CORAM

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Adamu Jauro Justice Supreme Court of Nigeria

Chioma Egondu Nwosu-Iheme Justice Supreme Court of Nigeria

Moore Aseimo Abraham Adumein Justice Supreme Court of Nigeria

Habeeb Adewale Olumuyiwa Abiru Justice Supreme Court of Nigeria

Abubakar Sadiq Umar Justice Supreme Court of Nigeria

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PARTIES

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1. AFRIBANK NIGERIA PLC (SUING THROUGH AND BY THE 2ND – 5TH PLAINTIFFS)

2. IGBRUDE MOSES OKE

3. RASAQ LALEKAN MUMUNI

4. AKINSANYA SOLOMON SUNDAY

5. SULEIMAN DAUDA BABATUNDE

6. IGBA SANMI OLATOMIDE (SUING FOR THEMSELVES AND ON BEHALF OF AFRIBANK PLC)

APPELLANTS 

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1. NIGERIAN DEPOSIT INSURANCE CORPORATION

2. ASSET MANAGEMENT CORPORATION OF NIGERIA

3. SKYE BANK PLC (JOINED BY ORDER OF COURT OF 03/02/2016)

RESPONDENTS 

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AREA(S) OF LAW

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CONSTITUTIONAL LAW, COMPANY LAW, BANKING LAW, PRACTICE AND PROCEDURE, CIVIL PROCEDURE, DERIVATIVE ACTIONS, SHAREHOLDER RIGHTS, ADMINISTRATIVE LAW, JURISDICTION, VESTED RIGHTS, BANKING REGULATIONS

 

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SUMMARY OF FACTS

This case arose from a dispute concerning the operational license of Afribank Nigeria Plc, the 1st Appellant. Initially, the Appellants initiated derivative proceedings in Suit No: FHC/L/CS/1286/2009 against the Central Bank of Nigeria (CBN) and its Governor, alleging unlawful interference in the 1st Appellant’s operations and governance. While that action was still pending, the 1st Appellant’s operational banking license was allegedly revoked, and its management and operations were subsequently assumed by the 1st and 2nd Respondents (Nigerian Deposit Insurance Corporation and Asset Management Corporation of Nigeria).

Aggrieved by this development, the Appellants filed an originating summons at the Federal High Court in Lagos seeking multiple orders to invalidate the actions of the 1st and 2nd Respondents and to restrain further purportedly unlawful actions. The 1st and 2nd Respondents objected to the trial Court’s jurisdiction, contending that the Appellants had failed to secure the necessary leave to initiate the extant originating summons as a derivative action. In response, the Appellants filed an application seeking to amend the originating summons to include questions of construction.

The trial Court consolidated its determination of the Respondents’ jurisdictional objections with the Appellants’ application to amend and dismissed the Appellants’ motion to amend and struck out the suit on the ground that the requisite leave for commencing a derivative action had not been obtained.

Dissatisfied, the Appellants appealed to the Court of Appeal, arguing that the leave obtained in Suit No: FHC/L/CS/1286/2009 sufficed to satisfy the requirement for leave in the present originating summons, as they had acquired a vested right by virtue of the prior proceedings. The Court of Appeal held that Suit No: FHC/L/CS/1286/2009 was distinct and independent from the present originating summons, and that the leave granted in the prior suit could not absolve the Appellants of their obligation to secure fresh leave for initiating the present derivative action. The Appellants then appealed to the Supreme Court.

 

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HELD

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1. The appeal was dismissed.

2. The Court held that the leave obtained in Suit No: FHC/L/CS/1286/2009 could not be transferred to the present suit, given the distinctiveness of the parties, subject matter, and issues in controversy.

3. The Court ruled that Section 303(1) of CAMA 2004 clearly provides for leave to bring an action in the name or on behalf of a company, and does not contemplate extension or transferability of leave granted in one action to another.

4. The Court found that the two lower Courts were correct in their findings that the present action is incompetent due to the Appellants’ failure to obtain fresh leave before commencing the derivative action.

5. The Court held that each party shall bear its own costs.

 

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ISSUES

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1. Whether having regards to the facts of this suit, the vested rights of the Appellants, as Plaintiffs in the said Suit No: FHC/L/CS/1286/2009 and on the claims therein, the lower Court was right in holding that the Appellants’ suit was incompetent for failure to obtain leave before filing the originating summons?

