t o
e n f o r c e r i g h t s c o n f e r r e d upon him b y t h e c o n t r a c t o f
m e m b e r s h i p , a s d e f i n e d by s e c t i o n 1 6 o f t h e 1 9 6 8 Com-
5 6 p a n i e s ~ c t , i n h i s c a p a c i t y a s a member qua member . S e e t h e f o l l o w i n q c a s e s on t h i s i s s u e : C l a r k v. workman; /19207 1 1. R. 1 0 7 , a t p. 1 1 2 Edwards v. ~ a l l i w e i l , s u p r a Wood v. O d e s s a w a t e r w o r k s Co. ( 1 8 8 9 ) 4 2 Ch. D. 636 J o h n s o n v. ~ i t t l e t s I r o n Agency, ( 1 8 7 7 ) , 5 Ch. D. 6 8 7
S e e P e n d e r v. L u s h i n g t o n , s u p r a
S e e p u l l b r o o k v. Richmond C o n s o l i d a t e d Co. ( 1 8 7 8 ) , 9 Ch. D. 610. Harben v. p h i l l i p s ( 1 8 8 3 ) , 23 Ch. D. 14 . Amaye v. A s s o c i a t e d C o n t r a c t o r s , s u p r a
S e e t h e f o l l o w i n g c c a s e s : ~ i c k m a n v. K e n t o r Romney Marsh S h e e p b r e e d e r s t ~ s s o c i a t i o n /1915/ 1 Ch, 881; ~ l e v. p o s i t i v e ~ i f e ~ s s u r a A c ~ COT ( 1 8 7 6 ) 1 EX. D.* ; ~ e a k t i e 9
v . eat tie ~ t d , /39387 Ch. 708; ~ a y f i e l d v . H a n d s , /1960 / Ch. 1; obTkoya v. Ezenwa ( 1 9 6 4 ) 2 ~ l l N0L.R- T33;-~ika- ore P r e s s L t d . v. ~ b i n a ( 1 9 7 3 ) 4 S.C-R.
6 3
However, t h e new Companies ~ c t h a s o v e r r u l e d t h i s
p r o v i s i o n and t h e common l a w c a s e s , w h i c h p r o v i d e d
t h a t t h e c o n t r a c t c r e a t e d by t h e memorandum and
a r t i c l e s o f a s s o c i a t i o n a f f e c t t h e members o n l y i n
t h e i r c a p a c i t y a s members and n o t i n any o t h e r s p e c i a l
o r p e r s o n a l c a p a c i t y (e .g . a s d i r e c t o r s 5 7 , so l ic i tors 58
or p e r s o n , a l r e p r e s e n t a t i v e s 5 ' ) a n d t h a t an o u t s i d e r
c a n n o t e n f o r c e a n y t h i n g i n t h e memorandum. T h i s i s
b e c a u s e s e c t i o n 4 1 ( 1 ) of t h e ~ c t e x p r e s s l y p r o v i d e d
t h a t :
" S u b j e c t to t h e p r o v i s i o n s of t h i s Decree, t h e memorandum and a r t i c l e s , when r e g i s t e r e d , s h a l l h a v e t h e effect o f a c o n t r a c t u n d e r s e a l b e t w e e n t h e company a n d i t s members a n d o f f i c e r s , a n d b e t w e e n t h e members and off icers t h e m s e l v e s whereby t h e y a g r e e t o o b s e r v e and p e r f o r m t h e p r o v i s i o n s o f t h e memorandum a n d a r t i c l e s , a s a l - t e r e d from t i m e t o t i m e i n so f a r a s t h e y r e l a t e t o t h e company, members o r off icers a s such!!. ( u n d e r l i n i n g f o r e m p h a s i s ) .
1t i s t h e r e f o r e beyond d o u b t t h a t o f f i c e r s of a
company v i s - a - v i s t h e members, a r e e n t i t l e d t o e n f o r c e
r i g h t s c o n f e r r e d upon them b y c o n t r a c t of membersh ip a s
57. see B e a t t i e v. eat tie ~ t d . , s u p r a
58. See E l e y v. p o s i t i v e ~ i f e A s s u r a n c e Co. , s u p r a .
59. See ~ i k a - T o r e P r e s s L t d . v . n b i n a , s u p r a
d e f i n e d i n t h e p a s s a g e q u o t e d above . ~ l s o , s e c t i o n
6 5 0 ( 1 ) of t h e ~ c t d e f i n e s a member a s i n c l u d i n g
l l t h e h e i r , e x e c u t o r , a d m i n i s t r a t o r o r o t h e r p e r s o n a l
r e p r e s e n t a t i v e , a s t h e c a s e may be , of t h e membert1.
T h i s i s a s t a t u t o r y r e v e r s a l of t h e d e c i s i o n i n T i k a - - T o r e P r e s s ~ t d . v. Abina60, and a welcome d e v e l o p m e n t .
( i v ) FRAUD ON THE MTNORTTY
A r e m a r k a b l e e x c e p t i o n to t h e r u l e i n F o s s v ,
H a r b o t t l e i s wha t i s g e n e r a l l y r e f e r r e d t o a s
f r a u d on t h e m i n o r i t y . An a t t e m p t t o e x p l a i n
t h i s e x c e p t i o n was made by J e n k i n s , L, J., i n
Edwards v . ~ a l l i w e l l ~ ' , a s follows:
"Where wha t h a s b e e n d o n e amounts t o what i s g e n e r a l l y c a l l e d i n t h e s e c a s e s a f r a u d o n t h e mino- r i t y a n d t h e w r o n g d o e r s a r e t h e m s e l v e s i n c o n t r o l of t h e company, t h e r u l e i n ~ o s s v. H a r b o t t l e i s r e l a x e d i n f a v o u r of t h e a g g r i e v e d m i n o r i t y who a r e a l l o w e d t o b r i n g w h a t i s known a s a m i n o r i t y s h a r e h o l d e r s 1 a c t i o n on b e h a l f of t h e m s e l v e s and a l l o t h e r s l l ,
60. S u p r a
61. S u p r a , a t p, 1 0 6 7
E a r l i e r , t h e r e l a t i o n s h i p be tween t h e F o s s v.
H a r b o t t l e r u l e and t h e f r a u d on t h e m i n o r i t y
e x c e p t i o n ,was s t a t e d by L o r d Davey i n R u r l a n d v.
E a r l e 6 2 t h u s :
l ~ . . . B u t an e x c e p t i o n i s made t o t h e s e c o n d r u l e 6 3 w h e r e t h e p e r s o n s a g a i n s t whom t h e r e l i e f i s s o u g h t t h e m s e l v e s h o l d and c o n t r o l t h e m a j o r i t y o f t h e s h a r e s i n t h e com- pany , and w i l l n o t p e r m i t an a c t i o n t o be b r o u g h t i n t h e name of t h e company. I n t h a t c a s e t h e c o u r t s a 1 l o w t h e s h a r e h o l d e r s c o m p l a i n i n g t o b r i n g an a c t i o n i n t h e i r own names. his, however , i s a mere m a t t e r o f p r o c e d u r e i n o r d e r t o g i v e a remedy f o r a wrong wh ich s h o u l d o t h e r w i s e e s c a p e r e d r e s s , and i t is o b v i o u s t h a t i n s u c h an a c t i o n t h e p l a i n t i f f s c a n n o t h a v e a l a r g e r r i g h t t o r e l i e f t h a n t h e company i t s e l f would h a v e i f i t were p l a i n t i f f , and c a n n o t c o m p l a i n o f a c t s wh ich a r e v a l i d i f d o n e w i t h t h e a p p r o v a l of t h e m a j o r i t y of t h e s h a r e h o l d e r s , o r a r e c a p a b l e of b e i n g conf i rm'ed by t h e m a j o r i t y . The c a s e s i n wh ich t h e m i n o r i t y c an m a i n t a i n s u c h an a c t i o n a r e , t h e r e f o r e , c o n f i n e d t o t h o s e i n wh ich t h e a c t s c o m p l a i n e d of a r e of a f r a u d u l e n t c h a r a c t e r o r a r e beyond t h e power s of t h e company64".
62.' S u p r a
63. H i s L o r d s h i p was r e f e r r i n g t o t h e r i g h t o f t h e company i t s e l f t o s e e k l e g a l r e d r e s s for a wrong d o n e t o it. (See a l s o : s e c t i o n 299, C.A.M.A.)
64. S u p r a , a t p. 93
T h i s e x c e p t i o n i s h i g h l y d e s i r a b l e . I ts
p r o t e c t i v e s h i e l d i s u n d e r s c o r e d by t h e f a c t t h a t
i f t h e r u l e i n F o s s v. H a r b o t t l e i s a p p l i e d t o
p r e v e n t t h e m i n o r i t y from s u i n g , t h e i r g r i e v a n c e
c a n n e v e r r e a c h t h e c o u r t s , f o r t h e wrongdoe r s
b e i n g i n c o n t r o l w i l l n o t a l l o w t h e company t o s u e .
However, f o r t h e m i n o r i t y s h a r e h o l d e r s ' a c t i o n t o b e
a l l o w e d i n t h i s c i r c u m s t a n c e , t h e t w o c o n s t i t u e n t
p a r t s o f t h e e x c e p t i o n , i.e., c o n t r o l and f r a u d , must
be p roved . AS t o w h a t amoun t s t o c o n t r o l , Jessel,
M. R e , i n R u s s e l v. W a k e f i e l d Wate rworks i n d i c a t e d
t h a t t h e p r i n c i p l e w i l l a p p l y w h e r e
( i ) t h e wrongdoe r s h a v e a m a j o r i t y o f v o t e s , or
( i i ) t h e r e h a s been a p p r o v a l o f t h e f r a u d by t h e
m a j o r i t y , o r . (iii) t h e c o r p o r a t i o n h a s o t h e r w i s e shown t h a t i t
i s u n w i l l i n g t o s u e .
Any o f t h e s e i n s t a n c e s w i l l e s t a b l i s h c o n t r o l f o r t h e
p u r p o s e s o f t h e e x c e p t i o n .
65. ( 1 8 7 5 ) LOR, 20 Eq. 474 , a t p. 482
O n t h e o t h e r hand , what is f r a u d on t h e m i n o r i t y
a p p e a r s a b i t more d i f f i c u l t because o f v a r y i n g
d e f i n i t i o n s . AS a g e n e r a l g u i d e , f l f r aud l ies r a t h e r
i n t h e n a t u r e o f t h e t r a n s a c t i o n t h a n i n t h e m o t i v e s
o f t h e majdr i ty66u. ~ l s o , examples o f f r a u d i n c l u d e
where
" t h e m a j o r i t y a r e e n d e a v o u r i n g d i r e c t l y or i n d i r e c t l y t o appro- p r i a t e t o t h e m s e l v e s money, p r o p e r t y o r a d v a n t a g e s which be long t o t h e company o r i n which o t h e r s h a r e h o l d e r s a r e e n t i t l e d t o p a r t i c i p a t e 6 7 f * ,
T h e r e f o r e , e x p r o p r i a t i o n o f t h e company's p r o p e r t y
amounts t o f r a u d . in, i t i n c l u d e s d i r e c t o r s '
b r e a c h of d u t y t o a c t bona f i d e i n t h e i n t e r e s t o f t h e
company a s a whole, E q u a l l y , f r a u d embraces any uncon-
s c i o n a b l e c o n d u c t by t h o s e i n c o n t r o l o f t h e company
6 8 a t t h e e x p e n s e of t h e m i n o r i t y ,
G e n e r a l l y , a s r e g a r d s f r a u d on t h e m i n o r i t y
e x c e p t i o n t o t h e r u l e i n F o s s v, H a r b o t t l e , two t y p e s
o f s i t u a t i o n s a r e d e d u c i b l e . F i r s t , where t h e r e i s
t r u e - f r a u d a s where t h e c o n t r o l l i n g s h a r e h o l d e r s have
abused t h e i r power i n o r d e r t o g a i n a b e n e f i t f o r
S e e wedderburn , (1958) Cam. L,J, 93 , 67, P e r Lord Davey i n B u r l a n d v. E a r l e , s u p r a , a t pa 9 3
68 , S e e Cook v. D e e k s , s u p r a
t h e m s e l v e s a t t h e e x p e n s e o f t h e m i n o r i t y . Here, t h e
member s u e s on h i s own b e h a l f a g a i n s t t h e m a j o r i t y
69 and t h e company . Second ly , where t h e company i t s e l f
i s def rauded . Here, t h e member b r i n g s a d e r i v a t i v e
a c t i o n on b e h a l f of t h e company70. we humbly submi t
t h a t f r a u d on t h e m i n o r i t y e x c e p t i o n i n c l u d e s such
a c t s a s e x p r o p r i a t i o n of o t h e r members' p r o p e r t y ,
e x p r o p r i a t i o n o f t h e company's p r o p e r t y , and r e l e a s e
o f t h e d i r e c t o r s f rom f i d u c i a r y d u t i e s of good f a i t h ,
Consequen t ly , i f t h e m a j o r i t y o f t h e company's members
u s e t h e i r power t o d e f r a u d t h e company o r o p p r e s s a
m i n o r i t y , o r b o t h , t h e c o u r t w i l l i n t e r f e r e a t t h e
i n s t a n c e o f t h e m i n o r i t y and w i l l u p s e t t h e m i n o r i t y ' s
schemes,
( v ) INTERESTS OF JUSTICE? t
I n c o n c l u s i o n , a s u p p o s e d l y f i f t h e x c e p t i o n t o t h e
r u l e i n F o s s v, H a r b o t t l e , d i s c e r n i b l e from t h e
69. S e e Brown v. ~ r i t i s h ~ b r a s i v e wheel Co., /T9197 1 Ch. 190. S e e a l s o : Dafen T i n p l a t e Co. ~ t a . v: L l a - n e l l y S t e e l Co. (190'1) ~ t d . , - /1320/ - 2 Ch. 1 2 4 . \
70. S e e ~ e n i e r v. Hooper ' s T e l e g r a p h w o r k s Ltd. , (1874) LOR, 9 Ch. App. 350. See a l s o : ~ t w o o l v. Merrywea- t h e r (1867) L.R. 5 Eq. 464n. w a l l e r s t e i n e r v. M 0 i r 7
(NO, 2) - /79757 - 1 ~ l l E.R. 849 and s e c t i o n 303 C-A-M.A.
s u g g e s t i v e o b s e r v a t i o n s o f d i f f e r e n t j u d g e s i s t h e
i n t e r e s t s of j u s t i c e e x c e p t i o n . his e x c k p t i o n h a s
b e e n s u g g e s t e d a s e x i s t i n g w h e r e t h e i n t e r e s t s of
j u s t i c e r e q u i r e s t h a t t h e c o u r t s h o u l d i n t e r v e n e t o
7 1 a s s i s t an o t h e r w i s e h e l p l e s s m i n o r i t y s h a t e h o l d e r s . However, t h i s h a s been a v e r y c d n t e n t i o u s i s s u e i n
company l aw , w i t h e m i n e n t j u r i s t s and s c h o l a r s con-
72 t r o v e r t i n g o n e a n o t h e r . A f u l l d e t a i l e d c o n s i d e r a -
t i o n o f t h e i s s u e s i n v o l v e d i s t h e r e f o r e r e s e r v e d f o r
t h e f o u r t h c h a p t e r u n d e r m i n o r i t y p r o t e c t i o n .
4. ARTICLES OF ASSOCIATION AS CONTRACT OF MEMBERSHIP AND THE RIGHT OF THE MAJORITY TO ALTER THEM
A. INTRODUCTION
By s e c t i o n 3 3 o f t h e Companies ~ c t , i t i s m a n d a t o r y
t o r e g i s t e r a r t d c l e s o f a s s o c i a t i o n w i t h t h e memorandum
71. See t h e f o l l o w i n g : Wigram V. C., i n ~ o s s v. ~ a r b o t - tie, s u p r a . sir ~eo rqe ~es-sel M.R. i n uss sell v. - - w a k e f i e l d Wate rworks CO., s u p r a , a t p. 480; S w i n f e n Eady i n aill lie v. o r i e n t a l T e l e p h o n e & Electric Co.,
s u p r a , a t p. 518; Akande v. Omisade, s u p r a ; 8, Co. L td . v. sem-€do wire ~ n d u s t r i a l s g,
ors.. s u D r a
see v i n e l l o t . J. i n p r u d e n t i a l C a s e s , ~79797 3 ~ l l E.R. 507. S e e a l s o : P r u d e n t i a l A s s u r a n c e v. Newman I n d u s t r i e s (NO. 2 ) , 1981/ Ch. 257; 1982/ Ch. 204, C.A. Estmanco ( K i ~ n e : ~ o u s e ) L td . vmLGre2ter London C o u n c i l / - 1982 1 ~ l l *L E.R. . Q vol. 36 , n 1 9 8 7 -
o f a s s o c i a t i o n . T h e a r t i c l e s c o n t a i n t h e r u l e s and
r e g u l a t i o n s b y w h i c h t h e i n t e r n a l a f f a i r s o f a com-
p a n y a r e managed and d e a l w i t h s u c h m a t t e r s a s t h e
c l a s s e s o f s h a r e s , c o m m i s s i o n s and b r o k e r a g e , a l t e r a -
t i o n of c a p i t a l , m e e t i n g s , v o t i n g , t h e s e a l and
n o t i c e s 7 3 . T h e r e f o r e , i n t h e c o n d u c t of t h e a f f a i r s
o f t h e company, t h e a r t i c l e s o f a s s o c i a t i o n c o n s t i t u t e
a n i n d i s p e n s a b l e i n s t r u m e n t , c o n f e r r i n g r i g h t s and
d u t i e s .
G e n e r a l l y , t h e a r t i c l e s o f a s s o c i a t i o n r e g u l a t e
t h e r e l a t i o n s h i p b e t w e e n members a n d o f f i c e r s o f t h e
company and t h e company i t s e l f , a s w e l l a s t h e r i g h t s
74 o f s u c h members a n d o f f i c e r s o f t h e company i n t e r se . ~ u t , s u b j e c t t o a f e w r e s t r i c t i o n s , t h e a r t i c l e s o f a
company w h i c h c o n s t i t u t e a c o n t r a c t b i n d i n g t h e company
and t h e members* and o f f i c e r s , c a n be a1 t e r e d b y a s p e -
7 5 c i a 1 r e s o l u t i o n . T h i s i s a n o t h e r example o f t h e
p r i n c i p l e of m a j o r i t y r u l e i n company l a w , and i n
p a r t i c u l a r , o n e o f t h o s e i n s t a n c e s w h e r e t h e law
r e q u i r e s a s p e c i a l m a j o r i t y f o r t h e c o n d u c t o f t h e
73. S e e s c h e d u l e 1, pp. A 293-294, C.A.M.A.
74. S e e s e c t i o n 4 1 ( 1 ) , C.A.M.A.
75. see s e c t i o n 4 8 , C.A.M.A.
a f f a i r s o f t h e company. A s p e c i a l r e s o l u t i o n
c o n f e r r i n g t h i s r i g h t on t h e m a j o r i t y must be a
r e s o l u t i o n p a s s e d by a t h r e e - f o u r t h s m a j o r i t y o f
t h e members p r e s e n t and v o t i n g . T h e r e f o r e , i f t h e
p r o p e r p r o c e d u r e i s o b s e r v e d , t h e a l t e r a t i o n b e i n g
bona f i d e and i n t h e i n t e r e s t o f t h e company a s a
w h o l e , i t becomes b i n d i n g on a l l and s u n d r y .
Though e v e r y member o f t h e company h a s a
c o n t r a c t u a l r e l a t i o n s h i p w i t h t h e company c o n f e r -
r i n g r i g h t s and d u t i e s , and e n t i t l i n g o n e t o e n f o r c e
t h e o b s e r v a n c e o f t h e a r t i c l e s o f t h e company, i t i s
i m p l i e d t h a t a p e r s o n who h a s a g r e e d t o b e a member h a s
r e s i g n e d h i s f a t e t o t h e r i g h t s of t h e m a j o r i t y t o
r e g u l a t e t h e a f f a i r s o f t h e company by t h e a r t i c l e s .
Hence , t h e a r t i c l e s may b e a l t e r e d o r added t o by
means o f a s p e c i a l r e s o l u t i o n . Such a l t e r a t i o n i s
a s v a l i d a s i f c o n t a i n e d i n t h e o r i g i n a l a r t i c l e s , and
76 c a n i t s e l f be a l t e r e d o n l y b y s p e c i a l r e s o l u t i o n . C o n s e q u e n t l y , r i g h t s c o n f e r r e d by t h e a r t i c l e s a l o n e
a r e s u b j e c t t o a l t e r a t i o n by s p e c i a l r e s o l u t i o n o f t h e
company. A member, t h e r e f o r e , c a n n o t r e s t r a i n s u c h
76. S e e s e c t i o n 4 8 ( 2 ) , C.A.M.A.
a n a l t e r a t i o n e v e n t h o u g h i t i s t o h i s p r e j u d i c e ,
u n l e s s h e c a n show t h a t t h e a l t e r a t i o n i n t h e
a r t i c l e s i s n o t made b o n a f i d e and f o r t h e b e n e f i t
77 o f t h e company a s a w h o l e . However , w h e r e t h e
a l t e r a t i o n i s i n b r e a c h o f any c o n t r a c t u a l r e l a -
t i o n s h i p w i t h t h e company, damaqes may be c l a i m e d
78 i n s t e a d . C r i t i c a l l y v i e w e d , t h e a b o v e s i t u a t i o n shows
a n o t h e r i n s t a n c e w h e r e m a j o r i t y and m i n o r i t y i n t e r e s t s
may be b r o u g h t i n t o d i r e c t c o n f l i c t . T h i s is b e c a u s e ,
i n t h e e x e r c i s e o f t h e r i g h t t o a l t e r t h e a r t i c l e s b y
s p e c i a l r e s o l u t i o n c o n f e r r e d on t h e m a j o r i t y , a company
may s e e k t o add t o o r a l t e r t h e terms o f i t s a r t i c l e s
o f a s s o c i a t i o n . T h e r e s u l t a n t a l t e r a t i o n may be t o
t h e p r e j u d i c e o f m i n o r i t y i n t e r e s t s . We s h a l l ,
t h e r e f o r e , e x a m i n e and e v a l u a t e t h e s t a t u t o r y and
j u d i c i a l r e s t r i c t i o n s w h i c h a r e i m p o s e d upon t h e
p o w e r s o f t h e m a j o r i t y t o e f f e c t s u c h an a d d i t i o n o r
See S o u t h e r n F o u n d r i e s ( 1 9 2 6 ) ~ t d . v. S h i r l a w /7940/ A.C. 701: B a i l v v. B r i t i s h E a u i t a b l e - ~ s s u F a n c e Co . ~ t d . , i904 1 ch.-374. S e e a l s o : P u n t v. Symons & c o m L ~ t d ; / /?go?/ 2 ch . 506. c o n t r a : B r i t i s h Murac s y n 8 i c a t e L t d . v. ~ l p e r t o n ~ u b b e r co. L t d . - /19 1 5 1 - 2 Ch. 186
a l t e r a t i o n i n t h e f a c e o f t h e o p p o s i t i o n o f t h e
m i n o r i t y . Hence, two b a s i c q u e s t i o n s f o r o u r
immed ia t e c o n s i d e r a t i o n a r e a s f o l l o w s : ~ i r s t ,
t h e s t a t u s o f t h e a r t i c l e s a s a c o n t r a c t of member-
s h i p a s d e f i n e d by section 4 1 o f t h e Companies ~ c t .
S e c o n d l y , t h e power t o a l t e r t h e a r t i c l e s u n d e r s e c t i o n
4 8 o f t h e ~ c t and i t s e f f e c t on t h e c o n t r a c t of member- - s h i p a f o r e s a i d .
B THE ARTICLES O F ASSOCIATION AS CONTRACT OF MEMBERSHIP
S e c t i o n 4 1 ( 1 ) o f t h e Companies ~ c t p r o v i d e s t h a t
t h e memorandum and a r t i c l e s , when r e g i s t e r e d , s h a l l
h a v e t h e e f f e c t o f a c o n t r a c t u n d e r s e a l between t h e
company and i t s members and o f f i c e r s and a l s o between
t h e members and o f f i c e r s t h e m s e l v e s , t o o b s e r v e a l l
t h e p r o v i s i o n s c o n t a i n e d t h e r e i n , The consequences
of t h i s a r e , f i r s t , to c r e a t e an o b l i g a t i o n b i n d i n g
a l i k e on t h e members and o f f i c e r s i n t h e i r d e a l i n g s
w i t h t h e company79j j e c o n d l y , o n t h e company i n i t s
42 ch. D o 636; QU- 442, S e e e l s o : ~ i c k r n S h e e ~ B r e e d e r s A S S O C ~ ~ ~ ior
T;1909_/ A-C- ?mnzy ~ a r s h
d e a l i n g s w i t h t h e members and off icers; and t h i r d l y ,
t h e members and o f f i c e r s i n t h e i r d e a l i n g s w i t h o n e
a n o t h e r . T h e r e f o r e , t h e b r o a d effect of s e c t i o n 4 1
of t h e ~ c t i s t h a t t h e memorandum and a r t i c l e s a r e
i n t e n d e d t o h a v e c o n t r a c t u a l e f f e c t . T h i s i s b u t t r e s -
s e d by t h e a p t o b s e r v a t i o n o f S t i r l i n g 3. i n Wood v ,
o d e s s a w a t e r w o r k s C O . , ~ ' t h a t :
"The a r t i c l e s o f a s s o d a t i o n c o n s t i t u t e a c o n t r a c t n o t m e r e l y be tween t h e s h a r e h o l - d e r s and t h e company, b u t be tween e a c h i n d i v i d u a l s h a r e - h o l d e r and e v e r y o t h e r " .
T h e e f f e c t and s c o p e of s e c t i o n 1 6 o f t h e 1 9 6 8
Companies ~ c t c r e a t e d p r o b l e m s of i n t e r p r e t a t i o n f o r
t h e c o u r t s , ~ e s t r i c t i v e c o n s t r u c t i o n w a s p l a c e d o n
lfrnember1l and u n n e c e s s a r y l i m i t a t i o n s imposed. However,
i t i s i n t e r e s t i n g t o n o t e t h e r e m a r k a b l e improvement t
i n t r o d u c e d by t h e new Companies ~ c t . u n d e r t h e new
d i s p e n s a t i o n , ffmember" h a s a w i d e r d e f i n i t i o n a s
i n c l u d i n g n o t o n l y member q u a member, b u t a l s o o f f i c e r s
o f t h e company and p e r s o n a l r e p r e s e n t a t i v e s o f a d e c e a s e d \
80. S u p r a , a t p. 642
81 . member . Aga in , i t a p p e a r s t h a t t h e e a r l i e r p o s i -
t i o n of t h e l a w t h a t t h o s e who a r e n o t members c a n n o t
e n f o r c e t h e p r o v i s i o n s of t h e a r t i c l e s e t h c r a g a i n s t t t h e company o r i t s members and o f f i c e r s h a s b e e n modi-
fied i n o n e s p e c i f i c c a s e . his is b e c a u s e t h e r e
i s now a new and i m p o r t a n t p r o v i s i o n c o n t a i n e d i n
s e c t i o n 4 1 ( 3 ) to t h e e f f e c t t h a t power g i v e n t o a
p e r s o n by t h e memorandum o r a r t i c l e s t o a p p o i n t o r
remove any d i r e c t o r o r o f f i c e r of t h e company, s h a l l
be e n f o r c e a b l e b y t h a t p e r s o n d e s p i t e t h e f a c t t h a t
h e i s n o t a m e m b e r or o f f i c e r o f t h e company. u n d e r
t h e 1 9 6 8 compan i e s ~ c t , s u c h a power i s n o t e n f o r c e a -
b l e by an o u t s i d e r on whom i t i s c o n f e r r e d b e c a u s e o f
8 2 l a c k of p r i v i t y o f c o n t r a c t . F u r t h e r m o r e , t h e improved p o s i t i o n u n d e r t h e new
c o m p a n i e s ~ c t , Is t h e t a k i n g i n t o a c c o u n t of t h e
s e p a r a t e l e g a l s t a t u s o f a r e g i s t e r e d company by t h e
p r o v i s i o n s of s e c t i o n 4 l ( l ) . u n d e r S e c t i o n 1 6 o f t h e
1 9 6 8 Companies ~ c t , t h e words " a s i f .. . s i g n e d and
S e e s e c t i o n s - 4 1 and - 6 5 0 ( 1 ) , C.A.M.A. C o n t r a : S e e ; 1968. ~ l e ~ v. p o s i t i v e
82. S e e , e.g., R e Ro therham ~ l u m & Chemica l Co., ( 1 8 8 3 ) , 2 5 ~ h . D. 1 0 3 ; R e Empress E n g i n e e r i n g co., ('1880) 16 Ch. D. 125 ; R e E n g l i s h and c o l o n i a l P r o d u c e COO, 179067 2 ch . 435 - -
s e a l e d by each membertf d i d n o t have added t o them
f f a n d by t h e companyf1. T h i s o m i s s i o n c r e a t e d d o u b t
on t h e b i n d i n g e f f e c t of t h e c o n t r a c t o f membership
between t h e members and t h e company i t s e l f . F o r
i n s t a n c e , i n B o r l a n d t s T r u s t e e v. S t e e l B r o t h e r s &
C O . ~ ~ , and Kerr v. John Mottram ~ t d . * ~ , t h e j udges - t a l k e d of t h e a r t i c l e s o n l y i n terms of a c o n t r a c t
between members. I t i s t h e j u d i c i o u s i n t e r p r e t a t i o n
g i v e n t o t h e e q u i v a l e n t of t h e s e c t i o n by t h e c o u r t s
t h a t a t t e m p t e d t o f i l l t h e g a p and g a v e a b i n d i n g
e f f e c t t o such c o n t r a c t u a l r e l a t i o n s h i p 5etween t h e
members and company. F o r example, i n ~ i c k m a n v. ~ e n t
o r Romney Marsh Sheep ~ r e e d e r s 1 ~ s s o c i a t i o n ~ ~ , stb bury
J. acknowledged t h e d i f f i c u l t y i n c o n s t r u i n g o r under -
s t a n d i n g t h e word ing o f an ~ n g l i s h e q u i v a l e n t of
s e c t i o n 1 6 o f t h e ~ i g e r i a n Companies ~ c t , 1968 and
s a i d :
f f ~ company c a n n o t i n t h e o r d i n a r y c o u r s e be bound o t h e r w i s e t h a n by s t a t u t e o r c o n t r a c t and it i s i n t h i s s e c t i o n t h a t i t s o b l i g a - t i o n must be found. AS f a r a s t h e members a r e c o n c e r n e d , t h e s e c t i o n
83. /33017 - 1 Ch. 279
84. - 139427 ch. 657
85. S u p r a , a t p. 8 9 7
d o e s n o t s a y w i t h whom t h e y are deemed t o h a v e c o v e n a n t e d , b u t t h e s e c t i o n c a n n o t mean t h a t t h e company is n o t t o b e bound when i t s a y s i t is t o be bound , a s i f , etc., n o r c a n t h e s e c t i o n mean t h a t t h e members a r e t o be u n d e r n o o b l i g a t i o n to t h e company u n d e r t h e a r t i c l e s i n which t h e i r r i g h t s and d u t i e s a s c o r p o r a t o r s are to be found , Much of t h e d i f f i c u l t y i s removed i f t h e company be r e g a r d e d , a s t h e f r a m e r s o f t h e s e c t i o n may v e r y w e t 1 have so r e g a r d e d i t , a s b e i n g t r e a t e d i n l a w as a p a r t y t o i t s own memorandum and a r t i c l e s ~ ~ , ( u n d e r l i n i n g mine) . ,
O u r new Companies ~ c t h a s c o d i f i e d t h e u n d e r l i n e d
p o r t i o n of h i s ~ o r d s h i p t s o b s e r v a t i o n i n s e c t i o n 41(1).
1t i s h e r e t h a t o u r new Companies ~ c t i s ahead o f t h e
~ n q l i s h compan i e s ~ c t ~ ~ . his i s b e c a u s e u n d e r t h e
new d i s p e n s a t i o n , o u r s e c t i o n 41(1) e x p r e s s l y s t a t e s
t h a t
".., t h e memorandum and a r t i c l e s , when r e g i s t e r e d , s h a l l h a v e t h e e f f e c t o f a c o n t r a c t u n d e r s e a l be tween t h e company and i ts members and o f f i c e r s . , ,"
Thus , t h e c e r t a i n t y o f s u c h a c o n t r a c t u a l r e l a t i o n s h i p
be tween t h e members and o f f i c e r s and t h e company i t se l f
i s now beyond d o u b t , ~ a c h , t h e r e f o r e , i s bound t o
8 6 , See, e .q , , s e c t i o n 14(1) of t h e 1985 ~ n g l i s h Companies A c t
o b s e r v e t h e p r o v i s i o n s of t h e memorandum and
a r t i c l e s o f a s s o c i a t i o n . I t is b e c a u s e t h e s e c t i o n
g i v e s c o n t r a c t u a l force t o t h e memorandum and a r t i -
cles t h a t t h e members or o f f i c e r s a r e a b l e t o
8 7 e n f o r c e t h e r i g h t s c o n t a i n e d t h e r e i n . C * THE STATUS OF CONTRACT OF MEMBERSHIP
The c o n t r a c t which a r i s e s between t h e company
and t h e members and o f f i c e r s by v i r t u e of sect ion 4 1 i s
(1) o f t h e companies ~ c t / b a s e d on t h e a c q u i s i t i o n o f - - s h a r e s by such members and o f f i c e r s and h a s been
d e s c r i b e d a s "one o f t h e o r i g i n a l i n c i d e n t s of a
shareB8". I t h a s a l s o been d e s c r i b e d a s a c o n t r a c t o f
" t h e most s a c r e d c h a r a ~ t e r ~ ~ ~ . * h i s i s s u p p o s e d l y s o
s i n c e t h e s h a r e h o l d e r advances h i s money i n r e l i a n c e
on it. N e v e r t h e l e s s , n o t w i t h s t a n d i n g t h e r i g h t s t o 8
e n f o r c e t h e p r o v i s i o n s of t h e a r t i c l e s c o n f e r r e d by
section 4 1 ( 1 ) of t h e ~ c t , t h e c o u r t s have shown some
87. S e e ~ i g e l A. ast tin. "The Enforcement o f a Memberqs R i g h t s , " J.B.L., 1977, p. 18
\
88. P e r F a r e w e l l J. i n ~ o r l a n d f s T r u s t e e v. S t e e l Bros. & Co. ~ t d . , s u p r a , a t p. 288
89. P e r ROSS J. i n C l a r k v. Workman, ~ 3 9 2 0 7 1 I . R . 107 , a t p. 112
o b s e r v e t h e p r o v i s i o n s o f t h e memorandum and
a r t i c l e s o f a s s o c i a t i o n . I t i s b e c a u s e t h e s e c t i o n
g i v e s c o n t r a c t u a l f o r c e t o t h e memorandum and a r t i -
cles t h a t t h e members or o f f i c e r s a r e a b l e to
8 7 e n f o r c e t h e r i g h t s c o n t a i n e d t h e r e i n . Co THE STATUS OF CONTRACT OF MEMBERSHIP
T h e c o n t r a c t w h i c h a r i s e s b e t w e e n t h e company
and t h e members and o f f i c e r s b y v i r t u e o f s e c t i o n 4 1 i s
(1) of t h e Companies ~ c t / b a s e d on t h e a c q u i s i t i o n o f - - s h a r e s b y s u c h members a n d o f f i c e r s a n d h a s been
d e s c r i b e d a s r ,one o f t h e o r i g i n a l i n c i d e n t s o f a
I t h a s a l s o b e e n d e s c r i b e d a s a c o n t r a c t of
, , t h e most s a c r e d c h a r a ~ t e r ~ ~ 1 , . * h i s i s s u p p o s e d l y so
s i n c e t h e s h a r e h o l d e r a d v a n c e s h i s money i n r e l i a n c e
on it. N e v e r t h e l e s s , n o t w i t h s t a n d i n g t h e r i g h t s t o t
e n f o r c e t h e p r o v i s i o n s o f t h e a r t i c l e s c o n f e r r e d b y
s e c t i o n 4 1 ( 1 ) o f t h e ~ c t , t h e c o u r t s h a v e shown some
87. S e e ~ i g e l A. B a s t i n . "The E n f o r c e m e n t o f a Memberls ~ i g h t s , , ' J.B.L., 1 9 7 7 , Po 18
\
88. P e r F a r e w e l l J. i n u o r l a n d l s T r u s t e e V. s teel Bros. & Co. ~ t d . , s u p r a , a t p. 2 8 8
89. p e r ROSS J. i n C l a r k v. Workman, ~ 3 9 2 0 7 - 1 I . R . 1 0 7 , a t p. 1 1 2
r e l u c t a n c e i n a l l o w i n g a member t h e r i g h t t o
compel t h e company t o a c t i n a c c o r d a n c e w i t h
a l l t h e p r o v i s i o n s o f t h e memorandum and a r t i c l e s , - Also , t h e r e i s no c e r t a i n t y a s t o t h e e x t e n t a
m i n o r i t y s h a r e h o l d e r c an e n f o r c e any p r o v i s i o n i n
t h e a r t i c l e s a s p a r t o f h i s c o n t r a c t o f membersh ip
whe re no i n d i v i d u a l r i g h t o f membersh ip i s c o n c e r n e d o
The r e a s o n f o r t h i s i s t h e r e l u c t a n c e and c a u t i o u s
a t t i t u d e o f t h e c o u r t s i n i n t e r f e r i n g w i t h t h e
i n t e r n a l management o f compan i e s , T h e a l o o f n e s s
and p o l i c y o f n o n - i n t e r f e r e n c e i n t h i s r e g a r d can
be t r a c e d back t o t h e r e f u s a l o f t h e c o u r t o f
C h a n c e r y i n Eng l and i n t h e e i g h t e e n t h and e a r l y
n i n e t e e n t h c e n t u r i e s t o i n t e r m e d d l e w i t h t h e i n t e r -
n a l d i s p u t e s be tween p a r t n e r s 9 0 i n a p a r t n e r s h i p
v e n t u r e , . his p o l i c y was c a r r i e d o v e r and l a t e r a p p l i e d
t o c o m p a n i e s , and e x t e n d e d t o ~ i g e r i a i n t h e wake o f
c o l o n i s a t i o n , It h a s e v e r s i n c e i n f l u e n c e d t h e
a t t i t u d e o f t h e c o u r t s and j udges , F o r i n s t a n c e , i n
90 , S e e , e ,g , , P e r L o r d E ldon , i n C a r l e n V o D r U r Y , s u p r a , a t p, 158,
Mozley v. ~ l s t o n ~ ' , t w o s h a r e h o l d e r s u n s u c c e s s f u l l y
commenced p r o c e e d i n g s t o r e s t r a i n t h e d i r e c t o r s f r o m
a c t i n g u n t i l f o u r o f t h e i r number h a d r e t i r e d by
r o t a t i o n , a s was r e q u i r e d by t h e a r t i c l e s . Co t tenham
L O C., o p i n e d t h u s :
"The c o m p l a i n t a g a i n s t t h e d i r e c t o r s i s t h a t t h e y a r e i l l e g a l l y e x e r c i - s i n g t h e powers o f t h e d i r e c t o r s and i l l e g a l l y r e t a i n i n g t h e s e a l and p r o p e r t y o f t h e company. ~f
membersYZt1. ( u n d e r 1 i n i n g m i n e ) .
T h e p u r p o r t o f t h e u n d e r l i n e d w o r d s i s t h a t w h e r e
t h e a l t e r a t i o n o f t h e a r t i c l e s by t h e m a j o r i t y d o e s
n o t i n f r i n g e t h e p e r s o n a l r i g h t s of a member, h e c a n -
n o t s u c c e s s f u l l y c h a l l e n g e o r r e s t r a i n s u c h a l t e r a t i o n .
I t i s a c o r p o r a t e r i g h t w h i c h o n l y t h e m a j o r i t y c a n
e x e r c i s e . air;, i n M a c ~ o u g a l l v. G a r d i n e r 9 3 , t h e
a c t i o n b y a s h a r e h o l d e r a r i s i n g o u t o f t h e r e f u s a l
o f t h e c h a i r m a n o f t h e g e n e r a l m e e t i n g t o a c c e p t t h e
demand f o r a p o l l , o n t h e i s s u e o f a d j o u r n m e n t v a l i d l y
made ' i n a c c o r d a n c e w i t h t h e a r t i c l e s was a l s o u n s u c c e s -
s f u l . ~t was t h e c o n t e n t i o n o f t h e c o u r t t h a t s u c h - - -
91. ( 1 8 4 7 ) 1 Ph. 789; 4 1 E.R. 8 3 3
92. bid, a t p. 7 9 1
93. s u p r a
i r r e g u l a r i t i e s i n t h e i n t e r n a l management do n o t
c o n s t i t u t e a wrong t o t h e i n d i v i d u a l member b u t a
wrong t o t h e company, which a l o n e can seek l e g a l
redress. Accord ing ly , James L. J. s a i d :
( (Eve ry th ing i n t h i s ill, a s f a r a s T can see, i f i t i s a wrong i s a wrong t o t h e company, b e c a u s e e v e r y '
m e e t i n g t h a t i s c a l l e d must be c a l l e d f o r some p u r p o s e b r o t h e r - i t must be f o r t h e pu rpose o f d o i n g o r undoing someth ing which i s suppose t o a c c r u e f o r t h e b e n e f i t o f t h e company94rt.
w i t h t h e g r e a t e s t r e s p e c t , t h i s i s a d e n i a l o f a
r i g h t c o n f e r r e d by t h e c o n t r a c t o f membership to
e n f o r c e t h e p r o v i s i o n s of t h e a r t i c l e s .
However, i n c o n s t r u i n g t h e S t a t u s o f t h e a r t i c l e s
a s a c o n t r a c t o f membership ( a s d e f i n e d by s e c t i o n 4 1
of t h e Companies ~ c t ) , i t i s p e r t i n e n t t o s t a t e t h a t
t h e c o n t r a c t u a l ' r i g h t c o n f e r r e d by t h e s e c t i o n i s
s u b j e c t t o t h e r i g h t o f a l t e r a t i o n o f t h e a r t i c l e s
by a s p e c i a l r e s o l u t i o n . The s t a t u s o f t h e c o n t r a c t
i s v i v i d l y i l l u s t r a t e d by p r o f e s s o r Gower a s follows:
. "Thus, t h e s h a r e h o l d e r i n making a c o n t r s c t on terms which a r e a l - t e r a b l e by t h e o t h e r p a r t y by a s p e c i a l m a j o r i t y v o t i n g a t a
g e n e r a l m e e t i n g g 5 r a t h e r i n t h e same way a s a member o f a c l u b a g r e e s t o be bound by t h e c l u b r u l e s a s v a l i d l y a l t e r e d f r o m t i m e t o t i m e , o r a workman a g r e e s t o b e employed on t h e terms o f a col l e c t i v e a g r e e m e n t a s o c c a s i o n a l l y v a r i e d b t h e e m p l o y e r s and h i s t r a - I d e u n i o n 619,
Bu t t h i s r i g h t or r a t h e r , p r i v i l e g e o f t h e m a j o r i t y
i s n o t a b s o l u t e , ~t m u s t be e x e r c i s e d r e a s o n a b l y and
j u d i c i o u s l y , w i t h o u t p r e j u d i c e t o t h e p e r s o n a l r i g h t s
c o n f e r r e d b y t h e Companies ~ c t o n i n d i v i d u a l s h a r e -
h o l d e r s , gain, i t m u s t be e x e r c i s e d b o n a f i d e a n d
i n t h e i n t e r e s t o f t h e company a s a whole ,
T h e r e f o r e , i t i s o u r c o n t e n t i o n t h a t were t h e r e
n o r e s t r a i n t s o n t h e power o f t h e m a j o r i t y t o a l t e r
t h e a r t i c l e s i n u t t e r d i s r e ~ a r d o f t h e r i g h t s c o n f e r -
r e d b y s e c t i o n 4 1 ( 1 ) o f t h e Companies ~ c t , c o n f i d e n c e
a n d s e c u r i t y o f * p o t e n t i a l i n v e s t o r s would h a v e b e e n
e r o d e d . T h i s would c o n s e q u e n t l y h a v e h a d a d v e r s e
e f f e c t s o n c o r p o r a t e o r g a n i s a t i o n i n ~ i g e r i a . ~ h u s ,
s t a t u t o r y and j u d i c i a l r e s t r a i n t s c i r c u m s c r i b e Lhe
L
95. See s h u t t l e w o r t h v. c o x , ~39217 2 K.B. 9 , p e r ~ t k i n L O J ~ P . 26; M a l l e s o n v, N a t i o n a l I n s u r a n c e hnd G u a r a n t e e c o r p o r x n , L1894/ - 1 c h , 200, p e r ~ o r t h J., a t p , 205
9 6 , S e e G o w e r , s u p r a , p. 316
power o f t h e m a j o r i t y t o a l t e r t h e a r t i c l e s , h e n c e ,
m a i n t a i n i n g a b a l a n c e be tween m a j o r i t y and m i n o r i t y
i n t e r e s t s . We s h a l l now c o n s i d e r t h e a l t e r a t i o n o f
a r t i c l e s by t h e m a j o r i t y and l i m i t a t i o n s a t t a c h e d .
D - POWER TO ALTER ARTICLES A N D ITS EFFECT ON THE CONTRACT OF MEMBERSHIP
The i n t e r n a l a d m i n i s t r a t i o n and management o f a
company a r e r e g u l a t e d by t h e a r t i c l e s o f a s s o c i a t i o n .
~ c c o r d i n g l y , t h e a r t i c l e s set o u t t h e d e t a i l e d manner
i n w h i c h t h e b u s i n e s s o f t h e company s h a l l b e c o n d u c t e d ,
However, s u c h m a t t e r s c a n n o t r e m a i n s t a t i c f o r a l l t i m e ,
a n d s u c h r e g u l a t i o n s w i l l r e q u i r e e l a b o r a t i o n or modi-
f i c a t i o n f r o m t i m e t o t i m e t o meet t h e r e q u i r e m e n t s o f
b u s i n e s s p r a c t i c e and t h e s p e c i a l n e e d s o f t h e company,
Hence , i t becomes n e c e s s a r y t h a t t h e terms o f t h e
a r t i c l e s o f a s s o C i a t i o n s h a l l b e f r e e l y a l t e r a b l e .
