A. O. OBIKOYA (PLAINTIFF/APPLICANT)
1. PETER EZENWA
2. MALIK MATTAR (DEFENDANTS/RESPONDENTS)
(1964) All N.L.R. 558
Division: High Court, Lagos
Date of Judgment: 30th November, 1964
Case Number: Suit No. LD/452/64
Before: Taylor, C.J.
Application for an Order of Injunction under Order XXI, rule 4 of the High Court (Civil Procedure) Rules.
The applicant and the respondents were, prior to 25th September, 1963, the permanent directors of the Pool House Group (Nigeria) Company Limited by virtue of Article 28 of the company's Articles of Association; Article 32 of the said Articles provides that a permanent director shall not vote for the removal from office of another permanent director; in breach of both Articles 28 and 32, the respondents, on 25th September, 1963, purported to have altered Article 28 of the Articles, by special resolution and inserted therefore Article 86 of Table A at the same meeting which voted for the removal of the applicant from office as a director of the company and have since prevented him from acting in that capacity; whereupon, the applicant brought an action against the respondents in their personal capacity, claiming the sum of £5,000 as special and general damages for breach of agreement contained in Article 32 of the company's Articles of Association, and for an order of Injunction to restrain the respondents from further preventing the applicant from acting as director of the company.
The questions for consideration are whether Article 32 of the Company's Articles can be construed as a contract the breach of which necessitates the granting of the order sought under Order 21, rule 4, and whether the purported alteration of Article 28 of the Company's Articles was valid and if not whether the order for Injunction ought to be granted in view of the patent enmity existing between the parties.
(1) When three members of the company who are also the three permanent directors agreed by virtue of Article 32 not to vote for the removal of each other from office they were agreeing between themselves as members, in which capacity they exercised their voting rights, not to so vote. It is my view that a contract did exist between them and that the applicant is well within his rights in moving under Order 21, rule 4, because the action of the respondents in keeping the applicant away from his office as director is in breach of Articles 28 and 32.
(2) The purported alteration of Clause 28 of the company's Articles is invalid in view of the failure, by the company, to comply with the requirements of section 71 of the Companies Act in passing the special resolution for the purpose, and consequently, the act of removal of the applicant from office as director is ultra vires, and cannot be a defence or answer to the application for injunction.
(3) Where it is found, in a claim for injunction, that parties to a contract cannot work amicably together because of patent enmity existing between them the court may, instead of granting the order to restrain the breach of the contract, impose terms upon the defendant as a condition of withholding the injunction; it seems that the applicant's interest in this case will be adequately safeguarded if the respondents can give a bond to cover a reasonable part of the claim.
Cases referred to:-
Imperial Hydropathic Hotel Co Blackpool v. Hampson (1883) 23 Ch.D. I
Rayfield v. Hands & others (1958) 2 A.E.R. 194.
Re. Leicester Club & County Racecourse Co Ex Parte Cannon (1885) 30 Ch.D. 629.
Laws referred to: Companies Act, Cap. 37, section 71.
Companies Act, Cap. 37, Table A, Schedule I., Article 86.
High Court (Civil Procedure) Rules, Order XXI, rule 4.
Owodunni, for the Applicant.
Okafor & Oni, for the Respondents.
Taylor, C.J. of Lagos:-The plaintiff/applicant and defendant/respondents were, prior to the 25th September, 1963, the permanent directors of the "Pool House Group (Nigeria) Company Limited" by virtue of Articles of Association which reads thus:-
"28. The first directors of the Company shall be Peter Ezenwa, Malik Mattar and Oluwole Obikoya, and shall be known as the permanent directors. Each of the permanent directors shall hold office until he dies or resigns."
Articles 32 of the said Articles of Association provides that:-
"32. A permanent director shall not vote for the removal from office of another permanent director."
The applicant complains that in breach of these provisions the respondents voted for his removal from office as a director of the Company and have since then prevented him from acting in that capacity.
The respondents, on the other hand, say that the aforesaid limited liability Company by special resolution at a general meeting amended a great part of its Articles of Association, and the effect of some of these amendments was to reduce the number of permanent directors to two i.e. the respondents.