2. Whether having regards to the issues raised and argued by the parties before the lower Court, the question of the competency of the leave sought and obtained in the said Suit No: FHC/L/CS/1286/2009 was not raised suo motu and determined by the lower Court, and to the utmost prejudice of the Appellants and their constitutional right to a hearing thereon?

3. Whether the lower Court did not fail in its duty to make a determination on the issue nos (ii) and (iii), as raised and argued on behalf of the Appellants in the latter’s brief before the lower Court and to the utmost prejudice if the Appellants and the fair and just determination of their claims in this suit?

4. Whether having regards to the undisputed facts in this suit, the nature of the proceedings and the claims therein, the lower Court was right in declining to invoke its power under Section 15 of the Court of Appeal Act Cap C36, LFN 2004, and to apply the same to the determination of this suit and the claims therein on the merits?

 

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RATIONES DECIDENDI

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DERIVATIVE ACTIONS – MANDATORY REQUIREMENT OF OBTAINING LEAVE FOR DERIVATIVE ACTIONS

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“The action leading up to this appeal is a derivative action and this appeal turns on whether the two lower Courts were correct in their findings that the Appellants needed to seek for and obtain leave of Court before commencing the present action against the Respondents, notwithstanding the fact they had earlier sought for and obtained leave to commence another and earlier derivative action against the Central Bank of Nigeria in Suit No FHC/L/CS/1286/2009.” – Per HABEEB ADEWALE OLUMUYIWA ABIRU, J.S.C.

 

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STATUTORY CONDITIONS FOR DERIVATIVE ACTIONS – REQUIREMENT OF OBTAINING LEAVE UNDER SECTION 303 OF CAMA

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“A shareholder or member of a company desirous of commencing a derivative action is obligated to show that he gave adequate notice of the impending action to the directors of the company, that he is acting in good faith and that the action is in the interest of the company. These statutory conditions for a derivative action are set in Section 303 of Companies and Allied Matters Act…” – Per HABEEB ADEWALE OLUMUYIWA ABIRU, J.S.C.

 

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FAILURE TO OBTAIN LEAVE FOR DERIVATIVE ACTION – EFFECT ON COURT’S JURISDICTION

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“Dovetailing from the above provision, the law is settled that it is a statutory condition that a party desirous of commencing a derivative action must first seek for and obtain leave of Court to do so. It is at the stage of the application for leave that the party is required to satisfy the Court on the requirements listed as (a), (b), (c) and (d) under in Section 303 of Companies and Allied Matters Act…” – Per HABEEB ADEWALE OLUMUYIWA ABIRU, J.S.C.

 

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INCOMPETENCE OF DERIVATIVE ACTION FILED WITHOUT LEAVE – EFFECT ON COURT’S JURISDICTION

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“Where a party fails to seek for and obtain leave of Court before commencing a derivative action, the action is incompetent.” – Per HABEEB ADEWALE OLUMUYIWA ABIRU, J.S.C.

 

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LEAVE FOR DERIVATIVE ACTION – REQUIREMENT OF SPECIFIC LEAVE FOR EACH DERIVATIVE ACTION

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“The argument of the Appellant that the leave granted to commence suit no. FHC/L/CS/1286/2009 obviated the need to seek leave for the commencement of the instant suit is, with due respect, absurd.” – Per ADAMU JAURO, J.S.C.

 

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INTERPRETATION OF SECTION 303(1) OF CAMA – CLEAR REQUIREMENT FOR SPECIFIC LEAVE

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“Section 303(1) of CAMA, 1990 replicated above clearly provides for ‘…leave to bring AN ACTION in the name or on behalf of a company, or to intervene in an action to which the company is a party…’ The provision admits of no ambiguity. It does not contemplate extension or transferability of leave granted in one action to another.” – Per ADAMU JAURO, J.S.C.

 

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CONDITION PRECEDENT FOR DERIVATIVE ACTION – NECESSITY OF OBTAINING LEAVE

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“The suit is irredeemably incompetent by reason of failure to fulfil a condition precedent, that is seeking and obtaining leave to commence a derivative action.” – Per ADAMU JAURO, J.S.C.