A g e n e r a l power o f a l t e r a t i o n i s c o n t a i n e d i n
s e c t i o n 48(1) o f t h e Companies ~ c t a s f o l l o w s :
' I S u b j e c t t o t h e p r o v i s i o n s o f t h i s Decree and t o t h e c o n d i t i o n s o r o t h e r p r o v i s i o n s c o n t a i n e d i n i t s memorandum, a company may by s p e - c i a l r e s o l u t i o n a l t e r o r a d d t o i t s a r t i c l e s " ,
~ l l a l t e r a t i o n s o r a d d i t i o n s t o t h e a r t i c l e s e f f e c t e d
u n d e r t h e g e n e r a l power s h a l l be
" a s v a l i d a s i f o r i g i n a l l y c o n t a i n e d t h e r e i n a n d be s u b j e c t , i n l i k e m a n n e r , t o a 1 t e r a t i o n b y s p e c i a l reso- 1 u t i o n 9 7 r r e
T h e r e f o r e , t h e power o f a l t e r a t i o n c o n f e r r e d by
s e c t i o n 4 8 o f t h e Companies ~ c t , i s a n o t h e r i n c i -
d e n c e o f m a j o r i t y r u l e i n company l a w . Here, u n l i k e
t h e r u l e i n F o s s v. H a r b o t t l e , r e q u i r i n g a s i m p l e
m a j o r i t y f o r t h e e x e r c i s e o f t h e r i g h t c o n f e r r e d , i t
m u s t b e e x e r c i s e d by a s p e c i a l m a j o r i t y ,
T h e c o n s e q u e n c e o f t h i s power o f a l t e r a t i o n i s
t h a t t h e m a j o r i t y ( i n t h i s c a s e s p e c i a l m a j o r i t y ) a r e
e n t i t l e d t o r e g u l a t e and c o n t r o l t h e a f f a i r s o f t h e
company by e x e r c i s i n g t h e power c o n f e r r e d b y s e c t i o n 4 8
o f t h e ~ c t . gain st t h i s b a c k g r o u n d , e v e r y s h a r e h o l d e r t
i s t a k e n t o know t h a t r i g h t s c o n f e r r e d by t h e a r t i c l e s
a l o n e a r e s u b j e c t t o a l t e r a t i o n b y s p e c i a l r e s o l u t i o n
of t h e company. T h e r e f o r e , t h e company c a n n o t be res-
t r a i n e d by i n j u n c t i o n f r o m making s u c h a l t e r a t i o n u n l e s s
i t i s c o n t r a r y t o t h e Companies ~ c t o r c o n f l i c t o r y and \
i n c o n s i s t e n t w i t h t h e p r o v i s i o n s o f t h e memorandum o f
a s s o c i a t i o n . gain, b y r e f e r e n c e t o s e c t i o n 4 8 o f t h e
97. S e c t i o n 4 8 ( 2 ) , C.A.M.A,
Companies ~ c t , t h e r e e x i s t s a w e l l known p r o p o s i t i o n
t h a t a company c a n n o t b y i t s a r t i c l e s or o t h e r w i s e
d e p r i v e i t s e l f o f t h e power b y s p e c i a l r e s o l u t i o n t o
a l t e r i t s a r t i c l e s o r a n y o f them. his i s b e c a u s e
t h e a r t i c l e s a r e a l w a y s s u b j e c t t o t h e power i n
s e c t i o n 48 to e f f e c t a n a l t e r a t i o n by s p e c i a l r e s o l u -
t i o n . Hence , a c o n t r a c t o r a r t i c l e p u r p o r t i n g t o
9 8 d o t h i s , is i n e f f e c t i v e . ~ l s o , an a r t i c l e i n terms
p r o v i d i n g t h a t n o a l t e r a t i o n s h a l l be made w i t h o u t t h e
c o n s e n t o f a p a r t i c u l a r s h a r e h o l d e r i s c o n t r a r y to
s e c t i o n 48 and i n e f f e c t i v e . F u r t h e r m o r e , t h e p o s s i -
b i l i t y o f u s i n g a p r o v i s i o n i n t h e a r t i c l e s t o
c i r c u m v e n t t h e i n t e n t i o n o f t h e Companies ~ c t w i t h -
o u t b e i n g d i r e c t l y c o n t r a r y t o them a s was t h e c a s e i n
B u s h e l 1 v. ~ a i t h " , h a s b e e n e x p r e s s l y p r o h i b i t e d i n
1 0 0 o n e i n s t a n c e by' t h e a b o l i t i o n o f w e i g h t e d s h a r e s .
T h u s , t h e r i g h t to a l t e r t h e a r t i c l e s v e s t e d i n
t h e m a j o r i t y c a n be e x e r c i s e d n o t w i t h s t a n d i n g t h e
9 8 . . S e e M a l l e s o n v. ~ a t i o n a l I n s u r a n c e & G u a r a n t e e C o r p o r a t i o n , s u p r a ; Andrews v. Gas Meter COO,-
- /189' / / - 3 Ch. 3 6 1
99. S u p r a
100 . S e e s e c t i o n 116,- C.A.M.A.
c o n t r a c t o f membersh ip c o n t a i n e d i n s e c t i o n 4 1 o f
t h e Companies ~ c t , e n t i t l i n g a s h a r e h o l d e r t o e n f o r c e
t h e o b s e r v a n c e o f t h e a r t i c l e s o f a s s o c i a t i o n , Appa-
r e n t l y , t h e power o f a l t e r a t i o n seems t o t r a n s c e n d
t h i s c o n t r a c t u a l r e l a t i o n s h i p be tween t h e company and
i t s s h a r e h o l d e r s and shows t h e w e a k n e s s o f t h e l a t t e r
a s a c o n t r a c t , s tr ict0 s e n s u . T h i s i s b e c a u s e t h e
p a r t i e s t o t h e c o n t r a c t a r e n o t e n t i r e l y f r e e to a g r e e
t o be bound b y terms a c c e p t a b l e t o b o t h s i d e s . F o r
i n s t a n c e , t h e c o n t r a c t i s s u b j e c t t o t h e p r o v i s i o n s
o f t h e compan i e s ~ c t ~ " , wh ich means t h a t a r t i c l e s
which d o n o t a c c o r d w i t h t h e ~ c t a r e i n v a l i d . T h e r e -
f o r e , m a n d a t o r y p r o v i s i o n s o f t h e ~ c t c a n n o t be a v o i d e d
by agreement102. Aga in , t h e a r t i c l e s w i l l b e i n v a l i d
i f t h e y c o n f l i c t w i t h t h e memorandum103. ~ l s o , seem-
i n g l y , t h e most' i m p o r t a n t c h a r a c t e r i s t i c f e a t u r e of t h e
c o n t r a c t i s t h e f a c t t h a t t h e a r t i c l e s may be a l t e r e d
f r o m t i m e t o t i m e .
I n t h e l i g h t of t h e f o r e q o i n g , i t may be s a f e t o
conkend t h a t b e c a u s e o f t h e s p e c i a l n a t u r e and s t a t u s
101 . See s e c t i o n 4 1 ( 1 ) , C-A.M.A.
103 . S e e w e l t o n v. S a f f e r y , ~?89_77 A.C. 299 ( p e r L o r d D avey )
of t h e c o n t r a c t c o n t a i n e d i n t h e a r t i c l e s , t h e
m a j o r i t y , b y s p e c i a l r e s o l u t i o n c a n add t o o r
a l t e r t h e a r t i c l e s of a s s o c i a t i o n i n d e r o g a t i o n o f
r i g h t s c o n f e r r e d b y s e c t i o n 4 1 of t h e Companies ~ c t
w i t h r e s p e c t t o t h e o b s e r v a n c e of t h e a r t i c l e s . his
i s b e c a u s e
f r i t is a c o n t r a c t made upon t h e terms of an a l t e r a b l e a r t i c l e , and t h e r e f o r e n e i t h e r of t h e c o n t r a c t i n g p a r t i e s c a n c o m p l a i n if t h e a r t i c l e i s a l t e r e d 1 0 4 r r .
However, t h e power of t h e m a j o r i t y i n t h i s c o n -
n e c t i o n i s n o t a b s o l u t e . T h e r e a r e some j u d i c i a l
a n d s t a t u t o r y r e s t r a i n t s o n t h e e x e r c i s e of s u c h
power. T h e r e f o r e , i n e x c e p t i o n a l c i r c u m s t a n c e s , a
member may e n f o r c e h i s r i g h t s u n d e r s e c t i o n 4 1 of
t h e ~ c t a g a i n s t t h e company o r h i s f e l l o w members. t
T h e s e c i r c u m s t a n c e s w h e r e s t a t u t o r y a n d j u d i c i a l
r e s t r a i n t s c i r c u m s c r i b e t h e power of t h e m a j o r i t y t o
a l t e r t h e a r t i c l e s , c o n s t i t u t e m i n o r i t y p r o t e c t i o n .
his i s a p r i n c i p l e a imed a t b a l a n c i n g t h e v a r i o u s
i n t e t e s t s i n a companyj k e n c e , e n t i t l i n g members or
s h a r e h o l d e r s t o m a i n t a i n t h e m s e l v e s i n f u l l membersh ip ,
104 . S e e S h u t t l e w o r t h v. Cox B r o t h e r s & Co. a aid en- h e a d ) ~ t d . , s u p r a , a t p. Zb, ( p e r ~ t k i n L. J.) .
w i t h a l l t h e r i g h t s a n d p r i v i l e g e s a p p e r t a i n i n g t o
t h a t s t a t u s 1 0 5 . T h e s e r e s t r i c t i o n s s h a l l be c o n s i -
d e r e d i n o u r n e x t h e a d i n g .
E. RESTRICTIONS ON ALTERATION OF ARTICLES
T h e g e n e r a l p o w e r o f a l t e r a t i o n o f t h e a r t i c les
i n s e c t i o n 4 8 o f t h e C o m p a n i e s ~ c t i s s u b j e c t t o t h e
p r o v i s i o n s o f t h e ~ c t a n d t o t h e c o m p a n y ' s own m e m o -
randum. I t i s t h e r e f o r e n o t a n a b s o l u t e p o w e r t o
b e e x e r c i s e d a r b i t r a r i l y . ~ l s o , i t i s e q u a l l y s u b j e c t
t o r e s t r i c t i o n s i m p o s e d b y t h e c o u r t s fo r t h e p r o t e c -
t i o n o f m i n o r i t y s h a r e h o l d e r s . A g a i n , t h o u g h c o n t e n -
t i o u s i n c e r t a i n r e s p e c t s , i t i s s u b j e c t t o some
r i g h t s v e s t e d b y s e c t i o n 4 1 ( 1 ) o f t h e C o m p a n i e s ~ c t
w i t h r e g a r d t o c o n t r a c t s o f m e m b e r s h i p . W e s h a l l t h e r e -
f o r e c o n s i d e r t h e s e r e s t r i c t i o n s , h i g h l i g h t i n g t h e . v a r i o u s ways t h e y t e n d t o p r o t e c t t h e i n t e r e s t s : o f
t h e m i n o r i t y .
( i ) STATUTE
T h e f i r s t r e s t r i c t i o n , o t h e r w i s e known a s s t a -
t u t o r y r e s t r i c t i o n , i s t h e f a c t t h a t a n y p r o v i s i o n i n
1 0 5 . S e e , p e r ~ e n k i n s L. J. i n ~ d w a r d s v. H a l l i w e l l , s u p r a , a t p . 1 0 6 7
t h e a r t i c l e s which i s i n c o n s i s t e n t w i t h t h e Companies
~ c t , w i l l be i n v a l i d l o 6 . his a p p l i e s e q u a l l y t o
a l t e r e d a r t i c l e s a s much a s t o o r i g i n a l a r t i c l e s .
F o r i n s t a n c e , s e c t i o n 49 o f t h e Companies ~ c t
p r o v i d e s t h a t n o t w i t h s t a n d i n g a n y p r o v i s i o n i n t h e
memorandum or a r t i c l e s , n o s h a r e h o l d e r c a n be
bound b y an a l t e r a t i o n t o t h e a r t i c l e s made a f t e r
h e became a member i n so f a r a s t h e a l t e r a t i o n
r e q u i r e s him t o t a k e or s u b s c r i b e fo r more s h a r e s
t h a n t h e number h e l d by him a t t h e d a t e on which t h e
a 1 t e r a t i o n i s made, o r i n a n y way i n c r e a s e s h i s l h a -
b i l i t y a s a t t h a t d a t e t o c o n t r i b u t e t o t h e company 's
s h a r e c a p i t a l o r o t h e r w i s e t o p a y money t o t h e company.
T h i s s e c t i o n , n o d o u b t , i s d e s i g n e d t o p r o t e c t members
f r o m h a v i n g t h e i r f i n a n c i a l o b l i g a t i o n s t o t h e com-
p a n y f o r c i b l y & n c r e a s e d . However, i t i s s u b j e c t t o
a p r o v i s o which a l l o w s any member to a g r e e i n w r i t i n g ,
e i t h e r b e f o r e o r a f t e r t h e a l t e r a t i o n i s made, t o be
bound b y t h e a r t i c l e s .
1 0 6 . See w e l t o n v. S a f f e r y , s u p r a
(i i ) CLASS RIGHTS
gain, any a l t e r a t i o n of a company ' s a r t i c l e s
which v a r i e s t h e s h a r e h o l d e r s ' c l a s s r i g h t s i s
s u b j e c t t o t h e p r o v i s i o n s o f s e c t i o n s 141-144 o f
t h e Companies ~ c t . F u r t h e r m o r e , w h e r e t h e c o u r t
h a s made any o r d e r on t h e a p p l i c a t i o n by d i s s e n -
t i e n t members o r e v e n c r e d i t o r s o f a company, and
t h e o r d e r r e q u i r e s t h e company n o t t o make a n y , o r
a n y s p e c i f i e d a l t e r a t i o n i n t h e a r t i c l e s , t h e n , n o t -
w i t h s t a n d i n g a n y t h i n g i n t h e Companies ~ c t , t h e
company d o e s n o t h a v e power t o make any a l t e r a t i o n
i n b r e a c h o f t h a t r e q u i r e m e n t w i t h o u t t h e c o u r t ' s
1 0 7 l e a v e .
With r e g a r d t o t h e memorandum, any p r o v i s i o n . i n t h e company ' s a r t i c l e s which c o n f l i c t s w i t h i t
w i l l b e i n v a l i d l o 8 . T h e r e f o r e , t h e power o f a l t e r a -
t i o n o f t h e a r t i c l e s i s s u b j e c t t o t h e c o n d i t i o n s i n
t h e memorandum. N e v e r t h e l e s s , t h e memorandum may
c o n t a i n p r o v i s i o n s which c o u l d l a w f u l l y h a v e b e e n i n
1 0 7 . S e e e.g., s e c t i o n s 3 1 2 ( 4 ) , 1 4 2 ( 1 ) & ( 3 ) , 1 0 7 and p r o v i s o t o s e c t i o n 46( 11, C - A - M - A .
1 0 8 . see w e l t o n v. S a f f e r y , s u p r a . See a l s o : R e S o u t h - e r n B r a z i l l i a n ~ i o G r a n d e d o s u l Rly. Co. L td . , p m T - Ch. 78
t h e a r t i c l e s . Where t h i s i s t h e c a s e , s u c h
p r o v i s i o n c a n b e made u n a l t e r a b l e by t h e memo-
randum i t s e l f e x p r e s s l y s t a t i n g so. ~t i s a l s o
n o t e w o r t h y t o o b s e r v e t h a t w h e r e a s t h e a r t i c l e s
may b e a l t e r e d by t h e a g r e e m e n t o f a l l t h e s h a r e -
1 1 0 h o l d e r s l o g , t h e memorandum may n o t . ( i v ) CONTRACT
A n o t h e r r e s t r a i n t on t h e power o f a l t e r a t i o n
o f t h e a r t i c l e s i s d e d u c i b l e f r o m t h e f a c t t h a t
s i n c e t h e power o f a l t e r a t i o n i s s u b j e c t t o t h e
p r o v i s i o n s o f t h e Companies ~ c t , i t mus t t h e r e f o r e
b e s u b j e c t t o t h e c o n t r a c t i n t h e a r t i c l e s c r e a t e d
by s e c t i o n 4 1 o f t h e ~ c t . C o n s e q u e n t l y , a s h a r e h o l -
d e r c a n e n j o y r i a h t s c o n f e r r e d on him p e r s o n a l l y
by v i r t u e o f t h e c o n t r a c t o f membersh ip and t h e
111 a r t i c l e s c a n n d t b e a l t e r e d t o h i s p r e j u d i c e . ~ u t
w h e r e wha t i s i n i s s u e i s a c o r p o r a t e r i g h t , t h e n
t h e a r t i c l e s c a n b e a l t e r e d n o t w i t h s t a n d i n g c o n t r a c -
t u a l r i q h t s c o n f e r r e d by t h e p r o v i s i o n .
1 0 9 . S e e Cane v. J o n e s , / 3 9 8 0 7 - - 1 W.L.R. 1 4 5 1
1 1 0 . S e e ~ s h b u r y v. Watson, ( 1 8 8 5 ) 30 Ch. D. 376
111. S e e P e n d e r v. L u s h i n g t o n , s u p r a
( v ) FRAUD ON THE MINORITY
The most i m p o r t a n t r e s t r a i n t on t h e r i o h t
o r power o f t h e m a j o r i t y t o a l t e r t h e a r t i c l e s i s
t h e d u t y imposed upon them t o o b s e r v e good f a i t h .
A c c o r d i n g l y , t h e members o f a company m u s t n o t
e x e r c i s e t h e i r power to a l t e r t h e company 's
a r t i c l e s o t h e r w i s e t h a n bona f i d e a n d i n t h e
i n t e r e s t o f t h e company a s a whole . A c l a s s i c
f o r m u l a t i o n o f t h e r e s t r i c t i o n p l a c e d on m a j o r i t y
s h a r e h o l d e r s t o v o t e a s t h e y l i k e i s s u c c i n t l y
s t a t e d by ~ i n d l e y M. R. i n ~ l l e n v. Gold R e e f s o f
West A f r i c a L t d . T h e power c o n f e r r e d on c o m p a n i e s
t o a l t e r a r t i c l e s
f f m u s t l i k e a l l o t h e r p o w e r s , h e e x e r c i s e d s u b j e c t t o t h o s e g e n e r a l p r i n c i p l e s of - l a w and e q u i t y which a r e a p p l i c a b l e t o a l l powers con- f e r r e d on m a j o r i t i e s a n d e n a b l i n g them t o b i n d m i n o r i t i e s . It must be e x e r c i s e d n o t o n l y i n t h e manner r e q u i r e d b y l a w , b u t a l s o bona f i d e f o r t h e b e n e f i t o f t h e company a s a w h o l e , a n d i t m u s t n o t be e x c e e d e d . T h e s e c o n d i t i o n s a r e a l w a y s i m p l i e d , and a r e s e l d o m , i f e v e r , e x p r e s s e d f f 1 1 3
113 . I b i d , a t p. 6 7 1
à his r e s t r i c t i o n a t t e m p t s t o m a i n t a i n a f a i r a n d
b a l a n c e d r e l a t i o n s h i p i n c o n d u c t i n g t h e a f f a i r s
o f a company, A l t e r a t i o n o f a r t i c l e s , t h e r e f o r e ,
m u s t b e bona f i d e f o r t h e b e n e f i t o f t h e comDanv
a s a w h o l e , T h e u n d e r l i n e d p h r a s e h a s b e e n
1 1 4 d i f f e r e n t l y i n t e r p r e t e d i n many c a s e s ,
~ v e r s h e d M. R. i n G r e e n h a l q h v. A r d e r n e Cinemas
L t d . - h a s a d o p t e d a f o r m u l a t i o n a imed a t r e c o n c i -
l i n g and u n i f y i n g t h e s e d i f f e r e n t i n t e r p r e t a t i o n s
b y s t a t i n g a s f o l l o w s :
" C e r t a i n t h i n g s , I t h i n k , c a n b e s a f e l y s t a t e d a s e m e r g i n g f r o m t h e s e au t h o r i t i e s l 1 6 . I n t h e f i r s t p l a c e , i t i s now p l a i n t h a t ' b o n a f i d e f o r t h e b e n e f i t o f t h e company a s a w h o l e ' means n o t t w o t h i n g s b u t o n e t h i n g . It means t h a t t h e s h a r e h o l d e r mus t p r o c e e d on w h a t , i n h i s h o n e s t
see, e.g., Dafen inp plate CO. ~ t d . v. ~ l a n e l l y S t e e l Co. (1907) L t d . /1920/ 2 Ch. 1 2 4 , a t p, 140. C o n t r a : ~ i d e b o f t o m v, Kershaw. L e e s e & Co. - ~ -
~ t d . , s u p r a . Brown v. B r i t i s h ~ b r a s i v e w h e e l /?9197 1 Ch. 290 c* - -
S e e S i d e b o t t o m v. Kershaw, L e e s e & Cop ~ t d . s u p r a ; Dafen inp plate Co. L t d . v. L l a n e l l y S t e e l Co. ( 1 9 0 7 ) L td . . suDra : S h u t t l e w o r t h v. Cox Rros, & Co. ( M a i d e n h e a d ) L td . , s u p r a and Brown v , B r i t i s h n b r a s i v e w h e e l co.. s u ~ r a
o p i n i o n , i s f o r t h e b e n e f i t o f t h e company a s a who le , Secon- d l y , t h e p h r a s e , ' t h e company a s a w h o l e , ' d o e s n o t ( a t any r a t e i n s u c h a c a s e a s t h e p r e - s e n t ) mean t h e company a s a commer- c i a l e n t i t y a s d i s t i n c t f rom t h e c o r p o r a t o r s 1 1 7 , I t means t h e c o r - p o r a t o r s a s a g e n e r a l body , T h a t i s t o s a y , you may t a k e t h e c a s e o f an i n d i v i d u a l h y p o t h e t l c a l member and a s k w h e t h e r wha t i s p r o p o s e d i s , i n t h e h o n e s t o p i n i o n o f t h o s e who v o t e d i n i t s f a v o u r , f o r t h a t p e r s o n ' s b e n e f i t , I t h i n k t h e t h i n g c a n , i n p r a c t i c e , be more a c c u r a t e l y and p r e c i s e l y s t a t e d by l o o k i n g a t t h e c o n v e r s e and by s a y - i n g t h a t a s p e c i a l r e s o l u t i o n o f t h i s k i n d would b e l i a b l e t o b e impeached i f t h e e f f e c t o f i t w e r e t o d i s c r i m i n a t e be tween t h e m a j o r i t y s h a r e h o l d e r s and t h e m i n o r i t y s h a r e - h o l d e r s so a s t o g i v e t h e f o r m e r a n a d v a n t a g e o f wh ich t h e l a t t e r were d e p r i v e d " ,
From t h i s f o r m u l a t i o n , two s t a n d a r d tests a r e d e d u c i b l e ,
F i r s t , i f t h e c o u r t a c c e p t s t h a t t h e m a j o r i t y members* t
s u b j e c t i v e bona f i d e v i e w i s t h a t t h e a l t e r a t i o n is
f o r t h e b e n e f i t o f t h e company t h e n i t c a n n o t o v e r r u l e
t h e d e c i s i o n o n t h e g round t h a t i n t h e c o u r t ' s v i e w
i t i s n o t f o r t h e b e n e f i t o f t h e company, his i s
b e c a u s e i t i s n o t t h e c o u r t t s t a s k t o t a k e b u s i n e s s
1 1 7 , S e e Latham C. J. i n P e t e r s ' American D e l i c a c y Co. L t d . v , H e a t h , (1939) 6 1 C.L.R. 453, ~ i g h C o u r t o f ~ u s t r a l i a , a t p, 481
decisions1''. S e c o n d l y , t h e c o u r t w i l l n o t
s a n c t i o n an a l t e r a t i o n which i s d i s c r i m i n a t o r y
o r amounts t o an e x p r o p r i a t i o n o f i n d i v i d u a l
1 1 9 s h a r e h o l d e r s . Hence, a r e s o l u t i o n c o n s t i t u t e s a f r a u d on
t h e m i n o r i t y i f i t i s n o t p a s s e d b o n a f i d e f o r t h e
b e n e f i t o f t h e company a s a whole120, o r i t s e f f e c t
i s t o d i s c r i m i n a t e be tween t h e m a j o r i t y s h a r e h o l d e r s
and t h e m i n o r i t y s h a r e h o l d e r s so a s t o g i v e t h e
f o r m e r an a d v a n t a g e o f wh ich t h e l a t t e r a r e
d e p r i v e d l 2 l . The power t o a l t e r t h e a r t i c l e s o f
a s s o c i a t i o n i s n o t a b s o l u t e . C o n s e q u e n t l y , i f t h e
m a j o r i t y o f members u s e t h e i r power t o d e f r a u d t h e
company or o p p r e s s t h e m i n o r i t y , or b o t h , t h e c o u r t
w i l l i n t e r f e r e a t t h e i n s t a n c e o f t h e m i n o r i t y and
S e e S h u t t l e w o r t h v , Cox B r O S , & Co. (Maidenhead) L t d , s u p r a - S e e Brown v. ~ r i t i s h A b r a s i v e whee l Co. X, tdOL s u p r a
S e e e,g. , ~ i n d l e y M.R. i n ~ l l e n v. old R e e f s of West A f r i c a , s u p r a ; s idebo%tom v. Kershaw, L e e s e & Co. Ltd., s u p r a ; and S h u t t l e w o r t h v. Cox B r O S , & Co. (Ma idenhead ) ~ t d . , s u p r a , a t p. 18 ( p e r ~ a n k e r s L.J.)
S e e E v e r s h e d M.R. , i n ~ r e e n h a l g h v. A r d e r n e Cinemas
F% s u p r a , a t p. 1126. S e e a l s o : ~ e n n y c u i c k J. n R a h t s and I s s u e s I n v e s t m e n t T r u s t s L t d . v , S t y l o
S h o e s ~ t d , - /1965/ - Ch. 250, a t p. 256
w i l l u p s e t t h e m a j o r i t y ' s plans122. W e s h a l l
a l s o c o n s i d e r t h e g e n e r a l m e e t i n g and r e s o l u t i o n s
b e f o r e c o n c l u d i n g t h i s t o p i c .
5. GENERAL MEETINGS A N D RESOLUTIONS
A INTRODUCTION
Company m e e t i n g s a f f o r d t h e members t h e o p p o r t u -
n i t y t o p a r t i c i p a t e i n t h e d e c i s i o n making p r o c e s s
b y t h e company and e x e r c i s e t h e s u p e r v i s o r y role and
p o w e r s r e s e r v e d t o members o v e r t h e d i r e c t o r s and
off icers . They a l s o e n a b l e members t o a s s e s s t h e
p e r f o r m a n c e of t h e company. T h e r e f o r e , t h e i m p o r t a n c e
of g e n e r a l m e e t i n g c a n n o t be o v e r - e m p h a s i z e d . I t s
1 2 3 f u n c t i o n s h a v e l o n g b e e n r e g a r d e d a s v i t a l . ACCOr-
d i n g l y , b o t h s t a t u t o r y and common l a w r u l e s a r e
p r o v i d e d i n order t o e n s u r e t h a t m e e t i n g s a r e c a l l e d ,
a d e q u a t e i n f o r m a t i o n s u f f i c i e n t t o i n f o r m t h e s h a r e -
h o l d e r s of t h e s t a t e o f t h e company ' s a f f a i r s and t h e
n a t u r e o f t h e b u s i n e s s t o be c o n d u c t e d i s g i v e n , and
122 . S e e c l e m e n s v . ~ ' l e m e n s B r O S . ~ t d . / I 9 7 6 7 2 ~ 1 1 E.R. 268. See a l s o : R e ~ u g l e ~ r e s % , - /T9617 Ch. 270
1 2 3 . S e e en kin's Commit tee ~ e p o r t , 1 9 6 2 , Cmnd. 1 7 4 9 , p a r a s . 100-107
s h a r e h o l d e r s , if t h e y so d e s i r e , h a v e o p p o r t u n i t y
t o b e h e a r d i n r e s p e c t of company manaaement and
p o l i c y . But t h e l aw d o e s n o t f o r c e s h a r e h o l d e r s t o
t a k e an a c t i v e p a r t i n t h e management o f t h e i r and
company/most d o n o t , i n f a c t , do s o , ~t c a n and - d o e s p r o v i d e e n a b l i n g mach ine ry .
G e n e r a l l y , t h e r e a r e f o u r t y p e s of company
m e e t i n g s . T h e s e a r e b r o a d l y c l a s s i f i e d i n t o manda-
t o r y m e e t i n g s and d i s c r e t i o n a r y m e e t i n g s . Manda tory
m e e t i n g s c o m p r i s e o f s t a t u t o r y m e e t i n g and a n n u a l
g e n e r a l meet ing125, and mus t b e h e l d i n a c c o r d a n c e
w i t h s t a t u t o r y p r o v i s i o n s . D i s c r e t i o n a r y m e e t i n g s
on t h e o t h e r hand , c o n s i s t o f e x t r a o r d i n a r y g e n e r a l
m e e t i n g s 12 7 126 and c l a s s m e e t i n g s , and a r e r e s p e c -
t i v e l y summoned a t t h e i n s t a n c e o f t h e d i r e c t o r s and
members who .ho ld t h e c l a s s s h a r e s . With t h e e x c e p t i o n
o f s t a t u t o r y m e e t i n g which o c c u r s o n c e i n t h e l i f e
t i m e o f a p u b l i c l i m i t e d l i a b i l i t y company, t h e o t h e r
t y p e s o f m e e t i n g s h a v e much i n common, AS s u c h , a
g e n e r a l d i s c u s s i o n w i l l b e u n d e r t a k e n , h i g h l i g h t i n g
S e c t i o n 211, C.A.M.Ao
125 , S e c t i o n 2 1 3 ( 1 ) , C.A.M.A.
126 , s e c t i o n 215 , C.A.M.A.
127 , S e c t i o n 243,- C.A.M.A.
t h e e s s e n t i a l d e m o c r a t i c a s p e c t s o f t h e s e m e e t i n g s
a s a d e m o n s t r a t i o n o f t h e p r i n c i p l e o f m a j o r i t y
r u l e . ~ h u s , t h e c a l l i n g o f m e e t i n g s , t h e r i g h t t o
a t t e n d and v o t e a t s u c h m e e t i n g s and t h e method o f
v o t i n g a r e o f c r u c i a l i m p o r t a n c e . ~ l s o , t h e v a r i o u s
s t a t u t o r y p r o v i s i o n s aimed a t p r o t e c t i n g t h e i n t e r e s t
o f m i n o r i t y s h a r e h o l d e r s w i l l b e examined ,
Be inq a d e m o c r a t i c p r o c e s s , t h e w i l l o f t h e majo-
r i t y o f t h e members u s u a l l y p r eva i l s128 . ~ c c o r d i n g l y ,
i f t h e a p p r o p r i a t e or s t i p u l a t e d m a j o r i t y i s o b t a i n e d ,
a r e s o l u t i o n b i n d s a l l t h e members, i n c l u d i n g t h o s e
who v o t e d a g a i n s t it . And d e p e n d i n g on t h e s t a t u t o r y
r e q u i r e m e n t, may b e a s i m p l e m a j o r i t y , o t h e r w i s e c a l l e d
o r d i n a r y r e s o l u t i o n 1 2 9 o r a t h r e e - q u a r t e r s m a j o r i t y
known a s s p e c i a l r e so lu t i on130 . T h e s e t y p e s o f r e s o l u -
t i o n s w i l l b e ' c o n s i d e r e d a s e s s e n t i a l c o n s t i t u e n t s o f
t h e p r i n c i p l e o f m a j o r i t y r u l e . ~ l s o , t h e r i g h t s o f
128 . S e e , p e r Lord ~ a r d w i c k e i n A t t o r n e y - G e n e r a l v, Davy, ( 1 7 4 1 ) 2 ~ t k . 212; see a l s o , p e r wills, J.,
. E e r c h a n t s o f t h e S t a p l e v. Bank of E n g l a n d , ( 1 8 8 7 ) 2 1 Q.B. 1 0 6
129. S e c t i o n 233( I), C.A.M.A.
1 3 0 . S e c t i o n 2 3 3 ( 2 ) , C.A.M.A.
m i n o r i t i e s t o r e q u i s i t i o n m e e t i n g s and o t h e r
l i m i t a t i o n s on v o t i n g r i g h t s w i l l b e h i g h l i g h t e d
a s c o u n t e r - b a l a n c i n g t h e p r i n c i p l e o f m a j o r i t y
r u l e ,
B e SHAREHOLDERS ' MEETINGS
The g e n e r a l m e e t i n g i s a fo rum which e n a b l e s
t h e g e n e r a l i t y o f t h e members o f a company t o
e x p r e s s t h e i r v i e w s and w i s h e s by v o t i n g f o r o r
a g a i n s t r e s o l u t i o n s p r o p o s e d , c o n s e q u e n t l y , i t
a f f o r d s a s h a r e h o l d e r t h e o p p o r t u n i t y t o p a r t i c i -
p a t e i n t h e a f f a i r s o f h i s company by e x e r c i s i n q
h i s v o t i n g r i g h t s , The p u r p o s e of t h e g e n e r a l
m e e t i n g b y t h e s h a r e h o l d e r s h a s b e e n a p t l y s t a t e d
a s f o l l o w s :
"It i s , I s u p p o s e , to o b l i g e t h e management t o f a c e t h e s h a r e h o l d e r s , t o g i v e them some a c c o u n t of what t h e y h a v e done and how t h e y see t h e f u t u r e , t o answer t h e i r q u e s t i o n s and p e r h a p s t h e i r c r i t i c i s m s 1 3 1 ~ ~ ,
To a c c o m p l i s h t h e s e t a s k s , t h e powers e x e r c i s a b l e by
the . g e n e r a l m e e t i n g i n c l u d e s c r u t i n i s i n g t h e o p e r a t i o n s \
a n d c o n d u c t o f t h e d i r e c t o r s , r e v i e w i n g t h e power o f
3 1 S e e Andre Tunc ; " A F r e n c h Lawyer ~ o o k s a t ~ r i t i s h Company Lawu, ( 19821 , 45 M,L,R, 1, a t pp. 9-10
management c o n f e r r e d on d i r e c t o r s , a p p o i n t i n g and
d i s m i s s i n g d i r e c t o r s and a p p r o v i n g t h e b a l a n c e
s h e e t ,
The g e n e r a l m e e t i n g i n t h e p r o c e s s o f e x e r c i -
s i n g these powers , can c o r r e c t any i r r e g u l a r i t y
compla ined o f by an a g g r i e v e d s h a r e h o l d e r . There-
f o r e , a j u d i c i o u s e x e r c i s e of t h e powers of t h e
g e n e r a l mee t ing can check a b u s e o f c o r p o r a t e powers
by d i r e c t o r s , T h i s e n s u r e s an a d e q u a t e and e f f e c -
t i v e a d m i n i s t r a t i v e remedy, T h e r e a r e more e l a b o r a t e
132 p r o v i s i o n s on m e e t i n g s i n t h e new Companies ~ c t ,
I n t h i s r e g a r d , some p r o v i s i o n s o f t h e T a b l e A
a r t i c l e s of t h e 1968 companies ~ c t , r e l a t i n g t o mee-
t i n g s , a r e now codi f ied133, We s h a l l b r i e f l y
c o n s i d e r some d e m o c r a t i c a s p e c t s o f m e e t i n g s ,
t
( i ) NOTICE
The r i g h t t o r e c e i v e n o t i c e of m e e t i n g s and t o
a t t e n d and v o t e a t s u c h m e e t i n g s of t h e company a s
may b e c a l l e d f rom t i m e t o t i m e , i s one of t h e
1 3 2 , S e e g e n e r a l l y , P a r t V I I I of t h e Companies ~ c t : Mee t ings and P r o c e e d i n g s o f companies
133 . S e e , e , g , , p r o c e d u r e of v o t i n g , s. 224; p r o x i e s , 230- a d j o u r n m e n t s , s. 239 and t h %-- e powers and
d u t es of t h e Chairman a t g e n e r a l m e e t i n g s , s. 240 C.A.M.A.
c o n s e q u e n c e s f l o w i n g f r o m c o n t r a c t of membersh ip
b e t w e e n t h e company and s h a r e h o l d e r s . T h i s i s a
v e s t e d r i g h t which t h e ~ c t i t s e l f p r o t e c t s from
v i o l a t i o n by t h e company. F o r i n s t a n c e , s e c t i o n 81
of t h q Companies ~ c t p r o v i d e s t h a t
" e v e r y member s h a l l , n o t w i t h s t a n d i n g a n y p r o v i s i o n i n t h e a r t i c l e s , h a v e a r i g h t t o a t t e n d any g e n e r a l mee- t i n g of t h e company and t o s p e a k a n d v o t e on a n y r e s o l u t i o n b e f o r e t h e mee t ing" .
T h i s p r o v i s i o n w h i c h i s s u b j e c t t o t h e p r o v i s o t h a t
s u c h a member s h a l l n o t be e n t i t l e d t o a t t e n d a n d v o t e
u n l e s s a l l c a l l s o r o t h e r sums p a y a b l e by him i n
r e s p e c t of t h e s h a r e s i n t h e company h a v e b e e n p a i d ,
i s a l s o r e f l e c t e d i n s e c t i o n s 2 2 7 ( 1 ) a n d 228 of t h e
A c t .
( i i ) VOTING *
~ l s o , t h e r i g h t t o v o t e i s i m p o r t a n t a s i t i s
o f t e n t h e s o u r c e o f c o r p o r a t e c o n t r o l . T h e r e f o r e , i n
f a i r n e s s t o t h o s e who h a v e i n v e s t e d i n t h e company f o r
p r o f i t , company m e e t i n g s p r o v i d e t h e best f o r u m f o r
s u c h i n v e s t o r s t o h a v e a s a y i n t h e a f f a i r s of t h e i r
company. Hence , d e t a i l e d p r o v i s i o n s g o v e r n i n g v o t i n g
p r o c e d u r e a r e c o n t a i n e d i n s e c t i o n 224 of t h e A C ~ .
~ s o m u g h a h a s s t r e s s e d t h e i n d i s p e n s a b l e n a t u r e o f
v o t i n g r i g h t s e x e r c i s a b l e by t h e s h a r e h o l d e r s i n
t h e s e memorable words:
11.. .an u n r e s t r i c t e d power t o v o t e a t t h e g e n e r a l m e e t i n g o f t h e compeny n o r m a l l y o n t h e r u l e o f o n e vote f o r e v e r y s h a r e r e g i s - t e r e d i n t h e name o f t h e member, i s t h e r e f o r e o n e o f t h e i m p o r t a n t and o n e o f t h e most c h e r i s h e d r i g h t s a t t a c h i n g t o an o r d i n a r y share1341j .
By v i r t u e o f s e c t i o n 2 3 0 ( 1 ) o f t h e compan i e s
~ c t , an a b s e n t e e member o f a company, e n t i t l e d to
a t t e n d and v o t e , c a n ' a p p o i n t a p r o x y to a t t e n d and
v o t e i n s t e a d o f him. s u c h a p r o x y h a s t h e same
r i g h t a s t h e member t o s p e a k a t t h e m e e t i n g . Wi th
r e g a r d t o p u b l i c compan i e s l i m i t e d by s h a r e s , t h e
r i g h t o f a p r o x y t o s p e a k a t any s u c h m e e t i n g i s a n
improvement b n t h e 1 9 6 8 Companies ~ c t , w h e r e s u c h a
r i g h t by a p r o x y t o s p e a k i s d e n i e d . 1f t h e members
who d o n o t a t t e n d a m e e t i n g a r e t o be bound b y t h e
m e e t i n g ' s d e c i s i o n s , t h e y mus t be g i v e n a r e a s o n a b l e
134. See E. M. Asomugha, "The S h a r e h o l d e r , H i s ~ i g h t s and L i a b i l i t i e s Under t h e 1 9 6 8 Companies Decreefl, ( 1 9 7 3 ) v o l e 7 , N,L.J, 100-116, a t p , 105. See a l s o , P e n d e r v . L u s h - i n g t o n , s u p r a , ( w h e r e t h e r i g h t 10 v o t e is d e s c r i b e d a s a r i g h t o f p r o p e r t y )
o p p o r t u n i t y o f a t t e n d i n g t h e m e e t i n g , t h a t i s , t h e y
mus t b e g i v e n p r o p e r n o t i c e , and t h e m e e t i n g i t s e l f
m u s t b e p r o p e r l y c o n d u c t e d . T h e r e mus t b e a quorum
and v o t i n g must b e p r o p e r l y conduc t ed . ~ e k e w i c h J o
i n ~ i e s s e n v. Henderson 135 made a v e r y r e m a r k a b l e
o b s e r v a t i o n a s f o l l o w s :
" A s h a r e h o l d e r may p r o p e r l y and p r u d e n t l y l e a v e m a t t e r s i n which h e t a k e s no p e r s o n a l i n t e r e s t t o t h e d e c i s i o n o f t h e m a j o r i t y . ~ u t i n t h a t case, h e i s c o n t e n t t o b e bound by t h e v o t e o f t h e m a j o r i t y , b e c a u s e h e knows t h e m a t t e r a b o u t which t h e m a j o r i t y a r e t o v o t e a t t h e mee t i ng . ~ f h e d o e s n o t know t h a t , h e h a s n o t a f a i r c h a n c e o f d e t e r m i n i n g i n h i s own i n t e r e s t w h e t h e r h e o u g h t t o a t t e n d t h e meec t i n g , make f u r t h e r i n q u i r i e s , o r l e a v e o t h e r s t o d e t e r m i n e t h e m a t t e r f o r him??.
noth her' d e m o c r a t i c f e a t u r e o f s h a r e h o l d e r s f
m e e t i n g i s t h e i s s u e o f quorum. ~ e n e r a l l y , t h e quorum
f o r a m e e t i n g i s t h e number o f members who mus t be
p r e s e n t a t t h e m e e t i n g f o r i t s p r o c e e d i n g s t o b e v a l i d .
A g e n e r a l need u n d e r l y i n g t h e p r i n c i p l e o f h a v i n g a
135 . ~ 7 8 9 9 7 1 Ch. 861. S e e a l s o : Young v. S o u t h ~ f r i c a n & A u s t r a l i a n ~ x p l o r a t i o n & Development S y n d i c a t e m9-h. - - 268
quorum f o r a company 's m e e t i n g i s a p t l y s t a t e d
b y M e l l i s h L. J. i n S h a r p v. awe^.'^^^, a s f o l l o w s :
" ~ t i s c l e a r t h a t a c c o r d i n g . t o t h e o r d i n a r y u s e o f t h e E n g l i s h Language , a m e e t i n g c o u l d no more be c o n s t i t u t e d b y o n e p e r s o n t h a n a' m e e t i n g c o u l d h a v e b e e n c o n s t i t u t e d i f no s h a r e h o l - d e r a t a l l h a d a t t e n d e d , NO b u s i n e s s c o u l d be done a t s u c h a mee t ing" .
I n a c c o r d a n c e w i t h t h i s , p r i n c i p ' l e , s e c t i o n 2 3 2 ( 1 ) o f
t h e Companies ~ c t p r o v i d e s t h e need f o r a quorum for
company m e e t i n g s , a t t h e b e g i n i n g and t h r o u g h o u t t h e II m e e t i n g , e x c e p t w h e r e r e a s o n s f o r w i t h d r a w a l a r e
1 3 7 f r i v o l o u s . However,
t h e d i r e c t i o n
i t s e l f 13' c a n
t h e Companies
t h e C o r p o r a t e ~ f f a i r s commiss ion u n d e r
o f t h e c o u r t 138 and a l s o t h e c o u r t
e x e r c i s e s t a t u t o r y powers r e s e r v e d by
~ c t t o d i r e c t t h a t o n e member o f t h e
company p r e s e n t i n p e r s o n o r by p r o x y be deemed to
c o n s t i t u t e a m e e t i n g , i n a p p r o p r i a t e c a s e s . I n - R e
7 . S e c t i o n 2 3 2 ( 4 ) , C.A.M.A.
138 . S e c t i o n 2 1 3 ( 2 ) , C.A.M.A.
139. s e c t i o n 2 2 3 ( 2 ) , C.A.M.A.
ond don F l a t s L t d . 140 , plowman J. d e s c r i b e d t h e s e
power s o f t h e Commission o r c o u r t t o d i r e c t a
p e r s o n t o c o n s t i t u t e a m e e t i n g a s e x c e p t i o n a l and
h e l d t h a t t h e y d i d n o t d i s p l a c e t h e g e n e r a l r u l e
t h a t a s i n q l e s h a r e h o l d e r c a n n o t c o n s t i t u t e a
m e e t i n g .
( i v ) CHAIRMAN
Once a m e e t i n g h a s b e e n d u l y c a l l e d and
members of t h e company a t t e n d a q u o r a t e m e e t i n g , i t
i s u s u a l t o a p p o i n t a c h a i r m a n t o s u p e r v i s e p r o c e e -
d i n g ~ ~ ~ ~ . The d u t i e s and powers o f s u c h a cha i rman
a r e p r o v i d e d f o r i n s e c t i o n 2 4 0 ( 3 ) of t h e compan i e s
A c t and i n c l u d e t h e d u t y t o p r e s e r v e o r d e r , and t a k e
s u c h m e a s u r e s a s a r e r e a s o n a b l y n e c e s s a r y t o d o s o ,
1 4 2 among o t h e r s , .
/?I9697 1 W ~ L ~ R ~ - 7 1 1 ~ C o n t r a : E a s t v. B e n n e t t E r o t L e r s L t d . /19117 1 ~ h . l b 3 ( i n wh ich o n e -pe r son h e l d a11 tbe p r e f e r e n c e s h a r e s o f a company, s o t h a t a d e c i s i o n t a k e n b y him was a s e f f e c t i v e a s a d e c i s i o n t a k e n b y a m e e t i n g o f p r e f e r e n c e s h a r e h o l d e r s ) .
S e e s e c t i o n 240, C.A.M.A.
S e e a l s o ~ a t i o n a l D w e l l i n g s S o c i e t y v. S k y e s ..- - /?f8947 - 3 Ch. 159
C. LIMITATIONS ON THE SUPERVISORY ROLE OF G E N E R f i MEETING
( i) ~ a n i p u l a t i o n of p r o x y a p p a r a t u s by d i r e c t o r s .
T h e q e n e r a l m e e t i n g i s t h e c o r p o r a t e o r g a n
t h a t e x e r c i s e s s u p e r v i s o r y and u l t i m a t e c o n t r o l o v e r
t h e a f f a i r s o f t h e company, ~ e i n g a d e m o c r a t i c p r o c e s s ,
t h e g e n e r a l m e e t i n g a c t s and i s bound by t h e r e s o l u -
t i o n of t h e m a j o r i t y of t h e s h a r e h o l d e r s , B u t some
o f t h e d i r e c t o r s , on whom t h e management of t h e com-
p a n y i s v e s t e d , h a v e l a r g e s h a r e s and m a n i p u l a t e t h e
p r o x y a p p a r a t u s t o s o l i c i t t h e s u p p o r t of t h e m a j o r i t y ,
C o n s e q u e n t l y , a m i n o r i t y s h a r e h o l d e r w i l l f i n d i t v e r y
d i f f i c u l t t o e x e r c i s e any i n f l u e n c e o r e v e n h a v e h i s
v i e w s a c c e p t e d o r i m p l e m e n t e d , no m a t t e r how correct
s u c h v i e w s may be, his l i m i t a t i o n h a s t h e t e n d e n c y
o f e x c l u d i n g e x p e r t s who may n o t h a v e enough s h a r e s t o 9
e x e r c i s e t h e i r i n f l u e n c e ,
( i i ) Ef fec t of t h e r u l e i n F o s s v , H a r b o t t l e .
