[COMPANY LAW] MINORITY PROTECTION
PROTECTION OF MINORITIES
As a general rule, where irregularity has been committed
in the course of the management of the affairs of the company or a wrong has
been done to the company, it is only the company that can ratify the irregular
conduct or sue to remedy the wrong (section 299; Foss versus Harbottle (1843) 2 Hare 461; 67 E.R.
189; Abubakari versus Smith (1973) 6 S.C.31;-Where
S.C held that based on the rule in Foss v. Harbottle, the action must
fail as the claimant sued in a personal capacity and did not join the
association, as it was the association that should have been sued and not
individuals Yalaju - Amaye versus Associated Registered
Engineering Contractors Ltd. [1990] 4 NWLR (Part 145) 422; Edokpolor and Co. Ltd. versus Sem-Edo Wire
Industries Ltd. (1984) 15 NSCC 553.
Shell petroleum v. Nwawka: N was
an employee of shell, and at a point, the most senior Nig employee in shell. A
position became vacant which he thought he could have filled. However a young
member of staff from the Netherlands (or Germany) was brought to fill that
position. Mr. N was bitter n spoke ill of shell and as a result was rendered
redundant and paid compensation in lieu of notice. N was confused and even went
to National Assembly to report shell, and the National assembly wrote to shell
to appear and shell ignored the N/A, so N went to court. One of his reliefs was
that the court should make a declaration that shell was engaged in dubious
expatriate quota manipulations and had no right to make him redundant. Shell,
in response, brought a preliminary report to his action, that he had no locus
standi to sue. N, in turn, stated that he had a locus to sue, using Foss v. Harbottle,
that he was protecting the interest of fellow Nigerians against
multi-nationals. The CA agreed with N (though he did not win because the courts
will not impose a willing employee on an unwilling employer, but that the rule
applies.) Shell went to S.C and the S.C agreed that the rule applied but in
this instance they were going to look into N’s complaint and what it is that
shell had done wrong.
However, the minority may be protected now by action by
members and outside bodies.
1.
Members' Direct Action (for
injunction and declaration) (Exceptions to the Rule in Foss versus Harbottle (1843) 2 Hare 461; 67 E.R.
189;
A member may by injunction or a declaration restrain the
company from the following:
(a) Entering into any transaction which is
illegal or ultra vires (section 300(a)). Parke versus Daily News [1962] All Er 929;
[1962] Ch 927; [1962] 3 WLR 566;- Here Majority
shareholders wanted to share as asset belonging to the company. After, the
sale, they wanted to distribute the proceeds among employees being laid off.
The minority shareholder went to court to seek a declaration that the gift to
the employees who were to be redundant was an ultra-vires gift, and the coy was
so restrained
(b) Purporting to do by ordinary resolution any
act which its constitution or the Act requires to be done by special resolution
(section 300(b)); Edwards versus Halliwell [1950] 2 All E.R 1064;-Here,
a trade union has a cons with a provision by which the contribution by members
were fixed by a specified rate. The cons also provided that it could only be
increased if 2/3rd majority of the members vote in favour of the
increase. A meeting was held, no votes were cast, & the people at the
meeting formed a quorum though not 2/3rd. The court held that the
proceedings of the meeting were invalid because 2/3rd majority did
not vote in favour of the meeting as required by 2/3rd majority of
the trade union
NB:
Where there is a mere irregularity in the internal procedures of a coy, the
exceptions here do not apply
(c) Any act or omission affecting the
applicant's individual right as a member (section 300 C )); Pender versus Lushington (1877) Ch. D670. –
NB: This
exception does not include the fact that an employee complains that dividends
have not been declared as there is no rule of law that states that a coy must
declare dividends. However, if dividends are declared and they refuse to pay
then that becomes an infringement of a personal right that can be taken to
court.
(d)
Committing fraud on either the company or the
minority shareholders where the directors fail to take appropriate action to
redress the wrong done. (section 300(d)).(Most controversial exception and difficult to prove. i.e. one must Prove
that:
· what
was taken belonged to the company;
· it
passed to those against whom the claim is made or their protégé
·
Those who appropriated the company's
property are in control of the company.