The applicant therefore took action against the respondents claiming the sum of £5,000 as special and general damages for the breach of agreement contained in Articles 32 aforesaid and for an injunction to restrain the defendants/respondents from further preventing the applicant from acting as director of the Company. Shortly after filing the Suit the applicant filed the present motion under consideration to restrain the respondents as aforesaid. The application is brought under Order 21, rule 4 which provides that:-
"In any Suit for restraining the defendant from the committal of any breach of contract or other injury, and whether the same be accompanied by any claim for damages or not, it shall be lawful for the plaintiff at any time after the commencement of the suit, and whether before or after Judgment, to apply to the court for an injunction to restrain the defendant from the repetition or the continuance of the breach of contract or wrongful act complained of ..."
It is well known that a Company may alter its Articles of Association and that in its Articles of Association a Company may make provision for the method by which a director may be removed. In the 17th Edition of Palmers Company Law, the learned author says at 88 that:-
"The articles generally contain power to remove a director, but unless they do so a director cannot it has been held, be removed without first altering the articles by special resolution so as to take the requisite power'.
The case of Imperial Hydropathic Hotel Co Blackpool v. Hampson (1883) 23 Ch.D. 1. is on all fours with the present case under consideration. In that case the Articles of Association gave power to an extraordinary general meeting to vary the articles. In pursuance of the power the articles were altered and new directors appointed in pursuance of the new power. Cotton L.J. says this at 11:-
"There is nothing in the Act or in the articles which directly enables a general meeting to remove directors; but the way it is put is this-that there is power in these articles, as there is power in the Act, by a meeting duly called to pass a resolution altering the articles; and it is said that here there was a resolution which would have been effectual to alter the articles that these directors whom the articles did not authorise to be removed should be removed. Now in my opinion it is an entire fallacy to say that because there is power to alter the regulations, you can by a resolution which might alter the regulations, do that which is contrary to the regulations as they stand in a particular and individual case. It is in no way altering the regulations. The alteration of the regulations would be by introducing a provision, not that some particular director be discharged from being a director, but that directors are capable of being removed by the vote of a general meeting.
In the particular case under consideration there is no doubt that there was no power to remove any permanent director given by the Articles of Association in its original form. It is specifically provided in Article 1A of the Articles of Association that:-
1.A. The regulations in Table "A", Schedule 1 of the Company Act shall apply to the Company insofar as the Company's registered articles do not exclude, modify or make alternative provisions to Table "A".
To my way of reading the said Articles of Association, Article 28 when read together with 32, and bearing in mind the fact that these three persons were the permanent directors and sole members of the Company, exclude Article 86 of Table A of Cap. 37 Vol. 1 of the 1958 Edition of the Laws of Nigeria which provides that:
"86. The Company may by extraordinary resolution remove any director before the expiration of his period of office, and may by an ordinary resolution appoint another person in his stand..."
The rest of the Article is not relevant.
What the respondent or the Company purported to do here was, as is contained on the top of the new articles of association, at a general meeting on the 25th September, 1963, to pass the special resolution contained in exhibit "A" of the counter affidavit of the 2nd respondent. Then on the 11th October, 1963, these resolutions were confirmed at an extraordinary General Meeting. It will be seen that the original Article 1A to which I have made reference above was deleted and a new one substituted which had the effect of keeping alive Article 86 of Table A of Cap. 37 to which I have also made reference above.
At the same meeting of the 25th September, 1963, and on the same day as Article 86 above was inserted in the new Articles of Association, the applicant was removed and then some days later both of these were confirmed at another meeting. In my view what should have happened, on the authority of Imperial Hydropathic Hotel Co Blackpool was for the Company to have first inserted Articles 86 of Cap. 37 of the Laws of Nigeria in its Articles of Association. After this `had been confirmed as required by section 71 of the Companies Act then the applicant could be dealt with in the manner required. As it is the act is in my view ultra vires, and cannot be a defence or answer to the application before me.