F u r t h e r m o r e , t h e a p p l i c a t i o n o f t h e r u l e i n - ~ o s s
V. . H a r b o t t l e t o t h e g e n e r a l m e e t i n g i s b a s e d o n t h e \
f a c t t h a t a company a c t s i n a c c o r d a n c e w i t h t h e e x p r e s -
s e d w i s h e s o f t h e m a j o r i t y o f i t s members, T h e a g g r i e v e d
m i n o r i t y , t h e r e f o r e , mus t a c c e p t t h e d e c i s i o n s of
t h e g e n e r a l m e e t i n g u n l e s s t h e y c a n show t h a t t h e
m a j o r i t y i s g u i l t y o f a b u s e o f power i n s u c h d e c i -
s i o n s , Hence t h e m a j o r i t y o f members o f a company
i n g e n e r a l m e e t i n g c a n r a t i f y , r e c t i f y and remedy
i r r e g u l a r i t i e s on t h e p a r t o f t h e d i r e c t o r s and
o f f i c e r s of t h e company. ~ y so d o i n g , t h e company
may be s h i e l d i n g p e r s o n s who h a v e committed w r o n g s
14 3 a g a i n s t i t ,
( iii) S c a t t e r e d numerous s h a r e h o l d e r s ,
~ l s o , i n a l a r g e company, most s h a r e h o l d e r s
w i l l be u n a b l e o r u n w i l l i n g t o come t o t h e m e e t i n g
b e c a u s e o f d i v e r s e and s c a t t e r e d membership . his
i s a s e r i o u s l i m i t a t i o n on t h e s u p e r v i s o r y ro le o f
t h e g e n e r a l m e e t i n g a s an u l t i m a t e o r g a n i n t h e *
o r g a n i s a t i o n a l s t r u c t u r e o f t h e company. his g i v e s
u n g u a r d e d p o w e r s t o t h e d i r e c t o r s , who, i n a d d i t i o n ,
m z n i p u l a t e t h e p r o x y m a c h i n e r y to t h e i r a d v a n t a g e ,
D i v e r s i f i c a t i o n o f s h a r e h o l d i n g i s o n e o f t h e f a c t o r s
1 4 3 , See r ~ o r t h w e s t T r a n s p o r t a t i o n L t d . v , R e a t t y , (1887) 1 2 app. C a s , 589
t h a t make s h a r e h o l d e r s ' d emoc racy n u g a t o r y i n
l a r g e companies . The r e a s o n f o r t h i s , b e i n g t h e
i n a b i l i t y o f t h e s c a t t e r e d s h a r e h o l d e r s t o p o o l * t h e i r r e s o u r c e s t o g e t h e r and a c t i n common. Conse-
q u e n t l y , t h e m a n i p u l a t i o n o f t h e p r o x y v o t i n g r e n d e r s
i l l u s o r y t o a g r e a t e x t e n t t h e d e m 0 c r a t i c : n a t u r e o f t -
g e n e r a l m e e t i n g s a n d f o s t e r s i n a b i l i t y t o e x e r c i s e - u l t i m a t e c o n t r o l b y t h e s h a r e h o l d e r s . Thus , d i r e c -
t o r s , who h a v e v e s t e d i n t e r e s t s i n t h e management of
t h e company, d e s p e r a t e l y s e c u r e t h e s e by m a n i p u l a t i n g
t h e p roxy mach ine ry . They c a n c o r n e r a s u f f i c i e n t
m a j o r i t y t h r o u g h t h e s t a n d a r d p r o x y f o r m s s e n t o u t
on b e h a l f o f t h e m s e l v e s , a s most s h a r e h o l d e r s r e f r a i n
f r o m a t t e n d i n g g e n e r a l m e e t i n g s and p r e f e r t o s e n d
p r o x i e s who a r e i n v a r i a b l y t h e d i r e c t o r s t h e m s e l v e s
1 4 4 o r t h e i r c r o n i e s . I n e f f e c t , t h e b o a r d o f d i r e c t o r s w i t t i n g l y
w h i t t l e down w h a t e v e r power i s l e f t t o t h e s h a r e b l -
d e r s , t h u s r e n d e r i n g its u l t i m a t e powers of c o n t r o l
144 . S e e , e - g - , R e Dorman Long and Co. L t d . f i g 3 4 7 Ch. 635 a t p. 6'57. S e e a l s o : p e e l v. ond don ana N o r t h Wes t e rn Ra i lway Co. /3907/ 1 ch . 5 ; and Second c o n s o l i d a t e d T r u s t ~ f d . v. Cey lon ~ m a l g a m a t e d .Tea and Rubbe r E s t a t e s L t d . - /1943/ - 2 ~ 1 1 E.R. 567
r e d u n d a n t . his
o f modern p u b l i c
2 2 1
d e v e l o p m e n t i s a common f e a t u r e
c o m p a n i e s and a c k n o w l e d g e d b y t h e
~ u l l o c k C o m m i t t e e o f inquiry on I n d u s t r i a l Democracy
a s f o l l o w s : 1 4 5
"The e f f e c t o f t h e * m a n a g e r i a l r e v o l u t i o n @ i n l a r g e c o m p a n i e s h a s b e e n t o c o n c e n t r a t e power i n t h e h a n d s of t h e b o a r d of d i r e e to r s . ~ l t h o u g h i n t h e o r y and i n l a w d i r e c t o r s a r e a p p o i n t e d b y s h a r e h o l d e r s , t h e s h a r e h o l d e r s a r e too numerous t o a c t a s a body and h a v e l a r g e l y a c q u i e s c e d i n e f f e c t i v e c o n t r o l b y t h e b o a r d o f d i r e c t o r s ! ' .
D PROTECTION O F MINORITY SHAREHOLDERS AGAINST M A J O R I T Y POWER I N GENERAL MEETING
Though t h e c o m p a n y * s power i s d i v i d e d b e t w e e n
i t s t w o p r i n c i p a l o r g a n s , i.e., t h e b o a r d o f d i r e c t o r s
a n d t h e a e n e r a l m e e t i n g , u l t i m a t e power r e s i d e s i n
t h e g e n e r a l m e e t i n g o f s h a r e h o l d e r s . his i s b e c a u s e
of i t s i n h e r e n t p o w e r s t o a c t w h e r e t h e b o a r d f a i l s t
o r w i l l n o t act146. I t shows t h e r e f o r e t h a t t h e
g e n e r a l m e e t i n g h a s u l t i m a t e powei o f c o n t r o l i n
c o r p o r a t e a f f a i r s .
'145. T h e R e p o r t o f t h e C o m m i t t e e o f ~ n q u i r y on I n d u s - t r i a l Democracy - ~ u l l o c k Commi t t ee : CMND 6 7 0 6 , a t p. 21.
1 4 6 . S e e , e .g. , ~ u i n and A x t e n s v. Sa lmon , s u p r a ; - Shaw v. Shaw, s u p r a ; scott v. s co t t , s u p r a ; B a r r o n v. P o t t e r , s u p r a ; A l e x a n d e r w a r d & Co. L t d . v. Samyang ~ a v i g a t i o n CO. ~ t d . , s u p r a
However, t h e e x c e p t i o n s t o t h e r u l e i n F o s s v.
~ a r b o t t l e c o n s t i t u t e o n e o f t h e g r e a t e s t p r o t e c t i o n s
1 4 7 a g a i n s t t h e powers of t h e m a j o r i t y i n g e n e r a l m e e t i n g . T h u s , a n a c t o r r e s o l u t i o n of t h e m a j o r i t y i n g e n e r a l
m e e t i n g which i n f r i n q e s t h e p e r s o n a l r i g h t s o f t h e
m i n o r i t y ~ h n r e h o l d e r ' ~ ~ , o r i n d i s r e g a r d o f s p e c i a l
p r o c e d u r a l r e q u i r e m e n t s of t h e a r t i c l e s , o r i s i l l e g a l
o r u l t r a v i r e s , o r amounts t o f r a u d on t h e m i n o r i t y
w i l l e n t i t l e an a g g r i e v e d m i n o r i t y s h a r e h o l d e r t o s e e k
l e g a l r e d r e s s , n o t w i t h s t a n d i n g t h e p r i n c f p l e o f m a j o r i t y
r u l e , T h e r e f o r e , t h e p r i n c i p l e o f m a j o r i t y r u l e i s
n o t an i n v i o l a t e p r i n c i p l e and powers c o n f e r r e d on
m a j o r i t y must b e e x e r c i s e d b o n a f i d e and i n t h e i n t e r e s t
o f t h e company a s a whole .
T h e c o u r t s h a v e u l t i m a t e power t o d e t e r m i n e and
s e t t l e mos t d i s p u t e s i n a company. F o r i n s t a n c e , w h e r e
a company r e d u c e s i t s s h a r e c a p i t a l , an a p p l i c a t i o n
m u s t b e made t o c o u r t f o r an o r d e r o f c o n f i r m a t i o n o f
t h e reduc t ion149 . ~ l s o , where c l a s s r i g h t s a r e v a r i e d ,
d i s s e n t i e n t s h o l d i n g n o t less t h a n 1 5 p e r c e n t o f t h e \
147 . S e e c h a p t e r f o u r f o r a d e t a i l e d c o n s i d e r a t i o n
1 4 8 . S e e E. M~ Asomugha, s u p r a ( f o r a d e t a i l e d a n a l y s i s of s h a r e h o l d e r s 1 r i g h t s ) .
1 4 9 , S e e s e c t i o n s 1 0 7 & 108, C.A.M.A.
s h a r e s o f t h e c l a s s , c a n a p p l y t o c o u r t f o r
c a n c e l l a t i o n o f s u c h v a r i a t i o n 1 5 0 . F u r t h e r -
d i s s e n t i e n t h o l d e r s o f 1 5 p e r c e n t o f t h e i s s u e d
s h a r e s of t h e company, c a n a p p l y f o r c a n c e l l a -
t i o n o f an a l t e r a t i o n o f t h e b u s i n e s s o r o b j e c t s
c l a u s e i n t h e memorandum o f a s s o c i a t i o n . A 1 r e a d y
m e n t i o n e d i s t h e power o f t h e C o r p o r a t e ~ f f a i r s
Commiss ion and c o u r t t o d i r e c t o r o r d e r o n e
s h a r e h o l d e r t o c o n s t i t u t e a g e n e r a l m e e t i n g
w h e r e i t i s i m p r a c t i c a b l e t o c a l l o n e . O t h e r
s t a t u t o r y p r o t e c t i o n s i n c l u d e t h e r i g h t s o f
m i n o r i t i e s t o r e q u i s i t i o n m e e t i n g s 15' and a l s o
t h e r i g h t t o r e q u i s i t i o n members r e s o l u t i o n s a t
1 5 2 t h e a n n u a l g e n e r a l m e e t i n g . .
E. RESOLUTIONS
T h e d e c i s i o n s o f t h e g e n e r a l m e e t i n g a r e embo-
d i e d i n r e s o l u t i o n s , o f w h i c h t h e Companies ~ c t
150. s e c t i o n 142L C.A.M.A.
S e c t i o n 235, C.A.M.A.
refers t o t w o t y p e s - t h e s p e c i a l r e s o l u t i o n
a n d t h e o r d i n a r y r e s o l u t i o n ; t h e e x t r a - o r d i n a r y
r e s o l u t i o n h a v i n g b e e n a b o l i s h e d a s u n n e c e s s a r y
s u r p l u s a g e , T h e s e r e s o l u t i o n s a l s o c o n s t i t u t e
t h e p r i n c i p l e o f m a j o r i t y r u l e i n company l a w ,
E s s e n t i a l l y , t h e d e m o c r a t i c n a t u r e o f r e s o l u t i o n s
i s shown by t h e m a j o r i t y d e c i s i o n s t h a t a r e embo-
d i e d i n e i t h e r s p e c i a l o r o r d i n a r y r e s o l u t i o n ,
~ c c o r d i n g l y , an o r d i n a r y r e s o l u t i o n i s o n e
p a s s e d b y a s i m p l e m a j o r i t y o f t h o s e v o t i n g ,
a n d is u s e d f o r a l l m a t t e r s n o t r e q u i r i n g a
s p e c i a l r e s o l u t i o n u n d e r t h e Companies ~ c t o r
t h e a r t i c l e s of a s s o c i a t i o n 1 5 3 , w h i l e a s p e c i a l
r e s o l u t i o n i s o n e p a s s e d by a t h r e e - f o u r t h s majo-
r i t y , b u t 2 1 d a y s * ~ o t i c e m u s t be g i v e n o f t h e
1 5 4 m e e t i n g a t wh'ich i t i s p r o p o s e d ,
C i r c u m s t a n c e s i n which an o r d i n a r y r e s o l u t i o n
1 5 5 c a n be u s e d i n c l u d e , i n c r e a s e o f s h a r e c a p i t a l , i s s u a n c e o f s h a r e s a t a d i s c o u n t s a n c t i o n e d by t h e
1 5 3 , see s e c t i o n 2 3 3 ( 1 ) & (61, C.A.M.A.
1 5 4 , S e c t i o n 2 3 3 ( 2 ) , C.A.M.A.
1 5 5 , S e c t i o n s 1 0 2 ( 2 ) & 1 0 3 , C.A.M.A.
1 5 7 court156, removal of a d i r e c t o r , and removal o f
an audi tor158 , among o t h e r s . Whereas a s p e c i a l
r e s o l u t i o n is r e q u i r e d f o r t h e more i m p o r t a n t
m a t t e r s , o f which t h e f o l l o w i n g a r e common examples:
(3-1 159. change of company's name ,
160. ( i i ) a l t e r a t i o n of b u s i n e s s o r o b j e c t s c l a u s e ,
( i i i ) a l t e r s t i o n of any c o n d i t i o n i n t h e
161 . memorandum ,
262 . (iv) a l t e r a t i o n o f a r t i c l e s , ( v ) 163. c o n v e r s i o n and r e - r e g i s t r a t i o n of companies ,
156. s e c t i o n 121( 1) ( a ) C.A.M.A.
157. S e c t i o n 2 6 2 ( 1 ) , C.A-M.A.
158. s e c t i o n 362(1 ) C.A.b'T.A.
159 , S e c t i o n 3 l ( 3 ) , C.A.M.A.
160. S e c t i o n 4 6 ( l ) , C.A.M.A.
161. S e c t i o n 4 7 ( l ) , C.A.M.A.
S e c t i o n 4 8 ( l ) ,
163. (a) S e c t i o n 5 0 ( 1 ) ( a ) - ~ e - r e g i s t r a t i o n o f p r i v a t e company a s p u b l i c company.
( b ) S e c t i o n 5 2 ( 1 ) - R e - r e g i s t r a t i o n of u n l i m i - t e d company a s l i m i t e d by s h a r e s ,
( c ) S e c t i o n 5 3 ( l ) ( a ) - R e - r e g i s t r a t i o n o f p u b l i c company a s p r i v a t e company.
( v i 1 164. r e d u c t i o n o f c a p i t a l , 165 .
( v i i ) c r e a t i o n o f r e s e r v e c a p i t a l , 166. ( v i i i ) making d i r e c t o r s * l i a b i l i t y u n l i m i t e d ,
( i x ) 1 6 7 e f f e c t i n g a w i n d i n g u p by t h e c o u r t ; and
( x ) 1 6 8 v o l u n t a r y w i n d i n g u p .
~ l s o w o r t h y o f n o t e i s t h e f a c t t h a t some
o r d i n a r y r e s o l u t i o n s r e q u i r e s p e c i a l n o t i c e 169 i n
t h e f o l l o w i n g c a s e s :
(1) t o remove a d i r e c t o r b e f o r e t h e e x p i r a t i o n
o f h i s p e r i o d o f o f f i c e , r e g a r d l e s s o f a n y
p r o v i s i o n i n t h e a r t i c l e s o r a n y a g r e e m e n t
w i t h h im; o r t o a p p o i n t a n o t h e r d i r e c t o r
1 7 0 . i n h i s p l a c e ,
164 . S e c t i o n l O 6 ( l ) , C.A.M.A. t
S e c t i o n 1 3 4 , C.A.M.A.
166 . S e c t i o n 28% ? ) C.A.M.A.
167 . S e c t i o n 4 0 8 ( a ) , C.A.M.A.
168 . S e c t i o n 4 5 7 ( b ) , C.A.M.A.
6 . S e c t i o n 236, C.A.M.A.
170 . S e c t i o n 2 6 2 ( 2 ) , C.A.M.A. (Note t h a t t h e s e c t i o n i s w i t h o u t p r e j u d i c e t o t h e d i r e c t o r ' s r i g h t t o c o m p e n s a t i o n o r damages f o r b r e a c h o f c o n t r a c t : s e c t i o n 2 6 2 ( 6 ) )
t o a p p o i n t o r r e - a p p o i n t a d i r e c t o r who i s
o v e r t h e a g e l i m i t o f 70 l a i d down by t h e
1 7 1 Companies ~ c t ; and
t h e p u r p o s e s o f s e c t i o n 3 6 4 ( l ) , i -e. ,
a p p o i n t i n g a s a u d i t o r a p e r s o n
o t h e r t h a n a r e t i r i n g a u d i t o r ; o r
f i l l i n g a c a s u a l vacancy i n t h e
o f f i c e o f an a u d i t o r ; o r
r e - a p p o i n t i n g a s a u d i t o r a
r e t i r i n g a u d i t o r who was
a p p o i n t e d by t h e d i r e c t o r s t o
f i l l a c a s u a l vacancy ; o r 1
removing an a u d i t o r b e f o r e t h e
e x p i r a t i o n o f h i s term o f o f f ice-
I n t h e s e c a s e s where s p e c i a l n o t i c e i s r e q u i r e d , t h e
r e s o l u t i o n s h a l l n o t b e e f f e c t i v e u n l e s s n o t i c e of
t h e i n t e n t i o n t o move i t h a s been g i v e n t o t h e com-
' pany n o t less t h a n 28 d a y s b e f o r e t h e mee t ing a t
171 - s e c t i o n 256L C - A - M - A -
w h i c h i t is t o be moved. The company s h a l l
g i v e i t s members n o t i c e o f a n y s u c h r e s o l u t i o n
a t t h e same t i m e a n d i n t h e same manner a s i t
g i v e s n o t i c e o f t h e m e e t i n g , o r i f t h i s i s n o t
p o s s i b l e , s h a l l g i v e them n o t i c e of i t e i t h e r by
a d v e r t i s e m e n t i n a n e w s p a p e r h a v i n g a n a p p r o p r i a t e
c i r c u l a t i o n or b y any o t h e r method a l l o w e d by t h e
a r t i c l e s , n o t less t h a n 2 1 d a y s b e f o r e t h e m e e t i n g .
G e n e r a l l y , i n company m e e t i n g s , v o t i n g may be
by a show o f h a n d s , i n which c a s e e a c h member w i l l
h a v e o n e v o t e . B u t b e c a u s e t h i s p r o c e d u r e d o e s n o t
a d m i t o f t h o s e * v o t i n g * by p r o x y , a p o l l i s u s u a l l y
demanded to accommodate a b s e n t e e members who a r e
r e p r e s e n t e d by s u c h p r o x i e s . his i s a v e r y demo-
c r a t i c f e a t u r e of company m e e t i n g s a imed a t e n c o u r a -
g i n g e q u a l p a r t i c i p a t i o n by members b o t h p h y s i c a l l y
p r e s e n t o r o t h e r w i s e . On a poll , e a c h member u s u a l l y
h a s o n e v o t e f o r e a c h o f h i s s h a r e s . Each t y p e of
r e s o l u t i o n r e q u i r e d d e p e n d s upon t h e a r t i c l e s o r
Companies ~ c t , a n d Is b a s e d on t h e n a t u r e o f t h e
b u s i n e s s t o be t r a n s a c t e d . ~t h a s n o n e c e s s a r y connec-
t i o n w i t h t h e t y p e o f m e e t i n g . T h u s , e i t h e r o f t h e
t w o r e s o l u t i o n s c a n be p a s s e d a t any g e n e r a l m e e t i n g .
P r o f e s s o r Gower h a s a p t l y h i g h l i g h t e d t h e
l i m i t a t i o n c i r c u m s c r i b i n g t h e s c o p e o f r e s o l u -
t i o n s a s e s s e n t i a l a s p e c t o f t h e p r i n c i p l e o f
m a j o r i t y r u l e , a s f o l l o w s :
"It w i l l be o b s e r v e d t h a t i n a l l c a s e s t h e a p p r o p r i a t e m a j o r i t y i s o f t h e members e n t i t l e d t o v o t e and a c t u a l l y v o t i n g e i t h e r i n p e r s o n o r by p r o x y w h e r e p r o x y v o t i n g i s a l l o w e d . T h i s may, and n o r m a l l y w i l l , be much less t h a n a m a j o r i t y o f t h e t o t a l membersh ip , and may e v e n be less t h a n a m a j o r i t y o f t h e members p r e s e n t a t t h e m e e t i n g , f o r t h o s e who r e f r a i n f r o m vo- t i n g a r e i g n o r e d 1 7 2 f f .
T h i s o b s e r v a t i o n s u p p o r t s t h e need f o r c o r p o r a t e
e d u c a t i o n and i n f o r m a t i o n f o r t h e c r e a t i o n o f aware-
n e s s i n t h e members and e n h a n c e s p e r s o n a l p a r t i c i p a -
t i o n i n c o r p o r a t e m e e t i n g s and p r o c e e d i n g s .
N o t w i t h s t a n d i n g t h i s a p p a r e n t l i m i t a t i o n , some
m i n o r i t y p r o t e c t i o n s a f e g u a r d s a r e r e a d i l y a v a i l a b l e .
F i r s t , t h e n a t u r e o f s p e c i a l r e s o l u t i o n i t s e l f , i.e.,
t h e r e q u i r e m e n t f o r a h i g h e r m a j o r i t y , o f f e r s some
p s o t e c t i o n 1 7 3 . S e c o n d l y , some r e s o l u t i o n s r e q u i r e
1 7 4 t h e s a n c t i o n i n g o f t h e c o u r t f o r c o n f i r m a t i o n . 1 7 2 . S e e Gower, s u p r a , a t pp. 544-545
173 . S e c t i o n 2 3 3 ( 2 ) , C.A.M.A.
174. S e e , e.g., s e c t i o n s 1 0 6 ( 1 ) & 1 2 1 ( 1 ) ( a ) C.A.M.A.
T h i r d l y , a n o t h e r m i n o r i t y p r o t e c t i o n d e v i c e i s
t h e r i g h t o f d i s s e n t i e n t s who h o l d t h e s p e c i f i e d
p e r c e n t a g e o f t o t a l s h a r e s o f a company, t o a p p l y
t o t h e c o u r t f o r c a n c e l l a t i o n o f c e r t a i n v a r i a -
t i o n s o f c l a s s r i g h t s or a l t e r a t i o n of b u s i n e s s
175 o r o b j e c t c l a u s e , made by t h e m a j o r i t y . gain,
t h e need t o f i l e c e r t a i n r e s o l u t i o n s f o r r e g i s t r a t i o n
w i t h t h e C o r p o r a t e ~ f f a i r s Commission o f f e r s some
176 p r o t e c t i o n . E q u a l l y , t h e r e q u i r e m e n t o f s p e c i a l
n o t i c e i n c e r t a i n c a s e s o f f e r s a d d i t i o n a l p r o t e c -
ti or^'^^. W e s h a l l c o n s i d e r i n d e t a i l m i n o r i t y
p r o t e c t i o n i n company law, i n o u r n e x t c h a p t e r .
175. See , e.g., sections 4 6 ( 2 ) & 1 4 2 ( 1 ) , C.A.M.A.
177. S e e , e.g,, s e c t i o n s 236, 2 6 2 ( 2 ) , 256 & 3 6 4 ( 1 ) , ( a ) , (b), ( c ) , & ( d ) , C.A.M.A.
CHAPTER FOUR
M I N O R I T Y PROTECTION I N COMPANY LAW
1. INTRODUCTION
The p r i n c i p l e s o f m a j o r i t y r u l e e n u n c i a t e d
i n F o s s v. H a r b o t t l e a r e u s e d by t h e c o u r t s t o
r e f u s e j u r i s d i c t i o n i n m i n o r i t y a c t i o n s . A
common e x c u s e u s u a l l y g i v e n i s t h a t c o u r t s s h o u l d
n o t d e a l w i t h m a t t e r s which t h e y a r e n o t f a m i l i a r
w i t h , and f o r which a d o m e s t i c s e t t l e m e n t p roce -
d u r e e x i s t s . Ano the r f a c t o r i n f l u e n c i n g t h e
c o u r t s * r e f u s a l t o e n t e r t a i n t h e s e a c t i o n s i s
t h a t a l l o w i n g o n e a c t i o n would l e a d t o a m u l t i -
p l i c i t y of s i m i l a r a c t i o n s . However, f o r t h e
p r o t e c t i o n o f m i n o r i t y i n t e r e s t s i n c o r p o r a t e
a f f a i r s , t h e c o u r t s h a v e made e x c e p t i o n s to t h e
r u l e i n F o s s v. H a r b o t t l e . T h e s e e x c e p t i o n s l i m i t
t h e s c o p e o f t h e r u l e and i t s a p p l i c a b i l i t y . The
e x c e p t i o n s h a v e a l r e a d y been h i g h l i g h t e d i n c h a p t e r
t h c e e , u n d e r t h e p r i n c i p l e o f m a j o r i t y r u l e , a s a P
coun t e r - b a l a n c e t o t h e p r i n c i p l e .
~ e f o r e t h e p r o m u l g a t i o n of t h e Companies and
~ l l i e d M a t t e r s ~ c t , t h e s e e x c e p t i o n s c o n s t i t u t e d
t h e common l a w r u l e s on t h e p r o t e c t i o n of m i n o r i t y
i n t e r e s t s . Bu t t h e new c o m p a n i e s l e g i s l a t i o n h a s
1 c o d i f i e d them and f u r t h e r e x p a n d e d t h e i r s c o p e . W e s h a l l d i s c u s s t h e s e e x c e p t i o n s and f o r m s o f
a c t i o n u n d e r t h e common l a w , p o i n t i n g o u t s t a t u -
t o r y m o d i f i c a t i o n s by t h e Companies ~ c t . A m a j o r
a d v a n t a g e of i n c o r p o r a t i n g t h e e x c e p t i o n s i n t o t h e
A c t i s t h e c e r t a i n t y c o n f e r r e d on them, ~ l s o ,
t h e y a r e now e n t r e n c h e d s t a t u t o r y p r o v i s i o n s .
P r o t e c t i o n o f members o f t h e company a g a i n s t
2 u n f a i r l y p r e j u d i c i a l and o p p r e s s i v e c o n d u c t i s a
r e m a r k a b l e improvement i n t h i s s p h e r e o f company
l a w i n ~ i g e r i a . his is b e c a u s e a g e n e r a l j u r i s -
d i c t i o n i s now c o n f e r r e d on t h e c o u r t s 3 to l o o k
i n t o s u c h c a s e s , e x e r c i s i n g b o t h l e g a l a n d e q u i t a b l e
4 p o w e r s . T h i s new s t a t u t o r y remedy w i l l be f u l l y
c o n s i d e r e d . o t h e r m i n o r i t y p r o t e c t i o n p r o v i s i o n s
1, S e e s e c t i o n s 299 and 300L p a r t i c u l a r l y s e c t i o n 3 0 0 ( e ) & ( f ) C.A.M.A.
2, S e e s e c t i o n s 313 & 311, C.A.M.A.
3. S e e s e c t i o n 3 2 2 , C.A.??*A.
4. S e e M.A. Waldron , f l c o r p o r a t e T h e o r y a n d t h e o p p r e s - s i o n Remedy,l ( 1 9 8 1 - g82) 6 C.B.L.J. 1 2 9
i n t h e Companies ~ c t w i l l be examined . we s h a l l
c o n c l u d e t h i s c h a p t e r b y a c r i t i q u e of t h e Com-
p a n i e s and A l l i e d M a t t e r s A c t , showing t h e e x t e n t
i t h a s i m p r o v e d m i n o r i t y p r o t e c t i o n i n N i g e r i a .
2, A GEWERAL STATEMENT OF THE RULE I N FOSS V, H ARBOTTLE
Having d i s c u s s e d t h e r u l e i n F o s s v , H a r b o t t l e
i n c h a p t e r t h r e e , u n d e r t h e p r i n c i p l e of m a j o r i t y
r u l e , w e d o n o t i n t e n d t o r e p e a t same h e r e . How-
e v e r , f o r t h e s a k e of c o m p r e h e n s i v e n e s s , a g e n e r a l
s t a t e m e n t of t h e r u l e w i l l be made a s a p r e l u d e t o
d i s c u s s i n g t h e e x c e p t i o n s t h e r e t o .
I n g e n e r a l , t h e r u l e i n F o s s v. H a r b o t t l e i s - t o t h e e f f e c t t h a t a m i n o r i t y s h a r e h o l d e r c a n n o t s u e
f o r a wrong d o n e t o t h e company o r c o m p l a i n of any
5 i r r e g u l a r i t y hn t h e c o n d u c t of i t s i n t e r n a l a f f a i r s ,
he r u l e i s s u c c i n t l y s t a t e d by L o r d Davey i n R u r l a n d
6 v , E a r l e , a s f o l l o w s :
5. See s e c t i o n 299 , C.A.M.A. ( f o r a s t a t u t o r y c o d i f i - c a t i o n o f t h e r u l e )
6 . [?go27 A.C. 8 3 , a t p. 9 3
"It i s an e l e m e n t a r y p r i n c i p l e o f t h e l a w r e l a t i n g t o j o i n t s t o c k compan i e s t h a t t h e c o u r t s w i l l n o t i n t e r f e r e w i t h t h e i n t e r n a l managemen t o f compa- n i e s a c t i n g w i t h i n t h e i r power s , and i n f a c t h a s n o j u r i s d i c t i o n t o d o so, gain i t i s c lear l aw t h a t i n o r d e r t o r e d r e s s a wrong d o n e t o t h e company, t h e a c t i o n s h o u l d p r i m a f a c i e be b r o u g h t by t h e company i t s e l f 1'.
T h i s s t a t e m e n t c o n t a i n s w h a t a r e now c a l l e d t h e
t w o arms t o t h e r u l e i n F o s s v. H a r b o t t l e . F i r s t ,
i s t h a t t h e p r o p e r p l a i n t i f f i n an a c t i o n i n
r e s p e c t o f a wrong a l l e g e d to b e done t o a
company or a s s o c i a t i o n o f p e r s o n s i s p r i m a
f a c i e t h e company or a s s o c i a t i o n o f p e r s o n s
i t s e l f . T h i s a s p e c t o f t h e r u l e had j u d i c i a l
/ e x p r e s s i o n i n Salomon v. Salomon & CO. ~ t d . , and i s t h e f o u n d a t i o n o f t h e d o c t r i n e o f c o r p o r a t e
p e r s o n a l i t y d i s c u s s e d i n c h a p t e r o n e , It i s t h e
company a s a l e g a l e n t i t y t h a t h a s l o c u s s t a n d i to
b r i n g a c t i o n s f o r wrongs d o n e t o i t and n o t t h e
s h a r e h o l d e r s who a r e d i s t i n c t l e g a l p e r s o n s from
t h e company. T h i s i s t h e di lemma o f t h e m i n o r i t y
7 , S u p r a
s h a r e h o l d e r whose r i g h t s a r e i n f r i n g e d upon by
t h e m a j o r i t y ,
The second p a r t o f t h e r u l e i s wha t i s now
c a l l e d t h e p r i n c i p l e o f n o n - i n t e r f e r e n c e i n t h e
i n t e r n a l a f f a i r s of a company. ~ e n k i n s L. J. i n
8 Edwards v , H a l l i w e l l , h a s summarised t h e r u l e
t h u s :
"where t h e a l l e q e d wrong i s a t r a n s a c t i o n which migh t b e made b i n d i n g on t h e company or a s so - c i a t i o n and on a l l i t s members by a s i m p l e m a j o r i t y o f t h e members, no i n d i v i d u a l member o f t h e company is a l lowed to main- t a i n an a c t i o n i n r e s p e c t of t h a t m a t t e r f o r t h e s i m p l e r e a s o n t h a t , i f a mere m a j o r i t y o f t h e members o f t h e company o r a s s o c i a t i o n i s i n f a v o u r o f what h a s been done, t h e n c a d i t q u a e s t io" .
The consequence of t h i s i s t h a t o n c e a m a t t e r i s
c o n s i d e r e d by t h e c o u r t t o b e w i t h i n t h e i n t e r n a l
a f f a i r s o f a company, i t w i l l d e c l i n e j u r i s d i c t i o n
t o e n t e r t a i n same. ~ l s o , t h i s j u d i c i a l a t t i t u d e
p o s e s a r e s t r a i n t on m i n o r i t y s h a r e h o l d e r ' s a c t i o n ,
a s t h e c o u r t s w i l l n o t a c c e d e t o h i s r e q u e s t t o
r e d r e s s an i r r e g u l a r i t y which p r e j u d i c e s h i s i n t e r e s t
b u t o f which t h e m a j o r i t y c a n r a t i f y , Hence ,
t h e c o u r t s , a p p l y i n g t h e p r i n c i p l e o f n o n - i n t e r -
f e r e n c e , h a v e d e c l i n e d j u r i s d i c t i o n w h e r e
s h a r e h o l d e r s c o m p l a i n e d o f c a l l s made w i t h i n
t h e d i r e c t o r s 1 p o w e r s b u t a l l e g e d t o be made
9 u n f a i r l y , of a n i r r e g u l a r quorum a t d i r e c t o r s *
m e e t i n g w h i c h summoned q e n e r a l meeting1', a n d
a l s o w h e r e t h e r e was a 1 l e g a t i o n o f c o n t r a v e n t i o n
o f t h e company ' s a r t i c l e s i n t h e c o n d u c t o f
11 q e n e r a l m e e t i n g . The f a c t o f r a t i f i a b i l i t y b y
t h e m a j o r i t y p u t s t h e i r r e g u l a r i t y c o m p l a i n e d o f ,
b e y o n d t h e c o m p e t e n c e of t h e m i n o r i t y t o l i t i g a t e
upon.
A s y n t h e s i s o f t h e t w o arms o f t h e r u l e i n
F o s s v. H a r b o t t l e h a s r e s u l t e d i n t h e p r i n c i p l e o f
m a j o r i t y r u l e * . T h i s p r i n c i p l e is a m a j o r i n h i b i t i o n
t o m i n o r i t y a c t i o n s i n c o r p o r a t e a f f a i r s . However,
9 . See B e u l l y v. irke en head ail way Co. ( 1 8 5 0 ) BEAV 4 3 3
1 0 . See S o u t h e r n C o u n t i e s ~ e p o s i t Bank L t d . v. R i d e r ( 1 8 9 3 ) '13 LT 374
1 S e e MacDougal l v , ~ a r d i n e r , ( 1 8 7 5 ) 1 Ch. D, 1 3
t h e p r i n c i p l e o f m a j o r i t y r u l e i s n o t an a b s o l u t e
d o c t r i n e , s ' i n c e some l i m i t a t i o n s a r e imposed on
t h e powers o f t h e m a j o r i t y . T h i s i s w i t h a v i e w
t o s a f e g u a r d i n g t h e i n t e r e s t s o f t h e m i n o r i t y
s h a r e h o l d e r s and p r o t e c t i n g t h e i r i n v e s t m e n t s
i n t h e company. heref fore, i f t h e m a j o r i t y
e x e r c i s e t h e i r powers a r b i t r a r i l y and c a p r i -
c i o u s l y , n o t i n t h e i n t e r e s t of t h e company a s
a w h o l e , a m i n o r i t y s h a r e h o l d e r f s a c t i o n w i l l
s u c c e e d . The e x c e p t i o n s t o t h e r u l e i n F o s s v.
H a r b o t t l e p r o t e c t m i n o r i t y i n t e r e s t s i n a com-
pany. T h e s e e x c e p t i o n s , now c o d i f i e d , and o t h e r
s t a t u t o r y p r o t e c t i o n s w i l l be c o n s i d e r e d h e r e u n -
d er.
3. EXCEPTIONS TO THE RULE I N FOSS V. HRRBOTTLE . .
T h e i n j u s t i c e w h i c h a r i g i d a d h e r e n c e t o t h e
r u l e i n ~ o s s v. ~ a r b o t t l e w i l l o c c a s i o n h a s n e c e -
s s i t a t e d e x c e p t i o n s t o t h e r u l e . T h e r a t i o n a l e
f o r t h e s e e x c e p t i o n s i s t o m i n i m i s e t h e i n h i b i -
t i d n s imposed on t h e s h a r e h o l d e r i n t h e e n f o r c e m e n t
o f p e r s o n a l and c o r p o r a t e r i g h t s . C o n s e q u e n t l y ,
t h e s e e x c e p t i o n s a s s i s t t h e m i n o r i t y s h a r e h o l d e r
i n t h e e n f o r c e m e n t a n d e n j o y m e n t o f h i s r i g h t s .
O t h e r w i s e , i n j u s t i c e w o u l d be d o n e w i t h o u t
r e d r e s s . F o r i n s t a n c e , t h e r u l e i n F o s s v.
H a r b o t t l e may become
' fa s h i e l d f o r t h e c o n t r o l l e r s r a t h e r t h a n a weapon f o r u s e b y t h e members t o s e c u r e t h e s h a r e h o l d e r s ' c o n t r o l w h i c h i t was m e a n t t o f a c i l i t a t e 1 2 " -
his is v i v i d l y i l l u s t r a t e d i n w a l l e r s t a i n e r v .
13 ~ o i r (No. 2 ) b y L o r d ~ e n n i n g a s f o l l o w s :
"The r u l e i s e a s y e n o u g h t o a p p l y when t h e company i s de- f r a u d e d b y o u t s i d e r s . T h e company i t s e l f i s t h e o n l y p e r s o n who c a n s u e ... ~ u t s u p p o s e i t i s d e f r a u d e d b y i n s i d e r s who c o n t r o l i t s a f f a i r s - t h e d i r e c t o r s who h o l d a m a j o r i t y o f t h e s h a r e s - who t h e n c a n s u e f o r damages? ... i f t h e b o a r d m e e t i n g is h e l d , t h e y w i l l n o t a u t h o r i s e p r o c e e d ' n q s t o be t a k e n b y t h e 4 - company a g a i n s t t h e m s e l v e s . I f a g e n e r a l m e e t i n g i s c a l - l e d , t h e y w i l l v o t e down a n y s u g g e s t i o n t h a t t h e company s h o u l d s u e t h e m s e l v e s . Y e t t h e company i s t h e o n e p e r s o n who s h o u l d s u e . Tn o n e way o r a n o t h e r some means m u s t be
- -- - - - --
1 2 . See w e d d e r b u r n , ( 1 9 5 7 ) C.L.J. 1 9 4 a t p. 200
1 3 . /T9727 2 W.L.R. 389. a t p. 4 0 0
f o u n d f o r t h e company t o s u e , o t h e r w i s e t h e l a w would f a i l i n i t s p u r p o s e . ~ n i u s t i c e would b e done - . -
-er- l i n i n g f o r emphas i s )
I t i s t h e r e f o r e i n t h e at'tem(pk t o a v o i d p e r p e -
t r a t i n g and p e r p e t u a t i n g s u c h i n j u s t i c e t h a t
e x c e p t i o n s t o t h e r u l e i n F o s s v. H a r b o t t l e a r e
a d m i t t e d and now s t a t u t o r i l y c o d i f i e d by t h e
Companies and A l l i e d M a t t e r s ~ c t .
1 4 A t common l aw t h e s e e x c e p t i o n s a r e a s
f 01 l o w s :
( a ) whe re t h e a c t i v i t y i s u l t r a v i r e s a n d / o r
i l l e g a l , any i n d i v i d u a l member may s u e
b e c a u s e t h e m a t t e r i s o n e which t h e
members c a n n o t r a t i f y ;
. ( b ) w h e r e t h e m a t t e r is o n e wh ich mus t be
d e c i d e d by a s p e c i a l r e s o l u t i o n , an
a c t i o n is n o t b a r r e d by m a j o r i t y
r a t i f i c a t i o n s i n c e , i f t h e r u l e i n - F o s s
v. ~ a r b o t t l e a p p l i e d , a company c o u l d
by r e f u s i n g t o i n i t i a t e an a c t i o n d o
i n d i r e c t l y what i t c o u l d n o t do d i r e c t l y ;
14 . S e e , e.g., l i s t o f e x c e t i o n s b y ~ e n k i n s L. J. i n E d w a r d s v . H a l l i W e l l , - /?9507 - 2 ~ l l E.R. 1 0 6 4 a t p.
( c ) w h e r e t h e a c t i o n r e p r e s e n t s an i n f r i n g e -
ment o f t h e p e r s o n a l r i g h t s o f s h a r e -
h o l d e r s . I n s u c h a c a s e any i n d i v i d u a l
s h a r e h o l d e r a f f e c t e d by i t may s u e ;
( d ) w h e r e t h e a c t i v i t y f a l l s w i t h i n t h a t
c l a s s o f c a s e s which a r e c o m p e n d i o u s l y
t e r m e d a f r a u d on t h e m i n o r i t y ;
( e ) p e r h a p s , i n any o t h e r c a s e i n w h i c h t h e
r u l e s o r i n t e r e s t s o f j u s t i c e r e q u i r e
t h a t an e x c e p t i o n t o t h e r u l e s h o u l d be
1 5 made . I t i s i n t e r e s t i n g t o n o t e t h a t t h e f i r s t f o u r
e x c e p t i o n s ( i .e . a - d), g e n e r a l l y a c c e p t e d a s non-
c o n t e n t i o u s , a r e now c o d i f i e d by t h e c o m p a n i e s ~ c t
a s s e c t i o n 3 0 0 ( a ) - ( d ) . ~ l s o , a r e m a r k a b l e improve-
ment by t h e ~ c t i s t h e a t t e m p t t o widen t h e s c o p e
o f t h e e x c e p t i o n s t o t h e r u l e b y t h e a d d i t i o n o f
1 5 - P e r Jesse1 M. R . i n R u s s e l l v. w a k e f i e l d Water- - w o r k s Co. ( 1 8 7 5 ) , L.R. 2 0 ~ q . 474
NOTE: (Not y e t a s e t t l e d p r i n c i p l e o f l a w and - c o n s e q u e n t l y h a s g e n e r a t e d a l o t o f c o n t r o v e r s y i n t h i s s p h e r e o f company l a w )
f o l l o w i n g s u b s e c t i o n s :
w h e r e a company m e e t i n g c a n n o t be
c a l l e d i n t i m e t o be o f p r a c t i c a l u s e
i n r e d r e s s i n g a wrong d o n e t o t h e
company o r t o m i n o r i t y s h a r e h o l d e r s ; a n d
w h e r e t h e d i r e c t o r s a r e l i k e l y t o d e r i v e
a p r o f i t o r b e n e f i t , o r h a v e p r o f i t e d o r
b e n e f i t e d f r o m t h e i r n e g l i g e n c e o r f r o m
16 t h e i r b r e a c h of d u t y . lde s h a l l c o n s i d e r i n d e t a i l t h e non-con ten-
t i o u s e x c e p t i o n s , r e s e r v i n g o u r comments o n t h e
a d d i t i o n a l new s t a t u t o r y e x c e p t i o n s t o t h e r u l e f o r
t h e c r i t i q u e o f t h e Companies ~ c t . T h i s t o p i c w i l l
b e c o n c l u d e d b y a r e v i e w of t h e i n t e r e s t s o f j u s -
t i c e e x c e p t i o n a n d t h e f o r m s o f a c t i o n open t o a
m i n o r i t y s h a r e h o l d e r .
A * ULTRA VIRES A N D ILLEGAL ACTS
his e x c e p t i o n shows t h a t t h e a c t i v i t y c a n n o t
be r a t i f i e d b y t h e company. However, a t e n o u s
16. S e e D a n i e l s v. D a n i e l s , s u p r a . ( S t a t u t o r y ack- nowledgement and c o d i f i c a t i o n o f t h e r u l e enun- t i a t e d i n t h e c a s e )
d i s t i n c t i o n e x i s t s b e t w e e n a n u l t r a v i r e s a c t
a n d a n i l l e g a l a c t . I l l e g a l i t y , which is of
g e n e r a l a p p l i c a t i o n , i s d e t e r m i n e d by r e f e r e n c e
t o t h e l a w s o f t h e l a n d . C o n s e q u e n t l y , i t i n -
v o l v e s t r a n s a c t i o n s which n o company c a n p r o p e r l y
e n t e r i n t o . T h u s , i f t h e company is u n d e r a
d i s a b i l i t y i n l a w t o d o t h a t which i t s e e k s t o
d o , t h e a c t w i l l be d e c l a r e d i l l e g a l . o n t h e
o t h e r h a n d , u l t r a v i r e s i n v o l v e s t r a n s a c t i o n s
w h i c h a p a r t i c u l a r company c a n n o t e n t e r i n t o
b e c a u s e o f t h e l i m i t a t i o n o f i t s c a p a c i t y by i t s
memorandum. T h e r e f o r e , i f t h e company e x c e e d s
t h e powers c o n f e r r e d on i t b y t h e b u s i n e s s o r
o b j e c t s c l a u s e , t h e a c t w i l l be d e c l a r e d u l t r a
v i r e s and t h u s n u l l and v o i d .
N o t w i t h s t a n d i n g t h e d i s t i n c t i o n drawn a b o v e ,
a member o f a company c a n b r i n g a p e r s o n a l a c t i o n
w h e r e t h e m a j o r i t y o r t h e d i r e c t o r s a r e i n v o l v e d
i n an i l l e g a l o r u l t r a v i r e s a c t . F o r i n s t a n c e ,
e a c h member h a s t h e r i g h t t o e n s u r e t h a t t h e f u n d s
1 7 o f t h e company a r e a p p l i e d t o i t s p r o p e r objects . 1 7 . see s i m p s o n v. w e s t m i n s t e r p a l a c e Hotel CO.
(186731, 8 H .LO Cas. 712
18. S e e y o r k s h i r e ~ i n e r s ~ s s o c i a t i o n -- v. owd den, ~ ? 9 0 5 7 , A.C. 256 \
19 . S e e P o w e l l v. Kempton P a r k Race C o u r s e , L t d e t /1899/, A.C. 143 - -
I n s u c h a c a s e , t h e c o u r t h a s r e g a r d o n l y t o t h e
i s s u e w h e t h e r t h e a c t i v i t y i s u l t r a v i r e s , a n d
n o t t o t h e c h a r a c t e r o f t h e a c t i v i t y , w h e t h e r
m e r i t o r i o u s o r o t h e r w i s e 1 8 . Also, an i n d i v i d u a l
s h a r e h o l d e r c a n m a i n t a i n a p e r s o n a l a c t i o n w h e r e
t h e a c t i v i t y i s i l legal1 ' . F u r t h e r m o r e , h e may
s u e t o r e s t r a i n t h e company from p e r f o r m i n g u l t r a
v i r e s o r i l l e g a l a c t s e v e n t h o u g h h e h a s i n t h e
p a s t b e e n a p a r t y t o t h e t y p e of m i s c o n d u c t
20 c o m p l a i n e d o f . T h e r e f o r e , a s a g e n e r a l p r i n c i p l e o f l a w , any
o n e member o f a company may t a k e a c t i o n t o r e s t r a i n
i t f r o m ccmmencing o r c o n t i n u i n g t h e d o i n g o f some-
t h i n g t h a t i s u l t r a v i r e s o r i l l e g a l . ~ e s i d e s , t h e
e x c e p t i o n a l l o w s an a c t i o n a g a i n s t o f f i c e r s o f t h e
company, r e s t r a i n i n g them from c a r r y i n g o u t t h e
t r a n s a c t i o n . ~ n d w h e r e an a g r e e m e n t b e t w e e n t h e
company and a n o t h e r p e r s o n i s i n v o l v e d , t h e o t h e r
20. see Mose ly v. ---- ~ o f f y f o n t e i n - -- Mines , ~ t d . , - /?9047, - 2 Ch. 1 0 8
2 1 p e r s o n c a n be made a c o - d e f e n d a n t . B. SPECIAL MAJORITIES
The e x c e p t i o n b a s e d on s p e c i a l r e s o l u t i o n i s
a l s o c a l l e d s p e c i a l m a j o r i t i e s . T h i s e x c e p t i o n
i s c l e a r l y i l l u s t r a t e d i n t h e c a s e o f ~ d w a r d s v.
H a l l i w e l ~ ~ ~ . Here, t h e c o n s t i t u t i o n o f a t r a d e
u n i o n p r o v i d e d t h a t c o n t r i b u t i o n s we,re n o t t o be
a l t e r e d u n t i l a b a l l o t v o t e o f t h e members had
b e e n t a k e n and a t w o - t h i r d s m a j o r i t y o b t a i n e d . A
d e l e g a t e m e e t i n g o f t h e u n i o n , w i t h o u t t a k i n g any
b a l l o t , p a s s e d a r e s o l u t i o n i n c r e a s i n g t h e c o n t r i -
b u t i o n s o f members. The p l a i n t i f f s , two members
o f t h e u n i o n , s u e d two members o f t h e e x e c u t i v e
c o m m i t t e e o f t h e u n i o n , and t h e u n i o n i t s e l f f o r
a d e c l a r a t i o n t h a t t h e r e s o l u t i o n was i n v a l i d . I t . was h e l d t h a t t h e r e s o l u t i o n was i n v a l i d . J e n k i n s
L. J., o b s e r v e d t h a t i f t h e company a l o n e i s a l l o w e d
t o s u e i n c a s e s o f t h i s c h a r a c t e r ,
"a company which by i t s d i r e c t o r s had b r o k e n i t s own r e g u l a t i o n s by d o i n q s o m e t h i n g w i t h o u t a
21. See us sell v. w a k e f i e l d w a t e r w o r k s C o O L s u p r a
s p e c i a l r e s o l u t i o n which c o u l d o n l y be d o n e v a l i d l y by a s p e c i a l r e s o l u t i o n , c o u l d a s s e r t t h a t i t a l o n e was t h e p r o p e r p l a i n t i f f i n any c o n s e q u e n t a c t i o n , and t h e e f f e c t would be t o a l l o w a company a c t i n g i n b r e a c h o f i t s a r t i c l e s t o d o d e f a c t o by o r d i n a r y r e s o l u t i o n t h a t w h i c h a c c o r d i n g to i t s own r e g u l a t i o n s c o u l d o n l y be done by s p e c i a l r e s o l u t i o n , T h a t e x c e p t i o n e x a c t l y f i t s t h e p r e s e n t c a se23 f ' .
