Failure to follow statutory provisions is “unfairly prejudicial”

The Petitioner – a shareholder and director in the 1st Respondent – was purportedly removed as director by the 2nd to 4th Respondents. He contended that his removal and the conduct of the 2nd to 4th Respondents were illegal, oppressive, unfair and prejudicial.

The Petitioner alleged that the process of removing him was fraught with illegality as there was no compliance with the procedure laid down in the Companies and Allied Matters Act Cap. C20 Laws of the Federation of Nigeria 2004 (“CAMA”) for the issuance and length of notice of extra ordinary general meetings and the removal of directors.

Therefore, he filed a petition at the Federal High Court, Lagos pursuant to the provisions of sections 236, 262, 310, 311 and 312 of CAMA and section 36 of the Constitution of the Federal Republic of Nigeria 1999 asking the court to determine whether the affairs of the 1st Respondent had been conducted in an illegal, oppressive and unfairly prejudicial manner and whether his removal as a director of the 1st Respondent is valid and sustainable in law.

Counsel to the Petitioner argued that the 2nd to 4th Respondent conducted the affairs of the 1st Respondent in an oppressive manner which is unfairly prejudicial to the interests of the Petitioner by failing to abide by the relevant statutory provisions. It was further submitted on behalf of the Petitioner that the 2nd to 4th Respondents were in breach of their fiduciary duties to the 1st Respondent and if allowed to continue unchecked, their actions will lead to the collapse of the 1st Respondent.

Counsel submitted that oppressive or prejudicial conduct is that which impairs the rights of any member of a company as envisaged under section 300 of CAMA.

The Respondents’ counsel submitted that in order to succeed, the Petitioner must show some prejudice or detriment that he has suffered which was caused by the conduct of the 2nd to 4th Respondents.

Furthermore, the counsel argued that the Petitioner’s claim under section 311(2) of CAMA was based on an allegation of fraud on the 1st Respondent but that the Petitioner failed to prove beyond reasonable doubt that fraud was committed or that it was the 2nd to 4th Respondents that facilitated the fraud. Moreover, he submitted that it is only the 1st Respondent that can complain of any allegation of fraud or wrong done to it and that failure of the Petitioner to plead or establish that the alleged fraud affected him meant that he had no claim under section 311 of CAMA.

Counsel also argued that the court must have regard to a number of factors including the norms and practices in the particular business environment and that the concept of fairness is distinct from lawfulness especially as it pertains to breaches of CAMA or the company’s articles.

The court determined that the Petitioner was not properly removed as a director of the 1st Respondent and granted all the reliefs sought. The court held as follows:

“On the 2nd issue I have raised for determination which is whether operation of the 1st respondent has been conducted in an illegal, oppressive and unfairly prejudicial manner.

I have carefully gone through the Petition before the court and the various affidavit on the same. I particularly appreciate paragraphs 5 and 6 of the petition vis a vis paragraphs 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 15, 16, 17, 18, 19 and 20 of the verifying affidavit in support of the petition and indeed the counter-affidavit of the 2nd respondent which has clearly shown the running of the 1st respondent.

By the counter-affidavit before the court the 2nd respondent has been able to establish that he is all in all in the 1st respondent.

Notwithstanding the circumstance surrounding the directorship or shareholden (sic) of the 1st Respondent, the fact still remain that, the Petitioner must be treated within Articles and memorandum of association of the 1st Respondent and particularly under the CAMA which has prescribed the relationship of shareholder and director with the 1st Respondent.

And for whatever reason, the Petitioner must be dealt with, within the law guiding the establishment of the 1st Respondent which is CAMA.

It is this relationship of oppression and discrimination that led to the Petitioner in writing the special anti-fraud unit of the police to investigate the activities of the Respondent’s in this case.

The best reasonable director’s test I can adopt in the instant case is that all the shareholder/director must be treated within the law establishing the 1st Respondents.

I hold that the Respondents have treated the Petitioner in unfairly prejudicial manner.”

Counsel:

A. K. Etea for the Petitioner

O. Ademola with T. Abdul for the Respondents.

This summary is fully reported at (2014) 2 CLRN

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