·
That they
acted fraudulently
NB: It is not enough to allege a series of facts as one has to prove
all the above things to succeed.
Cook versus Deeks [1916] A.C.554(P.C. [1916-17]
All ER Rep. 285).- Here the Directors who were also majority
shareholders negotiated a contract in the name of the coy, and when the got
back to the coy, they took the contract for themselves, passed a resolution
stating that the coy had no interest in the contract. The court held that the
profits derived from that contract belonged in equity to the coy as the coy
could not pas a resolution to defraud itself.
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(e) Where a company meeting cannot be called in
time to be of practical use in redressing a wrong done to the company or to
minority shareholders (section 300(e)). (Thus this provision allows a
minority action where a company meeting cannot be called in time to be of
practical use in redressing a wrong done to the company or to minority
shareholders;)
(e)
Where the directors are likely to have
profited or benefited from their negligence or from their breach of duty
(section 300(f). (Thus it is not enough to just say that they
were negligent)
see Daniels
v Daniels- the coy was controlled by 2 directors who were
husband and wife. They bought land for £4000 from the estate of a deceased
person. The coy later sold the same asset to the wife in her personal capacity
at the same price that they paid for it. She now resold the pty for£120 000. A
minority shareholder went to court, and it was held that the circumstances of
the case required a lot of investigation.
Note:
Where a member institutes a personal action to enforce a
right due to him, or institutes a representative action on behalf of himself
and other affected members to enforce any rights due to them, he will not be
entitled to any damages but only to a declaration or injunction to restrain the
company and or directors from doing the particular act (section
301)(I)(2)).
2.
Derivative Action
Application may be made to court for leave to bring an
action in the name or on behalf of the company or to intervene in an action to
which the company is a party for the purpose of prosecuting, defending or
discontinuing the action on behalf of the company. (sections 303 - 309).
3.
Relief on Grounds of Unfairly Prejudicial and Oppressive Conduct (When all hope is gone as to the other
exceptions, one should try to see if they can come under this exception, though
this is also very difficult to satisfy)
A member who alleges that the affairs of the company are
being conducted in a manner oppressive or unfairly prejudicial to a member or
members may apply to court for relief by petition (section 310(1) and
section 311)). (see Ijale Properties Ltd. versus Omololu - Mulele
[2000] FWLR (Pt.5) 709). –In this case, the allegation
was by minority shareholder, and the
minority shareholder stated that since the coy was incorporated, they had not
held a single meeting, not filed returns, no auditors or coy sec. the court held
that this was a clear case were s.311 could be invoked as a basis of action
•
NB The same powers under section 311 are conferred
on personal representative and also the CAC may petition the court on the
grounds
•
Under s.312, one can ask for a specific
order or a general order(omnibus order) to control how the coy will be run in
the future. The court may regulate the
company's affairs for the future.
•
The court may restrain the doing of or
the continuing of prejudicial acts. Or order the doing of a specific thing the
court may direct an investigation to be made by CAC that the company be wound
up
•
reduction of the company's capital;
NB: There are 3 capacities in
which an action can be brought:
1. personal
2. representative
3. derivative
NB: (See also Power-point slide for
expanciation of the above actions) An
aggrieved minority can bring one action or combine three types of actions i.e.
Personal, derivative and representative actions
Note: The member shares this right of action with the
following:
(a) A director or officer or former director or
officer of the company;
(b) A creditor;
(c) The Commission;
(d) Any other person permitted by the court in
its discretion (section 310(1)).
4. Investigation of the
Company by Commission (SEE expanciation of this in slides)
The Commission may appoint inspectors to investigate the
affairs of the company.
(a) On the application of members (section
314).
(b) On the application of the company
(c) . On the orders of the court (section 315(1) and
(d) Of its own motion
(section 315(2)).
5. Winding up on the Just and
Equitable Ground (section 408(e)).
NB: note Other Minority Protection
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