I t f o l l o w s t h a t w h e r e a r e s o l u t i o n can o n l y
be v a l i d l y p a s s e d by a s p e c i a l m a j o r i t y , a s h a r e -
h o l d e r c a n c h a l l e n g e t h e r e s o l u t i o n if i t i s
p a s s e d by o r d i n a r y r e s o l u t i o n , The e f f e c t o f
s e e k i n g t h e a s s i s t a n c e o f t h e c o u r t by t h e s h a r e -
h o l d e r i n t h i s c a s e , i s n o t t a n t a m o u n t t o a s k i n g
t h e c o u r t t o i n t e r f e r e i n t h e i n t e r n a l management
of t h e company, b u t t o compel c o m p l i a n c e by t h e
company w i t h p r o c e d u r a l r e q u i r e m e n t s o f t h e
a r t i c l e s o f a s s o c i a t i o n .
Co PERSONAL RIGHT
his i s an e x c e p t i o n i n f a v o u r o f a s h a r e h o l d e r
who is a s s e r t i n g a r i g h t p e r s o n a l t o him. The
23. - r b i d . a t p, 1067
e x c e p t i o n c o n f e r s a r i g h t o f a c t i o n t o e n f o r c e
a d h e r e n c e by management t o t h e p r o v i s i o n s o f t h e
a r t i c l e s . ~ u t t h e c l a s s i f i c a t i o n o f p e r s o n a l
r i g h t s i n t o t h o s e c o n f e r r e d by t h e Companies ~ c t
and t h o s e a r i s i n g by v i r t u e o f t h e c o n t r a c t u a l
r e l a t i o n s h i p b e t w e e n t h e company and t h e s h a r e -
h o l d e r s b a s e d on t h e a r t i c l e s o f a s s o c i a t i o n , h a s
c r e a t e d some p r o b l e m s and t h u s made t h i s e x c e p t i o n
c o n t r o v e r s i a l . F o r i n s t a n c e , t h e r u l e i n F o s s v.
H a r b o t t l e h a s n o a p p l i c a t i o n t o any s t a t u t o r y r i g h t
c o n f e r r e d by t h e Companies ~ c t on i n d i v i d u a l s h a r e -
h o l d e r s o r a minimum number o f T h i s i s n o t
t h e c a s e w i t h t h e e n f o r c e m e n t o f r i g h t s c o n f e r r e d
by t h e a r t i c l e s o f a s s o c i a t i o n on t h e members o f
t h e company. I t a p p e a r s t h a t no c l e a r d e l i m i t a t i o n
o f t h e t r u e r e l a t i o n s h i p be tween s e c t i o n 4 1 of t h e
Companies ~ c t and t h e r u l e i n ~ o s s v. ~ a r b o t t l e i s
made. Hence, t h e q u e s t i o n w h e t h e r a s h a r e h o l d e r
c a n l i t i g a t e b r e a c h o f a r t i c l e s o f a s s o c i a t i o n o r
i r r ~ g u l a r i t i e s by t h e m a j o r i t y o r d i r e c t o r s r e g a r d -
less o f t h e r u l e h a s b e e n d i f f e r e n t l y a n s w e r e d by
24. S e e , e.g., s e c t i o n s 4 6 ( 2 ) , 4 9 , 1 4 2 ( 1 ) & 2 1 3 ( 2 ) ,, CmA*M.Am
l e g a l c o m m e n t a t o r s and t e x t - w r i t e r s .
G e n e r a l l y , a m i n o r i t y s h a r e h o l d e r h a s t h e
r i g h t t o h a v e any p r o v i s i o n i n t h e a r t i c l e s
e n f o r c e d a s p a r t of h i s c o n t r a c t o f member-
25 s h i p . But i n r e a l i t y , s u c h a g e n e r a l r i g h t
t o e n f o r c e t h e a r t i c l e s would a p p e a r t o o f f e n d ,
if n o t c o n t r a d i c t t h e r u l e i n F o s s v. H a r b o t t l e
i t s e l f . The r u l e , a s s t a t e d a b o v e , p r e v e n t s ac-
t i o n by m i n o r i t y s h a r e h o l d e r s f o r i n t e r n a l
i r r e g u l a r i t i e s s u c h a s b r e a c h o f t h e a r t i c l e s .
C o n s e q u e n t l y , w h e r e s u c h a b r e a c h d o e s n o t i n v o l v e
t h e i n f r i n g e m e n t o f t h e i n d i v i d u a l r i g h t s c o n f e r r e d
upon a s h a r e h o l d e r , i t h a s b e e n h e l d t h a t s u c h a
b r e a c h o f t h e a r t i c l e s may be r a t i f i e d by t h e
2 6 m a j o r i t y .
25. S e e Wood v. O d e s s a W a t e r w o r k s , s u p r a ; I n R e Har- W.L.R. a t p. 8 7 , p e r Harmer L O J.
u t h i s is6: c a s e of p e t i t i o n u n d e r s e c t i o n 210 o f t h e 1 9 4 8 E n g l i s h c o m p a n i e s ~ c t )
S e e a l s o : Bamford v. am ford /19687 3 W.L.R. 3 1 7 p e r plowman J.-?o~:d v . s a m f o r d (C.A.) IT9697 - 2 W.L.R. 1 1 0 7 - w h e r e h i s ~ o r d s h i p f s r e m a r k s a s t o t h e r i g h t t o e n f o r c e t h e a r t i c l e s a s a con- t r a c t r e c e i v e d n o s u p p o r t )
26. S e e G r a n t v . U.K. S w i t c h b a c k ailw ways, s u p r a
F o l l o w i n g t h e s e c o n f l i c t i n g j u d i c i a l d e c i -
s i o n s , s e r i o u s a t t e m p t s a r e made t o e s t a b l i s h t h e
t r u e r e l a t i o n s h i p b e t w e e n s e c t i o n 4 1 of t h e Com-
p a n i e s ~ c t and t h e r u l e i n F o s s v. ~ a r b o t t l e . TO
t h i s e n d , w h e r e t h e c o m p l a i n t r e f e r s t o a mere
m a t t e r o f p r o c e d u r e , t h e c o u r t s w i l l h o l d t h a t
t h e i r r e g u l a r i t y i n q u e s t i o n i s o n e which c a n be
r a t i f i e d b y t h e m a j o r i t y . I n ~ a c ~ o u g a l l v . G a r d i -
n e r 2 7 , t h e i s s u e was w h e t h e r t h e p l a i n t i f f c o u l d - b r i n g an a c t i o n f o u n d e d on t h e a c t i o n o f t h e c h a i r -
man of a m e e t i n g i n c a r r y i n g an a d j o u r n m e n t a n d
r e f u s i n g a p o l l on t h e m a t t e r . T h e c o u r t h e l d
t h a t t h e m a t t e r was an i n t e r n a l d i s p u t e , and c o u l d
n o t be made t h e s u b j e c t of an a c t i o n u n l e s s t h e r e
was s o m e t h i n g i l l e g a l , o p p r e s s i v e o r f r a u d u l e n t i n
t h e c a s e . T h e r e f o r e , t h e f a c t o f r a t i f i a b i l i t y
d e t r a c t s f rom t h e m i n o r i t y ' s g e n e r a l r i g h t t o
e n f o r c e t h e o b s e r v a n c e of t h e a r t i c l e s of a s s o c i a -
t i o n . ~ u t i t mus t be d e t e r m i n e d w h e t h e r t h e
i r r e g u l a r i t y o r b r e a c h s o u g h t t o be r e m e d i e d
c o n s t i t u t e s a wrong a g a i n s t t h e s h a r e h o l d e r , i.e.,
27. S u p r a
an i n f r i n g e m e n t o f h i s p e r s o n a l r i g h t , (e.g.
h i s p r o p r i e t a r y r i g h t t o v o t e ) o r a wrong t o t h e
company which o n l y t h e company c a n r e d r e s s . whe re
i t i s t h e f o r m e r , a p e r s o n a l a c t i o n a r i s e s . s u t
i f t h e l a t t e r , t h e f a c t o f r a t i f i a b i l i t y w i l l
be a l lowed t o d e f e a t o r p r e c l u d e s u c h an a c t i o n ,
u n l e s s t h e a c t o f t h e m a j o r i t y i s i l l e g a l , o p p r e s -
s i v e o r f r a u d u l e n t .
The p o s i t i o n t h e r e f o r e i s t h a t u n l e s s a pro-
p r i e t a r y r i g h t a t t a c h i n g t o a s h a r e is b e i n g
d e n i e d t o t h e member, o r t h e r e is an a t t e m p t t o
s u b v e r t t h e companyls c o n s t i t u t i o n , t h e p r i n c i p l e
o f r a t i f i c a t i o n w i l l o p e r a t e 2 8 . ~ c c o r d i n g l y , i n
~ o g g v. cramphorn ~ t d ? ' , t h e wrong was t r e a t e d a s
o n e done t o t h e s h a r e h o l d e r - b e i n g an i n f r i n g e -
ment of h i s r i g h t s t o have t h e a r t i c l e s o b s e r v e d .
B u t i n samford v. Bamford30, i n t h e C o u r t o f ~ p p e a l ,
t h e wrong was t r e a t e d a s one done t o t h e company i n
t h a t i t was a b r e a c h by t h e d i r e c t o r s o f t h e i r d u t y
28. S e e Edwards v. H a l l i w e l l , s u p r a
29. S u p r a
30. S u p r a
t o t h e company, TO t h i s e x t e n t , t h e p e r s o n a l
a c t i o n e x c e p t i o n t o t h e r u l e i n F o s s v . H a r b o t t l e
i s , i n a n u n q u a l i f i e d f o r m , r e l a t i v e l y n a r r o w e r i n
s c o p e , F o r i n s t a n c e , s i m p l e n e g l i g e n c e by t h e
d i r e c t o r s would s t i l l n o t be a c t i o n a b l e , u n l e s s
3 1 t h e c a s e i s o n e o f f r a u d or o p p r e s s i o n , T h e
r e m e d i e s u s u a l l y a v a i l a b l e t o a m i n o r i t y s h a r e -
h o l d e r u n d e r t h i s e x c e p t i o n a r e d e c l a r a t i o n and
i n j u n c t i o n , a s a g a i n s t damages and payment o f
m o n e t a r y c o m p e n s a t i o n w h i c h r e d u c e s t h e c a p i t a l
o f t h e company.
D o FRAUD ON THE MINORITY
T h i s e x c e p t i o n t o t h e r u l e i n F o s s v , H a r b o t t l e
i s b a s e d on t h e f a c t t h a t t h o s e who c o n t r o l t h e
company a r e p e r p e t r a t i n g f r a u d on t h e m i n o r i t y , who t
now b r i n g an a c t i o n t o v i n d i c a t e c o r p o r a t e r i g h t s ,
I n g e n e r a l , a c t i o n s b a s e d on f r a u d o n t h e m i n o r i t y
a r e d e r i v a t i v e i n c h a r a c t e r , his i s b e c a u s e t h e
wrong i s e s s e n t i a l l y o n e which h a s b e e n c a u s e d to
t h e company, and t h e a c t i o n i s b r o u g h t b y m i n o r i t y
3 1 , R u t see t h e new Companies ~ c t , s e c t i o n 2 8 2 ( 2 ) f o r a p o s s i b i l i t y o f m a i n t a i n i n g s u c h a n a c - t i o n now
s h a r e h o l d e r s t o m a i n t a i n c o r p o r a t e r i g h t s . Conse -
q u e n t l y , t h e bas ic r u l e i s t h a t a r e s o l u t i o n o f
t h e g e n e r a l m e e t i n g c a n n o t a u t h o r i s e o r v a l i d a t e
a f r a u d upon t h e company, T h e s c o p e o f t h i s
e x c e p t i o n t o t h e r u l e i s i m p o r t a n t i n d e t e r m i n i n g
t h e e x t e n t t o w h i c h m i n o r i t y s h a r e h o l d e r s may
e n f o r c e t h e d u t i e s owed b y d i r e c t o r s t o t h e i r
company.
I n d e t e r m i n i n g t h e r e l a t i o n s h i p b e t w e e n t h e
e x c e p t i o n a n d t h e r u l e i n F o s s v . H a r b o t t l e , n
t h e
f o l l o w i n g e x t r a c t from t h e j u d g m e n t o f t h e v r i v y
32 G u n c i l , g i v e n b y L o r d Davey i n ~ u r l a n d v . ~ a r l e , i s a p o p u l a r s t a r t i n g p o i n t f o r d i s c u s s i o n ,
" ~ u t an e x c e p t i o n i s made t o t h e ( p r o p e r p l a i n t i f f p r i n c i p l e ) , w h e r e t h e p e r s o n s a g a i n s t whom t h e r e l i e f is s o u g h t t h e m s e l v e s h o l d a n d c o n t r o l t h e m a j o r i t y of t h e s h a r e s i n t h e company, a n d w i l l n o t p e r m i t a n a c t i o n t o be b r o u g h t i n t h e name o f t h e company. I n t h a t c a s e t h e c o u r t s a l l o w t h e s h a r e h o l d e r s c o m p l a i n i n g t o b r i n g a n a c t i o n i n t h e i r own names ,
T h i s , h o w e v e r , i s mere m a t t e r o f p r o c e d u r e i n o r d e r t o g i v e a r emedy f o r a wrong w h i c h w o u l d o t h e r w i s e e s c a p e redress, a n d i t i s o b v i o u s t h a t i n s u c h a n a c t i o n
t h e p l a i n t i f f s c a n n o t h a v e a l a r g e r r i g h t o f r e l i e f t h a n t h e company i t se l f would h a v e i f i t w e r e p l a i n t i f f , and c a n - n o t c o m p l a i n o f a c t s which a r e v a l i d i f d o n e w i t h t h e a p p r o v a l o f t h e m a j o r i t y of t h e s h a r e h o l - d e r s , o r a r e c a p a b l e o f b e i n g c o n f i r m e d by t h e m a j o r i t y . T h e c a s e s i n w h i c h t h e m i n o r i t y c a n m a i n t a i n s u c h an a c t i o n a r e , t h e r e f o r e , c o n f i n e d t o t h o s e i n w h i c h t h e a c t s c o m p l a i n e d o f a r e o f a f r a u d u l e n t c h a r a c t e r o r beyond t h e powers o f t h e company. A f a m i l i a r e x a m p l e i s w h e r e t h e m a j o r i t y a r e e n d e a v o u r i n g d i r e c t l y o r i n d i r e c t l y t o a p p r o p r i a t e t o t h e m s e l v e s money, p r o p e r t y , o r a d v a n t a g e s which b e l o n g t o t h e company, o r i n w h i c h t h e o t h e r s h a r e h o l d e r s a r e e n t i t l e d t o p a r t i c i p a t e , a s was a l l e g e d i n t h e c a s e o f ~ e n i e r v . H o o p e r t s T e l e g r a p h w o r k s (1m4) L.R. 9 Ch. APP. 350 , C - A = "
I t i s o b v i o u s f rom t h e a b o v e j u d i c i a l p r o n o u n c e -
ment t h a t i n o r d e r t o m a i n t a i n a n a c t i o n u n d e r t h i s . e x c e p t i o n , t h e m i n o r i t y s h a r e h o l d e r must a l l e g e and
p r o v e 3 3
( i ) t h a t t h e wrong d o e r s a r e i n c o n t r o l and w i l l
n o t l e n d t h e name of t h e company t o t h e p r o c e -
e d i n g s ; and
33. S e e ~ i r c h v . S u l l i v a n , ~ 7 9 5 8 7 1 ~ l l E-R. 56
( i i ) t h a t f r a u d was p e r p e t r a t e d o n t h e
company.
T h e e l e m e n t s o f c o n t r o l a n d f r a u d , t h e r e f o r e , a r e
t h e two c o n s t i t u e n t p a r t s o f t h e e x c e p t i o n w h i c h
t h e m i n o r i t y s h a r e h o l d e r h a s t h e o n u s ' t o e s t a b l i s h
f o r him t o s u c c e e d i n h i s a c t i o n . A f u r t h e r
c o n s i d e r a t i o n o f t h e s e e l e m e n t s i s t h e r e f o r e
n e c e s s a r y f o r a p r o p e r u n d e r s t a n d i n g o f t h e n a t u r e
and s c o p e o f t h i s e x c e p t i o n .
( i ) CONTROL
A m i n o r i t y s h a r e h o l d e r who i n t e n d s t o i n v o k e
t h i s e x c e p t i o n mus t e s t a b l i s h t h a t t h o s e who p e r p e -
t r a t e t h e f r a u d a g a i n s t him a r e i n c o n t r o l o f t h e
company. ~ u t t h e e x a c t mean ing o f c o n t r o l i n t h i s
c o n t e x t i s n o t c l e a r . w h a t i s c l e a r i n s t e a d , i s
t h e f a c t t h a t a d e r i v a t i v e a c t i o n w i l l f a i l i f
3 4 c o n t r o l i s n o t a l l e g e d . C o n s e q u e n t l y , c o n t r o l ,
a s a n e c e s s i t y , becomes a m a t t e r t o b e p r o v e d by
e v i d e n c e . u s u a l l y , n o d o u b t a r i s e s w i t h a b s o l u t e
v o t i n g c o n t r o l 3 5 , o r w i t h t h e more u s u a l c o n t r o l
35. ~ . g . , a s i n E s t m a n c o ( K i l n e r House) ~ , t d . v . ~ r e a t e r London C o u n c i l - /1982/ - 1 W.L.R. 2
shown by m a j o r i t y s h a r e h o l d i n q a c c o r d i n g t o t h e
companyf s r e g i s t e r o f s h a r e h o l d e r s .
o n t h e o t h e r h a n d , what i s n o t c l e a r and
t h u s c o n t r o v e r s i a l , i s w h e t h e r t h e c o n t r o l m u s t
b e v o t i n g c o n t r o l or w h e t h e r d e f a c t o c o n t r o l
( s u c h a s b e i n g a m a j o r i t y on t h e b o a r d o f d i r e c -
t o r s ) s u f f i c e s . ~ q a i n , it i s n o t c l e a r w h e t h e r
t h e c o u r t s w i l l t r e a t a s h a r e h o l d i n q less t h a n a
c l e a r m a j o r i t y a s a c o n t r o l l i n g b l o c k f o r t h e
p u r p o s e s o f a m i n o r i t y a c t i o n . T h e need to a s c e r -
t a i n t h e a t t i t u d e o f t h e c o u r t s i n t h e l a t t e r c a s e
i s b e c a u s e o f t h e p o s s i b i l i t y o f a company w i t h
d i f f u s e d s h a r e h o l d i n q , b e i n g c o n t r o l l e d by p e r s o n s
3 6 h a v i n g c o m p a r a t i v e l y s m a l l s h a r e h o l d i n q s . ~ u t
t h e c o u r t s h a v e a p p r o a c h e d t h e i s s u e d i f f e r e n t l y t
w i t h c o n f l i c t i n g d e c i s i o n s . F o r i n s t a n c e , V i n e l o t t
J., i n P r u d e n t i a l A s s u r a n c e Co. L t d . v. Newman
~ n d u s t r i e s ~ t d . ( N O . 2)", a p p e a r e d t o f a v o u r - d e
f a c t o c o n t r o l when h e r e f e r r e d to
36. S e e ~ i c k e r i n q , ' ? S h a r e h o l d e r V o t i n g ~ i g h t s and Company C o n t r o l ? ? ( l 9 6 5 ) , 81 L.Q.R. 278
37. ~ 7 9 8 2 7 Ch. 2 5 7
" p e r s o n s a g a i n s t whom t h e a c t i o n i s s o u g h t t o be b r o u g h t o n b e h a l f o f t h e company (who) a r e shown t o be a b l e ' b y any means o f mani- p u l a t i o n o f t h e i r p o s i t i o n i n t h e companyc t o e n s u r e t h a t t h e a c t i o n i s n o t b r o u g h t by t h e company!!,
w h e r e a s i n t h e C o u r t o f ~ ~ ~ e a 1 ~ ~ , t h e c o u r t seemed
t o p r e f e r v o t i n g c o n t r o l when t h e i r ~ o r d s h i p s
s a i d t h a t c o n t r o l
" e m b r a c e s a b r o a d s p e c t r u m ex- t e n d i n g f r o m an o v e r a l l a b s o l u t e m a j o r i t y o f v o t e s a t o n e e n d t o a m a j o r i t y o f v o t e s a t t h e o t h e r e n d made u p o f t h o s e l i k e l y t o be c a s t by t h e d e l i n q u e n t h i m s e l f p l u s t h o s e v o t i n g w i t h him a s a r e s u l t o f i n f l u e n c e o r apathy!!,
T h e d i f f e r e n t a p p r o a c h e s shown i n t h e s e j u d i c i a l
p r o n o u n c e m e n t s l e a v e t h e m a t t e r o f c o n t r o l i n s u c h
c a s e s i n d o u b t , However, by t h e t i m e t h e p r u d e n -
t i a l a c t i o n r e a c h e d t h e C o u r t o f ~ p p e a l , t h e p r o p e r . p l a i n t i f f i s s u e was i r r e l e v a n t , and s o r e n d e r i n g
t h e r e m a r k s o f t h a t c o u r t a mere ob i te r ,
I n d e t e r m i n i n g c o n t r o l f o r t h e p u r p o s e s of t h e
e x c e p t i o n , t h e c o u r t s h o u l d t a k e i n t o a c c o u n t b o t h
d e f a c t o and d e j u r e c o n t r o l , his i s b e c a u s e o f
t h e p o s s i b i l i t y of a s m a l l g r o u p o f p e r s o n s
o b t a i n i n g d e f a c t o c o n t r o l by a c q u i s i t i o n o f a
much s m a l l e r b l o c k o f s h a r e s t h a n f i f t y p e r -
c e n t . C o n s e q u e n t l y , i f c o n t r o l i s l i m i t e d to
d e j u r e c o n t r o l , t h o s e i n d e f a c t o c o n t r o l
m i g h t c o n d u c t o p p r e s s i o n a n d f r a u d u l e n t p r a c -
t ices on t h e m a j o r i t y i n d i s g u i s e o f b e i n g
v i c t i m s o f t h e T h e r e f o r e , c o n t r o l
by means o f m a j o r i t y s h a r e s h e l d by t h e wrong
d o e r s t h e m s e l v e s i s s u f f i c i e n t b u t n o t an i n d i s -
p e n s a b l e r e q u i r e m e n t f o r t h e a p p l i c a t i o n o f t h e
e x c e p t i o n . H e n c e , w h e r e t h e wrong d o e r s do n o t
c o n s t i t u t e an o b v i o u s m a j o r i t y , t h e t e s t l a i d
down by airw weather J. i n F i s h e r v. S t . John
o o e r a House ~ 0 . ~ ' m u s t b e s a t i s f i e d b e f o r e an
a c t i o n c a n be a l l o w e d . I n s u c h a c a s e , t h e
m i n o r i t y m u s t
t r accoun t f o r t h e f a c t t h a t t h e company h a s n o t s e e n f i t t o b r i n g a c t i o n o n i t s own b e h a l f . his may b e d o n e b y s h o w i n g
39 , See, e.g, , O m i s a d e v. ~ k a n d e , s u p r a
40. ( 1 9 3 7 ) 4 D.C.R. 337, a t p. 342
t h a t t h e company h a s r e f u s e d t o a l l o w t h e a c t i o n t o be b r o u g h t on i t s own b e h a l f o r t h a t by r e a s o n of t h e wrong- d o e r b e i n g i n c o n t r o l o f t h e company a t t h e t i m e o f b r i n g - i n q t h e a c t i o n , i t would be i d l e t o a p p l y t o t h e companyft .
~ a r l i e r o n , Jessell M. R., i n R u s s e l l v . w a k e f i e l d
w a t e r w o r k s coo4', h a d i n d i c a t e d t h a t t h e e x c e p t i o n
w i l l a p p l y w h e r e
( i ) t h e w r o n g d o e r s h a v e a m a j o r i t y o f v o t e s , o r
(ii) t h e r e h a s b e e n a p p r o v a l o f t h e f r a u d by t h e
m a j o r i t y o r
( i i i ) t h e c o r p o r a t i o n has o t h e r w i s e shown t h a t i t
i s n o t w i l l i n g t o s u e .
T h u s , e v e n u n w i l l i n g n e s s b y t h e c o r p o r a t i o n t o s u e
m i g h t e s t a b l i s h c o n t r o l f o r t h e p u r p o s e s o f t h e
e x c e p t i o n . . (ii) F R A U D
A p a r t f r o m c o n t r o l , t h e p l a i n t i f f a l s o , mus t
show t h a t t h e a c t i o n amounted t o a f r a u d on t h e
company. ~ u t beyond g i v i n g o n e example , L o r d Davey
41. S u p r a , a t p. 4 8 2
2 5 8
i n h i s judgment q u o t e d a b o v e , d i d n o t p r e c i s e l y
d e f i n e wha t i s and i s n o t of a f r a u d u l e n t
c h a r a c t e r f o r t h e p u r p o s e o f t h e e x c e p t i o n .
However , f r a u d f o r t h e p u r p o s e s OF t h e e x c e p -
t i o n u n d e r c o n s i d e r a t i o n , b e a r s a mean ing w i d e r
t h a n t h a t a s c r i b e d t o i t a t common law. A C C O r -
d i n g l y , M e g a r r y V. C., i n F s t m a n c o ( ~ i l n e r ~ o u s e )
4 2 L t d . v. G r e a t e r London C o u n c i l , a p t l y o b s e r v e d
a s f o l l o w s :
1 ? 1 t d o e s n o t seem t o h a v e y e t become v e r y c l e a r e x a c t l y w h a t t h e word ' f r a u d ' means i n t h i s c o n t e x t ( i .e . , i n t h e p h r a s e ' f r a u d on a m i n o r i t y ' ) ; b u t I t h i n k i t i s p l a i n l y w i d e r t h a n f r a u d a t common l a w , i n t h e s e n s e o f D e r r y v. Peek ( 1 8 8 9 ) 1 4 ~ p p . Cas . 337Ir.
T h e r e f o r e , w h e t h e r o r n o t an a c t is f r a u d u l e n t i s
n o t t o be de t ' e rmined by p r o b i n g t h e s t a t e o f mind
of t h e c o n t r o l l e r s . his i s b e c a u s e
" f r a u d l i e s r a h t e r i n t h e n a t u r e o f t h e t r a n s a c t i o n t h a n i n t h e m o t i v e s o f t h e ma j o r i t y 4 3 r r .
42 . S u p r a , a t P. 1 2
43. See w e d d e r b u r n , ( 1 9 5 8 ) Cam. L.J. 9 3 , a t p. 9 6
AS t o a c t s t h a t a r e of a f r a u d u l e n t c h a r a c -
t e r , v i n e l o t t J. i n P r u d e n t i a l A s s u r a n c e Co. ~ t d .
v . Newman I n d u s t r i e s L td . (NO. 2 ) 4 4 , s u r v e y e d
t h e c a s e s and c o n c l u d e d t h a t
I f . . . t h e a u t h o r i t i e s show t h a t t h e e x c e p t i o n a p p l i e s n o t o n l y w h e r e t h e a l l e g a t i o n i s t h a t d i r e c t o r s who c o n t r o l a company h a v e i m p r o p e r l y a p p r o p r i a t e d t o t h e m s e l v e s money, p r o p e r t y o r a d v a n t a g e s which b e l o n g t o t h e company o r , i n b r e a c h of t h e i r d u t y t o t h e company, h a v e d i v e r t e d b u s i n e s s t o t h e m s e l v e s which o u g h t t o h a v e b e e n g i v e n t o t h e company, b u t more g e n e r a l l y w h e r e i t i s a l l e g e d t h a t d i r e c t o r s t h o u g h a c t i n g @ i n t h e b e l i e f t h a t t h e y were d o i n g n o t h i n g wrong ' ( p e r ~ i n d l e y M. R. i n ~ l e x a n d e r v. ~ u t o m a t ic T e l e p h o n e CO. /1900/ 2 Ch. 56 a t TI. 6 5 ) a r e - g u l l E y OF a b r e a c h o f d u t y t o t h e company, i n c l u d i n g t h e i r d u t y t o e x e r c i s e p r o p e r c a r e , and a s a r e s u l t o f t h a t b r e a c h o b t a i n some b e n e f i G . I n t h e l a t t e r c a s e it mus t b e u n n e c e s s a r y t o a l l e g e and p r o v e t h a t t h e d i r e c t o r s i n b r e a - k i n g t h e i r d u t y t o t h e company a c t e d w i t h a v i e w t o b e n e f i t t i n g t h e m s e l v e s a t t h e e x p e n s e of t h e company; f o r s u c h an a l l e g a t i o n would be an a l l e g a t i o n of mi sapp ro - p r i a t i o n o f t h e company ' s p r o p e r t y . On t h e o t h e r h a n d , t h e e x c e p t i o n d o e s n o t a p p l y i f a l l t h a t i s a l l e g e d i s t h a t d i r e c t o r s who
44. S u p r a , a t p. 316
c o n t r o l a company a r e l i a b l e t o t h e company f o r damages f o r n e g l i g e n c e , i t n o t b e i n g shown t h a t t h e t r a n s a c t i o n was o n e i n which t h e y were i n t e r e s t e d or t h a t t h e y h a v e i n f a c t o b t a i n e d a n y b e n e f i t f r o m it. I t i s n o t e a s y t o see p r e c i s e l y w h e r e t h e l i n e b e t w e e n t h e s e c a s e s i s t o b e drawn'!.
B e s i d e t h e s i n g l e example o f f r a u d i n L o r d Davey 's
s t a t e m e n t i n B u r l a n d v. E a r l e 4 5 , o f w h e r e
" t h e m a j o r i t y a r e e n d e a v o u r i n g d i r e c t l y o r i n d i r e c t l y t o a p p r o - p r i a t e t o t h e m s e l v e s money, p r o p e r t y o r a d v a n t a g e s which b e l o n g t o t h e company o r which o t h e r s h a r e h o l d e r s a r e e n t i t l e d t o p a r t i c i p a t e c t ,
o t h e r e x a m p l e s o f f r a u d u l e n t t r a n s a c t i o n s a r e
d e d u c i b l e f r o m t h i s d i c t u m . F o r i n s t a n c e , w h e r e
t h e r e is b r e a c h o f f i d u c i a r y d u t i e s and t h e d i r e c -
t o r s b e n e f i t t e d f rom i t , an a c t i o n w i l l l ie46. Also, . a m i n o r i t y s h a r e h o l d e r ' s a c t i o n w i l l b e a l l o w e d w h e r e
t h e b r e a c h or a p p r o p r i a t i o n of p r o p e r t y by t h e d i r e c -
t o r s ,-'.amounts t o f r a u d u l e n t a p p r o p r i a t i o n o f t h e
company ' s a s s e t 4 7 . g u t i t i s n o t a l l b r e a c h e s o f
d u t y by d i r e c t o r s t h a t w i l l g i v e rise t o m i n o r i t y
a c t i o n . F o r e x a m p l e , it seems t h a t n e g l i g e n c e by
45. S u p r a
46. S e e ~ a n i e l s v. ~ a n i e l s ~ s u p r a
47. See Cook v . D e e k s , s u p r a
d i r e c t o r s w h i c h d o e s n o t b e n e f i t them p e r s o n a l l y
4 8 i s n o t o f a f r a u d u l e n t c h a r a c t e r . E. INTERESTS OF JUSTICE EXCEPTION7 -
Doubt h a s b e e n e x p r e s s e d w h e t h e r a f i f t h
e x c e p t i o n e x i s t s t o t h e r u l e i n F o s s v . H a r b o t t l e
i n c a s e s w h e r e t h e i n t e r e s t s o f j u s t i c e r e q u i r e
t h a t t h e c o u r t s h o u l d i n t e r v e n e t o a s s i s t an
o t h e r w i s e h e l p l e s s m i n o r i t y s h a r e h o l d e r . Hence,
t h i s e x c e p t i o n i s c o n t e n t i o u s and h a s g e n e r a t e d
c o n s i d e r a b l e c o n t r o v e r s y 4 9 . The b a s i s o f i n f e r i n g
t h e e x i s t e n c e o f t h e e x c e p t i o n i s a d i c t u m i n t h e
judgment o f S i r James wigram V-C, i n F o s s v . H a r b o t -
t l e , t o t h e e f f e c t t h a t : -
48 . See p a v l i d e s v. J e n s e n , s u p r a . ~ u t see now: s e c t i o n 2 8 2 ( 2 ) , C.A.M.A.
4 9 . S e e p r u d e n t i a l ~ s s u r a n c e Co. - L t d . v , Newman ..--- ~ n d u s - t r ies L t d . (No. 2 ) , s u p r a ; see a l s o : ES tmanco ( ~ i l n e r H o u s e ) L t d . v. G r e a t e r London C o u n c i l , s u p r a ; ( e x c e p t i o n r e i u s e d )
CONTRA: Teck C o r p o r a t i o n ~ t d . v. ~ i l l e r ( 1 9 7 2 ) 33 D.L.R. ( 3 d ) 288 ( C a n a d i a n Supreme courET; o m i s a d e v. ~ k a n d e , s u p r a ; and E d o k p o l o r & Co. ~ t d . v . Sem. Edo wire i n d u s t r i e s & ors.' ( 1 9 8 4 ) 7 S.C. 1 1 9 , ( e x c e ~ t i o n a1 l o w e d )
S e e a l s o : G o w e r , s u p r a , a t p. 645 - I n t e r e s t s o f J u s t i c e c l a s s i f i e d a s a f i f t h e x c e p t i o n
( ( I f a c a s e s h o u l d a r i s e o f i n j u r y t o a c o r p o r a t i o n b y some o f i t s members, f o r w h i c h no a d e q u a t e remedy r e m a i n e d e x c e p t t h a t a s u i t b y i n d e p e n - drent c o r p o r a t o r s i n t h e i r p r i v a t e c h a r a c t e r s , and a s k - i n g i n s u c h a c h a r a c t e r t h e p r o t e c t i o n o f t h o s e r i g h t s t o which i n t h e i r c o r p o r a t e c h a r a c t e r t h e y w e r e e n t i t l e d , I c a n n o t b u t t h i n k t h a t t h e p r i n c i p l e s so f o r c i b l y l a i d down b y L o r d C o t t e n h a m i n w a l l w o r t h v. ~ o l t and o t h e r c a s e s w o u l d a p p l y , a n d t h e c l a i m s o f j u s t i c e would- f o u n d s u p e r i o r t o a n y d i f t i - c u l t i e s a r i s i n g o u t of t e c h - n i c a l r u l e s r e s ~ e c t i n a t h e m o d e n w h i c h c b r p o r a G i o n s a r e r e q u i r e d t o s u e ~ u ~ f . ( u n d e r l i n i n g f o r e m p h a s i s )
T h i s o b s e r v a t i o n b y h i s ~ o r d s h i p h a s l e d t o an
a s s u m p t i o n which h a s l o n g p e r s i s t e d t h r o u g h a l i n e
o f c a s e s 5 ' t h a t t h e " i n t e r e s t s o f j u s t i c e f f a r e
S e e a l s o : K . D. B a r n e s , " ~ u s t i c e S u r v i v e s ~ o s s . - v. ..- H a r b o t t l e r r ( 1 9 8 7 ) 8 Co. Law 92 ( s u p p o r t s t h e e x c e p t i o n )
Rut see: O.A. O s u n b o r , C r i t i c a l A p p r a i s a l o f ' T h e I n t e r e s t s of J u s t i c e ' AS An ~ x c e p t i o n t o t h e R u l e i n F o s s v. ~ a r b o t t l e , ~ ~ ( 1 9 8 7 ) 36- I.C.L.Q. z
1 ( d o e s n o t s u p p o r t t h e e x c e p t i o n )
50. S e e F o s s v. H a r b o t t l e , ( 1 8 4 3 ) 2 H a r e 4 6 1 , a t p. 4 9 2 , ( P e r wigram V-C.)
51 . S e e , e.g., p e r Romgr J. i n C o t t e r v. N a t i o n a l Union of Seamen, /19227 2 c'h. 58, a t p. b9; B a i l - l i e v. o r i e n t a l ~ z l e p h o n e and ~ l e c t r i c Co. L-
t h e m s e l v e s a n e x c e p t i o n t o t h e r u l e i n F o s s v.
H a r b o t t l e .
T h i s e x c e p t i o n i s b a s e d on t h e f a c t t h a t
t h e r u l e i n F o s s v, H a r b o t t l e i s n o t a n i n f l e x i b l e
r u l e and w i l l be r e l a x e d w h e r e n e c e s s a r y i n t h e
i n t e r e s t s o f j u s t i c e . his i s w i t h o u t p r e j u d i c e
t o t h e o t h e r n o n - c o n t e n t i o u s e x c e p t i o n s . ~ h o u g h
i t is r e c o g n i s e d a s a p o s s i b l e e x c e p t i o n , t h e r e i s
n o p r e c i s e j u d i c i a l a p p r o v a l o f s ame as a r e a l
e x c e p t i o n s 2 i n E n g l a n d , T h e u n d a u n t e d and v a l i a n t
e f f o r t o f V i n e l o t t J , i n P r u d e n t i a l A s s u r a n c e Co,
L t d . v . Newman ~ n d u s t r i e s L t d . , (No. 2 ) 5 3 , f o r
g i v i n g a r e m e d y t h r o u g h a d e r i v a t i v e a c t i o n , t o a
/?9157 1 Ch. 5 0 5 , 5 1 8 ( p e r S w i n f e n E a d y , L. J.) - uss sell v. W a k e f i e l d W a t e r w o r k s Co , , s u p r a , a t m W - 8 2 , ( p e r Jessel M. R . )
Edwards v. H a l l i w e l l , s u p r a , a t p. 1 0 6 7 ( p e r J e n k T n s e y t i n g v. Dupon t , /T9647 2 ~ 1 1 E.R. 2 7 3 , pp, and 2 8 1 ( p e r ~ u s s e l ' ; C. J., and Harman, L, J., r e s p e c t i v e l y )
5 2 , B u t see t h e S u p r e m e C o u r t o f ~ i g e r i a i n o m i s a d e v. Akande, s u p r a and E d o k p o l o r & Company L t d . v . Sem. do wire I n d u s t r i e s L t d . & or s , , s u p r a ( i n t e r e s t s o f ' j u s t i c e a d m i t t e d as e x c e p t i o n t o t h e r u l e ) . see a l s o : T h e C a n a d i a n s u p r e m e C o u r t i n - T e c k C o r p o r a t i o n ~ t d , v. ~ i l l e r , s u p r a
5 3 , S u p r a
m i n o r i t y s h a r e h o l d e r , v i c t i m o f a " m i s l e a d i n g
.and t r i c k y f f c i r c u l a r , was f r u s t r a t e d b y t h e
C o u r t o f ~ p p e a l . ? is L o r d s h i p e x p r e s s e d t h e
v i e w t h a t an e x c e p t i o n t o t h e r u l e i n F o s s v ,
H a r b o t t l e s h o u l d be a d m i t t e d i f t h e i n t e r e s t s
o f j u s t i c e would be d e f e a t e d . B u t h i s d e c i s i o n
was r e v e r s e d b y t h e C o u r t o f w h i c h
r e j e c t e d t h e a p p r ~ a c h a d o p t e d by h i s L o r d s h i p ,
s t a t i n g t h a t t h e y w e r e " n o t c o n v i n c e d t h a t ( t h e
j u s t i c e o f t h e c a s e ) i s a p r a c t i c a l test55".
T h e C o u r t o f ~ p p e a l d e c l i n e d t o c o n s i d e r i n
d e t a i l t h e i n t e r e s t s o f j u s t i c e e x c e p t i o n t o t h e
r u l e b u t c u r i o u s l y r e m a r k e d t h a t
"The s e c o n d o b s e r v a t i o n which w e w i s h t o make i s m e r e l y a comment o n v i n e l o t t J . 'S d e c i s i o n t h a t t h e r e i s an e x c e p t i o n t o t h e r u l e i n F o s s ,v, H a r b o t t l e w h e n e v e r t h e j u s Z i c e o f t h e c a s e so r e q u i r e s , we a r e n o t c o n v i n c e d t h a t t h i s i s a p r a c t i c a l tes t , p a r t i c u l a r l y i f i t i n v o l v e s a f u l l d r e s s t r i a l b e f o r e t h e test i s a p p l i e d 5 6 " .
55. I b i d , a t p. 2 2 1
56. f b i d
D e s p i t e t h e C o u r t o f ~ p p e a l q s r e j e c t i o n of
5 7 t h e e x c e p t i o n i n P r u d e n t i a l and Estrnanco C a s e s , i t was a l s o e x p r e s s l y r e j e c t e d by Dankwer t s J.
i n - ~ a v l i d e s v . JensenS8. is ~ o r d s h i p o b s e r v e d
t h a t
11.. . i t i s d o u b t f u l w h e t h e r S i r Geo rqe Jesse1 * s o b s e r v a t i o n 5 9 s h o u l d b e a p p l i e d to any w i d e r f i e l d t h a n s u c h r e c o g n i s e d e x c e p t i o n s t o t h e r u l e , . .60cf
The e f f ec t o f t h e s e c o n f l i c t i n g E n g l i s h d e c i s i o n s
is t h e u n c e r t a i n t y and d o u b t f u l n e s s t h e y h a v e
i n t r o d u c e d i n t o t h e Law w i t h r e g a r d t o t h i s a s p e c t
of m i n o r i t y p r o t e c t i o n . his e x c e p t i o n would h a v e
c o n s t i t u t e d a g e n e r a l e x c e p t i o n c a p a b l e o f con-
f e r i n g w i d e r powers on t h e c o u r t s t o i n t e r v e n e i n
a s s i s t i n g an o t h e r w i s e h e l p l e s s m i n o r i t y s h a r e h o l d e r .
~ a v i n q s t a t 6 d t h e d o u b t f u l n e s s o f t h e a p p l i c a t i o n
o f t h e i n t e r e s t s of j u s t i c e e x c e p t i o n i n ~ n g l a n d ,
w e s h a l l b r i e f l y c o n s i d e r t h e p o s i t i o n i n ~ i g e r i a ,
--
57. S u p r a
58. S u p r a
59. The o b s e r v a t i o n i n q u e s t i o n was c i t e d i n uss sell v. w a k e f i e l d w a t e r w o r k s Co. ( 1 8 7 5 ) L.R, 2 0 Eq. 474, a t p , 482
60 , s u p r a , a t p, 575
I t a p p e a r s t h a t t h e Supreme c o u r t o f
~ i g e r i a h a s t a k e n a w i d e r v i e w t h a n t h e E n g l i s h
C o u r t of ~ p p e a l i n a l l o w i n g t h e a p p l i c a t i o n of
t h e i n t e r e s t s of j u s t i c e e x c e p t i o n t o t h e r u l e
i n F o s s v. H a r b o t t l e . I n a t l e a s t t w o c a s e s ,
t h e Supreme C o u r t h a s a l l o w e d a m i n o r i t y s h a r e -
h o l d e r ' s a c t i o n on t h e b a s i s o f t h e i n t e r e s t s of
6 1 j u s t i c e e x c e p t i o n . U n l i k e t h e ~ n g l i s h C o u r t
o f A p p e a l , t h e Supreme C o u r t o f ~ i g e r i a h a s
a p p r o v e d t h e a p p l i c a t i o n o f t h e i n t e r e s t s of
6 2 j u s t i c e e x c e p t i o n b o t h i n p r i n c i p l e and p r a c t i c e ,
his a t t i t u d e of t h e Supreme C o u r t i s s u p p o r t e d
6 3 by K , D. B a r n e s , a l e g a l c o m m e n t a t o r . ~ l s o i n
s u p p o r t o f t h i s j u d i c i a l a c t i v i s m d e m o n s t r a t e d by
t h e Supreme C o u r t o f ~ i g e r i a i s D r . Ayua. T h e
l e a r n e d t e x t w r i t e r h a s n o t o n l y c l a s s i f i e d t h e . i n t e r e s t s o f j u s t i c e a s t h e f i f t h e x c e p t i o n t o
t h e r u l e i n F o s s v , ~ a r b o t t l e , b u t a l s o g o n e f u r t h e r
61. See ~ r n i s a d e v. ~ k a n d e , s u p r a . See a l s o : ~ d o k p o l o r R ComDanv L t d . v. Sem. Edo wire ~ n d u s t r i e s L t d -
O r s . , s u p r a
6 2 , S e e nmaye v. ~ s s o c i a t e d C o n t r a c t o r s , ( 1 9 9 0 ) 6 S-C-N-J* 1 4 9
6 3 , see K . D. B a r n e s , " ~ u s t i c e S u r v i v e s ~ o s s v , Harbo t - t l e Rulec f ( 1 9 8 7 ) 8 co, Law 92
t o add e m p h a t i c a l l y t h a t
c o n t e n t i o u s ) e x c e p t i o n s
B u t D r . O r o j o i n h i s book - Company Law and p r a c -
t ice i n ~ i g e r i a , h a s been more c a u t i o u s i n g i v i n g
a t a c i t s u p p o r t t o t h e a p p l i c a t i o n o f t h e i n t e r e s t s
of j u s t i c e e x c e p t i o n i n h l i q e r i a . The l e a r n e d
a u t h o r c o n s i d e r e d t h a t t h e i n t e r e s t s o f j u s t i c e
m i g h t be an e x c e p t i o n b u t a d d e d t h a t w h e t h e r t h i s
i s correct o r n o t r e m a i n s u n s e t t l e d , And Professor
G . A. Olawoyin is p e s s i m i s t i c a s t o t h e c l a r i t y
o f t h e a p p l i c a t i o n o f t h e i n t e r e s t s o f j u s t i c e
e x c e p t i o n when h e c i t e d ~ e y t i n g v. Dupont a s o n e
o f t h e c a s e s which c a s t d o u b t a s t o w h e t h e r f i n t e -
65 rests of j u s t i c e 1 e x i s t a s a s e p a r a t e e x c e p t i o n .
D r . 0. A. O s u n b o r , a l e g a l w r i t e r and commenta-
t o r , h a s shown s u r p r i s e and d i s a p p o i n t m e n t o v e r t h e
c u r r e n t a t t i t u d e o f t h e Supreme C o u r t and d i s p o s i t i o n
64, S e e D r . I. A. Ayua, ~ i g e r i a n Company Law, ( 1 9 8 4 ) , a t pp. 201-202
65. S e e G. A. o l a w o y i n , s u p r a , a t p. 272
o f r e c e n t t e x t - w r i ters i n a c c e p t i n g t h e i n t e r e s t s
o f j u s t i c e e x c e p t i o n , i n t h e s e s t r o n g w o r d s :
"It i s c u r i o u s t h a t w h i l e t h e c o u r t s i n E n g l a n d a r e t r y i n g t o e x p u n g e t h e 1 i n t e r e s t s o f jus - t i c e ' f r o m t h e l i s t o f e x c e p t i o n s , r e c e n t w r i t i n g and d e c i s i o n s , i n N i g e r i a seem t o be d o i n q t h e o p p o s i t e . The Supreme c o u r t ' s judgment i s p a r t i c u l a r l y d i s t u r - b i n g i n v i e w o f t h e w e i g h t w h i c h lower c o u r t s a r e bound t o a c c o r d i t . Even t h e Supreme C o u r t i t s e l f i s u n l i k e l y t o d e p a r t
i t s p r e v i o u s
H e h a s t h e r e f o r e s u g g e s t e d t h a t t h e Supreme c o u r t
would h a v e d e c i d e d o m i s a d e ' s c a s e a n d ~ d o k p o l o r ' s
c a s e on t h e b a s e s of f r a u d on t h e m i n o r i t y g r o u p - o f e x c e p t i o n s and i n f r i n g e m e n t on t h e p e r s o n a l
6 7 r i g h t of a member, r e s p e c t i v e l y ,
However , t h e p r e s e n t p o s i t i o n i n N i g e r i a w i t h . r e g a r d t o t h i s e x c e p t i o n i s t h a t t h e l a w i s c o d i -
f i e d and e x h a u s t i v e . And s i n c e t h i s e x c e p t i o n i s
6 8 n o t c o d i f i e d , i t w i l l n o t a p p l y , his i s b e c a u s e
6 6 , ' see 0, A. O s u n b o r , s u p r a , a t p. 11
6 8 , T h e q u e s t i o n w h e t h e r t o i n t r o d u c e t h e ' i n t e r e s t s o f j u s t i c e ' e x c e p t i o n i n t o t h e Companies A c t was d i s c u s s e d a t t h e c o n s u l t a t i v e ~ s s e m b l y on Company Law R e f o r m a n d r e j e c t e d
t h e Companies ~ c t b e i n g s t a t u t o r y l a w , w i l l
o v e r r i d e j u d i c i a l d e c i s i o n s t h a t a r e c o n t r a r y
t o i t s p r o v i s i o n s .