Prima facie therefore the applicant has shown that he was and is in law a permanent director of the Pool House Group (Nigeria) Limited, and that the respondents are by virtue of an ultra vires act keeping him away from performing his duties as such.
The applicant however has to go further and show that by Articles 28 and 32 the parties to this application entered into a contract as envisaged by Order 21, rule 4 of our rules of Court, and that the action of the respondents in keeping him away from performing his duties as aforesaid is in breach of the contract.
On this point, my attention was drawn by Mr Owodunni to the case of Rayfield v. Hands & others (1958) 2 A.E.R. 194 the headnote to which reads thus:-
"The Articles of Association of a private limited company which was incorporated in 1941 provided by article 11 that "Every member who intends to transfer shares shall inform the directors who will take the said shares equally between them at a fair value..."The qualification of directors was the holding of one share in the company. In April, 1955, the plaintiff, a member of the company, informed the directors for the time being of his intention to transfer his shares, but, the directors refused to purchase them."
At 197 of the report Vaisey J. said that:-
"Now the question arises at the outset whether the terms of article 11 relate to the rights of members inter se (that being the expression found in so many of the cases) or whether the relationship is between a member as such and directors as such. I may dispose of this point very briefly by-saying that in my judgment the relationship here is between the plaintiff as a member and the defendants not as directors but as members."
That case is not on all fours with the present, nor has been able to find one in which the facts or the article there under consideration bear the slightest resemblance to the facts here and to Articles 28 and 32. It must be borne in mind, as I have said before, that the parties to this application are the sole permanent directors and the sole members of the limited company. Mr Okafor during the arguments urged in this matter endeavoured to give the impression that the respondents were the sole members of the company and that the applicant had no shares in the Company. If that were the case then I would ask why in paragraph 18 of exhibit "C" attached to the further affidavit of the applicant, the two respondents swore that:-
"The price paid for the shares in the Company, £25,000, by the defendants and the plaintiff was not in cash, but was the value of all the assets of the partnership business and goodwill divided equally between the defendants, after 20% of it had been given to the plaintiff so that each defendant has £10,000 shares credited as fully paid up, while the plaintiff was given £5,000 shares credited as fully paid."
At any meeting of the Company when votes are cast, they are cast by members qua members and not in their capacity as permanent directors. It was said by Pearson J. in Re. Leicester Club & County Racecourse Co Ex parte Cannon 1885 30 Ch.D. 629 at 633 that:-
"To my mind the directors cannot divest themselves of their character of members of the Company. From first to last, while they are sitting as directors, they are doing their work in the capacity of members, and working members of the Company ..."
In my view therefore when the three members of the Company who are also the three permanent directors agreed by virtue of Article 32 not to vote for the removal of each other from office they were agreeing between themselves as members, in which capacity they exercised their voting rights, not to so vote. It is my view that a contract did so exist between them and that the applicant is well within his rights in moving under Order 21, rule 4, for the action of the respondents in keeping the applicant away from performing his duties as such whether by virtue of an ultra vires act or not is in breach of Articles 28 and 32.
I need only deal shortly with the point raised by Mr Okafor that the applicant has acquiesced in the state of things and has been guilty of delay, and is as a result debarred from claiming relief in equity. There is no substance in either of these points because Suit LD/436/63 taken out by the applicant In which Judgment was delivered only on the 11th September 1963 shows convincingly that he has not acquiesced in the state of affairs nor has he been guilty of delay.
The only point that has greatly worried me in this matter is whether I should grant the applicant the relief sought when it is apparent that the three permanent directors and sole members of this company cannot possibly work amicably together. The saying that a house divided amongst itself must fall, is a forecast of the doom that awaits this legal entity, which no doubt would be precipitated by my making this order pending the trial. The learned author of the 3rd Edition of Halsbury's Laws of England, Vol. 21 at 370, paragraph 775 says that:-
"Similarly also the court may impose terms upon the defendant as a condition of withholding the injunction. Thus he may be required to undertake to keep an account, and in the event of the plaintiff establishing his case to pay such sum as the court shall direct ..."