 

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PURPOSE OF REQUIRING LEAVE FOR DERIVATIVE ACTIONS – JUDICIAL SCRUTINY OF CLAIMS

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“A critical purpose of requiring leave is to ensure that only reasonable and viable causes of action are permitted to proceed before the Courts. If one instance of leave were to serve as an unrestricted license to initiate any and all subsequent claims, even the most frivolous and unfounded actions could exploit the earlier leave, thereby overwhelming the judicial system.” – Per CHIOMA EGONDU NWOSU-IHEME, J.S.C.

 

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MEANING OF “ACTION” IN SECTION 303 OF CAMA – SPECIFIC APPLICATION TO INDIVIDUAL CLAIMS

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“The Black’s Law Dictionary defines ‘action’ as ‘an ordinary proceeding in a Court of justice by which one party prosecutes another for the enforcement or protection of a right, the redress or prevention of a wrong… A civil suit stating a legal cause of action and seeking only a legal remedy.’ Consequently, the term ‘action,’ as employed in Section 303, contemplates the prosecution of a party for the enforcement of a specific right or remedy. It does not operate as a carte blanche to prosecute a multitude of claims on behalf of the company indiscriminately.” – Per CHIOMA EGONDU NWOSU-IHEME, J.S.C.

 

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SCOPE OF DETERMINATION AT INTERLOCUTORY STAGE – AVOIDANCE OF DETERMINING SUBSTANTIVE ISSUES

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“In AGWU & ORS v. JULIUS BERGER (NIG) PLC (2019) LPELR-47625(SC), this Court held that: ‘The word, interlocutory’ means interim or temporary; not constituting a final resolution of the whole controversy – Black’s Law Dictionary, 9th Ed. Since the interlocutory applications are usually dealt with before the substantive suit, the law is that a Court should not say anything at that stage of the proceedings that would jeopardize the just and proper determination of the suit after the trial. Simply put, the Court must not determine substantive issues at the interlocutory stage of the proceedings.'” – Per CHIOMA EGONDU NWOSU-IHEME, J.S.C.

 

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NATURE OF DERIVATIVE ACTIONS – STANDING OF SHAREHOLDERS TO BRING CLAIMS ON BEHALF OF COMPANY

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“Now, a derivative action is a legal procedure by which a shareholder or a member of a company institutes an action on behalf of the company against the directors or officers of the company for a wrong done to the company. The shareholder or member of the company stands in the place of the company and the benefit goes to the company and not the individual directly.” – Per HABEEB ADEWALE OLUMUYIWA ABIRU, J.S.C.

 

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SCOPE OF VESTED RIGHTS – LIMITATION TO SPECIFIC SUBJECT MATTER

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“Regarding the Appellants’ contention that they acquired a vested right through Suit No. FHC/L/CS/1286/2009, I must unequivocally reject this proposition. My preceding explanations regarding the limitations of the leave obtained in that suit suffice to negate any argument for the acquisition of vested rights. Even if the Appellants did possess a vested right, it would pertain solely to the specific subject matter of Suit No. FHC/L/CS/1286/2009, which remains distinct and separate from the issues in the present suit.” – Per CHIOMA EGONDU NWOSU-IHEME, J.S.C.

 

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COMPANY LAW, PERSONAL ACTIONS, REPRESENTATIVE ACTIONS DISTINCTION BETWEEN PERSONAL/REPRESENTATIVE ACTIONS AND DERIVATIVE ACTIONS

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“On the Appellants’ claim that the present suit constitutes a personal or representative action, they relied on the learned author of Orojo, Company and Practice in Nigeria, Vol. 1, Commentary (LexisNexis, 2006, p. 248). However, I am compelled to align with the submissions of the 1st Respondent. The Appellants’ action cannot be categorized as personal or representative because it was not initiated by members of the 1st Appellant seeking to restrain or prevent the 1st Appellant from undertaking certain actions. A claim is only deemed personal when it directly challenges actions of the 1st Appellant itself.” – Per CHIOMA EGONDU NWOSU-IHEME, J.S.C.

 

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CASES CITED

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STATUTES REFERRED TO

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• Companies and Allied Matters Act (CAMA) 2004

• Court of Appeal Act Cap C36, LFN 2004

• Companies and Allied Matters Act (CAMA) 1990

• Banks and Other Financial Institutions Act

 

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