4. FORMS OF MINORITY ACTION
T h e f o r m s o f a c t i o n o p e n t o an a g g r i e v e d
m i n o r i t y s h a r e h o l d e r a r e b a s e d on t h e e x c e p t i o n s
t o t h e r u l e i n F o s s v. H a r b o t t l e . ~ u t t h e u s u a l
p r o b l e m is t h e t y p e o f a c t i o n h e c a n b r i n g . I n
g e n e r a l , t h e r e a r e t h r e e d i f f e r e n t t y p e s o f
a c t i o n o p e n t o a n a g g r i e v e d s h a r e h o l d e r and t h e
a v a i l a b i l i t y o f o n e or more o f t h e s e i n a p a r t i c u -
l a r c a s e d e p e n d s g r e a t l y o n t h e f a c t s . P r o f e s s o r
Wedderburn s u m m a r i s e s t h e t h r e e t y p e s o f a c t i o n a s
f 01 lows :
" ( a ) a t p e r s o n a l a c t i o n : i.e., o n e b r o u g h t t o e n f o r c e a r i g h t p e r s o n a l t o t h e p l a i n t i f f ; h e r e , u n l e s s h e h a s a common i n t e r e s t w i t h o t h e r s h a r e - h o l d e r s .. . , h e m u s t n o t u s e a r e p r e s e n t a t i v e a c t i o n 6 9 ; o r
69. See M u t t e r v. E. R Mid. Rly . Co., ( 1 8 8 8 ) 3 8 Ch. D. 92 . 104 t ~ e r s o n a l s t a t u t o r v r i a h t ) : H a l l o w s b. ~ e k i e , i i 8 6 8 ) L. ~ . - 3 c h . ' ~ p ~ : 4 6 j (rescis- s i o n f o r m i s r e p r e s e n t a t i o n ) and p u l l b r o o k v. ~ i c h - mond C o n s o l i d a t e d ~ i n i n g ( 1 8 7 8 ) 9 Ch. D. 610 a t p. 613
( b ) a t r u e r e p r e s e n t a t i v e a c t i o n : i.e., o n e i n w h i c h t h e p l a i n - t i f f and t h e o t h e r s h a r e - h o l d e r s , o r a c l a s s o f them, h a v e a common i n t e r e s t , and h e s u e s on b e h a l f o f a1170; o r
( c ) a c o r p o r a t e a c t i o n : i.e., o n e which t a k e s t h e fo rm o f a r e p r e s e n t a t i v e a c t i o n , b u t which i s p e r m i t t e d t o him n o t i n o r d e r t o d e f e n d h i s o r h e r f e l l o w s h a r e h o l d e r s ' r i g h t s , b u t t o d e f e n d t h e c o r p o r a t i o n ' s r i g h t s 7 1 : - a c o r p o r a t e , and n o t a p e r s o n a l a c t i o n 7 2 t t .
Each o f t h e s e f o r m s o f m i n o r i t y a c t i o n w i l l b e c o n s i -
d e r e d w i t h i n t h e c o n t e x t o f o u r e a r l i e r d i s c u s s i o n .
Am PERSONAL ACTION
Here, an a g g r i e v e d s h a r e h o l d e r c a n s u e t h e
company t o e n f o r c e h i s p e r s o n a l r i g h t s . S u c h
p e r s o n a l r i g h t s may b e d u e t o c o n t r a c t o f member-
s h i p b e t w e e n t h e s h a r e h o l d e r s and t h e company a s
70. S e e , e . g m , Mose ly v. K o f f y f o n t e i n M i n e s , ~ t d . /1904/ 2 ch . 1 0 8 ; P e n d e r v m ~ u s h i n g t o n ( 1 8 7 7 ) 6
-Ch. D m 70; and F o s t e r v. F o s t e r /19167 1 Ch. 532 ( p l e a d e d a s b o t h a p e r s o n a l and a - r e p r e s e n - t a t i v e a c t i o n )
71, S e e , e.g., S p o k e s v. G r o s v e n o r ~ 0 t e l Co. /?8977 - ~ - Q . B . 1 2 4 ; w a l l e r s t e i n e r v. ~ o i r , ( N O . 2T, /19757 Q m B m 373 -
72. S e e , w e d d e r b u r n , ( 1 9 5 7 ) C.L.J. 1 9 4 a t p, 205
c o n t a i n e d i n t h e company's a r t i c l e s o f a s so -
c i a t i o n , o r t h o s e c o n f e r r e d by t h e Companies
A C ~ on members of t h e company. They can a l s o
a r i s e f r o m a s e p a r a t e and i n d e p e n d e n t c o n t r a c t
73 between t h e s h a r e h o l d e r and t h r company o r
f rom some s p e c i a l d u t y owed t o t h e s h a r e h o l d e r
by t h e d i r e c t o r s . where t h i s i s t h e c a s e , t h e
a c t i o n i s b r o u g h t i n h i s own name and s e e k s
r e c o v e r y f o r h i m s e l f . The p a r t i e s t o t h i s
a c t i o n , t h e r e f o r e , a r e t h e a g g r i e v e d s h a r e h o l d e r
and t h e company. The company i s n o t mere ly a
nomina l d e f e n d a n t b u t t h e r e a l d e f e n d a n t . his
i s b e c a u s e judgment i s r e q u i r e d a g a i n s t i t , n o t
f o r it7*. on t h e o t h e r hand, t h e p r o p e r p l a i n -
t i f f i s anyone who h a s a p e r s o n a l r i g h t a g a i n s t
t h e company, h h i c h i s b e i n g i n f r i n g e d .
C i r c u m s t a n c e s o r s i t u a t i o n s u n d e r which a
p e r s o n a l r i g h t o f a c t i o n a r i s e s a r e s t a t e d by
Gower a s f o l l o w s :
7 3 . S e e S o u t h e r n ~ o u n d r i e s v. S h i r l a w , /79407 A.C. 701; see a l s o : ~ r i t i s h America ~ i c k e l c o r p o r a - t i o n v. o l ~ r i e n - 2 2 - -
74. see Gower, s u p r a , a t p. 653
"..., i f t h e company i s a t t e m p t - i n q t o i n t e r f e r e w i t h c l a s s r i g h t s , t o d e p r i v e a member o f h i s v o t e s 7 5 o r of some o t h e r r i q h t c o n f e r r e d upon him b y t h e a r t i c l e s 7 6 , t o a c t upon an i n v a l i d s p e c i a l o r e x t r a - o r d i n a r y r e s o l u t i o n 7 7 , t o act upon an o r d i n a r y r e s o l u t i o n c o n c e r n i n g a m a t t e r v e s t e d i n t h e b o a r d of d i r e c t o r s 7 8 o r t o a l t e r t h e i n t e r n a l s t r u c t u r e o f t h e company i n c i r c u m s t a n c e s a m o u n t i n t o a f r a u d on t h e 9 m i n o r i t y 9 , a s i n g l e member may b r i n g an a c t i o n a g a i n s t t h e company80".
T h e s e a r e , b u t some o f t h e c i r c u m s t a n c e s w h e r e a
s h a r e h o l d e r c a n b r i n g a p e r s o n a l a c t i o n a g a i n s t
S e e ~ e n d e r v . L u s h i n g t o n , s u p r a
S e e Johnson v . L y t t l e t s I r o n Agency ( 1 8 7 7 ) 5 Ch. D. 6 8 ' / ; wood v. O d e s s a Wate rworks CO., s u p r a ; Edwards v. H a l l i w e l l , s u p r a . S e e a l s o , Wedderburn , ( 3 9 5 7 ) Cam L. J. 1 9 4 a t pp . 210- 2 1 1 . S e e aill lie v. O r i e n t a l T e l e p h o n e Co., s u p r a , Note: E x t r a o r d i n a r y r e s o l u t i o n i s now a b o l i s h e d - by t h e new Companies ~ c t a s u n n e c e s s a r y s u r - p l u s a g e
S e e lack, w h i t e a n d G r e y c a b s ~ t d . v. FOX,
/1969/ N.Z.L.R, 824 - - see ~ l e m e n s v. c l e m e n s ~ r o s . ~ t d . , - /?9767 - 2 ~ l l E.R. 268
S e e G o w e r , s u p r a , a t p. 654
t h e company. o t h e r e x a m p l e s i n c l u d e w h e r e t h e
d i r e c t o r s a r e e x c e e d i n g t h e i r . powers o r e x e r c i -
81 s i n g them f o r an i m p r o p e r p u r p o s e gain, a
s h a r e h o l d e r may s u e t o e n f o r c e a p e r s o n a l r i g h t
c o n f e r r e d by t h e memorandum and a r t i c l e s of
a s s o c i a t i o n as c o n t r a c t o f membersh ip w i t h t h e
8 2 company . B e s i d e s , t h e Companies ~ c t may c o n f e r
a s t a t u t o r y r i g h t on s h a r e h o l d e r s , wh ich any o f
83 them c a n i n s t i t u t e a p e r s o n a l a c t i o n t o assert . However, some l i m i t a t i o n s e x i s t t o m i l i t a t e
a g a i n s t t h e r i g h t o f a s h a r e h o l d e r t o i n s t i t u t e
p e r s o n a l a c t i o n . F i r s t , p e r s o n a l a c t i o n c a n n o t
be m a i n t a i n e d w i t h r e s p e c t t o a n y t h i n g wh ich hap-
pened b e f o r e h e became a member o f t h e company.
T h i s i s j u s t i f i a b l e s i n c e a s h a r e h o l d e r ' s r i g h t s a r e
u s u a l l y i n c i d e n t s of membership b a s e d on t h e con-
t r a c t e s t a b l i s h e d by t h e memorandum and a r t i c l e s o f
81. S e e P u n t v. Symons g, CO., 1'19037 Ch. 506; p i e r c v . rviills, /1920/ 1 ch. 7'1; ~ o g < v. C r a m p h o d . ,
. s u p r a * ~ o w a r d s m i t h L t d . v. ~ m p o l p e t r o l e u m L t d . , / 7 9 7 $ f A.C. 8 2 1 -
8 2 . S e e ~ u i n & ~ x t e n s v . s a l m o n , s u p r a
83 . S e e M u t t e r v. E a s t e r n and idl lands Rly. Co. , s u p r a
a s s o c i a t i o n o f t h e company. S e c o n d l y , a c t i o n
t o e n f o r c e p e r s o n a l r i g h t n e e d n o t , o f n e c e s s i t y ,
b e r e p r e s e n t a t i v e , u n l e s s t h e r e e x i s t s a common
i n t e r e s t b e t w e e n h im, ( t h e p l a i n t i f f ) and t h e
o t h e r s h a r e h o l d e r s . N e v e r t h e l e s s , a r e p r e s e n t a t i v e
a c t i o n may b e b r o u g h t i f i t i s s o u g h t t o e n f o r c e
t h e i d e n t i c a l r i g h t s o f t h e o t h e r s h a r e h o l d e r s o f
t h e company o r o f t h e p a r t i c u l a r c l a s s o f them.
T h i r d l y , t h e t y p e of remedy a v a i l a b l e i n a p e r s o n a l
a c t i o n i s u s u a l l y a n i n j u n c t i o n o r a d e c l a r a t i o n .
A m o n e t a r y judgment i s r a r e a s i t would amount t o
i n f r i n g e m e n t o f t h e r u l e on m a i n t e n a n c e of c a p i t a l .
ina ally, a p e r s o n a l a c t i o n may n o t b e a l l o w e d i f
t h e t r a n s a c t i o n c o n c e r n e d i s s u c h t h a t c o u l d b e
v a l i d l y u n d e r t a k e n o r r a t i f i e d by an o r d i n a r y r e s o l u -
8 4 t i o n o f t h e company . Here, t h e p r i n c i p l e o f
m a j o r i t y r u l e h o l d s sway. w h e r e t h e c i r c u m s t a n c e s
p e r m i t , a p e r s o n a l a c t i o n c a n be b r o u g h t i n d e p e n d e n t
o f a n y c a u s e o f a c t i o n t h a t t h e company m i g h t a l s o
h a v e f o r t h e wrong.
84. See MacDougal l v. G a r d i n e r , s u p r a ; and F o s t e r V. F o s t e r , s u p r a
B. A TRUE REPRESENTATIVE ACTION
T h i s i s a s p e c i e o r v a r i a b l e o f p e r s o n a l
a c t i o n . A f i n e d i s t i n c t i o n be tween a p e r s o n a l
a c t i o n and a t r u e r e p r e s e n t a t i v e a c t i o n h a s
been drawn by Akanki a s f o l l o w s :
"..,, t h e r e a r e two t y p e s o f p e r s o n a l a c t i o n s m a i n t a i n a b l e , an i n d i v i d u a l a c t i o n by a s h a r e - h o l d e r i n h i s own name f o r h i s p e r s o n a l b e n e f i t o r p r o t e c t i o n ; and a r e p r e s e n t a t i v e a c t i o n by a s h a r e h o l d e r on b e h a l f o f h i m s e l f and a c l a s s o r c l a s s e s o f s h a r e - h o l d e r s t o e n f o r c e a r i g h t common t o them85".
T h e r e f o r e , i n a t r u e r e p r e s e n t a t i v e a c t i o n , t h e
p l a i n t i f f and t h e o t h e r s h a r e h o l d e r s o r a c l a s s o f
them h a v e a common i n t e r e s t and he s u e s on b e h a l f
o f a l l .
The c h a r a c t e r i s t i c f e a t u r e o f a t r u e r e p r e s e n - . t a t i v e a c t i o n i s t h a t i t i s b r o u g h t i n a r e p r e s e n -
t a t i v e c a p a c i t y . U s u a l l y , i t i s p u t i n t h i s form:
"Tha t t h e p l a i n t i f f s a r e s u i n g f o r t h e m s e l v e s and on b e h a l f o f o t h e r s h a r e - h o l d e r s of t h e company, e x c e p t i n g t h e i n d i v i d u a l de f endan t s ! , .
85. S e e E. O. A K A N K I , I f c o r p o r a t e ~ i t i g a t i o n f f , ( 1987 ) 3 & 4 0,A.U.L.J. 4 1 a t p. 45
T h e d e s i r a b i l i t y o f s u c h an a c t i o n is s u c c i n t l y
s t a t e d by P r o f e s s o r Gower a s f o l l o w s : !?
"It i s a l s o a d e s i r a b l e p r a c - t ice , f o r i t e n s u r e s t h a t any judgment i s b i n d i n g on a l l whom h e ( t h e p l a i n t i f f ) r e p r e s e n t s , t h u s p r e s e r v i n g some o f t h e a d v a n t a g e s of t h e F o s s v. H a r b o t - t l e r u l e by p r e c l u d i n g t h e p o s s i - m t y o f a m u l t i p l i c i t y o f a c t i o n s B 6 f t .
w h e r e t h e r e is a common i n t e r e s t o r g r i e v a n c e , a
r e p r e s e n t a t i v e a c t i o n is p r e f e r a b l e i f t h e re l ief
s o u g h t i s i n i t s n a t u r e b e n e f i c i a l t o a l l whom
8 7 t h e p l a i n t i f f p r o p o s e s t o r e p r e s e n t . I n a t r u e
r e p r e s e n t a t i v e a c t i o n , t h e company is u s u a l l y t h e
r e a l d e f e n d a n t s i n c e t h e a c t i o n i s aimed a g a i n s t i t ,
w h i l e t h e p l a i n t i f f and h i s c l a s s o r t h e c l a s s e s
h e r e p r e s e n t s a r e t h e p r o p e r p l a i n t i f f s .
The c i r c ~ m s t a n c e s t h a t c a n g i v e r ise t o t h i s
t y p e o f a c t i o n a r e a l s o t h e same a s t h o s e d i s c u s s e d
u n d e r p e r s o n a l a c t i o n . ~ i k e i n p e r s o n a l a c t i o n ,
d i r e c t o r s a r e n o t n o r m a l l y j o i n e d a s d e f e n d a n t s
u n l e s s some p e r s o n a l r e l i e f i s a s k e d f o r a g a i n s t
86. S e e Gower, s u p r a , a t p. 655
87. See, p e r Lo rd MacNaghten i n ~ e d f o r d ( ~ u k e o f ) v. E l l i s - /79017 - A.C. 1, a t p. 8
t h e m , w a r r a n t i n g t h e i r b e i n g j o i n e d a s co -
d e f e n d a n t s . However , i n t h i s l a t t e r c a s e ,
t h e relief c l a i m e d a g a i n s t t hem i s d u e t o t h e
company a n d n o t t o t h e i n d i v i d u a l p l a i n t i f f ( s ) .
B u t t h e c a u s e of a c t i o n m u s t h a v e a r i s e n o u t o f
t h e same series o f t r a n s a c t i o n s 8 8 . ~ l s o , l i k e i n
a p e r s o n a l a c t i o n , t h e r emedy a v a i l a b l e when a
t r u e r e p r e s e n t a t i v e a c t i o n i s s u c c e s s f u l l y main-
t a i n e d i s e i t h e r i n j u n c t i o n o r d e c l a r a t i o n t o
i n v a l i d a t e t h e a c t i o n c o m p l a i n e d of . M o n e t a r y
j u d g m e n t , i t seems, i s r a r e b e c a u s e o f t h e r e a s o n
g i v e n a b o v e , i.e., a r e t u r n of c a p i t a l t o members
c o n t r a r y t o t h e r u l e o n m a i n t e n a n c e of c a p i t a l .
D r . ~ k a n k i s u m m a r i s e s t h e a d v a n t a g e s o f a
t r u e r e p r e s e n t a t i v e a c t i o n a s f o l l o w s :
' (A r e p r e s e n t a t i v e s u i t t o e n f o r c e p e r s o n a l r i g h t i s a l s o i m p o r t a n t n o t o n l y f r o m t h e p o i n t of v i e w of t h e p l a i n t i f f b u t a l s o t h o s e con- c e r n e d w i t h t h e c o m p a n y * s b u s i n e s s .
See a l s o : T i k a - T o r e P r e s s L t d . v. ~ b i n a ( 1 9 7 3 ) 4 S.C.R. 6 3 < w h e r e f h e r them- s e l v e s a n d o n b e h a l f o f o t h e r members o f ~ i k a - T o r e P r e s s ~ i m i ted, e x c e p t i n g t h e i n d i v i d u a l d e f e n d a n t s )
88. S e e G o w e r , s u r a a t p. 655. S e e a l s o : ~ o g g v. C r a m ~ h o r n L *uDra
I t s u p p l e m e n t s t h e p h i l o s o p h y of m a j o r i t y r u l e i n o n e b e n e - f i c i a l r e s p e c t , t h a t is , i t p r e v e n t s mu1 t i p l i c i t y o f a c t i o n s b y e n s u r i n g f i n a l i t y o f s u i t s i n o n e a c t i o n , his s u r e l y i s a s a f e g u a r d f o r t h e i n t e r e s t s o f c r e d i t o r s and i n v e s t o r s i n t h a t i t s a v e s t h e company o f u n n e c e s s a r y l i t i g a t i o n e x p e n s e s . M o r e o v e r j u s t i c e c a n be d o n e i n t h i s waye9 more e f f e c t i v e l y and a b u s e o f p r o c e s s a r i s i n g f rom c o l l u s i v e c o m p r o m i s e s a n d , b l y , b l a c k m a i l a r e a v o i d e d 9 8 y i -
F u r t h e r m o r e , h e a c k n o w l e d g e s t h a t i t i s t h e u s u a l
p r o c e d u r e when s h a r e h o l d e r s s e e k t o compe l t h e majo-
r i t y o r management t o comply w i t h t h e g e n e r a l a n d
company l a w o r s e l f imposed l i m i t a t i o n s i n t h e
9 1 a r t i c l e s ; or s h a r e h o l d e r s * v e s t e d r i g h t s o r i n t e -
rests a s membersg2. U n l i k e a d e r i v a t i v e a c t i o n , i t
9 3 i s a t r u e r e p r e s e n t a t i v e a c t i o n .
8 9 - S e e - ~ i c h e n s v , C o n g r e v e , ( 1 8 2 8 ) 4 ~ u s s 562
9 0 - see E- O. A K A N K I , s u p r a , a t p, 4 6
9 1 - S e e Edwards v , ~ a l l i w e l l , s u p r a ; a n d ~ u i n & A x t e n s L t d . v. S a l m o n , s u p r a
9 2 . S e e ~ k a n k i , s u p r a , a t pp. 47-48, S e e a l s o : wood - v . O d e s s a w a t e r w o r k s , s u p r a ; P e n d e r v. L u s h i n g t o n , s u p r a ; a n d c a t e s b y v , R u r n e t t , - /1916/ 2 - ~ h . 325
9 3 , S e e P e n d e r v , L u s h i n g t o n , s u p r a ; F o s t e r v , F o s t e r , s u p r a ; and ~ 0 S e l y v , ~ o f f y f o n t e i n ~ i n e s ~ t d . , s u p r a
B u t , l i k e p e r s o n a l a c t i o n , i t s s c o p e i s
l i m i t e d . F o r i n s t a n c e , i n c i r c u m s t a n c e s o r
c a s e s whe re . wha t i s c o m p l a i n e d o f d o e s n o t
amount t o f r a u d o r i n v a s i o n of p e r s o n a l r i g h t s
o f members, b u t mere b r e a c h r a t i f i a b l e by t h e
m a j o r i t y , s u c h w i l l be t r e a t e d a s a mere i r r e g u -
l a r i t y e x c l u d i n g any r i g h t o f a c t i o n g 4 . We s h a l l
c o n s i d e r c o r p o r a t e o r t d e r i v a t i v e t a c t i o n b e f o r e
c o n c l u d i n g t h i s t o p i c .
C CORPORATE OR "DERIVATIVE" ".- ACTION -- - C o r p o r a t e a c t i o n , o t h e r w i s e c a l l e d " d e r i v a -
t i v e " a c t i o n i n ~ m e r i c a n j u r i s p r u d e n c e , i s o n e
wh ich t a k e s t h e f o r m o f a r e p r e s e n t a t i v e a c t i o n ,
b u t p r i n c i p a l l y t o r e s t r a i n a wrong o r i n j u r y d o n e
t o t h e company and t o r e c o v e r damages or p r o p e r t y t
f o r t h e company. Here, t h e c a u s e o f a c t i o n d e r i v e s
f r o m t h e company t s r i g h t o f a c t i o n , Hence, t h i s
t y p e o f a c t i o n i s a l s o c a l l e d d e r i v a t i v e a c t i o n .
* h i s u s a g e h a s been a d o p t e d i n Englandg5 and
94. S e e , ~ o s e l y v. A l s t o n , s u p r a , S e e a l s o : Mac- Douga l l v. G a r d i n e r , s u p r a , a t p. 2 5
95 . S g e L o r d Denning i n W a l l e s t e i n e r v. ~ o i r (NO. 2 ) , /19757 Q o B o 375 a t p. 391, ( c i t i n g Gower, Modern Company Law, 3 r d e d , ( S t e v e n s , 1 9 6 9 ) a t p . m
e x t e n d e d t o N i g e r i a g 6 . I n g e n e r a l , a c o r p o r a t e
o r d e r i v a t i v e a c t i o n i s m a i n t a i n a b l e u n d e r t h e
" f r a u d o n a m i n o r i t y " o r u l t r a v i r e s e x c e p t i o n s
t o t h e r u l e i n F o s s v. ~ a r b o t t l e . Here, t h e p l a i n -
t i f f s h a r e h o l d e r s e e k s t o r e c o v e r damages f o r b r e a c h
o f d u t y f r o m d i r e c t o r s ( o r t h i r d p a r t i e s ) o r t h e
r e s t i t u t i o n o f p r o p e r t y f o r t h e company. S u c h an
a c t i o n , u s u a l l y , must b e b r o u g h t i n t h e r e p r e s e n -
t a t i v e f o r m g 7 by t h e p l a i n t i f f s
"on b e h a l f o f t h e m s e l v e s a n d a l l t h e o t h e r s h a r e - h o l d e r s o f t h e company o t h e r t h a n t h e d e f e n d a n t s g 8 "
9 9 I n B e a t t i e v . eat tie ~ t d . eat tie , G r e e n e ?.TO R.,
s u c c i n t l y s t a t e d t h e r a t i o n a l e f o r t h i s f o r m of
a c t i o n a s f o l l o w s :
S e e ~ k a d d e v. Omisade & O r s . , ( 1 9 7 8 ) N.C.L.R. 363 a t p36-r DOSUnmU J.
U n d e r R.S.C. o r d e r 1 5 , R u l e 1 2 ( ~ n g l a n d ) .
S e e s p o k e s v. G r o s v e n o r Hotel CO., /?8977 2 Q.B. - 1 2 4 a t pp. T E F E ! 9 ; see also: ~ o s e l ? v. ~ o f f y - f o n t e i n ~ i n e s L t d , , s u p r a .
-
/39357 Ch. 708 a t p. 718. S e e a l s o : B u r l a n d v. - ~ a r l e , s u p r a , a t p. 9 3 ( p e r L o r d Davey)
"The r e a s o n t h e a c t i o n t a k e s t h i s form i s t h a t t h e m i n o r i t y s h a r e h o l d e r i s n o t i n a p o s i - t i o n t o see t h a t t h e a c t i o n i s b r o u g h t i n t h e name o f t h e company i t s e l f t o e n f o r c e t h e company 's r i g h t s f l ,
A c h a r a c t e r i s t i c f e a t u r e o f t h i s t y p e o f a c t i o n
i s t h a t t h o u g h t h e s h a r e h o l d e r ' s a c t i o n i s b r o u g h t
f o r t h e b e n e f i t of t h e company, t h e company m u s t
be j o i n e d a s a n o m i n a l d e f e n d a n t , a s w e l l a s t h e
r e a l d e f e n d a n t s a g a i n s t whom r e l i e f i s s o u g h t - T h e
r e a s o n s f o r t h i s a r e a p t l y e x p l a i n e d by C h i t t y , L, J,,
i n S p o k e s v. G r o s v e n o r ~ 0 t e l a s f o l l o w s :
T o s u c h an a c t i o n a s t h i s t h e . company a r e n e c e s s a r y d e f e n d a n t s ,
T h e r e a s o n i s o b v i o u s : t h e wrong a l l e g e d i s d o n e t o t h e company, and t h e company m u s t be a p a r t y t o t h e s u i t i n o r d e r t o b e bound by t h e r e s u l t o f t h e a c t i o n a n d t o r e c e i v e t h e money r e c o v e r e d i n t h e a t t i o n , I f t h e company w e r e n o t bound t h e y c o u l d b r i n g a f r e s h a c t i o n f o r t h e s a m e c a u s e i f t h e a c t i o n f a i l e d , and t h e r e were s u b s e - q u e n t l y a c h a n g e i n t h e b o a r d o f d i r e c t o r s a n d i n t h e v o t i n g power , o b v i o u s l y , i n s u c h a n a c t i o n a s t h i s , n o s p e c i f i c r e l i e f i s a s k e d a g a i n s t t h e company; and o b v i o u s l y , too , w h a t i s r e c o v e r e d c a n n o t b e p a i d 10 t h e p l a i n t i f f r e p r e s e n t i n g t h e m i n o r i t y , b u t must g o i n t o t h e c o f f e r s o f t h e companylf . ( E m s m i n e )
A n o t h e r d i s t i n c t i v e f e a t u r e o f a s h a r e h o l d e r ' s
d e r i v a t i v e a c t i o n c o n t a i n e d i n h i s ~ o r d s h i p c s
d i c t u m is t h e u n d e r l i n e d p o r t i o n a b o v e , a s s i g n i n g
t h e b e n e f i t o f t h e a c t i o n t o t h e company i t s e l f
a s a g a i n s t t h e p l a i n t i f f r e p r e s e n t i n g t h e m i n o r i t y .
his i s t h e e s s e n c e o f a d e r i v a t i v e a c t i o n w h i c h
i s a imed a t g i v i n g a remedy f o r a wrong w h i c h
would o t h e r w i s e e s c a p e r e d r e s s .
I t i s c e r t a i n t h a t i f t h e r u l e g o v e r n i n g
c o r p o r a t e l i t i g a t i o n , ( i .e . , t h e company i s t h e
p r o p e r p l a i n t i f f i n an a c t i o n f o r wrong d o n e t o
i t ) i s s t r i c t l y a d h e r e d t o , t h e o b v i o u s wrong w i l l
g o w i t h o u t remedy. T h e r e i s t h e u n l i k e l i h o o d t h a t
t h e i n t e r e s t e d d i r e c t o r s o r m a j o r i t y w i l l commence
a c t i o n a g a i n s t t h e m s e l v e s . Hence , t h e s h a r e h o l d e r t
i s n o t s u i n g on b e h a l f o f h i m s e l f o r o t h e r s h a r e -
h o l d e r s , b u t on b e h a l f o f t h e company t o e n f o r c e
c o r p o r a t e r i g h t s . T h i s i s t h e b a s i s f o r t h i s form
o f a c t i o n .
o t h e r c h a r a c t e r i s t i c f e a t u r e s of d e r i v a t i v e o r
c o r p o r a t e fo rm o f a c t i o n a r e a s follows. F i r s t ,
t h i s t y p e of a c t i o n c a n be b r o u g h t by a s h a r e h o l d e r
e v e n i n r e s p e c t o f wrongs commi t t ed t o t h e company
' l o 1 b e f o r e h e became a s h a r e h o l d e r . ~ u t a n a c t i o n
commenced by a member may n o t b e c o n t i n u e d by him
i f he c e a s e s t o b e a member, a l t h o u g h t h e c o u r t
may a l l o w t h e a c t i o n t o b e c o n t i n u e d b y a n o t h e r
102 member . S e c o n d l y , s u c h a n a c t i o n may n o t b e
1 0 3 b r o u g h t i f t h e company h a s been d i s s o l v e d . F u r t h e r m o r e , t h e c o n d u c t o f a s h a r e h o l d e r may d e b a r
him f r o m b r i n g i n g t h i s t y p e o f s h a r e h o l d e r f s ac-
t i o n . F o r i n s t a n c e , i f h e h a s p a r t i c i p a t e d i n t h e
w r o n g f u l a c t o f which h e c o m p l a i n s , t h e a p p l i c a t i o n
o f t h e e q u i t a b l e d o c t r i n e , i.e., h e who comes t o
e q u i t y mus t come w i t h c l e a n h a n d s , w i l l r e s u l t i n
h i s s u i t b e i n g d i s r n i s ~ e d ~ ~ ~ ~ ~ l s o , s u c h an a c t i o n
mus t b e b r o u g h t g e n u i n e l y , i n t h e i n t e r e s t s o f t h e
t
S e e S e a t o n v. G r a n t ( 18671 , L.R. 2 Ch. ~ p p . 459; and ~ l o x h a m v. M e t r o p o l i t a n ailw way ( 1 8 6 8 ) L.R. 3 Ch. App. 337
S e e B i r c h v. S u l l i v a n , s u p r a
S e e Coxon v. G o ~ s ~ , /?8917 2 Ch. 73; see a l s o : larkso on v. ~ a v i e s - /19237 - A.C. 1 0 0
S e e Towers v. ~ f r i c a n Tug Company, /?go47 1 Ch. 558; and Nurcombe v. Nurcombe, - /19 8 5 7 - I'-w.L.R. 3 70
company and n o t f o r t h e b e n e f i t o f a r i v a l
company which h a s f o s t e r e d t h e l i t i g a t i o n and
i n d e m n i f i e d t h e p l a i n t i f f a g a i n s t c o s t s . Aga in ,
s u c h an a c t i o n s h o u l d n o t b e combined w i t h a
c l a i m f o r a wrong d o n e t o t h e p l a i n t i f f s h a r e -
h o l d e r pe r sona l l y105 . E q u a l l y , a s i n o t h e r '
r e p r e s e n t a t i v e a c t i o n s , t h e p l a i n t i f f a s dominus
l i t i s u n t i l judgment , c a n d i s c o n t i n u e o r s e t t l e
1 0 6 an a c t i o n a t h i s p l e a s u r e . However, u n l e s s t h e
s e t t l e m e n t i s embodied i n a f o r m a l judgment , a
1 0 7 s e c o n d a c t i o n may b e b r o u g h t by a n o t h e r s h a r e h o l d e r . I n c o n c l u s i o n , it i s p e r t i n e n t t o h i g h l i g h t a
v i v i d d i s t i n c t i o n drawn by p r o f e s s o r Gower be tween
a c o r p o r a t e o r d e r i v a t i v e a c t i o n and t h e o t h e r f o r m s
o f a c t i o n . H e s t a t e s a s f o l l o w s :
" I n c o n t r a s t w i t h a d e r i v a t i v e a c t i o n t o e n f o r c e t h e company 's r i g h t s , a p e r s o n a l a c t i o n t o e n f o r c e t h e member! s own r i g h t s o b v i o u s l y c a n n o t be b r o u g h t i n r e s p e c t o f a n y t h i n g wh ich t o o k p l a c e p r i o r t o t h e t i m e when t h e p l a i n t i f f became a member, f o r
105. S e e S t r o u d v. Lawson, - /?8987 - 2 Q.B. 44
106. S e e R e ~ l p h a Co., - /T9037 - 1 ~ h . 203
107 . see Moon v. ~ t h e r t o n , - /?9727 - 2 Q.B. 435
t h i s c o u l d n o t be a b r e a c h o f any c o n t r a c t w i t h him. A n o t h e r c o n t r a s t i s i n res- p e c t o f t h e remedy c l a i m e d . A d e r i v a t i v e s c t i o n may o f t e n l e a d t o a m o n e t a r y judgment i n f a v o u r o f t h e company; a s h a r e - h o l d e r ' s p e r s o n a l a c t i o n b a s e d on t h e c o n t r a c t i n t h e memorandum and a r t i c l e s c a n r a r e l y , i f e v e r , l e a d t o a m o n e t a r y judgment a g a i n s t t h e company. The app ro - p r i a t e remedy w i l l be an i n j u n c - t i o n o r a d e c l a r a t i o n l 0 8 f f .
~ n d t h e a d v a n t a g e s a r e s t a t e d by D r . ~ k a n k i t h u s
f f D e r i v a t i v e a c t i o n i s t h e o n l y o n e p o s s i b l e when t h e m a j o r i t y commit a wrong wh ich amounts t o f r a u d on t h e m i n o r i t y ; f r a u d i n t h i s con- t e x t i s w i d e r t h a n s i m p l e f r a u d l o g , and t h e wrong d o e r s a r e e i t h e r i n c o n t r o l 1 1 0 o r p r o t e c t e d b y t h e ma- j o r i t y l l l s o t h a t t h e company i s i n c a p a b l e o f t a k i n g a c t i o n t o r e d r e s s t h e wrongl12 . BY t h i s p r o c e s s t h e p o s s i b i l i t y o f d i r e c t o r s i n c o n t r o l v i o l a t i n g t h e i r f i d u c i a r y d u t y w i t h i m p u n i t y by b l o c k i n g a n y a t t e m p t b y t h e company t o c a l l them t o a c c o u n t c a n b k p r e v e n t e d 1 1 3 f f .
108 . S e e G O W e r , s u p r a , a t p. 656
109. S e e D a n i e l s v. D a n i e l s , s u p r a
110 . S e e ~ t w o o l v. ~ e r r y w e a t h e r , s u p r a
111. S e e ~ e n i e r v. HOOper's ~ e l e g r a p h w o r k s , s u p r a , and Mason v. ~ a r r i s , ( 1 8 7 9 ) 11 Ch. 9 7 , pp. 107-109
112 . S e e p e r DOSUnmU J. i n takande v. ~ m i s a d e & O r s . . ( 1 9 7 8 ) N.C.L.R. 363, a t pp. 369-371
113 . S e e E. O. ~ k a n k i , s u p r a , a t p. SO S e e a l s o : Cook v. Deeks , s u p r a
However, t h e l i m i t a t i o n o f d e r i v a t i v e a c t i o n i s
m a n i f e s t e d i n t h e p r o b l e m s o f i n t e r v e n t i o n , c o n t r o l ,
d i s m i s s a l and s e t t l e m e n t w h i c h b e s e t t h e more l i b e r a l
u s e o f t h e s h a r e h o l d e r ' s r e p r e s e n t a t i v e a c t i o n . ~ u t
s t a t u t o r y c o d i f i c a t i o n , a s w i l l b e shown l a t e r , h a s
1 1 4 a t t e m p t e d t o b y - p a s s t h i s l i m i t a t i o n . PROCEDURAL REQUIREMENTS FOR ENFORCEMENT
C o r p o r a t e o r d e r i v a t i v e a c t i o n i s u n i q u e i n
n a t u r e . T h e b a s i s of t h e a c t i o n i s s u c c i n t l y
s t a t e d by ~ k a n k i a s f o l l o w s :
"The r i g h t g i v e n t o a m i n o r i t y s h a r e h o l d e r t o s u e on b e h a l f o f t h e company v i a a d e r i v a t i v e a c t i o n i s an e q u i t a b l e e x c e p t i o n t o t h e g e n e r a l p r i n c i p l e t h a t i t i s t h e m a j o r i t y who c a n d e c i d e w h a t a c t i o n t h e company s h a l l o r s h a l l n o t t ake115" .
T h e r e f o r e , s u c h an a c t i o n is a m a t t e r o f g r a c e and
i s a 1 lowed o n l y i f c e r t a i n p r o c e d u r a l r e q u i r e m e n t s
a r e s a t i s f i e d . T h e s e a r e s t a t e d a s f o l l o w s : 1 1 6
1 1 4 . S e e Ghana Companies c o d e , 1 9 6 3 , S e c t i o n 210 S e e a l s o : Cmnd. 1749 /1962 , p a r a s . 206 & 2 1 2 ( e ) ; A - J. B o y l e , "The ~ e r i v a t i v e ~ c t i o n i n Company Law1(, ( 1 9 6 9 ) JoB.L. 1 2 0 , a t p. 1 2 2
1 1 5 . S e e E. 0 . a k a n k i , s u p r a , a t P O 4 6
116 . S e e G o w e r , s u p r a , a t pp. 648-653
(1) T h e wrong w i l l u s u a l l y i n v o l v e some k i n d of
f r a u d - e s p e c i a l l y f r a u d o n t h e m i n o r i t y ,
c l a s s i f i e d t h u s :
( a ) e x p r o p r i a t i o n o f t h e c o m p a n y l s
p r o p e r t y o r i n some c i r c u m s t a n c e s ,
t h a t o f t h e m i n o r i t y ;
( b ) b r e a c h o f t h e d i r e c t o r s 1 d u t y o f good
f a i t h ;
( c ) v o t i n g f o r company r e s o l u t i o n s , n o t
b o n a f i d e i n t h e i n t e r e s t s o f t h e
company a s a whole .
(2) I t mus t be shown t h a t t h e a l l e g e d wrong d o e r s
c o n t r o l t h e company and h e n c e , t h e u n l i k e l i h o o d
o f b r i n g i n g ' p r o c e e d i n g s i n t h e c o m p a n y l s
name 1 1 7
118 ( 3 ) T h e company m u s t be j o i n e d a s a d e f e n d a n t . T h e j u s t i f i c a t i o n f o r t h i s p r o c e d u r e a s
1 1 7 . See ntwool v , ~ e r r y w e a t h e r ~ s u p r a ; ~ i r c h v , s u l l i v a n , s u p r a
118, S e e S p o k e s v. GrOSVenOr Hotel , s u p r a ; and eat tie v. eat tie ~ t d . , s u p r a
e x p l a i n e d e a r l i e r o n , i s t h a t judgment
o b t a i n e d i n t h e s u i t w i l l b i n d t h e company
and a l l t h e p a r t i e s c o n c e r n e d , and w i l l
c o n s t i t u t e res i u d l c a t a .
( 4 ) The p l a i n t i f f s h a r e h o l d e r s h o u l d s u e i n a
r e p r e s e n t a t i v e c a p a c i t y o n ' b e h a l f o f h i m s e l f
and a l l t h e o t h e r members o t h e r t h a n t h e r e a l
1 1 9 d e f e n d a n t s . ( 5 ) The r i g h t t o s u e by t h e s h a r e h o l d e r i s a
m a t t e r o f g r a c e . C o n s e q u e n t l y , h i s c o n d u c t
may b e c o n s i d e r e d by t h e c o u r t t o a s c e r t a i n
w h e t h e r h e p a r t i c i p a t e d i n t h e wrong deed .
1 2 0 The e q u i t a b l e maxim of c l e a n h a n d s a p p l i e s . ( 6 ) ~ h o u g h c o r p o r a t e a c t i o n i s d i f f e r e n t f r o m
t r u e r e p r e s e n t a t i v e ac t i on12 ' , i t i s s t i l l
assumed i n b o t h fo rms of a c t i o n s t h a t p l a i n -
t i f f i s d i m i n u s l i t i s u n t i l judgment and
can d i s c o n t i n u e o r s e t t l e a.t h i s p l e a s u r e ,
119 . see M0Zley v . ~ l s t o n s u p r a
120 . S e e Towers v. A f r i c a n Tug Company, s u p r a ; Nur- - combe v. Nurcombe, s u p r a
121. S e e w a l l e r s t e i n e r v. M o i r ( N O . 2 ) , s u p r a
~ l s o , Lo rd wedde rbu rn supp lemen ts t h e s e
p r o c e d u r a l r e q u i r e m e n t s by t h e a d d i k i o n t h a t it
i s i m p o r t a n t t o d i s c o v e r when i t is t h a t t h e
m i n o r i t y a r e waging a c o r p o r a t e r a t h e r t h a n a
s h a r e h o l d e r l s a c t i o n . H e s t a t e d f o u r r e a s o n s
f o r t h i s c a v e a t a s f o l l o w s : 1 2 2
F i r s t , t h e r e p r e s e n t a t i v e c o r p o r a t e a c t i o n
i s a s p e c i a l e q u i t a b l e i n v e n t i o n , and i t
w i l l n o t b e g r a n t e d t o t h o s e who do n o t come
1 2 3 w i t h c l e a n h a n d s . S e c o n d l y , t h e m i n o r i t y w i l l h e r e b e
p e r m i t t e d t o s u e i n r e s p e c t o f wrongs
commit ted and damage c a u s e d b e f o r e t h e y
w e r e members, wh ich o u g h t n o t t o b e a l l o w e d
i n p e r s o n a l a c t i o n . t
T h i r d l y , t h e c o r p o r a t i o n mus t b e j o i n e d a s
a p s r t y ; i f t h i s is i m p o s s i b l e , no c o r p o r a t e
1 2 4 a c t i o n c a n be waged . 122 . See wedde rbu rn , ( 1 9 5 7 ) Cam. L.J. 194 , a t p. 206
123 . Conduc t o f p l a i n t i f f w i l l b e examined b a s e d o n t h i s e q u i t a b l e d o c t r i n e
1 2 4 . S e e F e r g u s o n v. W a l l b r i d g e _ _.__.- - /?9357 3 D.L.R. 66, (company i n l i q u i d a t i o n , no a c t l o n e v e n t h o u g h * f r a u d on a m i n o r i t y * )
F o u r t h l y , money d u e o r p r o p e r t y b e l o n g i n g
t o t h e company c a n b e r e c o v e r e d i n t h i s
a c t i o n , and i n o r d e r t h a t t h i s c a n be
d o n e , t h i r d p a r t i e s f r o m whom i t i s
r e c o v e r a b l e 1 2 6 125 may b e j o i n e d a s d e f e n d a n t s . MINORITY SHAREHOLDER'S RIGHT TO AN INDEMNITY IN A D E R I V A T I V E ACTION
he c o u r t o f ~ p p e a l i n W a l l e r s t e i n e r v . ~ o i r
( N O . 2 ) 127, r e c o g n i s e d t h a t a m i n o r i t y s h a r e h o l d e r
who b r i n g s a d e r i v a t i v e s u i t may h a v e a r i g h t t o
an i n d e m n i t y a g a i n s t t h e company i n r e s p e c t o f h i s
costs. T h i s r i g h t o f i n d e m n i t y i n a d e r i v a t i v e
a c t i o n u n d e r l i e s t h e d i s t i n c t i o n be tween a c o r p o r a t e
o r d e r i v a t i v e a c t i o n and t h e o t h e r f o r m s o f a c t i o n .
Here, t h e s h a r e h o l d e r s u e s on b e h a l f o f t h e company,
which is i n r e a l i t y t h e t r u e p l a i n t i f f , and r u n s
a r i s k i n s u i n g b u t f o r t h e r i g h t of i n d e m n i t y o f
h i s costs. his is j u s t i f i a b l e b e c a u s e t h e s h a r e -
h o l d e r who s u e s on b e h a l f o f t h e company g a i n s
1 2 5 . E.g. d i r e c t o r s , o r o u t s i d e r s who h a v e p r o f i t e d so a s t o be a c c o u n t a b l e
1 2 6 . See R u s s e l l v. w a k e f i e l d w a t e r w o r k s Co., s u p r a
227 . S u p r a
n o t h i n g e x c e p t p e r s o n a l s a t i s f a c t i o n and a p p r e -
c i a t i o n o f h i s s h a r e s ( i n c l u d i n q t h o s e o f t h e
d e f e n d a n t s ) . The o b s e r v a t i o n i n w a l l e r s t e i n e r v ,
Moir ( N O . 2 ) i n t h i s r e g a r d , a s a m i n o r i t y p r o t e c -
t i o n d e v i c e , i s now c o d i f i e d b y s e c t i o n s 307 and
3 0 8 o f t h e new Companies ~ c t . However, t h e r i g h t - o f i n d e m n i t y w i l l d e p e n d o n w h e t h e r t h e m i n o r i t y
s h a r e h o l d e r a c t e d i n good f a i t h and r e a s o n a b l y i n
b r i n g i n g p r o c e e d i n g s . we s h a l l c o n c l u d e t h i s t o p i c
by a b r i e f c o n s i d e r a t i o n of t h e p r o v i s i o n s o f t h e
c o m p a n i e s ~ c t o n d e r i v a t i v e a c t i o n ,
STATUTORY PROVISIONS ON DERIVATIVE ACTION
I n t h e b i d t o i m p r o v e m i n o r i t y p r o t e c t i o n
a g a i n s t i l l e g a l o r o p p r e s s i v e c o n d u c t , t h e new
Companies ~ c t h a s e n a c t e d i n p a r t x o f t h e ~ c t ,
t h e common l a w r u l e s r e l a t i n g t o d e r i v a t i v e
a c t i o n . C o n s e q u e n t l y , an a p p l i c a n t may a p p l y t o
t h e c o u r t f o r l e a v e t o b r i n g a n a c t i o n i n t h e name
o r o n b e h a l f o f a company, o r t o i n t e r v e n e i n an
a c t i o n t o which t h e company i s a p a r t y , f o r t h e
p u r p o s e o f p r o s e c u t i n g , d e f e n d i n g o r d i s c o n t i n u i n g
1 2 8 t h e a c t i o n o n b e h a l f o f t h e company . However,
1 2 8 . See s e c t i o n 3 0 3 ( 1 ) , C.A.M.A.
b y s e c t i o n 3 0 3 ( 2 ) of t h e ~ c t , t h e c o u r t m u s t be
s a t i s f i e d w i t h t h e e x i s t e n c e of t h e f o l l o w i n g
c o n d i t i o n s before s u c h a n a c t i o n o r i n t e r v e n t i o n
be made.