That is the step I think the circumstances of this case dictate should be taken and I shall hear the parties on this. The applicant is entitled to his costs which I shall assess after hearing the parties as aforesaid.
Owodunni for Applicant.
Okafor and Oni for Respondents.
(1) that defendants do pay to plaintiff the director's salary from October 1964, to determination of his Suit or alternatively that the salaries of all the defendants be paid into Court.
(2) Defendants are also to give an undertaking to send to the plaintiff weekly returns and reports of the Company's business pending the determination nation of the suit. The report is to be sent to plaintiff through Mr Sobudu.
(3) Defendants to enter into bond for £5,000 as a security for the damages or to pay the said sum into Court.
(4) Defendants to give an undertaking to allow representative of plaintiff (an accountant) to enter the premise of the company to inspect the books of accounts, cheque books, files etc. at least once in two weeks. This is to be made subject to an affidavit for variation of the order by the defendants.
Okafor: refers to the claim.
See paragraph 11 statement of defence plaintiff would not be entitled to the special damages if the defence succeeds. If the two defendants enter into a bond with a security to pay over whatever the court deems is due to the plaintiff, this would meet the circumstances of the case. Suggests a bond of about £550.
See section 37 Articles of Association plaintiff has not said that the defendants are men of straw. The claim for weekly return is impracticable. We employ accountants who prepare accounts from time to time. The fourth request is completely unreasonable. The lesser evil is for us to give him periodical accounts. The costs of preparation of these accounts should be quarterly and should be borne by the Company and not by the defendants.
All the assets of the Company have been valued and The Statement of Account has been filed and served on the Company. The rights of the plaintiff are completely safeguarded.
Owodunni: in reply:
Says paragraph 11 of Statement of Defence is filed after the order. It is an afterthought and is an issue which will be contested at the hearing. The defendants are in a position to know with accuracy how much is collected from stakers and how much is paid by them to the Pool House Group. Costs awarded against defendants were paid by the defendants out of the Company funds. Adequate safeguard must be granted plaintiff. I see no harm in the appointment of an accountant to inspect the books of the Company unless defendants have something to hide.
Owodunni: We have spent altogether £4. 2. 2d. Arguments have taken a considerable time. I ask for £21.
Okafor: This is an interlocutory application. I ask the court to make it costs in the cause.
Court: I shall give a ruling on these matters on 14/12/64. The substantive Suit will be before me for hearing on the 4th and 5th February, 1965 in this Court.
14th December, 1964:
On the 30th November, 1964 I ruled inter alia that the applicant was entitled to his prayer for an injunction restraining the defendants from further committing a breach of the contract entered into between the parties by continuing to prevent the applicant from acting or continuing to act as a director of Pool House Group (Nigeria) Limited I did not, however, think it would be in the interests of the Company, which I should point out, is not as such, a party to these proceedings that the plaintiff/applicant should until the determination of the Suit work with the defendants as director of the Company in view of the patent enmity existing between the parties. My next thought was to consider what terms should be imposed on the defendants as a condition of withholding the injunction.
I have given this matter full consideration and the absence of the limited liability Company in these proceedings has made my task a little more difficult particularly in relation to the order to make as to know the accounts which I had at first intended to order should be taken. On second consideration, however, in view of the fact already stated, that the action is a personal one against the defendants for damages for breach of contract or agreement, I think the plaintiff's interest in this respect will be safeguarded by my ordering the defendants to give a bond to cover a reasonable part of the claim for £5,000 damages made against them in the suit. The order I make, therefore, is that the defendants shall on or by Monday the 4th January, 1965 enter into good and sufficient security with one or two sureties, in their discretion, to the satisfaction of the Chief Registrar in the sum of £3,000 to abide the result of this action. The applicant is entitled to his costs which I assess at 10 guineas plus £3. 4. 3d. out-of-pocket expenses against the defendants, of course personally, in view of what I have already said about the Company not being a party to this motion.
Owodunni: says that the dates fixed for the hearing of the Suit i.e. 3rd and 4th February, 1965 may be public holiday and parties would like another date to be given.
Court: The hearing of the Suit is fixed for 10th and 11th February, 1965.