T h e w r o n g d o e r s a re t h e d i r e c t o r s who a r e
i n c o n t r o l , a n d w i l l n o t t a k e n e c e s s a r y
a c t i o n ;
t h e a p p l i c a n t h a s g i v e n r e a s o n a b l e n o t i c e
t o t h e d i r e c t o r s of t h e company of h i s
i n t e n t i o n t o a p p l y t o t h e c o u r t f o r l e a v e
t o s u e i f t h e d i r e c t o r s o f t h e company d o
n o t b r i n g , d i l i g e n t l y p r o s e c u t e o r d e f e n d
o r d i s c o n t i n u e t h e a c t i o n ;
t h e a p p l i c a n t i s a c t i n g i n g o o d f a i t h ; a n d . i t a p p e a r s t o be i n t h e best i n t e r e s t of
t h e company t h a t t h e a c t i o n be b r o u g h t :
p r o s e c u t e d , d e f e n d e d o r d i s c o n t i n u e d .
N o t e w o r t h y i s t h e f a c t t h a t t h e new C o m p a n i e s
h a s w i d e n e d t h e c a t e g o r y o f p e r s o n s who c a n
b r i n g a d e r i v a t i v e a c t i o n a n d now i n c l u d e s a n y of
t h e f o l l o w i n g : 1 2 9
( i ) a r e g i s t e r e d h o l d e r o r a b e n e f i c i a l
o w n e r a n d a f o r m e r r e g i s t e r e d h o l d e r
o r b e n e f i c i a l o w n e r , of a s e c u r i t y of
a company; o r
( i i ) a d i r e c t o r o r an o f f i c e r o r a f o r m e r
d i r e c t o r o r o f f i c e r o f a company; o r
( i i i ) t h e C o r p o r a t e ~ f f a i r s Commiss ion; o r
( i v ) any o t h e r p e r s o n who i n t h e d i s c r e t i o n of
t h e c o u r t , i s a p r o p e r p e r s o n t o make a n
a p p l i c a t i o n u n d e r s e c t i o n 3 0 3 o f t h e ~ c t .
F u r t h e r m o r e , t h e c o u r t s h a l l e x e r c i s e s u c h p o w e r s
a s a r e r e s e r v e d i n s e c t i o n 3 O 4 ( 2 ) , b e s i d e making a n y
s u c h o r d e r or o r d e r s a s i t t h i n k s f i t , when an
a c t i o n is b r o u g h t w i t h l e a v e u n d e r s e c t i o n 3 0 3
of t h e A c t . T h e s e o r d e r s a r e a s follows:
( a ) ' a u t h o r i s i n g t h e a p p l i c a n t o r any o t h e r p e r s o n
t o c o n t r o l t h e c o n d u c t o f t h e a c t i o n ;
1 2 9 . See s e c t i o n 309 , C.A.M.A.
g i v i n g d i r e c t i o n s f o r t h e c o n d u c t o f t h e
a c t i o n ;
d i r e c t i n g t h a t any amount a d j u d g e d
p a y a b l e b y a d e f e n d a n t i n t h e a c t i o n
s h a l l be p a i d , i n w h o l e o r i n p a r t ,
d i r e c t l y t o f o r m e r and p r e s e n t
s e c u r i t y h o l d e r s o f t h e company
i n s t e a d o f t o t h e company;
r e q u i r i n g t h e company t o pay r e a s o n a b l e
l e g a l f e e s i n c u r r e d by t h e a p p l i c a n t i n
1 3 0 c o n n e c t i o n w i t h t h e p r o c e e d i n g s . I t i s p e r t i n e n t t o o b s e r v e t h a t t h e m a j o r
l i m i t a t i o n o f a d e r i v a t i v e a c t i o n u n d e r t h e common
l a w , i.e., t h e p r o b l e m s o f i n t e r v e n t i o n , c o n t r o l ,
d i s m i s s a l and s e t t l e m e n t a p p e a r s t o be b y - p a s s e d
by t h e s e s t a t u t o r y p r o v i s i o n s . T h i s i s b e c a u s e o f
t h e p r o v i s i o n i n s e c t i o n 306 o f t h e Companies A c t
t h a t
"An a p p l i c a t i o n made o r an a c t i o n b r o u g h t or i n t e r v e n e d i n , u n d e r s e c t i o n 3 0 3 o f t h i s
I.
130 . see w a l l e r s t e i n e r v. ~ 0 i r (NO. 2), s u p r a
Decree s h a l l n o t b e s t a y e d , d i s c o n t i n u e d , s e t t l e d o r d i s - m i s s e d f o r w a n t o f p r o s e c u t i o n w i t h o u t t h e a p p r o v a l of t h e c o u r t q i v e n upon s u c h terms a s t h e c o u r t t h i n k s f i t a n d , i f t h e c o u r t d e t e r m i n e s t h a t t h e r i g h t s o f any a p p l i c a n t may b e s u b s t a n t i a l l y a f f e c t e d by s u c h s t a y , d i s c o n t i n u a n c e , s e t t l e m e n t o r d i s m i s s a l , t h e c o u r t may o r d e r a n y p a r t y t o t h e a p p l i c a t i o n o r a c t i o n t o g i v e n o t i c e , to t h e a p p l i c a n t " .
T h i s new s t a t u t o r y p r o c e d u r e i s commendable a n d
a l s o an improvement o n t h e l a w o f m i n o r i t y
p r o t e c t i o n i n ~ i g e r i a . I t i s i n a c c o r d w i t h
r e c e n t d e v e l o p m e n t s i n o t h e r Commonwealth coun-
t r i e s l i k e ~ r i t a i n , ~ h a n a and t h e C a n a d i a n
p r o v i n c e of O n t a r i o , f o l l o w i n g t h e American
1 3 1 e x a m p l e . T h e new s t a t u t o r y p r o c e d u r e h a s t h e f o l l o w i n g
a d v a n t a g e s o v e r t h e common l a w r u l e s on d e r i v a t i v e
a c t i o n . F i r s t , t h e new p r o c e d u r e i s , n o d o u b t ,
more p e r m i s s i v e of m i n o r i t y s u i t s t h a n t h e common
l a w r u l e s . The remedy is n o l o n g e r r e s t r i c t e d t o
o n l y m i n o r i t y s h a r e h o l d e r s , a s t h e d e f i n i t i o n o f
1 - See A. J. B 0 y l e . "The D e r i v a t i v e n c t i o n i n Company Lawtt, (1969) JoBmLo 1 2 0
an a p p l i c a n t u n d e r s e c t i o n 309 o f t h e ~ c t i s
w i d e r . S e c o n d l y , m i n o r i t y s h a r e h o l d e r s , s u b j e c t
t o j u d i c i a l d i s c r e t i o n , h a v e some r i g h t t o i n t e r -
v e n e i n p r o c e e d i n g s a g a i n s t t h e company wh ich
a r e n o t b e i n g s a t i s f a c t o r i l y p r o s e c u t e d o r
defended132. noth her a d v a n t a g e i s t h e p r o v i s i o n
on j u d i c i a l s u r v e i l l a n c e o v e r d i s c o n t i n u a n c e o r
s e t t l e m e n t o f a d e r i v a t i v e action133. T h i s p r o v i -
s i o n i s h i g h l y d e s i r a b l e t o p r e v e n t l u c r a t i v e
p r i v a t e s e t t l e m e n t s and o t h e r a b u s e s . ~ l s o , t h e
d e c i s i o n i n w a l l e r s t e i n e r v. ~ o i r (No. 2 ) , w i t h
r e g a r d t o c o s t o f l i t i g a t i o n i n a d e r i v a t i v e s u i t
i s now c o d i f i e d . S e c t i o n 3 0 4 ( 2 ) ( d ) o f t h e ~ c t
p r o v i d e s f o r payment o f l e g a l f e e s by t h e company
t o t h e a p p l i c a n t . T h i s is commendable, c o n s i d e r i n g
t h e f a c t t h a t judgment o b t a i n e d i s f o r t h e b e n e f i t
o f t h e company w i t h o n l y a r e a l o r n o t i o n a l g a i n
i n t h e v a l u e of t h e a p p l i c a n t ' s s h a r e s .
132 ; See s e c t i o n 3 O 3 ( l ) , CeAeMeA.
133. see s e c t i o n 306, C.A.M.A.
5, STATUTORY PROVISIONS ON MINORITY PROTECTION
~ o t w i t h s t a n d i n g t h e c o d i f i c a t i o n and widen-
i n g o f t h e e x c e p t i o n s t o t h e r u l e i n ~ o s s v.
H a r b o t t l e by s e c t i o n 3 0 0 ( a ) t o ( f ) o f t h e new
Companies ~ c t , t h e r e a r e o t h e r m a j o r s t a t u t o r y
p r o v i s i o n s on m i n o r i t y p r o t e c t i o n . We s h a l l
c o n s i d e r t h e n a t u r e and s c o p e o f t h e s e p r o v i s i o n s
h e r e u n d e r ,
RELIEF ON THE GROUNDS OF UNFAIRLY PREJUDICIAL A N D OPPRESSIVE CONDUCT
B e f o r e t h e p r o m u l g a t i o n o f t h e c o m p a n i e s ~ c t ,
t h e m a j o r s t a t u t o r y p r o v i s i o n s on m i n o r i t y p r o t e c -
t i o n were s e c t i o n s 2 0 1 and 2 0 9 ( f ) o f t h e 1 9 6 8
Companies ,qct w h i c h d e a l t w i t h a l t e r n a t i v e remedy
i n t h e c a s e o f w i n d i n g up and t h e j u s t and e q u i t a b l e f
w i n d i n g u p o f c o m p a n i e s , r e s p e c t i v e l y . T h e s e p r o v i -
s i o n s had f a r - r e a c h i n g s h o r t - c o m i n g s o r l i m i t a t i o n s ,
n e c e s s i t a t i n g a g e n e r a l d e s i r e f o r amendment. T h i s
n e e d became i n e v i t a b l e f o l l o w i n g t h e c h a n g e s e f f e c t e d
i n E n g l a n d by s e c t i o n 75 o f t h e ~ n g l i s h Companies
1 9 8 0 and t h e c u r r e n t p r o v i s i o n s o f s e c t i o n 459
of t h e Companies ~ c t , 1985. T h e s e p r o v i s i o n s h a v e
g r e a t l y m o d i f i e d and improved s e c t i o n s 210 and
134 2 2 2 ( f ) , o f t h e 1948 Companies ~ c t , C o n s e q u e n t l y ,
s e c t i o n 2 0 1 of t h e Companies ~ c t , 1968 , h a s been
r e p l a c e d by a new p r o v i s i o n - s e c t i o n 3 1 1 of t h e
new Companies ~ c t , T h i s p r o v i s i o n i s more e f f i c a -
c i o u s and f a r - r e a c h i n g t h a n s e c t i o n 2 0 1 o f t h e
f o r m e r Companies L e g i s l a t i o n , AS w i l l b e shown
l a t e r , i t h a s b r o k e n new g r o u n d s and a p p e a r s t o
b e ahead o f s e c t i o n 459 of t h e 1985 Companies ~ c t
( E n g l a n d ) , which i s t h e c u r r e n t e q u i v a l e n t p r o v i -
s i o n i n ~ n g l a n d .
GROUNDS UPON W H I C H A N - APPLICATION MAY BE MADE
S e c t i o n 3 1 1 o f t h e companies ~ c t s p e c i f i e s
t h e g r o u n d s upon which an a p p l i c a t i o n may now b e
made f o r r e l i e f on t h e g rounds o f u n f a i r l y p r e j u d i -
c i a l and o p p r e s s i v e c o n d u c t , Under t h e new d i s -
p e n s a t i o n , a member may make a p p l i c a t i o n t o t h e
c o u r t by p e t i t i o n , f o r r e l i e f where h e a l l e g e s
e i t h e r o f t h e f o l l o w i n g r e a s o n s
1 3 4 , T h e s e a r e t h e e q u i v a l e n t p r o v i s i o n s t o o u r s e c t i o n s 201 and 2 0 9 ( f ) o f t h e 1968 Companies ~ c t
(i) t h a t t h e a f f a i r s of t h e company a r e
b e i n g conduc ted i n a manner t h a t i s
o p p r e s s i v e , o r u n f a i r l y p r e j u d i c i a l
t o , o r u n f a i r l y d i s c r i m i n a t o r y a g a i n s t
a member o r members, o r i n a manner
t h a t i s i n d i s r e g a r d o f t h e i n t e r e s t s
o f a member o r t h e members a s a whole;
o r
( i i) t h a t an a c t o r o m i s s i o n o r a p roposed
a c t o r o m i s s i o n , by o r on b e h a l f o f
t h e company, o r a r e s o l u t i o n o r a
p roposed r e s o l u t i o n , of a c l a s s of
members, was o r would be o p p r e s s i v e
o r u n f a i r l y p r e j u d i c i a l t o , o r u n f a i r l y
d i s c r i m i n a t o r y a g a i n s t a member o r members t
o r was o r would be i n a member which i s
- i n d i s r e g a r d o f t h e i n t e r e s t s o f a member
135 o r t h e members a s a whole . T h i s p r o v i s i o n h a s i n t r o d u c e d t h e terms, tfunf a i r l y
p r e j u d i c i a l f f , f f u n f a i r l y d i s c r i m i n a t o r y f ~ and It i n a
manner t h a t i s i n d i s r e g a r d of t h e i n t e r e s t s of a
135 . S e c t i o n 3 1 1 ( 2 ) ( a ) , C.A.M.A.
member o r t h e members a s a wholerf . ~t seems
t o h a v e b r o a d e n e d t h e s c o p e o f t h e remedy ,
e s p e c i a l l y t h e l a s t e x p r e s s i o n . The c o u r t s a r e
e n j o i n e d t o i n t e r p r e t t h e s e p r o v i s i o n s l i t e r a l l y
a n d a v o i d r e s t r i c t i v e i n t e r p r e t a t i o n s t h a t may
l i m i t t h e i r s c o p e .
~ l s o , an a p p l i c a t i o n may be b r o u g h t by
e i t h e r a d i r e c t o r , o f f i c e r , c r e d i t o r o r p e r s o n
s u i n g by c o u r t ' s d i s c r e t i o n , i f t h e p e t i t i o n e r
a l l e g e s e i t h e r o f t h e f o l l o w i n g 1 3 6
( i )
( i i )
t h a t t h e a f f a i r s o f t h e company a r e b e i n g
c o n d u c t e d i n a manner o p p r e s s i v e o r u n f a i r l y
p r e j u d i c i a l t o o r d i s c r i m i n a t o r y a g a i n s t or
i n a manner i n d i s r e g a r d o f h i s i n t e r e s t s ; o r
t h a t an ' ac t o r o m i s s i o n , o r a p r o p o s e d
a c t o r o m i s s i o n was o r would be o p p r e s s i v e ,
o r u n f a i r l y p r e j u d i c i a l t o o r u n f a i r l y
d i s c r i m i n a t o r y a g a i n s t , o r i s i n d i s r e g a r d
o f h i s i n t e r e s t s .
1 3 6 . s e c t i o n 3 1 1 ( 2 ) ( b ) , C.A.M.A.
E q u a l l y , an a p p l i c a t i o n may b e made by t h e
C o r p o r a t e ~ f f a i r s Commission i f i t a p p e a r s t o
i t t h a t ,
( i )
( ii)
t h e a f f a i r s o f t h e company a r e b e i n g
c o n d u c t e d i n a manner t h a t i s o p p r e s s i v e
o r u n f a i r l y p r e j u d i c i a l t o , o r u n f a i r l y
d i s c r i m i n a t o r y a g a i n s t a member o r members
o r i n a manner which is i n d i s r e g a r d o f t h e
p u b l i c i n t e r e s t ; o r
any a c t u a l o r p r o p o s e d a c t o r o m i s s i o n
o f t h e company ( i n c l u d i n g an a c t o r
o m i s s i o n o n i t s b e h a l f ) was o r would be
o p p r e s s i v e , o r u n f a i r l y p r e j u d i c i a l t o ,
o r u n f a i r l y d i s c r i m i n a t o r y a g a i n s t a
member 'or members o r i s i n d i s r e g a r d
1 3 7 o f p u b l i c i n t e r e s t s . T h i s new p r o v i s i o n a p p e a r s t o h a v e c u r e d some
o f t h e d e f e c t s o f s e c t i o n 2 0 1 o f t h e 1 9 6 8 Companies
1 3 7 , S e c t i o n 3 l l ( 2 ) (c), C o A o M * A . ( S u b s e c t i o n ( 2 ) ( c ) ( ii) is e i t h e r a s u r p l u s a g e t o t h e f i r s t s u b s e c t i o n , o r i n e l e g a n t l y d r a f t e d , )
A c t . F o r i n s t a n c e , b e f o r e t h e p r o m u l g a t i o n o f
t h e new Companies ~ c t , a p e t i t i o n e r s e e k i n g
t h e a s s i s t a n c e o f t h e c o u r t u n d e r t h e s e c t i o n ,
was r e q u i r e d t o show t h a t ,
( a ) t h e a f f a i r s o f t h e company were b e i n g
c o n d u c t e d i n a manner o p p r e s s i v e to some
p a r t of t h e members ( i n c l u d i n g h i m s e l f )
and t h a t
( b ) t h e f a c t s would j u s t i f y t h e making o f a
w i n d i n g up o r d e r on t h e g r o u n d t h a t i t
was j u s t and e q u i t a b l e b u t t o d o so would
u n f a i r l y p r e j u d i c e t h a t p a r t o f t h e members.
H e n c e , t h e f o l l o w i n g c o n d i t i o n s m u s t be s t a t e d and
s a t i s f a c t o r i i y p r o v e d by a p l a i n t i f f s e e k i n g p r o t e c -
t i o n u n d e r t h e s e c t i o n :
( i ) t h a t t h e c o n d u c t c o m p l a i n e d o f a f f e c t e d
1 3 8 t h e p e t i t i o n e r i n h i s c a p a c i t y a s member ,
1 3 8 , S e e Tika- ore P r e s s ~ t d . v , ~ b i n a , s u p r a , C o n t r a : R e Jermyn Street T u r k l s h ~ a t h s L t d .
3 1 -
( i i )
( iii)
T h e s e
t h a t t h e a f f a i r s o f t h e company were
b e i n g c o n d u c t e d i n an o p p r e s s i v e manner
t o w a r d s him a s a mernberl3'; and
t h a t t h e c o n d u c t j u s t i f i e d w i n d i n g u p
1 4 0 o n t h e j u s t and e q u i t a b l e g r o u n d . c o n d i t i o n s l i m i t e d t h e s c o p e and e f f i c a c y o f
t h e remedy u n d e r c o n s i d e r a t i o n . ~ i r s t , i f t h e
c o n d u c t c o m p l a i n e d o f a f f e c t e d t h e p e t i t i o n e r i n
a n y c a p a c i t y o t h e r t h a n a s a member, t h e p e t i t i o n
1 4 1 w o u l d be d i s m i s s e d . ~ l s o , p e r s o n a l r e p r e s e n t a -
t i v e s o f a d e c e a s e d member w e r e d e b a r r e d f r o m
1 4 2 b r i n g i n g a p e t i t i o n u n d e r t h e s e c t i o n . Secon-
d l y , s e c t i o n 2 0 1 o f t h e 1 9 6 8 Companies ~ c t g a v e n o
c l e a r g u i d a n c e a s t o w h a t c o n s t i t u t e d o p p r e s s i o n .
S h o r t o f s t a t u t o r y d e f i n i t i o n o f o p p r e s s i o n , t h e
c o u r t s w e r e h a n d i c a p p e d i n g i v i n g a common mean ing
139 . S e e E l d e r v. E l d e r Watson, ( 1 9 5 2 ) S.C. 4 9
1 4 0 . S e e R e ell ad or s i l k L t d . /?9657 1 A l l E.R. 6 6 7 - - 141 . S e e R e L u n d i e Bros. L t d . , /T9657 2 A l l E.R. 692 - - 1 4 2 . S u p r a
t o t h e word143. T h i r d l y , t h e r e q u i r e m e n t t h a t t h e
a p p l i c a n t must h a v e t a n g i b l e i n t e r e s t i n t h e l i q u i -
d a t i o n o f t h e company t o s a t i s f y t h e l a s t c o n d i t i o n
s t a t e d a b o v e , amounted t o an i n q u i r y i n t o t h e
s o l v e n c y o f t h e company. w h e r e t h e company was
s o l v e n t , t h e c o u r t showed a f a v o u r a b l e d i s p o s i t i o n
t o h e a r t h e p e t i t i o n , b u t o t h e r w i s e , i t was th rown
o u t . T h u s , t h e r e s t r i c t i v e i n t e r p r e t a t i o n s g i v e n
t o s e c t i o n 2 0 1 o f t h e 1 9 6 8 ~ c t r e a d i l y l e d t o
i n j u s t i c e , and n e c e s s i t a t e d t h e d e s i r e f o r an
amendment . I n t h i s r e g a r d , s e c t i o n 312 o f t h e new Compa-
n i e s A c t h a s i n t r o d u c e d some m a j o r c h a n g e s . F i r s t ,
i s t h e i n t r o d u c t i o n o f I t u n f a i r l y p r e j u d i c i a l t l ,
w n f a i r l y d i s c r i m i n a t o r y f f and ' f i n a manner t h a t i s i n
d i s r e g z r d o f t h e i n t e r e s t s o f a member o r t h e members
a s a whole" , i n s u b s t i t u t i o n f o r " o p p r e s s i v e t t u n d e r
S e e , e.g., L o r d Cooper i n ~ l d e r v. ~ l d e r w a t s o n L t d . , s u p r a , a t p. m o r d - ~ e i t h i n S c o t t i s h C.W.S. v. Meyer , /1959/ A.C. 324, a t p. 342, and v i s c o u n t S imonds , a t
S e e a l s o R e F i v e M i n u t e C a r wash S e r v i c e L td . , /79667 - - 1 E.R. 242
s e c t i o n 2 0 1 o f t h e 1 9 6 8 A c t . S e c o n d l y , t h e
c o n d i t i o n p r e c e d e n t t h a t t h e f a c t s d i s c l o s e d
s h o u l d j u s t i f y w i n d i n g up on t h e j u s t and
e q u i t a b l e g r o u n d i s d ropped . T h i r d l y , t h e
s c o p e o f p e r s o n s who c a n now s e e k r e l i e f i s
e x t e n d e d a s new c a t e g o r i e s o f p e r s o n s a r e added .
SCOPE OF PERSONS WHO CAN NOW SEEK RELIEF
T h i s i s e x p r e s s l y p r o v i d e d fo r by s e c t i o n 310
(1) o f t h e Companies ~ c t a s f o l l o w s : - "An a p p l i c a t i o n t o t h e c o u r t by
p e t i t i o n f o r , an o r d e r u n d e r s e c t i o n 3 1 1 o f t h i s Decree i n r e l a t i o n t o a company may be made by any o f t h e f o l l o w i n g p e r s o n s - ( a ) a member o f t h e company;
( b ) a d i r e c t o r o r o f f i c e r o r f o r m e r d i r e c t o r o r o f f i ce r
' o f t h e company;
( c ) a c r e d i t o r ;
( d ) t h e commiss ion ; o r
( e ) any o t h e r p e r s o n , who, i n t h e d i s c r e t i o n o f t h e c o u r t , i s t h e p r o p e r p e r s o n to make an a p p l i c a t i o n u n d e r s e c t i o n 3 1 1 o f t h i s Decreer'. -
I t may b e o b s e r v e d t h a t c a t e g o r i e s ( b ) t o ( e )
a b o v e a r e new p r o v i s i o n s , a imed a t e x t e n d i n g t h e
s c o p e o f a p p l i c a n t s and e f f i c a c y o f t h e remedy.
his i s a r e m a r k a b l e improvement . E q u a l l y o f
i n t e r e s t , i s t h e f a c t t h a t ffmemberlf f o r t h e
p u r p o s e s o f s e c t i o n s 3 1 1 t o 3 1 3 o f t h e Companies
~ c t now i n c l u d e s t h e f o l l o w i n g :
( a ) t h e s p e r s o n a l r e p r e s e n t a t i v e o f a d e c e a s e d
member; a n d
( b ) a n y p e r s o n t o whom s h a r e s h a v e b e e n t r a n s -
1 4 4 f e r r e d o r t r a n s m i t t e d b y o p e r a t i o n o f l aw .
his is a more p r a c t i c a l a p p r o a c h t h a n t h e res-
t r i c t i v e i n t e r p r e t a t i o n o f member u n d e r s e c t i o n
2 0 1 o f t h e 1 9 6 8 A C ~ . 7
NATURE AND TYPES OF ORDER THE COURT CAN MAKE I N GRANTING RELIEF
Here, s e c t i o n 3 1 2 ( 1 ) o f t h e Companies ~ c t
c o n f e r s a g e n e r a l power on t h e c o u r t t o make s u c h
d r d e r o r o r d e r s a s i t t h i n k s f i t , f o r g i v i n g r e l i e f
i n r e s p e c t o f t h e matter c o m p l a i n e d o f , w h e r e i t
i s s a t i s f i e d t h a t a p e t i t i o n i s w e l l f o u n d e d . I n
a d d i t i o n , a n d w i t h o u t p r e j u d i c e t o t h e g e n e r a l
power c o n f e r r e d , t h e c o u r t may make a n y o r more
o f t h e f o l l o w i n g p a r t i c u l a r o r d e r s s p e c i f i e d i n
s u b - s e c t i o n ( 2 ) .
T h a t t h e company b e wound up. It a p p e a r s
t h a t s u c h a n o r d e r w i l l b e b a s e d upon t h e
p r o v i s i o n o f s e c t i o n 4 0 8 ( e ) - t h e c o u r t i s
o f o p i n i o n t h a t i t i s j u s t and e q u i t a b l e t h a t
t h e company s h o u l d b e wound up. his remedy ,
when c o n t r a s t e d w i t h s e c t i o n 2 0 1 o f t h e 1 9 6 8
Companies ~ c t , c e a s e s t o b e an a l t e r n a t i v e
remedy t o w i n d i n g u p ,
An o r d e t f o r r e g u l a t i n g t h e c o n d u c t o f t h e
1 4 5 a f f a i r s o f t h e company i n t h e f u t u r e . An o r d e r f o r t h e p u r c h a s e o f t h e s h a r e s o f
1 4 6 a n y member by o t h e r members o f t h e company .
145 . S e e R e H . R . Harmer ~ , t d . - /?9587 - 3 ~ 1 1 E.R. 689
1 4 6 . S e e S c o t t i s h C.W.S. L t d . v. Meyer , /?9597 A.C., 324. -.
S e e a l s o , I n R e London S c h o o l o f E l e c t r o n i c s L t d . /7986 / c h . 2 1 1 - - -
( d ) An o r d e r f o r t h e p u r c h a s e o f t h e s h a r e s
o f any member b y t h e company and f o r t h e
r e d u c t i o n a c c o r d i n g l y , o f t h e company 's
c a p i t a l . The r e d u c t i o n o f t h e company 's
c a p i t a l e n v i s a g e d h e r e i s i n c o m p l i a n c e w i t h
t h e r u l e on m a i n t e n a n c e o f c a p i t a l .
( e ) An o r d e r d i r e c t i n g t h e company t o i n s t i t u t e ,
p r o s e c u t e , d e f e n d , o r d i s c o n t i n u e s p e c i f i c
p r o c e e d i n g s , o r a u t h o r i s i n g a member o r
members or t h e company t o i n s t i t u t e ,
p r o s e c u t e , d e f e n d o r d i s c o n t i n u e s p e c i f i c
p r o c e e d i n g s i n t h e name o r o n b e h a l f o f
t h e company.
( f ) An o r d e r v a r y i n g o r s e t t i n g a s i d e a t r a n s a c -
t i o n or c o n t r a c t t o which t h e company i s a
p a r t y add c o m p e n s a t i n g t h e company o r a n y
o t h e r p a r t y t o t h e t r a n s a c t i o n o r c o n t r a c t .
( g ) An o r d e r d i r e c t i n g an i n v e s t i g a t i o n t o b e
made by t h e C o r p o r a t e A f f a i r s commiss ion .
( h ) An o r d e r a p p o i n t i n g a r e c e i v e r o r a r e c e i v e r
and manager o f p r o p e r t y of t h e company.
( i ) An o r d e r r e s t r a i n i n g a p e r s o n f rom
e n g a g i n g i n s p e c i f i c c o n d u c t o r f r o m
d o i n g a s p e c i f i c a c t o r t h i n g . *
( j) An o r d e r r e q u i r i n g a p e r s o n t o do a
s p e c i f i c a c t o r t h i n g . a
N o t w i t h s t a n d i n g t h e g e n e r a l and s p e c i f i c
power s c o n f e r r e d on t h e c o u r t by s e c t i o n 3 1 2 ( 1 ) and
( 2 ) o f t h e Companies ~ c t , a d d i t i o n a l p r o c e d u r a l - p r o t e c t i o n i s a l s o o f f e r e c l ) F i r s t , an o r d e r o f
i , '
t h e c o u r t t h a t a l t e r s o r adds t o t h e memorandum
o r a r t i c l e s of t h e company s h a l l h a v e e f f e c t a s i f
i t h a s b e e n d u l y made by a r e s o l u t i o n o f t h e company.
C o n s e q u e n t l y , t h e company c a n n o t , w i t h o u t l e a v e o f
t h e c o u r t , make any f u r t h e r a l t e r a t i o n o r a d d i t i o n
wh ich is i n c 6 n s i s t e n t w i t h t h e c o u r t order147. I f
o . t h e r w i s e , t h e c o u r t o r d e r would be n u g a t o r y . Secon-
d l y , i t i s a l s o p r o v i d e d t h a t a c e r t i f i e d t r u e copy
o f t h e c o u r t ' s o r d e r a l t e r i n g o r g i v i n g l e a v e t o
a l t e r a company*s memorandum o r a r t i c l e s s h a l l ,
147 . S e c t i o n 3 1 2 ( 4 ) L C.A.M.A.
w i t h i n 1 4 d a y s f r o m t h e making o f t h e o r d e r o r
s u c h l o n g e r p e r i o d a s t h e c o u r t may a l l o w , b e
d e l i v e r e d t o t h e C o r p o r a t e ~ f f a i r s Commission
f o r r e g i s t r a t i o n 1 4 8 . Non-compl iance w i t h t h i s
p r o c e d u r a l r e q u i r e m e n t c o n s t i t u t e s an o f f e n c e w i t h
a f i n e o f ~ 5 0 . 0 0 i n t h e f i r s t i n s t a n c e and ~ ~ 2 5 . 0 0
d a i l y f o r c o n t i n u e d c o n t r a v e n t i o n , ~ h i r d l y , a
p e r s o n who c o n t r a v e n e s o r f a i l s t o comply w i t h
a n o r d e r o f c o u r t made u n d e r s e c t i o n 312 o f t h e
~ c t i n s o f a r a s i t a p p l i e s t o him, s h a l l b e
g u i l t y o f an o f f e n c e a n d l i a b l e t o a f i n e o f M500.00
1 4 9 o r i m p r i s o n m e n t f o r o n e y e a r o r b o t h . I n c o n c l u s i o n , t h e f o r e g o i n g p r o v i s i o n s d i s c u s -
s e d a b o v e a r e more f a r r e a c h i n g t h a n s e c t i o n 2 0 1
o f t h e 1 9 6 8 c o m p a n i e s A c t o They h a v e f o l l o w e d t h e
m o r e r e c e n t E n g l i s h Companies w h i c h r e p e a l e d
148 . s e c t i o n 3 l 2 ( 5 ) , C.A.M.A.
s e c t i o n 313 ,
150. S e e s e c t i o n 75 o f t h e 1 9 8 0 Companies ~ c t ; and s e c t l o n s 459 t o 4 6 1 o f t h e 1985 Companies A c t 0
See a l s o : D o D o P r e n t i c e , "The T h e o r y o f t h e Firm: ~ i n o r i t y s h a r e h o l d e r O p r e s s i o n : S e c t i o n s 459-461 o f t h e Companies ~ c t 1985" (19- O x f o r d J. L e g a l s t u d i e s 55;
J o ~ o o l e , "Companies ~ c t 1 9 8 5 , S e c t i o n 459: A Gen- e r a l J u r i s d i c t i o n of ~ n f a i r n e s s ? 1 f ( 1 9 8 7 ) 8 c o o t a w 3 3
and r e p l a c e d s e c t i o n 210 o f t h e 1 9 4 8 Companies
~ c t ' ~ ' . s u t , u n l i k e t h e ~ n g l i s h n e t s , t h e s e
new p r o v i s i o n s h a v e b r o k e n new g r o u n d s by
p r o v i d i n g f o r r e l i e f of c o n d u c t t h a t i s
u n f a i r l y d i s c r i m i n a t o r y , which s e c t i o n 459
o f t h e E n g l i s h Companies ~ c t 1 9 8 5 d o e s n o t
p r o v i d e f o r , ~ l s o , t h e ~ n g l i s h l e g i s l a t i o n d o e s
n o t g i v e a f o r m e r member, s t a n d i n g o r r i g h t t o
p e t i t i o n 1 5 2 . Whereas u n d e r s e c t i o n 3 1 0 ( l ) ( b )
o f t h e Companies ~ c t a f o r m e r o f f i c e r o r
d i r e c t o r o f a company may p e t i t i o n , and by
a n a l o g y , a f o r m e r member.
However, s e c t i o n 4 6 1 ( 2 ) ( c ) o f t h e E n g l i s h
l e g i s l a t i o n 1 5 3 , i s v e r y r e m a r k a b l e . It empowers
t h e c o u r t t o make an o r d e r a u t h o r i s i n g c i v i l p ro -
c e e d i n g s to be b r o u g h t i n t h e name and on b e h a l f
o f t h e company b y s u c h p e r s o n s and on s u c h terms
a s t h e c o u r t may d i r e c t . his p r o v i s i o n a p p e a r s t o
-151. E q u i v a l e n t p r o v i s i o n o f o u r s e c t i o n 201, 1 9 6 8 Companies ~ c t
152 . S e e p r e n t i c e , s u p r a a t p. 6 4 ( w h e r e h e a r g u e s t h a t i t s h o u l d )
153. 1 9 8 5 Companies ~ c t
a v o i d t h e F o s s v . H a r b o t t l e r u l e , and removes
w h a t e v e r d o u b t s t h a t may e x i s t i n r e l a t i o n to
t h e power t o b r i n g a d e r i v a t i v e a c t i o n . I t i s
t h e r e f o r e h i g h l y commendable. W e s h a l l c o n s i d e r
s e r i a l l y t h e o t h e r s t a t u t o r y m i n o r i t y p r o t e c t i o n
p r o v i s i o n s o f t h e Companies ~ c t ,
OTHER SECTIONS OF THE COMPANIES ACT AFFORDING M I N O R I T Y PROTECTIONL~~
To show t h a t t h e l a w h a s i m p r o v e d m i n o r i t y
p r o t e c t i o n i n Company Law i n ~ i g e r i a , w e s h a l l
c o n s i d e r t h e v a r i o u s s t a t u t o r y p r o v i s i o n s u n d e r
t h e Companies ~ c t . T h e s e e x a m p l e s a r e h e r e u n d e r
d i s c u s s e d s e r i a t i m .
( i ) RESTRAINT OF EXECUTORY ULTRA VIRES TRANSACTIONS: SECTION 39 ( 4 )
I t i s g r s t i f y i n g t o n o t e t h e m o d i f i c a t i o n of
t h e u l t r a v i r e s d o c t r i n e b y t h e new Companies l e g i s -
l a t i o n , F o r i n s t a n c e , e x e c u t o r y t r a n s a c t i o n s t h a t
a r e u l t r a v i r e s , c a n now be r e s t r a i n e d by t h e
c o u r t on t h e a p p l i c a t i o n o f any member, I n t h i s
c a s e , t h e c o u r t may p r o h i b i t by i n j u n c t i o n , t h e
d o i n g o f any a c t o r t h e c o n v e y a n c e o r t r a n s f e r of
154. p r o v i s i o n s u n d e r p a r t x of t h e ~ c t a r e n o t i n c l u d e d , a s t h e s e a l r e a d y b e e n d i s c u s s e d
a n y p r o p e r t y i n b r e a c h o f a c o m p a n y ' s a u t h o r i s e d
b u s i n e s s o r o b j e c t s , o r t h a t w h i c h i s o u t s i d e
i t s objects .
( i i ) OBSERVATION OF RESTRICTIVE PROCEDURE FOR AL'I'ERATION OF THE MEMORANDUM: SECTION 44 (FORMERLY SECTION 6)
U n d e r t h i s s e c t i o n , r e s t r i c t i v e p r o c e d u r e
f o r t h e a l t e r a t i o n o f t h e memorandum m u s t be
o b s e r v e d , ~ c c o r d i n g l y , a n y a l t e r a t i o n m u s t be
i n c o m p l i a n c e w i t h t h e e x p r e s s p r o v i s i o n o f t h e
C o m p a n i e s net. T h i s o f f e r s p r o t e c t i o n t o m i n o r i t y
s h a r e h o l d e r s a g a i n s t t h e a r b i t r a r y power of t h e
m a j o r i t y . C o n s e q u e n t l y , a l t e r a t i o n s m u s t be
s t r i c t l y i n a c c o r d a n c e w i t h s p e c i a l p r o c e d u r a l
r e q u i r e m e n t s . ( i i i ) OBJEC?ION TO ALTERATION OF BUSINESS OR
OBJECTS: SECTION 0 7 ) -.-"- p
T h i s s e c t i o n , d e a l i n g w i t h a l t e r a t i o n of
b u s i n e s s or o b j e c t s o f t h e company c o n f e r s a r i g h t
o n d i s s e n t i e n t s t o a p p l y t o c o u r t f o r t h e a l t e r a t i o n
t o be c a n c e l l e d . Here, a p p l i c a t i o n may be made t o
t h e c o u r t w i t h i n 2 8 d a y s o f t h e a l t e r a t i o n b y h o l -
d e r s o f 1 5 p e r c e n t of t h e i s s u e d s h a r e c a p i t a l o r
any c l a s s t h e r e o f . Where s u c h an a p p l i c a t i o n
f o r c a n c e l l a t i o n o f an a l t e r a t i o n o f t h e b u s i n e s s
o r o b j e c t s c l a u s e i s made, t h e a l t e r a t i o n s h a l l
n o t h a v e e f f e c t e x c e p t i n so f a r a s i t i s con-
f i r m e d b y t h e c o u r t . o n e o f t h e o r d e r s t h e c o u r t
c a n make i n t h i s c a s e i s f o r an a d j o u r n m e n t o f t h e
p r o c e e d i n g s t o make a r r a n g e m e n t f o r t h e p u r c h a s e
1 5 5 o f i n t e r e s t s o f d i s s e n t i e n t members . (iv) OBJECTION TO ALTERATION OF CERTAIN NON- --
OBLIGATORY CLAUSES I N MEMORANDUM: SECTION - I (FORMERLY S E C T I O T
T h i s s e c t i o n i s s u p p l e m e n t a r y t o s e c t i o n
4 6 and c o n f e r s power t o a l t e r t h e p r o v i s i o n s i n t h e - memorandum i n c e r t a i n c a s e s by s p e c i a l r e s o l u t i o n .
T h e s e c t i o n a l s o c o n f e r s r i g h t s on d i s s e n t i e n t
members t o a p p l y to c o u r t f o r t h e a l t e r a t i o n t o . b e c a n c e l l e d . However, t h e s e c t i o n d o e s n o t a p p l y
w h e r e t h e memorandum i t s e l f p r o v i d e s t h e mode o f
a l t e r a t i o n i n t h o s e c a s e s o r p r o h i b i t s a l t e r a t i o n
a l t o g e t h e r . ~ l s o , i t c a n n o t a u t h o r i s e t h e v a r i a -
t i o n or a b r o g a t i o n o f t h e s p e c i a l r i g h t s o f any
c l a s s o f members.
155 . S e c t i o n 4 6 ( 4 ) , C.A.M.A.
( v ) LIMITATION OF LIABILITY TO CONTRIBUTE TO SHARE CAPITAL: SECTION-^^^ (FORMERLY SECTION 2 2 )
T h i s s e c t i o n p r o h i b i t s . t h e company f rom
i n c r e a s i n g t h e l i a b i l i t y o f a member w i t h o u t ,a
w r i t t e n a g r e e m e n t , C o n s e q u e n t l y , i t p r o v i d e s
t h a t n o t w i t h s t a n d i n g any s t i p u l a t i o n i n t h e memo-
randum o r t h e a r t i c l e s o f a s s o c i a t i o n , a member
i s n o t bound by any a l t e r a t i o n r e q u i r i n g him t o
t a k e o r s u b s c r i b e f o r more s h a r e s t h a n h e h o l d s
upon h i s membership o r t o i n c r e a s e h i s l i a b i l i t y
t o c o n t r i b u t e t o t h e s h a r e c a p i t a l o r t o p a y money
by any o t h e r means t o t h e company,
( v i ) OBJECTION TO ALTERATION OF CLASS RIGHTS: SECTION 142 (FORMERLY SECTION 74)
his s e c t i o n c o n f e r s r i g h t on d i s s e n t i e n t
members t o a p p l y t o c o u r t f o r c a n c e l l a t i o n o P v a r i a -
t i o n o f c l a s s r i g h t s , Here, t h e h o l d e r s o f 15 p e r -
c e n t o f t h e i s s u e d s h a r e s o f t h a t c l a s s , who d i d
n o t c o n s e n t t o o r v o t e i n f a v o u r o f t h e r e s o l u t i o n
f ~ r t h e v a r i a t i o n may e x e r c i s e t h e r i g h t , The r i g h t
t o make s u c h a n a p p l i c a t i o n i s e x e r c i s a b l e w i t h i n
2 1 d a y s o f t h e s a i d v a r i a t i o n ,
The s e c t i o n , which i s an improvement on t h e
f o r m e r , i s n o t d e p e n d e n t o n t h e r e b e i n g a m o d i f i -
c a t i o n o f r i g h t s c l a u s e i n t h e a r t i c l e s o f a s s o -
c i a t i o n a s was t h e c a s e h i t h e r t o , The r i g h t o f t h e
m i n o r i t y t o make t h e a p p l i c a t i o n i s now f i x e d . his
d e v e l o p m e n t i s r e m a r k a b l e a n d commendable,
( v i i ) REQUISITION OF MEETINGS: SECTIONS 213 ( 2 ) A N D 215(2) (FORMERLY SECTIONS 124(2) A N D 1 2 5)
T h e s e s e c t i o n s c o n f e r r i g h t s on m i n o r i t i e s
t o r e q u i s i t i o n m e e t i n g s . F o r i n s t a n c e , w h e r e t h e r e
i s a d e f a u l t i n h o l d i n g a companyls a n n u a l g e n e r a l
m e e t i n g , t h e C o r p o r a t e ~ f f a i r s Commiss ion may, o n
t h e a p p l i c a t i o n o f any member o f t h e company, c a l l ,
o r d i r e c t t h e c a l l i n g o f a g e n e r a l m e e t i n g o f t h e
company and g i v e s u c h a n c i l l a r y o r c o n s e q u e n t i a l . d i r e c t i o n s a s t h e c o m m i s s i o n t h i n k s e x p e d i e n t . One
of t h e d i r e c t i o n s t h e Commiss ion c a n g i v e i n t h i s
c a s e i s t h a t o n e member o f t h e company p r e s e n t i n
p e r s o n o r b y p r o x y may a p p l y t o t h e c o u r t f o r an
o r d e r t o t a k e a d e c i s i o n which s h a l l b i n d a l l t h e
1 5 6 members .
~ l s o , s e c t i o n 2 1 5 ( 2 ) o f th 'e ~ c t p r o v i d e s ,JW
a method by which members h o l d i n g n o t less t h a n
o n e - t e n t h o f s u c h of t h e companyfs p a i d u p c # p i - . .
t a l a s c a r r i e s v o t i n g r i g h t s a t t h e cjener'el
m e e t i n g of t h e company c a n r e q u i s i t i o n an e x t r a -
o r d i n a r y g e n e r a l mee t ing o f a company, n o t w i t h -
s t a n d i n g a n y t h i n g i n t h e a r t i c l e s , Here, t h e
r e q u i s i t i o n i s t s must d e p o s i t a t t h e companycs
r e g i s t e r e d o f f i c e , a s i g n e d r e q u i s i t i o n s t a t i n g
t h e o b j e c t s f o r which t h e y wi sh a m e e t i n g o f t h e
company t o b e he ldJ5? , The d i r e c t o r s must t h e n
convene an e x t r a o r d i n a r y g e n e r a l m e e t i n g , and i f
t h e y have n o t done s o w i t h i n 2 1 d a y s a f t e r t h e
d e p o s i t of t h e r e q u i s i t i o n , t h e r e q u i s i t i o n i s t s ,
o r any of them r e p r e s e n t i n g more t h a n one -ha l f
o f t h e i r t o t e l v o t i n g r i g h t s , may t h e m s e l v e s con-
v e n e t h e mee t ing , s o l o n g a s t h e y do s o w i t h i n
158 t h r e e months o f t h e r e q u i s i t i o n , The r e q u i s i -
t i o n i s t s can r e c o v e r r e a s o n a b l e e x p e n s e s s o i n c u r r e d
157 . S e c t i o n 2 1 5 ( 3 ) , C,A,M,A,
158 , S e c t i o n 2 1 5 ( 4 ) , C.A.M.A.
f rom t h e company, and t h e company may i n t u r n
r e c o v e r t h e s e from t h e f e e s o f t h e d e f a u l t i n g
d i r e c t o r s 1 5 9 . T h e s e p r o v i s i o n s seem t o f o r e s t a l l
a t t e m p t s by d i r e c t o r s d e c l i n i n g t o c a l l g e n e r a l
m e e t i n g s a t wh ich m i n o r i t y g r i e v a n c e s c a n be p u t
f o r w a r d .
( v i i i ) RIGHT TO RECEIVE NOTICE O F MEETING: S E C T I O N 2 2 1
his s e c t i o n p r o v i d e s t h a t n o n - r e c e i p t o f
n o t i c e o f m e e t i n g by a p e r s o n e n t i t l e d t o i t , s h a l l
i n v a l i d a t e t h e m e e t i n g u n l e s s s u c h f a i l u r e i s an
a c c i d e n t a l o m i s s i o n on t h e p a r t o f t h e p e r s o n or
p e r s o n s g i v i n g t h e n o t i c e . his p r o v i s i o n i s c r i t i -
c i s a b l e f o r n o t i n c l u d i n g a n e g l i g e n t o m i s s i o n . ~ d -
d i t i o n a l n o t i c e i n a t l e a s t t w o d a i l y newspape r s
m u s t be g i v e n by e v e r y p u b l i c company wi t l$ l d a y s
1 6 0 b e f o r e any g e n e r a l m e e t i n g i s h e l d . T h e s e are
r e m a r k a b l e d e v e l o p m e n t s i n company p r o c e e d i n g s , a s
t h e y a v a i l t h e s h a r e h o l d e r s o p p o r t u n i t y t o a t t e n d
s u c h m e e t i n g s o r s e n d t h e i r p r o x i e s .
159. S e c t i o n 2 1 5 ( 6 ) , C.A.M.A.
160. S e c t i o n 222 , C.A.M.A.
( i x ) POWER OF COURT TO ORDER MEETINGS: SECTION 223( 1) (FORMERLY SECTION 1 2 8 ( 1) )
T h i s p r o v i s i o n c a n be r e s o r t e d t o w h e r e i t ' '8
becomes i m p r a c t i c a b l e t o cal$ a m e e t i n g o f a
company o r o f t h e l ' b o a r d o f d i r e c t o r s , I n s u c h *
a c a s e , any member o f t h e company who would b e
e n t i t l e d t o v o t e a t t h e m e e t i n g , c a n make a n
a p p l i c a t i o n t o t h e c o u r t s e e k i n g an o r d e r f o r a
m e e t i n g . ~ l s o , s u c h a member, u n d e r t h e d i r e c t i o n
o f t h e c o u r t , may a p p l y for an o r d e r t o t a k e a
1 6 1 d e c i s i o n which s h a l l b i n d a l l t h e members . his p r o v i s i o n is e q u a l l y a p p l i c a b l e to b o a r d of
d i r e c t o r s 1 m e e t i n g s a n d c a n be i n v o k e d by ,any
d i r e c t o r i n s i m i l a r s i t u a t i o n ,
( x ) RIGHT TO DEMAND A POLL: SECTION 2 2 5 (FORMERLY SECTION 130 ) . The s e c t i o n , i n c o n j u n c t i o n w i t h s e c t i o n 224
( l ) ( b ) and ( c ) , c o n f e r s t h e r i g h t t o demand a p o l l .
T h u s , i t i s p r o v i d e d t h a t any p r o v i s i o n i n t h e
a r t i c l e s i s v o i d i f i t would h a v e t h e e f f e c t o f
r e n d e r i n g i n e f f e c t i v e a demand f o r a p o l l on any
q u e s t i o n a t t h e g e n e r a l m e e t i n g o t h e r t h a n t h e
161 , S e c t i o n 2 2 3 ( 2 ) , C.A.M.A
e l e c t i o n o f t h e c h a i r m a n o r a d j o u n m e n t s , T h e
r i g h t t o demand s u c h a p o l l i s e x e r c i s a b l e by
n o t less t h a n t h r e e members h a v i n g t h e r i g h t t o
v o t e a t t h e meeting162, o r by member o r members b
r e p r e s e n t i n g n o t less t h a n o n e - t e n t h o f t h e t o t a l
1 6 3 v o t i n g r i g h t s , A r e d u c t i o n i n t h e number o f
members who c a n make s u c h a demand from f i v e 1 6 4
t o three165, i s e v i d e n c e by t h e new c o m p a n i e s
l e g i s l a t i o n t o e n h a n c e t h e u t i l i s a t i o n of t h e
1 6 6 r i g h t s c o n f e r r e d by t h e p r o v i s i o n . ( x i ) REQUISITION OF CIRCULATION OF RESOLUTIONS:
SECTION 2 3 5 ( 1 ) A N D (2) (FORMERLY SECTION
T h i s p r o v i s i o n c o n f e r s r i g h t o n m i n o r i t i e s
t o r e q u i s i t i o n members' r e s o l u t i o n s a t t h e a n n u a l
g e n e r a l m e e t i n g s , Here, t h e s u b - s e c t i o n s p r o v i d e t
163 . S e c t i o n 2 2 4 ( 1 ) ( c ) , C.A.M.AO
1 6 4 , S e e s e c t i o n l 3 O ( l ) ( b ) ( i ) , Companies ~ c t , 1 9 6 8
1 6 5 . S u p r a
166 . Note, however , t h a t n o r i g h t t o demand a p o l l c a n be e x e r c i s e d o n t h e e l e c t i o n o f members of t h e ~ u d i t C o m m i t t e e u n d e r s e c t i o n 359 o f t h e Compani es ~ c t
t h a t a n y member o r members r e p r e s e n t i n g n o t
less t h a n o n e - t w e n t i e t h o f t h e t o t a l v o t i n g
r i g h t s o f a l l members, o r n o t less t h a n 1 0 0
members h o l d i n g s h a r e s i n t h e company o n which
t h e r e h a s b e e n p a i d u p an a v e r a g e sum o f n o t
less t h a n H500.00 p e r member, c a n , by making
a w r i t t e n r e q u i s i t i o n t o t h e company, compel
t h e company -
( i ) t o g i v e t o members o f t h e company who a r e
e n t i t l e d t o r e c e i v e n o t i c e o f t h e n e x t
a n n u a l g e n e r a l m e e t i n g , n o t i c e o f a n y
r e s o l u t i o n s u b m i t t e d by a member which
may be p r o p e r l y moved a n d which t h e y
i n t e n d t o move a t t h a t m e e t i n g ; and
(ii) t o c i r c u l a t e t o members who a r e e n t i t l e d
t o h a v e n o t i c e o f any g e n e r a l m e e t i n g
s e n t t o them, any s t a t e m e n t o f n o t m o r e
t h a n 1 , 0 0 0 words w i t h r e s p e c t t o t h e
- m a t t e r r e f e r r e d t o i n a n y p r o p o s e d
r e s o l u t i o n o r t h e b u s i n e s s t o be d e a l t
w i t h a t t h e m e e t i n g . w h e r e t h e s t a t e -
m e n t s h a v e more t h a t 1 , 0 0 0 words , a
summary o f i t c a n b e c i r c u l a t e d .
V i o l a t i o n of t h i s p r o v i s i o n c o n s t i t u t e s an
o f f e n c e and e x p o s e s a l l d e f a u l t i n g o f f i c e r s to
~ 5 0 0 . 0 0 f i n e , each167, T h i s i s a s t i f f e r p u n i s h -
ment t h a n t h e f o r m e r , and i s i n t e n d e d to e n h a n c e
c o m p l i a n c e . I t g i v e s a member t h e o p p o r t u n i t y of
h a v i n g a r e s o l u t i o n t h a t i s to b e d e l i b e r a t e d upon
a t t h e g e n e r a l m e e t i n g , his w i l l e n a b l e h im,
b a s e d on h i s a s s e s s m e n t o f t h e i m p o r t a n c e o f s u c h
r e s o l u t i o n , t o make u p h i s mind w h e t h e r t o a t t e n d
p e r s o n a l l y o r s e n d a p roxy .
( x i i ) MODE OF VOTING ON PROPOSITION OF APPOINTING TWO OR MORE DIRECTORS: SECTION 2 6 1 (FORMERLY SECTION 1 7 4 )
T h i s s e c t i o n p r o v i d e s f o r t h e mode o f t
v o t i n g w h e r e t h e r e i s a r e s o l u t i o n p r o p o s i n g t h e
a p p o i n t m e n t of two o r more d i r e c t o r s a t a g e n e r a l
m e e t i n g o f a p u b l i c company, Here, i t is p r o v i d e d
t h a t t h e a p p o i n t m e n t o f t w o o r more p e r s o n s a s
d i r e c t o r s i n a g e n e r a l m e e t i n g o f a company, o t h e r
1 6 7 , S e c t i o n 2 3 5 ( 7 ) C,A,M,A,
t h a n t h a t o f a p r i v a t e company, s h a l l n o t be made
by a s i n g l e r e s o l u t i o n u n l e s s a r e s o l u t i o n t h a t
i t s h a l l be s o made h a s f i r s t been a g r e e d by t h e
1 6 8 m e e t i n g w i t h o u t any s i n g l e v o t e a g a i n s t i t . his g i v e s t h e m i n o r i t y t h e r i g h t t o v e t o s u c h
p r o c e d u r e . C o n s e q u e n t l y , any r e s o l u t i o n i n v i o l a -
t i o n o f t h i s p r o v i s i o n i s void169, b u t s u b j e c t t o
s e c t i o n 260 o f t h e ~ c t which v a l i d a t e s a c t s o f
d i r e c t o r s and o t h e r o f f i c e r s o f t h e company, n o t -
w i t h s t a n d i n g d e f e c t s wh ich may l a t e r be d i s c o v e r e d
i n t h e i r a p p o i n t m e n t s .
T h e e s s e n c e o f t h i s p r o v i s i o n i s t o p r e s e r v e
t h e r i g h t and f r e e d o m o f a member t o e x e r c i s e h i s
c h o i c e i n t h e a p p o i n t m e n t o f e a c h d i r e c t o r . Hence,
i t s e e k s t o p r e v e n t s u c h f r a u d a s may a r i s e w h e r e
t w o o r more d i r e c t o r s h i p a p p o i n t m e n t s a r e a p p r o v e d
a t a t i m e and a s h a r e h o l d e r d o e s n o t l i k e o n e o r
more o f t h e g r o u p a p p r o v e d t o g e t h e r .
168. s e c t i o n 2 6 1 ( 1 ) , C.A.M.A.
169 . S e c t i o n 2 6 1 ( 2 ) , CwA*MwA-
( x i i i ) APPLICATION FOR INVESTIGATION INTO AFFAIRS OF COMPANY: SECTION 314 ( FORMERLY SECTION 157)
T h i s s e c t i o n p r o v i d e s e x t r a j u d i c i a l remedy
t o m i n o r i t y s h a r e h o l d e r s t o a p p l y t o t h e C o r p o r a t e
~ f f a i r s Commission f o r t h e a p p o i n t m e n t o f i n s p e c t o r s
t o i n v e s t i g a t e t h e a f f a i r s o f a company and make a
r e p o r t t h e r e t o . Here, members h o l d i n g n o t less t h a n
o n e - q u a r t e r o f t h e c l a s s o f s h a r e s i s s u e d , may b r i n g
an a p p l i c a t i o n t o t h e commiss ion r e q u e s t i n g t h e
a p p o i n t m e n t o f i n s p e c t o r s t o i n v e s t i g a t e t h e a f f a i r s
o f t h e i r company170. The a p p l i c a t i o n mus t b e s u p p o r -
t e d by s u c h e v i d e n c e a s t h e commiss ion may r e q u i r e
f o r t h e p u r p o s e o f showing t h a t t h e a p p l i c a n t ( o r
a p p l i c a n t s ) h a s good r e a s o n f o r r e q u e s t i n g t h e
1 7 1 i n v e s t i g a t i o n . F o r m e r l y , t h e a p p l i c a n t h a d t o g i v e s e c u r i t y
n o t e x c e e d i n g o n e hund red n a i r a ( ~ 1 0 0 . 0 0 ) f o r pay-
ment o f t h e c o s t o f t h e i n v e s t i g a t i o n . ~ l s o , t h e
m i n i s t e r may r e f u s e t o e x e r c i s e h i s d i s c r e t i o n i n
g r B n t i n g t h e a p p l i c a t i o n i f h e t h o u g h t t h a t s u f f i -
c i e n t f a c t s w e r e known t o t h e a p p l i c a n t s t o e n a b l e
170 . S e c t i o n 3 1 4 ( 2 ) ( a ) C.A.M.A.
171 . S e c t i o n 3 1 4 ( 3 ) , C.A.M.A.
them a s s e r t r i g h t s on t h e i r b e h a l f . Bu t t h e
new Companies ~ c t h a s a t t e m p t e d t o remove t h e s e
r e s t r i c t i o n s , t h u s , l i b e r a l i s i n g t h e o p p o r t u n i t y
o f i n v o k i n g t h i s e x t r a j u d i c i a l remedy. F o r
examp le , t h e e x p e n s e s o r c o s t s o f i n v e s t i g a t i o n
a r e now t o be d e f r a y e d i n t h e f i r s t i n s t a n c e o u t
172 of t h e C o n s o l i d a t e d Revenue Fund , Rut t h i s
i s s u b j e c t t o t h e c o n d i t i o n t h a t an a p p l i c a n t
may be d i r e c t e d b y t h e commis s ion to make r e p a y -
ment t o any e x t e n t d e t e r m i n e d by i t i f , a s a
r e s u l t o f t h e i n v e s t i g a t i o n n o c r i m i n a l p r o s e c u -
1 7 3 t i o n i s b r o u g h t by t h e ~ t t o r n e y - ~ e n e r a l . ~ h u s ,
i n g e n u i n e c a s e s , a p p l i c a n t s w i l l h a v e t h e c o s t
of i n v e s t i g a t i o n d e f r a y e d , T h i s d e v e l o p m e n t i s
an improvement a imed a t a v a i l i n g i n d i g e n t a p p l i -
c a n t s t h e e x t r a j u d i c i a l remedy and t h e r e f o r e
commendable.
noth her i n t e r e s t i n q f e a t u r e o f t h i s new
d e v e l o p m e n t i s t h e more l i b e r a l n a t u r e o f s e c t i o n
3.14 of t h e Companies ~ c t . ~t d i d n o t r e - e n a c t t h e -- p r o v i s i o n e n t i t l i n g t h e m i n i s t e r t o r e f u s e an
1 7 3 , s e c t i o n 3 2 4 ( l ) ( c ) , C - A - M ~ A I
a p p l i c a t i o n w h e r e h e i s of t h e o p i n i o n t h a t
s u f f i c i e n t f a c t s a r e known t o t h e a p p l i c a n t s t o
e n a b l e them a s s e r t r i g h t s o n t h e i r b e h a l f .
( X ~ V ) APPLICATION FOR INVESTIGATION INTO MEMBERSHIP O F COMPANY: SECTION 326 (FORMERLY SECTION 164)
T h i s s e c t i o n a l s o p r o v i d e s e x t r a j u d i c i a l
remedy t o m i n o r i t y s h a r e h o l d e r s , Here, t h e Cor-
p o r a t e A f f a i r s Commission i f o f o p i n i o n t h a t
t h e r e i s good r e a s o n so t o do, may a p p o i n t i n s -
p e c t o r s t o i n v e s t i g a t e t h e membersh ip o f a
company o r f o r t h e p u r p o s e o f d e t e r m i n i n g t h e
t r u e p e r s o n s who a r e f i n a n c i a l l y i n t e r e s t e d i n
t h e s u c c e s s o r f a i l u r e o f t h e company o r a b l e t o
c o n t r o l or m a t e r i a l l y t o i n f l u e n c e t h e p o l i c y o f
t h e company174- T h e a p p l i c a t i o n f o r an i n v e s t i g a - t
t i o n may b e made t o t h e Commission w i t h r e s p e c t t o
p a r t i c u l a r s h a r e s or d e b e n t u r e s o f a company by
members o f a company n o t less t h a n t h a t r e q u i r e d
f o r an a p p l i c a t i o n u n d e r s e c t i o n 3 1 4 ( 2 ) ( a ) and ( b )
of t h e c o m p a n i e s ~ c t ,
S e c t i o n 3 2 6 ( l ) , C-A,M.A.
T h i s p r o v i s i o n , i n c o n j u n c t i o n w i t h
s e c t i o n s 94 and 9 5 , r e q u i r i n g t h e d i s c l o s u r e
o f b e n e f i c i a l i n t e r e s t i n s h a r e s , i s r e m a r k a b l e ,
O f s p e c i a l i n t e r e s t i s t h e o b l i g a t i o n o f d i s -
c l o s u r e by s u b s t a n t i a l s h a r e h o l d e r e n t i t l e d t o
e x e r c i s e a t l e a s t 1 0 p e r c e n t o f t h e u n r e s -
t r i c t e d v o t i n g r i g h t s a t a n y g e n e r a l m e e t i n g
o f a p u b l i c company175, T h e s e a r e s a f e g u a r d s
a g a i n s t t h e unwholesome t e n d e n c y o f p u l l i n g t h e
s t r i n g s from b e l o w , i n c o r p o r a t e a f f a i r s and
p r o c e e d i n g s w i t h o u t d i s c l o s i n g t h e i d e n t i t y o f
1 7 6 t h e a c t o r s , and a r e t h e r e f o r e commendable ,
( x v ) W I N D I N G UP ON JUST EQUITABLE GROUND: SECTION 408(e) (FORMERLY SECTION 209 ( f ) )
Under t h i s s u b s e c t i o n , t h e c o u r t i s empowered
t o wind up a* company i f i t i s o f t h e o p i n i o n t h a t
i t i s j u s t and e q u i t a b l e t h a t t h e company s h o u l d b e
wound up, T h i s remedy c a n a v a i l a m i n o r i t y s h a r e -
h o l d e r who h a s a p p l i e d t o c o u r t u n d e r s e c t i o n 3 1 1
176 , S e e , g e n e r a l l y , ~ o r d Denning, i n ax well v , Depa r tmen t of T r a d e , - /197_47 2 W.L.R. 338
o f t h e A C ~ f o r u n f a i r l y p r e j u d i c i a l and oppre-
s s i v e c o n d u c t , a s o n e o f t h e o r d e r s t h e c o u r t
can make u n d e r s e c t i o n 3 1 2 ( 2 ) of t h e Companies
~ c t . I n g e n e r a l , a winding up o r d e r w i l l b e
made i f t h e p e r s o n s who c o n t r o l t h e company
h a v e a c t e d o p p r e s s i v e l y towards t h e m i n o r i t y
s h a r e h o l d e r s , whe the r i n t h e i r c a p a c i t y o f
s h a r e h o l d e r s o r i n some o t h e r c a p a c i t y , s u c h
a s t h a t o f d i r ec to r177 . Also , i t a p p e a r s t h a t
t h e p h r a s e , j u s t and e q u i t a b l e , c o n f e r s on t h e
c o u r t an u n f e t t e r e d d i s c r e t i o n t o o r d e r a
company t o b e wound up when i t i s moved by a
p e t i t i o n .
However, b e c a u s e o f t h e e q u i t a b l e n a t u r e o f
t h e remedy, i t i s n o t g r a n t e d a s a m a t t e r o f
c o u r s e b u t r A t h e r a t t h e d i s c r e t i o n o f t h e c o u r t .
I t may e q u a l l y b e o b s e r v e d t h a t winding up t h e
company i s n o t a lways t o t h e b e s t i n t e r e s t o f t h e
a g g r i e v e d members
177. S e e Loch v. John Blackwood Ltd. , /39247 A.C. 783; Ebrahimi v. wes tbourne ~ a l l e r i e s r - /?9727 2 ~ 1 1 EIR. 492; and R e A. & B.C. Chewing Gum LtdmL - /19757 - 1 A l l E.R. 1017
t t s ince t h e break-up v a l u e o f t h e a s s e t s may b e s m a l l , o r t h e o n l y a v a i l a b l e p u r c h a s e r may b e t h e v e r y m a j o r i t y whose o p p r e s s i o n h a s d r i v e n t h e mino- r i t y t o s e e k r e d r e s ~ 1 7 8 ~ ? ,
T h e r e f o r e , b e c a u s e o f t h e d r a s t i c n a t u r e of t h i s
remedy, i t i s o n l y a d v i s a b l e t h a t m i n o r i t y s h a r e -
h o l d e r s r e s o r t t o i t a s a l a s t a l t e r n a t i v e .
( x v ~ ) MISFEASANCE SUMMONS AGAINST ERRANT DIRECTORS: SECTION 5 0 7 ( 1 ) (FORMERLY SECTION 310)
The s u b s e c t i o n p r o v i d e s a remedy by way o f
a m i s f e a s a n c e summons a g a i n s t e r r a n t d i r e c t o r s t o
r e p a y o r r e s t o r e any money o r p r o p e r t y m i s a p p l i e d
o r t o pay compensa t ion . his p r o v i s i o n a p p l i e s
where any p romote r , d i r e c t o r , manager o r any
o f f i c e r o f t h e company o r t h e l i q u i d a t o r h i m s e l f . Ithas m i s a p p l i e d o r r e t a i n e d o r
become l i a b l e o r a c c o u n t a b l e f o r any money o r p r o p e r t y of o f t h e company, o r been g u i l t y o f any m i s f e a s a n c e o r b r e a c h of d u t y i n r e l a t i o n t o t h e companyl79rt
I n s u c h a c a s e , a p p l i c a t i o n may be made by a c o n t r i -
b u t o r y f o r t h e c o u r t t o examine t h e conduc t of t h e
178 , S e e Cohen commi t t ee Repor t On Company ~ a w mend- ment , (1945) cmd 6659, p a r a s , 58 t o 60
179. s e c t i o n 5 O 7 ( l ) , C.A,M.A.
e r r a n t p r o m o t e r , d i r e c t o r , l i q u i d a t o r o r any
o f f i c e r o f t h e company and to compel him t o
r e p a y or restore any money o r p r o p e r t y o f t h e
company m i s a p p l i e d o r t o p a y c o m p e n s a t i o n .
T h i s i s an e f f e c t i v e remedy f o r c e r t a i n
p a s t b r e a c h e s o f d u t y owed t o t h e company and
i s a v a i l a b l e o n c e l i q u i d a t i o n h a s b e g u n , irres-
p e c t i v e o f t h e t y p e o f w i n d i n g up. xts i m p o r t a n c e
h a s b e e n a p t l y s t a t e d by P r o f e s s o r Gower a s f o l l o w s :
" B e c a u s e o f t h e p r a c t i c a l d i f f i c u l t i e s o f p r o c e e d i n g a g a i n s t t h e d i r e c t o r s so l o n g a s t h e y r e m a i n i n c o n t r o l , a summons u n d e r t h i s s e c t i o n ( 5 0 7 ( 1 ) ) , i s t h e most commonly u s e d method o f e n f o r c i n g t h e d i r e c t o r s 9 dut ies18011.
~ h o u g h i t h a s b e e n h e l d t o c o v e r b r e a c h . e s o f f i d u -
1 8 1 c i a r y d u t i e s a s a g a i n s t common l a w n e g l i g e n c e , i t seems t h a b t h e s c o p e o f t h e remedy p r o v i d e d by
t h e s u b s e c t i o n w i l l now e x t e n d t o c a s e s o f n e g l i -
gence182. T h e r e f o r e , e m i s f e a s a n c e summons u n d e r
1 8 0 . S e e G o w e r , s u p r a , a t p . 6 5 7
181. See R e R . Johnson g. Co. ( g u i l d e r s ) L t d . , - /?9557 - Ch. b34
S e c t i o n 2 8 2 ( 2 ) ,
s e c t i o n 5 0 7 ( 1 ) of t h e ~ c t p r o v i d e s a u s e f u l way
o f e n f o r c i n g d i r e c t o r s ' d u t i e s ,
B e s i d e s , a supp lemen ta ry and more e x t e n s i v e
remedy under s e c t i o n 506 of t h e Companies ~ c t can
a l s o b e invoked i n t h e l i q u i d a t i o n o f a company.
Under t h i s p r o v i s i o n , t h o s e r e s p o n s i b l e f o r
knowingly c a r r y i n g on t h e b u s i n e s s of t h e com-
pany w i t h i n t e n t t o d e f r a u d may b e made p e r s o n a l l y
l i a b l e f o r i t s d e b t s w i t h o u t l i m i t a t i o n o f l i a -
bil i ty183. However, i t a p p e a r s t h a t t h e remedy
p r o v i d e d by way o f a m i s f e a s a n c e summons does
n o t s u r v i v e t h e d i s s o l u t i o n of t h e company, s i n c e
i t c e a s e s t o e x i s t a s soon a s t h e company i s d i s -
184 s o l v e d . ( x v i i ) O V E R R I D I N G STATUS OF THE COMPANIES
ACT: SECTION 625
S e c t i o n 625 i s an e x p r e s s p r o v i s i o n r e s t a -
t i n g t h e f a c t t h a t t h e p r o v i s i o n s o f t h e companies
183. S e e a l s o s e c t i o n 644, C.A.M,Ao
184. S e e P u l s f o r d v. ~ e v e n i s h - /?go27 2 Ch. 625, a t pp. Z''Z57753, p e r ~ a r w e l l , J.
Cont ra : s e c t i o n 525(5 ) ( a ) , C.A.PI.A. which -tutes an e x c e p t i o n t o t h i s p r i n c i p l e
3 32
~ c t s h a l l o v e r - r i d e t h e memorandum and a r t i c l e s
o f a s s o c i a t i o n , i n c l u d i n g any ag reemen t o r
c o n t r a c t . his e n a b l e s t h e m i n o r i t y s h a r e -
h o l d e r s t o e x e r c i s e t h e v a r i o u s p e r s o n a l r i g h t s
c o n f e r r e d by t h e ~ c t i t s e l f . T h e r e f o r e , t h e r e
c a n n o t be any d e r o g a t i o n f r o m t h e s e s t a t u t o r y
r i g h t s b y an a l t e r a t i o n o f t h e memorandum or
a r t i c l e s o f a s s o c i a t i o n , ~ o t even by an a g r e e -
ment or c o n t r a c t , C o n s e q u e n t l y , any s u c h
v a r i a t i o n by a l t e r a t i o n , a g r e e m e n t o r c o n t r a c t ,
would be
b e i n g i n
( x v i i i )
i l l e g a l , n u l l and v o i d , and o f n o e f f e c t ,
c o n t r a v e n t i o n of t h e Companies ~ c t ,
APPOINTMENT OF RECEIVERS AND MANAGERS BY THE COURT: SECTION 389
o n a p p l i c a t i o n by a p e r s o n i n t e r e s t e d ,
v i s - a - v i s a m i n o r i t y s h a r e h o l d e r , t h e c o u r t may . a p p o i n t r e c e i v e r s and managers i n c i r c u m s t a n c e s
o f s e r i o u s crisis , e.g., w h e r e t h e s e c u r i t y o r
185 p r o p e r t y o f t h e company i s i n j e o p a r d y . The
a p p o i n t e e i s a t e m p o r a r y o f f i c e r o f c o u r t who
t a k e s c h a r g e of t h e company and may c a l l a g e n e r a l
185. S e c t i o n 3 8 9 ( l ) ( b ) , C.A.M.A.
m e e t i n g or t r y t o work o u t some a r r a n g e m e n t bet-
ween c o m p e t i n g i n t e r e s t s . his p r o v i s i o n s e c u r e s
t h e i n t e r e s t s o f m i n o r i t y s h a r e h o l d e r s i n t h e
a s s e t s o f t h e company and i s h i g h l y commendable .
( x i x ) STIFF PENALTY FOR INSIDER TRADING: SECTIONS 6 1 4 - 6 2 1
S e c t i o n s 6 1 4 t o 6 2 1 o f t h e C o m p a n i e s ~ c t
a r e s t a t u t o r y p r o v i s i o n s r e g u l a t i n g i n s i d e r t r a -
d i n g . p r o h i b i t i o n o n d e a l i n g i n s e c u r i t i e s by
i n s i d e r s , a b u s e o f i n f o r m a t i o n i n o f f i c i a l c a p a c i t y ,
a n d p e n a l t y f o r c o n t r a v e n t i o n a r e some o f t h e m a j o r
f e a t u r e s o f t h e s e p r o v i s i o n s . ~ h e s e s t a t u t o r y
r e g u l a t i o n s o f i n s i d e r t r a d i n g a r e new a n d commen-
d a b l e , a s t h e y o f f e r immense p r o t e c t i o n t o m i n o r i t y
s h a r e h o l d e r s . I n g e n e r a l , t h e C o m p a n i e s ~ c t h a s
i m p r o v e d m i n o t i t y p r o t e c t i o n i n ~ i g e r i a . A brief
a p p r a i s a l i s c o n s i d e r e d i n o u r n e x t h e a d i n g .
6 - A BRIEF CRITIQUE OF PROVISIONS OF THE COMPANIES ACT ON MINORITY PROTECTION
- T h e new C o m p a n i e s ~ c t h a s c o d i f i e d t h e bas ic
common l a w p r i n c i p l e s a n d m o s t o f t h e i m p o r t a n t
r u l e s i n t h i s s p h e r e o f Company Law. u n d e r t h e new
d i s p e n s a t i o n , b a s i c r u l e s a n d p r i n c i p l e s a r e t o b e
f o u n d i n t h e Companies ~ c t , a w a i t i n g j u d i c i a l
p r o n o u n c e m e n t s t o p r o v i d e b o t h t h e a u t h o r i t a t i v e
i n t e r p r e t a t i o n o f t h e l e g i s l a t i o n and a d j u s t m e n t %
t o c o n t e m p o r a r y n e e d s a n d e x p e c t a t i o n s , T h e
g r e a t e s t f e a t u r e o f t h e new ~ c t i s t h a t w h i l e
a t t e m p t i n g t o c o d i f y t h e l a w , s t a t i n g i t i n a
s i m p l e document , i t h a s a l s o l e f t f o r i t s a p p l i c a -
t i o n a c e r t a i n amount of d i s c r e t i o n t o t h e c o u r t s ,
his i s a c l e a n b r e a k f r o m t h e B r i t i s h o r i e n t a t i o n
o f t o o much r e s p e c t a n d i n c l i n a t i o n t o t h e common
l a w b a c k g r o u n d , T h e c o n s e q u e n c e u s u a l l y i s t h a t
l a t e r a t t e m p t s t o b u i l d a new l a w o r i n t e r v e n t i o n s ,
h a v e h a d t h e r e s u l t o f i n c r e a s i n g t h e c o m p l e x i t i e s
1 8 6 i n t h e l a w ,
W e commend t h e new c o m p a n i e s ~ c t f o r t h e
i n n o v a t i o n 9 i n t r o d u c e d i n t h i s a r e a o f Company
Law, i his a t t e m p t c o n f o r m s w i t h e x a m p l e s i n o t h e r
Commonwealth c o u n t r i e s 1 8 7 . ~ n g l i s h e x p e r i e n c e and
-186- S e e , A. T u n c , "A F r e n c h Lawyer ~ o o k s a t B r i t i s h Company Lawf1, 4 5 M , L , R , NO. 1, ( 1 9 8 2 ) , p . 1, a t p . 5
1 8 7 , S e e , e - g , , s e c t i o n 2 1 8 , Ghanacs Companies Code, 1 9 6 3 ; s e c t i o n 181, ~ a l a y s i a n Companies ~ c t , 1 9 6 5 ; a n d s e c t i o n 1 8 1 , S i n g a p o r e a n Companies ~ c t , 1 9 6 7
t h e r e commenda t i ons o f t h e J e n k i n s Commit tee ,
no d o u b t , i n f l u e n c e d t h i s modern t r e n d o f
p r o v i d i n g f a r - r e a c h i n g s t a t u t o r y r e m e d i e s
188 a g a i n s t o p p r e s s i o n i n Companies l e g i s l a t i o n s . his i s a c h e r i s h e d a n d d e s i r a b l e d e v e l o p m e n t ,
a imed a t m o d e r n i s i n g o u r l a w s r e l a t i n g t o b u s i -
n e s s t r a n s a c t i o n s . I n t h e l i g h t o f t h e f o r e g o i n g ,
w e w i s h t o c o n c l u d e t h i s c r i t i q u e o n t h e p o s i t i v e
n o t e t h a t t h e new c o m p a n i e s ~ c t h a s improved mino-
r i t y p r o t e c t i o n i n ~ i g e r i a . his i s b e c a u s e o f t h e
i n t r o d u c t i o n o f more f a r - r e a c h i n g p r o v i s i o n s , modi-
f y i n g and i m p r o v i n g t h e 1 9 6 8 Companies ~ c t - T h e s e
c h a n q e s h a v e r e f o r m e d t h e f o r m e r l e g i s l a t i o n , c u r -
b i n g some o f i t s d e f e c t s .
~ u t w h e t h e r t h e s e l a u d a b l e p r o v i s i o n s will b e
e f f e c t i v e l y G t i l i z e d , greatly d e p e n d s o n t h e
a w a r e n e s s b y s h a r e h o l d e r s and p r o s p e c t i v e i n v e s t o r s
o f t h e i r e x i s t e n c e . ~ h u s , c o r p o r a t e e d u c a t i o n and
i n f o r m a t i o n a r e i n d i s p e n s a b l e i n c r e a t i n g t h i s aware- \
n e s s . o u r a n x i e t y more o r less, i s t h a t t h e p r o b l e m
188. See t h e ~ n g l i s h Companies ~ c t s , 1 9 8 0 and 1985 ;
S e e a l s o : j e n k i n f s ~ e p o r t , p a r a - 2 1 2 ( a ) t o ( g )
now i s n o t n e c e s s a r i l y w i t h t h e a d e q u a c y of
j u d i c i a l and s t a t u t o r y p r o t e c t i o n o f m i n o r i t y
i n t e r e s t s i n c o r p o r a t e a f f a i r s . B u t , r a t h e r ,
l a c k o f a d e q u a t e k n o w l e d g e a n d a w a r e n e s s by
t h e s h a r e h o l d e r s t h e m s e l v e s o f t h e e x i s t e n c e o f
t h e s e r e m a r k a b l e a t t e m p t s t o p r o t e c t t h e i r
i n t e r e s t s . We s h a l l t h e r e f o r e c o n c l u d e t h i s
t h e s i s by making some r e c o m m e n d a t i o n s i n t h e
l i g h t o f t h e f o r e g o i n g . T h i s s h a l l c o n s t i t u t e
t h e s u b j e c t m a t t e r o f o u r l a s t c h a p t e r .
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
CONCLUSION
T h e h i g h l i g h t s o f t h e v a r i o u s c h a p t e r s o f
t h i s t h e s i s c a n be b r i e f l y s u m m a r i s e d a s f o l l o w s :
I n t h e f i r s t c h a p t e r , w e d i s c u s s e d i n e x t e n s o
t h e d o c t r i n e o f c o r p o r a t e p e r s o n a l i t y , s h o w i n g
i t s r e l a t i o n s h i p and r e l e v a n c e t o M a j o r i t y ~ u l e
a n d M i n o r i t y P r o t e c t i o n i n Company Law. F o l l o w -
i n g t h i s d o c t r i n e , a company by l e g a l f i c t i o n ,
e n j o y s d i s t i n c t l e g a l p e r s o n a l i t y o n r e g i s t r a t i o n
a n d a l s o e x e r c i s e s i t s r i g h t s t o t h e e x c l u s i o n o f
t h e members. T h u s , i t i s t h e p r o p e r p l a i n t i f f
t o i n s t i t u t e l e g a l p r o c e e d i n g s t o r e d r e s s c o r p o r a t e
w r o n g s and i r r e g u l a r i t i e s . C o n s e q u e n t l y , m i n o r i t y
s h a r e h o l d e r s a r e n o t a l l o w e d t o i n s t i t u t e l e g a l
p r o c e e d i n g s i n t h e name o f t h e company. ~t was
a l s o shown t h a t t h e c o r p o r a t e p e r s o n a l i t y d o c t r i n e
i s n o t a n a b s o l u t e p r i n c i p l e . I n e x c e p t i o n a l
c i r c u m s t a n c e s , t h e v e i l o f i n c o r p o r a t i o n is
l i f t e d t o a v o i d s h a r p p r a c t i c e s and f r a u d b e i n g
p e r p e t r a t e d u n d e r t h e c l o a k o f t h e p r i n c i p l e .
T h i s was d i s c u s s e d and shown a s b e i n g p r o t e c t i v e
o f s h a r e h o l d e r s 1 i n t e r e s t s and i n v e s t m e n t s i n t h e
company,
I n c h a p t e r t w o , w e d i s c u s s e d t h e management
o f t h e company, showing t h e b o a r d o f d i r e c t o r s
and t h e g e n e r a l m e e t i n g a s t h e p r i n c i p a l o r g a n s .
T h e ro le o f o t h e r o f f i c e r s i n c l u d i n g t h e company
s e c r e t a r y , was a l s o h i g h l i g h t e d , T h e a f f a i r s o f
t h e company a r e managed by t h e s e o r g a n s b e c a u s e
o f l i m i t a t i o n s imposed by t h e a r t i f i c i a l n a t u r e
o f t h e l e g a l p e r s o n a l i t y o f a company, v i s - a - v i s
a n a t u r a l p e r s o n . Hence , t h e company ' s powers
a r e d i v i d e d b e t w e e n them and t h e i r a c t s a r e t a k e n
t o b e t h o s e o f t h e company and b i n d i n g on a l l t h e
members. T h i s was shown a s t h e b a s i s o f t h e
i n t e r n a l management p r i n c i p l e , e x c l u d i n g t h e c o u r t s
and m i n o r i t y s h a r e h o l d e r s f r o m i n t e r f e r i n g i n t h e
i n t e r n a l a f f a i r s and management o f t h e company.
~ . e f a u l t powers o f t h e g e n e r a l m e e t i n g a n d t h e c o u r t ' s
s u p e r v i s o r y j u r i s d i c t i o n were e q u a l l y d i s c u s s e d a n d
shown a s n e c e s s a r y c h e c k s t o a v o i d a r b i t r a r i n e s s .
T h i s was f o l l o w e d by c h a p t e r t h r e e , w h i c h
d e a l t w i t h t h e p r i n c i p l e o f m a j o r i t y r u l e . Here,
t h e r u l e i n F o s s v. H a r b o t t l e , power o f a l t e r a t i o n
of a r t i c l e s , g e n e r a l m e e t i n g and r e s o l u t i o n s were
r e s p e c t i v e l y d i s c u s s e d a s t h e c o n s t i t u e n t s o f
t h e p r i n c i p l e . o t h e r i s s u e s h i g h l i g h t e d were
t h e s p e c i a l d e m o c r a t i c n a t u r e o f c o m p a n i e s ,
m a j o r i t y r i g h t s , a n d r e s t r a i n t s o r l i m i t a t i o n s
on t h e e x e r c i s e o f m a j o r i t y power. I t was ob-
s e r v e d t h a t t h e p r i n c i p l e o f m a j o r i t y r u l e i s
b a s e d o n t h e c o r p o r a t e p e r s o n a l i t y d o c t r i n e a n d
t h e i n t e r n a l management p r i n c i p l e d i s c u s s e d i n
c h a p t e r s o n e and t w o r e s p e c t i v e l y . we were t h u s ,
a b l e t o e s t a b l i s h a r e l a t i o n s h i p b e t w e e n t h e
f i r s t t h r e e c h a p t e r s . More i n t e r e s t i n g i s t h e
c o n c l u s i o n t h a t m a j o r i t y r u l e i s n o t an i n v i o l a t e
p r i n c i p l e . v a r i o u s j u d i c i a l and s t a t u t o r y res-
t r a i n t s were h i g h l i g h t e d a s d e v i c e s t o c o u n t e r -
b a l a n c e t h e r u l e .
. F i n a l l y , i n c h a p t e r f o u r , w e d e a l t h w i t h
m i n o r i t y p r o t e c t i o n i n Company Law. Here, a
c r i t i c a l e x a m i n a t i o n o f t h e v a r i o u s j u d i c i a l
a n d s t a t u t o r y a t t e m p t s t o s a f e g u a r d and p r o t e c t
m i n o r i t y i n t e r e s t s was u n d e r t a k e n , he e x c e p t i o n s
t o t h e r u l e i n F o s s v , ~ a r b o t t l e , i n t e r e s t s o f
j u s t i c e e x c e p t i o n , a n d f o r m s o f m i n o r i t y a c t i o n
were e x t e n s i v e l y c o n s i d e r e d , W e a l s o d i s c u s s e d
t h e m i n o r i t y p r o t e c t i o n p r o v i s i o n s o f t h e Com-
p a n i e s ~ c t , w i t h a b r i e f c r i t i q u e of t h o s e p r o v i -
s i o n s , I t was o b s e r v e d t h a t mos t o f t h e common
l a w p r i n c i p l e s and r u l e s i n t h i s s p h e r e o f company
l a w (e .g . t h e e x c e p t i o n s t o t h e r u l e i n F o s s v ,
H a r b o t t l e a n d p r i n c i p l e s o n d e r i v a t i v e a c t i o n )
h a v e b e e n c o d i f i e d by t h e Companics ~ c t a s s t a t u -
t o r y p r o v i s i o n s , w i t h t h i s d e v e l o p m e n t , i t a p p e a r s
th:t o n i y s t a t u t o r y p r o v i s i o n s now a v a i l m i n o r i t y
s h a r e h o l d e r s f o r t h e i r p r o t e c t i o n i n c o r p o r a t e
a f f a i r s . t
A g e n e r a l o v e r v i e w was made a n d t h e c o n c l u s i o n
drawn is t h a t t h e new Companies ~ c t h a s g r e a t l y
i m p r o v e d m i n o r i t y p r o t e c t i o n i n ~ i g e r i a . The o n l y
. c u r i o u s i s s u e i s t h e p r o b l e m of a d e q u a t e k n o w l e d g e
a n d a w a r e n e s s o f t h e e x i s t e n c e o f t h e s e p r o t e c t i v e
d e v i c e s . C o n s e q u e n t l y , t h e f i n a l c o n c l u s i o n i s
t h a t c o r p o r a t e e d u c a t i o n a n d i n f o r m a t i o n a r e
i n e v i t a b l e t o complement a n d s u p p l e m e n t t h e s e
s t a t u t o r y p r o v i s i o n s a n d f o s t e r u n i t y i n
c o r p o r a t e a f f a i r s . Some r e c o m m e n d a t i o n s a r e
s u g g e s t e d i n o u r n e x t h e a d i n g a s p o s s i b l e
s o l u t i o n t o t h e p r o b l e m s h i g h l i g h t e d i n t h i s
t h e s i s .
2. RECOMMENDATIONS
I t i s w i t h r e s p e c t t o p u b l i c c o m p a n i e s
e s p e c i a l l y , t h a t w e i n t e n d t o make o u r recom-
m e n d a t i o n s . T h i s i s b e c a u s e p r i v a t e c o m p a n i e s ,
p a r t i c u l a r l y s m a l l c o m p a n i e s , may n o t be much
d i f f e r e n t f rom p a r t n e r s h i p s , n o t w i t h s t a n d i n g
t h e i r l e g a l s t a t u s . They a r e u s u a l l y owned b y
f a m i l y members who may n o t b e e x p o s e d t o t h e 9
r i s k s t h e members o f a p u b l i c company a r e
s u b j e c t e d t o . ~ l s o , p r i v a t e c o m p a n i e s h a v e
n o i n t r i c a c i e s i n s t r u c t u r e a n d management s i n c e
i t i s t h e same h a n d s a s o w n e r s t h a t o p e r a t e t h e
b u s i n e s s .
On t h e o t h e r h a n d , p u b l i c c o m p a n i e s a r e i n
a u n i q u e p o s i t i o n , T h i s i s v i v i d l y i l l u s t r a t e d
b y P r o f e s s o r G o w e r , when h e s a i d :
t f I n v e s t m e n t i n ( p u b l i c ) c o m p a n i e s p r o b a b l y c o n s t i- t u t e t h e mos t i m p o r t a n t s i n g l e i t e m o f p r o p e r t y , b u t w h e t h e r t h i s ~ r o ~ e r t v
t h a t - o f t h e managemen t from w h i c h t h e y a r e d i v o r c e d l t f . ( u n d e r l i n i n g f o r e m p h a s i s )
T h e m a j o r p r o b l e m a s s o c i a t e d w i t h p u b l i c com-
p a n i e s i s w i d e l y d i f f u s e d o w n e r s h i p s t r u c t u r e .
T h e i n e v i t a b l e c o n s e q u e n c e o f t h i s i s t h a t i t
p r o v i d e s f o r a s i t u a t i o n w h e r e r e s p o n s i b i l i t y f o r
c o r p o r a t e d e c i s i o n - m a k i n g , a d m i n i s t r a t i o n and
c o n t r o l a r e d e l e g a t e d t o a c r o p of p r o f e s s i o n a l
m a n a g e r s . S u p p o s e d l y , t h e s e a r e e x p e c t e d t o
r e p o r t t o a . * l a r a e l y t i m i d and u n i n f o r m e d s h a r e -
h o l d e r s . ~ u t an i g n o r a n t membersh ip w h i c h i s
n o t a b l e t o e x e r c i s e e f f e c t i v e c o n t r o l o v e r t h e
b o a r d o f d i r e c t o r s w o u l d b e h a n d i c a p p e d t o d e t e c t
f r a u d and e m b e z z l e m e n t , B e s i d e s , a p a t h y and l a c k
1. See G o w e r , s u p r a , a t p. 10
o f i n t e r e s t , e x c e p t f o r d i v i d e n d s , d e t e r them
f rom a t t e n d i n g g e n e r a l m e e t i n g s of t h e company.
Thus t r e y a r e d i s a b l e d f rom p l a y i n g t h e s u p e r v i -
s o r y r o l e e x p e c t e d o f them. These - a r e some o f
t h e p r o b l e m s o f mos t p u b l i c compan i e s i n ~ i g e r i a . #
I n t h e l i g h t o f t h e f o r e g o i n g and a l l
o t h e r i s s u e s c o n s i d e r e d i n t h i s t h e s i s , w e make
t h e f o l l o w i n g r ecommenda t i ons . 1. CORPORATE EDUCATION AND INFORMATION
I n p r a c t i c e , t h e r e a l p r o b l e m s i n c o r p o r a t e
d e a l i n g s f o r which p r o t e c t i o n is h i g h l y d e s i r a b l e
i n modern p u b l i c c o m p a n i e s , i s d o m i n a t i o n by t h e
d i r e c t o r s and management o f t h e company. his is
t h e more a c t i v e and v i s i b l e o r g a n o f t h e company
a q a i n s t which t h e s h a r e h o l d e r s need p r o t e c t i o n .
A l s o , t h e t e n d e n c y o f t h e m i n o r i t y b e i n g i n e f f e c t ,
a Ifma j o r i t y l l o f s c a t t e r e d s h a r e h o l d e r s i s mos t
l i k e l y and i n a c t u a l f a c t , a common f e a t u r e o f
p u b l i c companies . his h a s made t h e need f o r a
c e r t a i n m e a s u r e o f p r o t e c t i o n a g a i n s t p o s s i b l e
a b u s e s by a dominan t s h a r e h o l d e r , v e r y i n e v i t a b l e .
However, a more l a s t i n g s o l u t i o n , i t
a p p e a r s , i s a w e l l i n f o r m e d and e d u c a t e d
membersh ip , who w i l l a p p r e c i a t e t h e i r r i g h t s
a n d d u t i e s i n t h e company, T h e r e f o r e , t h e
p r o v i s i o n o f c o r p o r a t e e d u c a t i o n and i n f o r -
m a t i o n t o s h a r e h o l d e r s i s h i g h l y d e s i r a b l e .
T h e i m p o r t a n c e h a s b e e n s t r e s s e d a s f o l l o w s :
f f , , . i f a l l s h a r e h o l d e r s a r e n o t a b l e t o u s e by t h e m s e l v e s t h e i n f o r m a t i o n t h u s made p u b l i c , t h e y a l l b e n e f i t f r o m t h e u s e made o f i t by t h e p r e s s and t h e f i n a n c i a l community2tl.
A n o t h e r b e n e f i c i a l e f f e c t i s
I t t h a t d i s c l o s u r e i s t o t h e a d v a n t a g e , n o t o n l y o f a c t u a l s h a r e h o l d e r s , b u t o f a l l v i r - t u a l i n v e s t o r s , who c a n make more i n f o r m e d d e c i s i o n s and e v e n o f s o c i e t y a t l a r g e , t h r o u g h i t s p r o p h y l a c t i c e f f e c t 31.
2, CORPORATE AFFAIRS COMMISSION TO BE RESPOFJSIBLE FOR PROMOTION OF CORPORATE EDUCATION
The C o r p o r a t e A f f a i r s commiss ion s h o u l d b e
2, S e e A, TUnC, s u p r a , a t p, '10
3. I b i d
r e s p o n s i b l e f o r t h e p r o m o t i o n o f c o r p o r a t e
e d u c a t i o n and d i s s e m i n a t i o n o f c o r p o r a t e
i n f o r m a t i o n t o t h e g e n e r a l p u b l i c , P r e s e n t
a n d p r o s p e c t i v e i n v e s t o r s w i l l d e r i v e immense
b e n e f i t f r o m t h e s e s e r v i c e s , , S i n c e members
o f t h e p u b l i c a r e t h e p o t e n t i a l i n v e s t o r s and
m o s t o f them a r e n o t k n o w l e d g e a b l e enough i n
company l a w t o a p p r e c i a t e t h e o p e r a t i o n o f
c o r p o r a t e m a c h i n e r y and a d m i n i s t r a t i o n , t h e
m a s s m e d i a s h o u l d be i n v o l v e d t o g e n e r a t e a n d
c r e a t e t h e d e s i r e d , a w a r e n e s s , To t h i s e n d ,
s h o r t r a d i o t a l k s , t e l e v i s i o n i n t e r v i e w s , d i s c u s -
s i o n s and d e l i b e r a t i o n s on c o r p o r a t e i s s u e s a r e
u s e f u l , ~ l s o , p u b l i c l e c t u r e s , s e m i n a r s , and
s y m p o s i a s h o u l d be o r g a n i s e d p e r i o d i c a l l y t o
i n f o r m and e a u c a t e members o f t h e p u b l i c w i t h
r e g a r d t o c o r p o r a t e a f f a i r s i n ~ i g e r i a , T h e
l a w f a c u l t i e s of o u r v a r i o u s u n i v e r s i t i e s c a n
l i a i s e w i t h t h e Commiss ion t o e n s u r e t h e s u c c e s s
o f t h e s e p u b l i c l e c t u r e s ,
3, CHARITABLE DONATIONS BY COMP.4NIES FOR PROMOTION OF CORPORATE EDUCATION A N D GRANTING OF TAX RELIEF
P r i v a t e a n d p u b l i c c o m p a n i e s c a n b e
e n c o u r a g e d t o make c h a r i t a b l e d o n a t i o n s f o r
t h e p r o m o t i o n and a d v a n c e m e n t o f c o r p o r a t i o n
4 e d u c a t i o n , The c o m p a n i e s ~ c t h a s m e r e l y
5 b a n n e d p o l i t i c a l d o n a t i o n s a n d n o t a l l t y p e s
of d o n a t i o n s , T h e r e f o r e , i t c a n b e i m p r e s s e d
on t h e s e c o m p a n i e s t h a t s u c h d o n a t i o n s f o r
t h e advancement of c o r p o r a t e e d u c a t i o n and
i n f o r m a t i o n w i l l i m p r o v e t h e q u a l i t y o f member-
s h i p a n d r e d u c e m i s u n d e r s t a n d i n g and u n n e c e s s a r y
c o n f l i c t s , ~ l l e n e r g i e s w i l l b e c o n c e n t r a t e d
o n a c h i e v i n g t h e c o r p o r a t e o b j e c t i v e o f enhan-
c i n g b e n e f i t s and r e t u r n s t o i n v e s t o r s . E q u a l l y
i m p o r t a n t , i s t h e g r a n t i n g o f t a x i n c e n t i v e s t o
e n c o u r a g e t h e s e c o m p a n i e s t o make d o n a t i o n s f o r
t h e a c c o m p l i s h m e n t o f t h e d e s i r e d g o a l of e d u c a -
t i n g and i n f o r m i n g t h e members o f t h e p u b l i c ,
4. S s e , e , g , , Evans v . B r u n n e r , Mond & C o . L t d - , L1921/ - 1 ch. 359
5 - S e e s e c t i o n 3 8 ( 2 ) , C.A.M.A.
T h e s e t a x r e l i e f s w i l l be j u s t i f i e d by s u c h
c o m p a n i e s a s t h e i r own c o n t r i b u t i o n s t o s o c i a l
and communi ty s e r v i c e s . Such s e r v i c e s w i l l a l s o
a t t r a c t p u b l i c i t y a n d e n h a n c e t h e image o f t h e
c o m p a n i e s , w i t h g o v e r n m e n t a n d p u b l i c p a t r o n a g e ,
4. MORE PUBLICITY OF THE ACTIVITIES OF THE NIGERIAN STOCK EXCHANGE
The N i g e r i a n S t o c k Exchange (NSE) c a n a l s o
c o n t r i b u t e immense ly t o t h e p r o m o t i o n o f c o r p o r a t e
e d u c a t i o n and i n f o r m a t i o n by r e g u l a r p u b l i c a t i o n
o f i t s a c t i v i t i e s i n , d a i l y n e w s p a p e r s , E x p e r t
o p i n i o n and a d v i c e c a n a l w a y s be i n c o r p o r a t e d i n
s u c h p u b l i c a t i o n s f o r t h e b e n e f i t and g u i d a n c e o f
p r o s p e c t i v e i n v e s t o r s , ~ l s o , t h e S t o c k Exchange
r u l e s and r e g u l a t i o n s s h o u l d be r e a d i l y a v a i l a b l e
and w i d e r e A d e r s h i p e n c o u r a g e d . T h e s e a r e some o f
t h e ways t o e n l i g h t e n p u b l i c o p i n i o n and e n h a n c e
t h e i r a p p r e c i a t i o n o f , and i n t e r e s t i n , p u b l i c
c o m p a n i e s . C o n s e q u e n t l y , t h e u s u a l i n s t i n c t f o r
s l o t a t i o n o f p r i v a t e c o m p a n i e s t o a v o i d t h e inti-
d e n c e o f e x p r o p r i a t i o n by t h e m a j o r i t y o r management
i n p u b l i c c o m p a n i e s may be r e - a d d r e s s e d ,
5. EDUCATIONJINFORMATIOM O N CORPORATE AFFAIRS A N D ENHANCEMENT OF PRIVATI- SATION AND COMMERCIALISATION
We see t h e p r e s e n t a t t e m p t by t h e F e d e r a l
a n d S t a t e Governments t o p r i v a t i s e t h e s h a r e s of
many g o v e r n m e n t p a r a s t a t a l s a s a s t e p i n + h e
r i g h t d i r e c t i o n , I t i s an a c t a imed a t e n c o u r a -
g i n g p u b l i c p a r t i c i p a t i o n i n c o r p o r a t e a f f a i r s
i n ~ i g e r i a , Now t h a t t h e o p p o r t u n i t y i s a v a i l -
a b l e , c o r p o r a t e e d u c a t i o n i s i m p e r a t i v e a n d i t s
a p p r o p r i a t e n e s s c a n n o t b e o v e r - e m p h a s i z e d , his
i s w h e r e w e a c k n o w l e d g e t h e e s t a b l i s h m e n t o f t h e
T e c h n i c a l committee on P r i v a t i s a t i o n a n d Commer-
c i a l i s a t i o n (T,C,P,C,) , b y t h e F e d e r a l ~ o v e r n m e n t ,
O u r r e c o m m e n d a t i o n i s t h a t t h i s body s h o u l d b e
i n s t i t u t i o n a l i s e d a s a p e r m a n e n t o r g a n f o r d i s s e -
m i n a t i o n o f - c o r p o r a t e i n f o r m a t i o n and p r o m o t i o n of
e d u c a t i o n , I t c a n b e made t h e e q u i v a l e n t o f MAMSER,
w h i c h i s an i n s t i t u t i o n a l i s e d body f o r d i s s e m i n a t i o n
a n d p r o m o t i o n o f p o l i t i c a l e d u c a t i o n i n ~ i g e r i a -
~ t s r o l e may b e c o m p l e m e n t a r y t o t h a t o f t h e Cor-
p o r a t e ~ f f a i r s c o m m i s s i o n .
6 OTHER RECOMMENDATIONS
R e s u l t s o f o r a l i n t e r v i e w h e l d w i t h a cross-
s e c t i o n o f t h e s o c i e t y , f o l l o w i n g a random sam-
p l i n g , r e v e a l e d how i g n o r a n t t h e s e members o f t h e
p u b l i c a r e , w i t h r e g a r d t o c o r p o r a t e m a c h i n e r y
and a d m i n i s t r a t i o n , T h i s h a s , t h e r e f o r e , n e c e s s i -
t a t e d o u r much i n c l i n a t i o n t o t h e p r o v i s i o n o f
c o r p o r a t e e d u c a t i o n and i n f o r m a t i o n a s a r e m e d i a l
m e a s u r e , However, i n a d d i t i o n t o t h e recommenda-
t i o n s a b o v e , w e a l s o s u g g e s t a s f o l l o w s :
( A ) FORMATION OF SHAREHOLDERS ASSOCIATIONS
T h e s e a s s o c i a t i o n s a r e r e l e v a n t and u s e f u l
i n o r g a n i s i n g t h e numerous s c a t t e r e d s h a r e h o l d e r s
i n p u b l i c c o m p a n i e s , T h e y enable s h a r e h o l d e r s t o
p r e s e n t a common f r o n t o r j o i n t a c t i o n a s a body 1
a g a i n s t d o m i n a t i o n b y t h e d i r e c t o r s and management
o f t h e company, T h i s g i v e s them t h e o p p o r t u n i t y
t o a c t a s s t r o n g p r e s s u r e g r o u p s , C o r p o r a t e
i n f o r m a t i o n and e d u c a t i o n may be d i s s e m i n a t e d
t h r o u g h t h e s e a s s o c i a t i o n s . R e s i d e s , p r o h i b i t i v e \
cos t o f l i t i g a t i o n may be m i n i m i s e d b y t h e s h a r e h o l d e r s 1
j o i n t e f f o r t . T h e s e a r e t h e r e f o r e recommended.
(B) STRICT ENFORCEMENT OF DIRECTORS ' FIDUCIARY DUTIES
I n g e n e r a l , f i d u c i a r y r e l a t i o n s h i p r e q u i r e s
t h a t power m u s t b e e x e r c i s e d b o n a f i d e i n t h e
i n t e r e s t s o f t h e company a s a w h o l e a n d f o r a
p r o p e r p u r p o s e . T h e r e f o r e , t h e f i d u c i a r y d u t i e s
o f d i r e c t o r s s h o u l d b e r e l i g i o u s l y e n f o r c e d . s u c h
a s t r ic t e n f o r c e m e n t i s a i m e d a t p r e v e n t i n g p o s s i -
b l e a b u s e s o f t h e i r p o s i t i o n a n d powers . p r o h i b i -
t i o n of t a x f ree p a y m e n t s a n d l o a n s , i n c l u d i n g t h e
p r i n c i p l e o f d i s c l o s u r e b y d i r e c t o r s s h o u l d b e
f u r t h e r m o r e d e v e l o p e d . ~ a j o r a c t i o n s on b e h a l f of
t h e company S h o u l d a l s o b e b a s e d on t h e s h a r e h o l d e r s *
a p p r o v a l i n g e n e r a l m e e t i n g . S i n c e d i r e c t o r s a r e
now more e b i l y l i a b l e f o r t h e i r n e g l i g e n t a c t s ,
6 r e s u l t i n g f r o m b r e a c h of d u t y of c a r e a n d s k i l l , we recommend t h a t d e r i v a t i v e a c t i o n s h o u l d a l s o b e
u s e d i n s u c h c a s e s t o r e c o v e r damages o r compensa-
s t i o n f o r t h e company. \
6. see s e c t i o n 2 8 2 ( 2 ) , C.A.M.A.
(C ) CONGRUENCY OF INTERESTS OF SHAREHOLDERS, DIRECTORS AND EMPLOYEES
S h a r e h o l d e r s a s owner s , d i r e c t o r s a s t h e
manage r s , and t h e employees a s t h e s e r v a n t s ,
h a v e v a r y i n g i n t e r e s t s . A common t endency i s
f o r e a c h i n t e r e s t g r o u p t o s t r i v e and a c c o m p l i s h
a s much o f i t s d e s i r e a s p o s s i b l e f o r t h e s a t i s -
f a c t i o n of i t s t T c o n s t i t u e n c y " . I n t h e p r o c e s s ,
d i sharmony e n s u e s and p r o d u c t i v i t y and e f f i-
c i e n c y r e l e g a t e d t o t h e background, !de t h e r e f o r e
a d v o c a t e f o r a congruency o f t h e s e i n t e r e s t s , ~ l l
s e c t i o n a l i n t e r e s t s w i l l be s u b j u g a t e d t o t h e
c o r p o r a t e g o a l and o b j e c t i v e ,
I n t h i s r e g a r d , t h e a t t e m p t by t h e new Com-
p a n i e s ~ c t i n r e c o g n i s i n g t h e employees as a f o r c e
7 i n c o r p o r a t e o r g a n i s a t i o n i s e n c o u r a g i n g , However, 7
t h i s s h o u l d b e imprzved by c o n s t i t u t i n g them a t
l e a s t , i n t o a c o n s u l t a t i v e o r g a n of t h e company
w i t h r e p r e s e n t a t i v e s e n t i t l e d t o a t t e n d m e e t i n g s
o f d i r e c t o r s and s h a r e h o l d e r s , and a r i g h t t o
s p e a k a t such m e e t i n g s , his is , no d o u b t , an
7 - S e e s e c t i o n 384L C O A ~ M . A . S e e a l s o , s e c t i o n 2 7 9 0 ) and ( 4 ) , C-A.M-A.
i n n o v a t i o n i n t h e s t r u c t u r e of o u r c o m p a n i e s .
But i t w i l l e n h a n c e t h e a t t a i n m e n t o f s e t
o b j e c t i v e s and p r o m o t e c o r p o r a t e g o a l and
u n i t y . C o n s e q u e n t l y , t h e e m p l o y e e s w i l l be
a s s o c i a t e d w i t h t h e company ' s p r o f i t s and
e x p a n s i o n . S h a r e s c a n be o f f e r e d t o them
e i t h e r c o l l e c t i v e l y o r i n d i v i d u a l l y , t o
e n a b l e them h a v e p e r s o n a l s t a k e and c o m m i t -
ment i n t h e a f f a i r s o f t h e company.
( D) DE-LIMITATION OF MAJORITY'S POWER OF C O N T R O ~
I n c o m p a n i e s , g e n e r a l l y , i n v e s t e d c a p i t a l i s
employed i n t h r e e m a j o r ways , t o e a r n i n t e r e s t ,
g a i n p r o f i t s and e x e r c i s e c o n t r o l . w h e r e a s t h e
o t h e r t w o a r e v e r y e c o n o m i c a s p i r a t i o n s , t h e l a s t
may n o t , and of c o u r s e , c o u l d be m a n i p u l a t e d t o
s e l f i s h l y e n h a n c e t h e f i r s t t w o . T h i s m a n i p u l a -
t i o n i s u s u a l l y t o t h e d e t r i m e n t o f t h e o t h e r m e m -
bers of t h e company who may be i n t h e m i n o r i t y .
. T h e r e f o r e , t h e c o n c e n t r a t i o n o f b o t h a d v a n t a g e s
i n o n e p e r s o n o r i n t e r e s t g r o u p , d o e s n o t a u g u r
w e 1 1 f o r c o r p o r a t e d e v e l o p m e n t and a d v a n c e m e n t i n
8 Clemens v. Clemens B r O S . L t d . , i s a
c l a s s i c e x a m p l e o f o p p r e s s i o n w h e r e t h e c o u r t
imposed r e s t r a i n t on t h e e x e r c i s e o f m a j o r i t y
power. C o n s e q u e n t l y , i n h i s judgment , F o s t e r
J. r e i t e r a t e d t h e t r i t e o b s e r v a t i o n o f L o r d
w i l b e r f o r c e i n brah hi mi v. W e s t b o u r n e G a l l e r i e s
L t d t h a t l e g a l r i g h t s s h o u l d b e s u b j e c t e d t o 2,
e q u i t a b l e c o n s i d e r a t i o n s w h i c h may make them
10 u n j u s t t o b e e x e r c i s e d i n a p a r t i c u l a r way . I n t e r e s t i n g l y , h i s lordship*^ a d m o n i t i o n h a s
b e e n f o l l o w e d and f u r t h e r m o r e d e v e l o p e d i n
11 l z t e r c a s e s . However, t h e i m p o r t a n c e o f
See. e.a.. R e H e l l e n i c a n d G e n e r a l T r u s t Ltd. . - . -
/T9?57 3 ~.CR. 1 2 3 ; R e ~ o r t h - ~ n d ~ 0 t e l s ( ~ u n k l ~ ) E t d . , /19767 1 N.Z.L.R. 4 4 6 ; Coleman v. ers, '719727-2 N;Z.L.R. 225; Estmanco ( ~ i l n e r ::use) L t d . v. G r e a t e r London C o u n c i l /1982/ 1 W.L.R. 2 , ( p e r M e g a r r y V-C, a t p. 1 6 ) ; - ~ o u n i s v. K O U ~ ~ S ( 1 9 8 7 ) 11 A.C.L.R. 854 , Western A u s t r a l i a ; and D a n i e l s v. ~ a n i e l s , s u p r a .
S e e a l s o t h e f o l l o w i n g a r t i c l e s : D. D. p r e n t i c e , 1 , ~ e s t r a i n t s on t h e E x e r c i s e o f ~ a j o r i t y S h a r e - h o l d e r P o w e r u , ( 1 9 7 6 ) 9 2 L.Q.R. 502; V. J o f f e , ' , M a j o r i t y R u l e u n d e r m i n e d n 7 7 ) 4 0 M.L.R. 71.; and P. G. Xuereb . !'The imitation on t n r c i s e o f ~ a j o r i t ~ ~ o w e b , ( 1 9 8 5 ) 6 - Co. Law 1 9 9 ; and a l s o t fRemedies f o r Abuse o f ~ a j o r i t y Power f l , ( 1 9 8 6 ) 7 CO. ' ~ a w 53.
t h e s e r e s t r i c t i o n s b a s e d on e q u i t a b l e c o n s i -
d e r a t i o n s c a n n o t be o v e r e m p h a s i z e d , F i r s t ,
i t e n a b l e s t h e c o u r t t o c o n s i d e r a c e r t a i n .
s i t u s t i o n and make an o r d e r t h a t a p p e a r s r i g h t ,
f a i r and e q u i t a b l e u n d e r t h e c i r c u m s t a n c e s .
S e c o n d l y , i t e n s u r e s more j u s t i c e t h a n m e r e l y
b e i n g u n n e c e s s a r i l y l e g a l i s t i c . ~ h i r d l y , i t
i s d e s i r a b l e i n c o r p o r a t e r e l a t i o n s t o g u a r a n -
t ee f u l f i l m e n t o f e x p e c t a t i o n s t h a t n e c e s s i t a t e d
i n v e s t m e n t by s h a r e h o l d e r s , ~ i n a l l y , i t i s
e x e r c i s a b l e a t t h e $ u d g e * s d i s c r e t i o n , b a s e d on
t h e f a c t s of e a c h c a s e and d o e s n o t r u n c o u n t e r
t o d e s i r a b l e c e r t a i n t y o f t h e law. T h i s a p p r o v a l ,
t h e r e f o r e , i s recommended and mos t d e s i r a b l e i n
t h o s e c a s e s w h e r e t h e m a j o r i t y d e s p e r a t e l y s e e k
t o d e p r i v e ' t h e m i n o r i t y o f wha t h a s been c a l l e d
" n e g a t i v e c o n t r o l l 2 v .
( E l REPEAL OF PROVISIONS LTMITING THE EXERCISE OF MINORITY SHAREHOLDERS ' RIGHTS TO PRESERVE STATUS QUO
The r e q u i r e m e n t o f a q u a l i f i e d m a j o r i t y f o r
12. S e e Clemens v , Clemens Rros . L t d O t s u p r a , p e r F o s t e r J, a t p , 282
t h e e x e r c i s e of c e r t a i n r i g h t s o r power,
e n a b l e s t h e m i n o r i t y t o p r e v e n t t h e m a j o r i t y
f r o m c a r r y i n g o u t t h e i r w i s h e s w h e r e t h e
s p e c i f i e d p r o c e d u r a l r e q u i r e m e n t i s n o t
o b s e r v e d . T h i s c o n f e r s a n e g a t i v e r i g h t o n
t h e m i n o r i t y t o p r e s e r v e t h e s t a t u s quo by
v e t o i n g c o n s t i t u t i o n a l o r o t h e r m a j o r c h a n g e s
r e q u i r i n g a q u a l i f i e d m a j o r i t y . F o r i n s t a n c e ,
d i s s e n t i e n t s h o l d i n g n o t less t h a n 1 5 p e r c e n t
i n n o m i n a l v a l u e o f t h e c o m p a n y ' s i s s u e d s h a r e
c a p i t a l may a p p l y t o c o u r t f o r c a n c e l l a t i o n o f
1 3 a l t e r a t i o n of b u s i n e s s o r o b j e c t s o f t h e company . ~ l s o , h o l d e r s of n o t less t h a n 1 5 p e r c e n t o f t h e
s h a r e s o f a c l a s s may a p p l y t o c o u r t f o r c a n c e l -
1 4 l a t i o n o f v a r i a t i o n o f c l a s s r i g h t s . gain,
i n v e s t i g a t i b n o f t h e a f f a i r s o f a company may be
g r a n t e d on a p p l i c a t i o n by members h o l d i n g n o t less
1 5 t h a n o n e - q u a r t e r o f t h e c l a s s of s h a r e s i s s u e d .
43. S e c t i o n 4 6 ( 2 ) , C.A.M.A.
1 4 . S e c t i o n 1 4 2 , C.A.M.A.
15 . s e c t i o n 3 l 4 ( 2 ) ( a ) , C.A.M.A.
A common o b s e r v a t i o n i n t h e s e c a s e s is
t h a t t h e e x e r c i s e o f t h e p r o t e c t i o n and r i g h t
c o n f e r r e d on t h e m i n o r i t y i s s u b j e c t t o t h e
condition t h a t a p p l i c a n t s s e e k i n g r e d r e s s mus t
n o t b e less t h a n t h e s p e c i f i e d number o r p e r -
c e n t a g e . T h i s r e q u i r e m e n t i s a c o n d i t i o n
p r e c e d e n t which mus t b e s a t i s f i e d o r t h e r i g h t
i s d e n i e d . his a p p r o a c h i s v e r y r e s t r i c t i v e .
I n p u b l i c compan i e s w i t h d i s p e r s e d membersh ip ,
i t may n o t b e p o s s i b l e t o summon t h e r e q u i s i t e
number o r p e r c e n t a g e t o s e e k r e d r e s s . B e s i d e s ,
t h e r e l i e f s o u g h t i s u s u a l l y an i n j u n c t i o n o r
d e c l a r a t i o n . Even w h e r e damages o r r e s t i t u t i o n
o f p r o p e r t y or c o m p e n s a t i o n i s g r a n t e d , i t i s a
r e l i e f o b t a i n e d on b e h a l f o f t h e company. It
i s , t h e r g f o r e , s u r p r i s i n g t h a t t h e p r o v i s i o n s o f
t h e Companies ~ c t c o n f e r r i n g t h i s power o f nega-
t i v e c o n t r o l on t h e m i n o r i t y , s t i l l i n s i s t on t h e
s p e c i f i e d p e r c e n t a g e o r number o f m i n o r i t y s h a r e -
- h o l d e r s f o r t h e e x e r c i s e o f t h i s p r o c e d u r a l
p r o t e c t i o n . A more g e n e r o u s p r o v i s i o n e n t i t l i n g
any s h a r e h o l d e r t o s e e k r e d r e s s i n s u c h c i r c u m -
s t a n c e s would h a v e been p r e f e r a b l e . Moreove r ,
t h e c o n c e s s i o n o r a p p l i c a t i o n is u s u a l l y g r a n t e d
a t t h e d i s c r e t i o n o f t h e c o u r t or C o r p o r a t e
~ f f a i r s Commiss ion , Hence , w h e r e i t a p p e a r s
f r i v o l o u s and v e x a t i o u s , i t c a n be r e f u s e d ,
We recommend t h e r e p e a l o f t h e s e r e q u i r e -
m e n t s f o r q u a l i f i e d m i n o r i t i e s a n d s u g g e s t t h a t
r i g h t s h o u l d be c o n f e r r e d o n a n y s h a r e h o l d e r t o
b r i n g an a c t i o n i n s u c h c a s e s , I t i s a l s o
s u g g e s t e d t h a t t h e c o u r t ' s l e a v e s h o u l d be a
c o n d i t i o n p r e c e d e n t f o r b r i n g i n g a n y a c t i o n a n d
t h a t power o f c o n s o l i d a t i o n s h o u l d be e x e r c i s e d
w h e r e t h e r e a r e m u l t i p l i c i t y o f s u i t s , B u t , i n
t h e a l t e r n a t i v e , a r e d u c t i o n f rom 15 p e r c e n t to
1 0 p e r c e n t s h o u l d be c o n s i d e r e d , his i s w i t h -
o u t p r e j u d i c e t o t h e i s s u e s on w h i c h a s i n g l e
member c a n ' s u e ,
(F) PERIODIC LEGISLATIVE INTERVENTION TO INTRODUCE REFORMS I N COMPANY LAW
T h e l e g i s l a t u r e s h o u l d r e a d i l y i n t e r f e r e t o
- b r i n g d e s i r a b l e r e f o r m s i n Company Law, AS t h e
economy d e v e l o p s , t h e e x p e c t a t i o n s f o r t h e s e reforms
become i n e v i t a b l e , T h e p r o b l e m h a s a l w a y s b e e n
t h a t when t h e r e i s s u c h i n t e r v e n t i o n b y P a r l i a -
m e n t , t h e s u p p o s e d l y "new r e f o r m s f f would h a v e
b e e n o v e r t a k e n by e v e n t s . T h e r e f o r e , r e f o r m s
f o l l o w i n g l e g i s l a t i v e i n t e r v e n t i o n i n company
l a w a r e u s u a l l y d e s i r a b l e and welcome d e v e l o p -
m e n t s i f n o t l o n g o v e r d u e . F o r i n s t a n c e , s i n c e
1 9 2 2 o n l y two o f s u c h l e g i s l a t i v e i n t e r v e n t i o n s
h a v e o c c u r r e d i n ~ i g e r i a f o r t h e r e f o r m a t i o n o f
company l a w , r e s u l t i n g i n t h e 1968 Companies ~ c t
a n d t h e c u r r e n t 1990 Companies and ~ l l i e d M a t t e r s
~ c t . T h e i n t e r v e n i n g p e r i o d s a r e u n n e c e s s a r i l y
too l o n g a n d w e recommend a p e r i o d i c r e f o r m on
a f i v e y e a r l y b a s i s . T h i s w i l l a f f o r d t h e o p p o r -
t u n i t y o f d i s c a r d i n g obsolete p r o v i s i o n s and
i n c o r p o r a t i n g more r e c e n t and r e a l i s t i c o n e s ,
t a k i n g i n t o e o n s i d e r a t i o n t h e f a c t and c i r c u m -
s t a n c e o f o u r n a t i o n a l d e v e l o p m e n t and c o m m e r c i a l i -
s a t i o n . ~t w i l l a l s o a f f o r d t h e o p p o r t u n i t y o f
c o d i f y i n g j u d i c i a l d e c i s i o n s o f immense v a l u e , a s
w e l l a s b o r r o w i n g f r o m d e v e l o p m e n t s i n o t h e r
common law c o u n t r i e s , f o r t h e e n h a n c e m e n t o f o u r
law. F u r t h e r m o r e , i t w i l l e n s u r e an a d j u s t m e n t
i n t h e l a w t o t h e c o n t e m p o r a r y n e e d s a n d e x p e c t a -
t i o n s o f t h e i m m e d i a t e s o c i e t y .
I t is h e r e t h a t w e r e s p e c t f u l l y commend
t h e e f f o r t s o f o u r c o u r t s a n d j u d g e s i n
s t r i v i n g w i t h i n t h e r a t h e r r i g i d f ramework
of t h e a u t h o r i t y o f p r e c e d e n t , t o i n t r o d u c e
some d e s i r a b l e c h a n g e s i n t h e l aw, and t h u s
r e f l e c t i n g and a d j u s t i n g t h e l a w t o o u r contem-
p o r a r y n e e d s a n d e x p e c t a t i o n s . T h e Supreme
C o u r t of N i g e r i a h a s t a k e n a b o l d s t e p i n t h i s
r e g a r d and a r e m a r k a b l e and commendable a c h i e v e -
m e n t a t t a i n e d . F o r i n s t a n c e , t h i s h a s r e s u l t e d
i n e x p a n d i n g t h e f r o n t i e r s o f t h e e x c e p t i o n s t o
t h e r u l e i n F o s s v . H a r b o t t l e , a d m i t t i n g t h e
i n t e r e s t s o f j u s t i c e a s a f i f t h e x c e p t i o n ,
a l t h o u g h t h i s was n o t c o d i f i e d . However, t h e
new Companies ~ c t h a s i n c o r p o r a t e d r e c e n t
c h a n g e s i n o t h e r Commonwealth c o u n t r i e s , c o d i -
f y i n g some common l a w r u l e s a n d i n c o r p o r a t i n g
- r e m a r k a b l e j u d i c i a l d e c i s i o n s . T h e s e a r e e n c o u r a -
g i n g a t t e m p t s t h a t w i l l e n h a n c e t h e s c o p e , c o n t e n t
and v a l u e of company l a w and p r a c t i c e i n N i g e r i a .
We c a n o n l y a d d t h a t t h i s s h o u l d be a c o n t i n u o u s
e x e r c i s e , a s t h e r e s u l t a n d c u m u l a t i v e e f f e c t
c a n n o t be o v e r - e m p h a s i z e d . F i n a l l y , t h e c i t i z e n r y t
o r members of t h e p u b l i c s h o u l d be w e l l i n f o r m e d
o f t h e s e d e v e l o p m e n t s i n company law, t o e n a b l e
them a p p r e c i a t e c o r p o r a t e m a c h i n e r y and o r q a n i -
s a t i o n . Thf s i s w h e r e t h e p r o m o t i o n of c o r p o r a t e
e d u c a t i o n a n d d i s s e m i n a t i o n o f i n f o r m a t i o n become
i n e v i t a b l e . his l a s t r e c o m m e n d a t i o n b r i n g s o u r
s t u d y t o a c o n c l u s i v e e n d .
BIBLIOGRAPHY
A - BOOKS
Ayua, I. A. N i g e r i a n Company Law. U n i t e d ~ i n g d o m : Graham Burn , 1Sf84.
~ o y l e , A. J. and S y k e s , ~ i c h a r d , Gore- Browne On Companies , London: J o r d a n & S o n s L i m i t e d , 1 9 7 7 ,
c a i n , T. E. C h a r l e s w o r t h & C a i n Company Law, on don: S t e v e n s & s o n s , 197 . i ,
~ z e j i o f o r , G O , Okonkwo, C, 0 , and ~ l e q b u n e , C. U. N i g e r i a n B u s i n e s s Law; London: Sweet & axw well, 1 9 8 2 ,
Gower, L O C- B. G o w e r f s P r i n c i p l e s o f Modern Company Law, London: S t e v e n s & S o n s , 19 '/9 ,
H a h l o , H , R . and T r e b i l c o c k , M , J , ~ a h l o f s Casebook o n Company Law, London: S w e e t & Maxwel l , 1 9 7 7 ,
Ivamy, Hardy E. R . Topham and I v a m y f s Company Law. London: B u t t e r w o r t h s . 19 ' /4 ,
Kachikwu,
f
E. I. a n d Ozekhome, ~ i k e a, A. N i g e r i a n Company & - p a r t n e r s h i p Law and P r a c t i c e . Lagos : Mikzek Law p u b l i c a t i o n s ~ i m i t e d , 1 9 8 8 ,
L o s s , ~ o u i s , T r e n d s i n C o r p o r a t e G o v e r n a n c e and I n v e s t o r P r o t e c t i o n , Laqos : L a g o s U n i v e r s i t y p r e s s , 1981 .
Mayson, S t e p h e n W,, F r e n c h , Derek and Ryan, c h r i s t o p h e r L. Company Law, London: B l a c k s t o n e P r e s s L i m i t e d , 1 9 8 8 ,
ort they, J, r . , , i e i g h , L, H. and G o l d b e r g , D o ~ n t r o d u c t i u n t o company Law. London: B u t h e r w o r t h s , 1971,
~ l a w o y i n , G. A. - S t a t u s a n d D u t i e s o f Company ~ i r e c t o r s . Ile-17e: U n i v e r s i t y o f I f e p r e s s , 1977 .
o r o j o , 0. J. Company Law a n d P r a c t i c e - i n N i g e r i a . London: S w e e t & Maxwel l , 73m-7-
~ e n n i n g t o n , Robert R . Company Law. London: R u t t e r w o r t h s , 1979.
~ c h m i t t h o f f , C l i v e M . and Thompson, j a m e s H ; p a l m e r c s Company Law.. London: S t e v e n s & S o n s L i m i t e d , 1968.
S i r w i l l i a m B l a c k s t o n e ' s C o m m e n t a r i e s On T h e Laws o f E n g l a n d , V o l . 1, 1'165.
s m i t h , ~ e n n e t h a n d Keenan, D e n i s . Company Law. London: p i t m a n , 1981. -
~ d e k o y a , Kayode. f l ~ h e C o n c e p t o f C o r p o r a t e P e r s o n a l i t y " , T h e Lawyer , ( J o u r n a l of T h e Law S o c i e t y , U n i v e r s i t y o f L a g o s , L a g o s , N i g e r i a ) 3 , NO. 1 (December, 1 9 6 8 ) , 16-20.
~ k a n k i , ~ E . 0. f l ~ b u s e of Power And B r e a c h o f ~ u t y BY Company D i r e c t o r s w , T h e Nige- r i a n J o u r n a l o f c o n t e m p o r a r y Law, 6, Nos. 1 & 2 ( ~ p r i l a n d December, 1 9 75) , 1-43
f f C o n t r o l l i n g T h e V a g a r i e s of Democracy I n Companies f f , ~ i g e r i a n J o u r n a l of C o n t e m p o r a r y Law, 1 5 ( 1 9 8 8 ) , 111-132
f f c o r p o r a t e ~ i t i g a t i o n f f , Obaf e m i ~ w o l o w o u n i v e r s i t y Law J o u r n a l t 3 '& 4 ( 1 9 8 7 ) , 4 1 - 59
I V N e g l i g e n t Management By Company ~ i r e c t o r s ~ ~ , N i g e r i a n Law J o u r n a l , ( 1 9 7 5 ) , 47-62.
"The L e g a l And p r a c t i c a l s i g n i f i c a n c e of isc closure And P u b 1 i c i t y o f Company l n f O r m a t i O n f ' , T h e N i g e r i a n B a r J o u r n a l , 1 3 ( 1 9 7 6 ) , 13-27 ,
"The R e l e v a n c e of C o r p o r a t e p e r s o n a l i t y P r i n c i p l e f f , T h e ~ i g e r i a n Law J o u r n a l , 11 ( 1 9 7 7 - ' 7 8 ) , 9 - 3 2 .
~ n a c h e b e , B e n b e l l a A. "The Law On T h e p r o t e c t i o n of M i n o r i t y S h a r e h o l d i n g I n t e r e s t I n N i g e r i a H , T h e Ba r r i s t e r , ( J o u r n a l of T h e Law S t u d e n t s ~ s s o c i a t i o n , u n i v e r - s i t y o f ~ i g e r i a , Enugu Campus) Number 1 3 ( J u n e , 1 9 8 6 ) , 36-38.
A n d r e , Tunc . F r e n c h L a w y e r L o o k s ~t ~ r i t i s h Company Law", ~ o d e r n Law Rev iew, 45 ( J a n . , l 9 8 2 ) , 1-17.
so mug ha, E. M. !!The S h a r e h o l d e r , is ~ i g h t s And L i a b i l i t i e s u n d e r T h e 1 9 6 8 C o m p a n i e s Decree", N i g e r i a n Law J o u r n a l , 7 ( l 9 7 3 ) , 100-116.
~ a k i b i n g a , D. J. f f C o n t r o l l i n g T h e Company And C o n t r o l l i n q T h e Management of T h e Company: A ~ i s t i n c t i o n l ~ , T h e G r a v i t a s ~ e v i e w o f
-
~ u s i n e s s 8 p r o p e r t y Law: ~ i q e r i a n a n d I n t e r n a t i o n a l . 2. No. 4 (1 3 8 9 )
f f C o r p o r a t e I r r e g u l a r i t i e s ~ n d P e r s o n a l s h a r e h o l d e r s R i g h t s f f , T h e ~ r a v i t a s ~ e v i e w of B u s i n e s s 8: P r o p e r t y Law: ~ i g e r i a n a n d I n t e r n a t i o n a l . 2. N O , 7 ( 1 9 8 9 ) . 1 5 21. -
as tin, N . A. "Company P o w e r s And T h e u l t r a vires D o c t r i n e u , T h e J o u r n a l of B u s i n e s s Law, ( 1 9 7 l ) , 268-272
l l M i n o r i t y P r o t e c t i o n I n Company Lawu, The J o u r n a l o f B u s i n e s s Law, (19681 , 320 - 324.
"The En fo rcemen t o f A Memberls R i g h t s w , T h e J o u r n a l o f B u s i n e s s Law, ( 1 9 7 7 1 , 17-28.
B o y l e , A. J. "The D e r i v a t i v e A c t i o n I n Company Lawn, The J o u r n a l o f B u s i n e s s Law, ( 1 9 6 9 ) , 120-127.
"The ~ i n o r i t y S h a r e h o l d e r Tn The N i n e t e e n t h C e n t u r y : A s t u d y i n Anglo- American L e g a l H i s t o r y " , Modern Law ~ e v i e w , 28 ( 1 9 6 5 ) , 317-323.
B r e t t e n , G. R. " A l t e r a t i o n o f ~ r t i c l e s And P r o t e c t i o n o f M i n o r i t i e s " , T h e J o u r n a l of B u s i n e s s Law, ( 1 9 7 0 ) . 185-197.
C h a n t l e r , D. W. "The S h a r e h o l d e r s @ C o r p o r a t e C o n t r a c t I n Wes te rn A u s t r a l i a t r , west A u s t r a l i a n Law ~ e v i e w , 1 2 ( 1 9 7 5 - w ,
33.
Demola, ~ d e r e m i . R a t i o n a l e of The ~ x e r a i s e of Manaqement C o n t r o l BY company ~ i r e c t o E s f r , The ~ r a v i t a i Review o f ~ u s i n e s s & P r o p e r t y Law: N i g e r i a n and
Dru ry , R. R. "The ~ e l a t i v e N a t u r e o f A S h a r e - h o l d e r ' s ~ i q h t TO ~ n f o r c e The Company C o n t r a c t " , The Cambr idge Law ~ o u r n a l . ( 1 9 8 6 ) , 219.
is en berg, M I A. T h e L e g a l ~ o l e s o f S h a r e h o l d e r s And Management I n Modern C o r p o r a t e D e c i - s i o n Making t f , C a l i f o n i a Law Reviewt 57 ( J a n , , 1 9 6 9 ) , 1-181.
s i t y of ~ i g e r i a , EnUgU Campus) No. 1 2 ( J u n e , 1 9 8 5 ) , 33-34.
F r a s e r , R . D. w ~ d m i n i s t r a t i v e Powers o f I n v e s t i - g a t i o n I n t o Companies f f , Modern Law Review, 34 ( 1 9 7 1 ) , 260.
G o o d ~ a r t , A. L. "The P r o t e c t i o n o f M i n o r i t y S h a r e - h o l d e r s I n P r i v a t e Companiesfl , The Law Q u a r t e r l y ~ e v i e w , 75 (Jan. , 1959 ) , 42 . -
I n s t o n e , Ra lph . t t I n s p e c t o r s , I n v e s t i g a t i o n s ~ n d T h e i r ~ f t e r m a t h " , The J o u r n a l o f ~ u s i n e s s Law, ( 1 9 7 8 ) , 121-128. -
Jeff e, V. " ~ i n o r i t y R u l e undermined? t t Modern Law ~ e v i e w , 40 an., 1 9 7 7 ) , '/I '/4. -
K a r i b i - ~ h y t e , A. G.' "Some R e f l e c t i o n s On Company Law Reformtt , T h e ~ i g e r i a n B u s i n e s s Law ~ n d P r a c t i c e December, l 9 8 8 ) , 30-38.
Kun le , ale jaye . " R e f l e c t i o n s On Company Law ~ n d Management I n N i g e r i a n , P e o p l e s 9 Law ( A J o u r n a l o f Con t empora ry N i g e r i a n i n d ~ f r i c a n Laws, J u s t i c e and ~ e g a l i t y ) 1
,( 1 9 8 7 ) , 13-35 & 19.
Mason, H. H . " F r a u d On T h e ~ i n o r i t y : The P rob l em o f A S i n g l e F 'o rmula t ion o f The P r i n c i p l e u , The A u s t r a l i a n Law ~ o u r n a l , 46 ( l 9 7 2 ) , 67. -
~ e t o n g , I k u r u . "The O p e r a t i o n o f The I C o r p o r a t e P e r s o n a l i t y ' D o c t r i n e I n Company ~ a w f l , The Lawyer , ( J o u r n a l o f T h e Law S o c i e t y , u n i v e r s i t y of L a g o s , Lagos , ~ i g e r i a ) 1 3 (May, 1 9 8 3 ) , 57-63.
ogundana , ~ y o o l a 0. "The R u l e I n F o s s v . ~ a r b o t t l e ~ n d ~ i n o r i t y S h a r e h o l d e r s 1 ~ i g h t s f l , T h e J u r i s t , ( J o u r n a l o f The Law s t u d e n t s - S o c i e t y , u n i v e r s i t y of I l o r i n , lor in, N i g e r i a ) 2 ( 1 9 8 7 ) , 27-32.
O k e r e , B. 0. "The C o n c e p t o f L e g a l p e r s o n a l i t y ( ( , The ~ a r r i s t e r , ( J o u r n a l o f The Law S t u d e n t s ~ s s o c i a t i o n , u n i v e r s i t y o f N i g e r i a , EnUgu campus) NO. 1 0 ( ~ a y , l 9 8 2 ) , 20-28
~ k o r o d u d u , M a T. ( ~ i s s ) ( ( L e g a l T h e o r i e s o f I n c o r p o r a t i o n And The C o n c e p t o f I n d u s t r i a l Democracvw. J o u r n a l o f - - a , - P r i v a t e and P r o p e r t y ~ a w , 5 ( - 19861 ,
o l a w o y i n , G. A. " S t a t u t o r y p r o t e c t i o n o f M i n o r i t y S h a r e h o l d e r s r ( , N i g e r i a L a w y e r s r ~ u a r t e r l y , 6 ( 1 9 7 3 ) , 95-105,
o r0 j o , 01 a k u n l e J. !(The Companies Decree, 1968". - . N i g e r i a L a w y e r s t ~ u a r t e r l ~ , 4 , Nos, 1-4,
O s u n b o r , 0. A, " A C r i t i c a l A p p r a i s a l o f 'The I n t e r e s t s o f ~ u s t i c e ' AS An E x c e p t i o n To The R u l e Tn F o s s v , H a r b o t t l e " , I n t e r n a t i o n a l and C o m p a r a t i v e Law Q u a r t e r l y ? 3 6 ( J a n , , 1 9 8 7 ) , 1-13,
~ o o l e , J. "companies ~ c t 1 9 8 5 , s e c t i o n 459: A G e n e r a l J u r i s d i c t i o n o f u n f a i r n e s s ? " Company LawyerL 8 ( l 9 8 7 ) , 33,
renti ice, D,. D , " C o r p o r a t e A r r a n g e m e n t s - p r o t ec- t i n q ~ i n o r i t y S h a r e h o l d e r s " , T h e t a w Q u a r t e r l y Review, 92 an,, 1-3-17,
" M i n o r i t y S h a r e h o l d e r o p p r e s s i o n " , The Law ~ u a r t e r l y ~ e v i e w , 89 ( J u l y , 7 9 7 3 1 , 338-345,
t l R e s t r a i n t s On The E x e r c i s e o f Ma j o r i t y b
S h a r e h o l d e r P o w e r f f , T h e Law ~ u a r t e r l y Review, 9 2 , ( o c t , , l 9 7 6 ) , ' 502-506,
"The T h e o r y o f T h e F i rm: M i n o r i t y S h a r e h o l d e r o p p r e s s i o n : S e c t i o n s 459- 4 6 1 o f T h e Companies ~ c t , 198511, o x f o r d J o u r n a l of L e g a l S t u d i e s , 8 (-19887, 55.
~ a j a k , H. "The O p p r e s s i o n o f T h e . M i n o r i t y S h a r e h o l d e r s f , , Modern .Law Review, 35 (March , l 9 7 2 ) , 1 5 6 1 7 0 . -
R i x o n , F. G. "Compet ing I n t e r e s t s And C o n f l i c t i n g ~ r i n c i p l e s : An E x a m i n a t i o n o f t h e Power o f a l t e r a t i o n of Articles of ~ s s o c i a t i o n f f , Modern Law ~ e v i e w , 4 9 ( l 9 8 6 ) , 446.
~ a m u e l s , ~ l e c . " L i f t i n g T h e V e i l u , T h e J o u r n a l o f B u s i n e s s Law, ( 1 9 6 4 ) , 107-11'1.
S c h m i t t h o f f , live M. a n d c u r r y , T. p, E. "The ~ i g h t s of T h e M a j o r i t y f f , T h e J o u r n a l o f B u s i n e s s Law, ( l 9 5 8 ) , 243-258.
S i l b e r b e r g , H a r r y . f f G r a t i t u i t o u s p a y m e n t s F o r T h e ~ e n e f i t o f A Companyu, T h e , J o u r n a l o f ~ u s i n e s s Law, ( 1 9 6 8 ) , 213-228.
w e d d e r b u r n , K. W. f f s h a r e h o l d e r s 1 ~ i g h t s And T h e R u l e I n F o s s v. H a r b o t t l e f f , T h e c a m b r i d g e Law J o u r n a l , ( l 9 5 7 ) , 194-215 a n d ( 1 9 5 8 93-106.
77-
Xuereb , P. G. f f R e m e d i e s F o r ~ b u s e of ~ a j o r i t y P o w e r w , Company Lawyer , 7 ( l 9 8 6 ) , 53.
"The L i m i t a t i o n On he E x e r c i s e o f M a j o r i t y P o w e r w , company Lawyer , 6 ( l 9 8 5 ) , 199 .
" v o t i n g ~ i g h t s : A c o m p a r a t i v e R e v i e w f f , Company Lawyer , 8 ( 1 9 8 7 ) , 16 .
~ n u m a k a , Nelson . f fRoard o f ~ i r e c t o r s F o r The 2 1 s t C e n t u r y f f , Guard i an F i n a n c i a l weeklv ( o s h o d i ) , o c t o b e r 2. 1989, pp. 7 - & ' 1 3 .
Companiesl l , B u s i n e s s c o n c o r d ( I k e j a ) , November 1, 1988 , p, 13 .
Iheme, ~ m e k a . Ifwho Can S u e I n A Company's Name?ll Gua rd i an F i n a n c i a l Weekly ( ~ s h o d i ) , arch 28, 1988 , p. 9.
Lamikan ra , Ro t imi . "Companies And A l l i e d M a t t e r s Decree 1990 - A C r i t i q u e ( I ) " , B u s i n e s s Times ( ~ a g o s ) , F e b r u a r y 5, 1990 , p. 7.
"Companies And ~ l l i e d M a t t e r s Decree 1990 - A C r i t i q u e (11)" B u s i n e s s Times ( L a g o s ) , F e b r u a r y 12, 1 4 9 ~ , p. 7.
. .
1960 - A c r i t i q u e ( 1 1 1 ) ~ ~ R U S ~ ~ ~ S S Times ( L a g o s ) , F e b r u a r y 19, 1990, p. 7.
f fCompanies And ~ l l i e d M a t t e r s Decree 1990 - A C r i t i q u e ( IV)" , ~ u s i n e s s Times ( ~ a g o s ) , F e b r u a r y 26, 1990 , p, 7.
t
" N a t u r e o f The ~ u t i e s o f Companies ' D i r e c t o r s f f B u s i n e s s Times ( ~ a g o s ) , March 1 3 , i 9 8 9 , p,, 7.
C o r p o r a t e D u t i e s f f , B u s i n e s s Times ( ~ a g o s ) , November 21, 1988 , p.
"The S t a t u s ~ n d D u t i e s of F i d u c i a r i e s ( ' , R U S ~ ~ ~ S S Times ( L a g o s ) , December 11,
3 9 8 9 , p. 7.
Ogban, ~ k p e i 0. "Making C o r p o r a t e M a n a g e r s More R e s p o n s i v e To S h a r e h o l d e r , 4 s p i r a t i o n s l f , B u s i n e s s T i m e s ( ~ a g o s ) , J a n u a r y 2 , 1 9 8 9 , p. 1 0 , '
O k a u r u , ~ s i s h a n a B, "The M i n o r i t y s h a r e h o l d e r ' s ~ c t i o n : An I n c i d e n c e o f C o n t r o l t t , ~ u a r d i a n F i n a n c i a l w e e k l y ( o s h o d i ) , ~ p r i l 3 , 1989, p p - 4 & 7.
O t u o g h a i , Edward. if t i n g T h e Mask o f C o r p o r a t e P e r s o n a l i t y t t , G u a r d i a n F i n a n c i a l Weekly ( o s h o d i ) , O c t o b e r 9 , 1989, Po 14.
D o REPORTS
Cohen c o m m i t t e e R e p o r t On Company Law Amendment, Cmd. 6659.
F i n a l R e p o r t o f T h e Commiss ion of ~ n q u i r y I n t o The Working And ~ d m i n i s t r a t i o n o f T h e Company Law o f Ghana, 1 9 6 1 ,
~ i g e r i a n Law Ref o m Commiss ion Working P a p e r s On The Reform o f N i g e r i a n Company Law, V o l s , 1 & 2 .
R e p o r t o f he Company Law C o m m i t t e e ( ~ e n k i n s c o m b i t t e e R e p o r t , 1 9 6 2 ) Cmnd, 1749 .
T h e R e p o r t o f The C o m m i t t e e o f ~ n q u i r y On ~ n d u s t r i a l Democracy - ~ u l l o c k Commit tee : Cmnd. 6706.
