In The Supreme Court of Nigeria
On Friday , 23rd day of March, 1990
SC 200/1989
Between
Chief R. A. Okoya & Ors. ....... Appellants
And
S. Santilli & Ors. ....... Respondents
Judgment of the Court
Delivered by
Abdul Ganiyu Olatunji Agbaje
The background material to this appeal is as follows. The plaintiffs, Chief R.A. Okoya, Mrs. K. Okoya and Albion Construction Ltd., sued the defendants, S. Santilli, A. Davanzo and Prince D.A. Ademiluyi in a Federal High Court Lagos Division, claiming against them the following reliefs:-
(1) A declaration that the document, copies of which were lodged with the Registrar of Companies and the Federal Inland Revenue Department, to which the 1st and 2nd Plaintiffs were subscribers, is the only true memorandum and articles of association of the Albion Construction Co. Ltd.
(2) An injunction restraining the 1st, 2nd and 3rd defendants and/or any person acting with or on their direction or authority from conducting the affairs of the Albion Construction Co. Ltd. and in particular from operating the account of the said company in any Bank whatsoever on the basis of any memorandum and articles of association other than that mentioned in paragraph (3) hereof.
(3) A declaration that the 1st and 2nd Plaintiffs are the only lawful directors of the Albion Construction Co. Ltd.
(4) A declaration that the purported appointment of the 1st and 2nd defendants as directors of the Albion Construction Co. Ltd. whether pursuant to the memorandum and articles of association of the said company or at the meeting of the Board of Directors of the Company held on 7.2.80 is illegal and null and void and of no effect.
(5) A declaration that the claim of the 1st and 2nd defendant to be owners of 40,000 shares each in the Albion Construction Co. Ltd. whether as subscribers to the memorandum and articles of association or pursuant to resolutions allegedly passed at a meeting of the Company's Board of Directors held on 5/5/81 is unlawful and not maintainable in law or in fact.
(6) A declaration that all shares held by the 3rd defendant in the Albion Construction Co. Ltd. were held by him in trust for the 1st Plaintiff and an order directing the said defendant to execute a transfer of the said shares to the 1st Plaintiff.
(7) An injunction restraining the 1st and 2nd defendants from holding themselves out as director of the 1st plaintiff company or from giving directions concerning the management and control of the said company unless and until duly appointed as directors of the said company.
After hearing the parties and their witnesses the learned trial Judge, Odunowo, J., gave his judgment in the case on 15th December, 1988 where he held as follows:-
I am satisfied that the following decision must be made:
(1) The document described as Memorandum and Articles of Association of Albion Construction Company Limited dated 16/9/76 and admitted in evidence in this action as Exhibit A and to which the first and second plaintiffs were subscribers is the only true Memorandum and Articles of Association of the third plaintiff company.
(2) The nominal share capital of the third plaintiff company is N200,000.00 divided into 200,000 shares of N 1.00 each, and not as alleged by the defendants.
(3) All the parties to this action are shareholders of the third plaintiff company: namely (1) Chief R.A. Okoya - 50% or 100,000 shares; (2) Mrs. K. Okoya - l % or 2,000 shares; (3) Mr. S. Santilli - 20% or 40,000 shares; (4) Mr. A. Davanzo - 20% or 40,000 shares; and (5) Prince D.A. Ademiluyi - 9% or 18,000 shares.
(4) The third defendant is hereby directed to execute an instrument of transfer in respect of 51% or 102,000 shares, which he holds on trust, of the first plaintiff.
(5) The first, second and third defendants and/or any other person or persons acting with or on their direction or authority are hereby restrained from conducting the affairs of the third plaintiff company and in particular from operating the account of the said company in any bank whatsoever on the basis of any Memorandum and Articles of Association other than that mentioned in paragraph (1) above."
By a notice of appeal dated 22/12/88, the defendants appealed against the whole of the decision of Odunowo, J., to the Court of Appeal, Lagos Division. For reasons herein after appearing in this judgment I will reproduce below the grounds of appeal in the notice of appeal without their particulars. They are as follows:
(1) That the learned trial Judge erred in law and on the evaluation of the facts before the Court in awarding 51% percent of the adjudged 200,000 Authorised Share Capital to the 1st and 2nd Plaintiffs and in directing the 3rd Defendant to execute an instrument of transfer of the said 51 % shares to the 1st Plaintiff which the learned trial Judge adjudged the 3rd Defendant held in trust for the 1st Plaintiff.
(2) The learned trial Judge erred in law by adjudging that the 1st and 2nd Plaintiffs are Members of the 3rd Plaintiff Company.
(3) The learned trial Judge erred in law in holding that the 3rd Defendant's shareholding in the 3rd Plaintiff is 9% instead of the 21% which the Defendants had canvassed in their alternative position.
(4) The learned trial Judge erred in his evaluation of the facts and the application of law to those facts in holding and accepting the contention of the 1st and 2nd Plaintiffs that 'the paid up share capital of the 3rd Plaintiff as at 31/5/81 stood at 200,00.'
(5) That the learned trial Judge erred in law and in the evaluation of the facts placed before the court by failing to make a finding on the un-contradicted evidence that the Worker Trust held 10% of the authorised share capital of the 3rd Plaintiff.
(6) The learned trial Judge erred in his evaluation of the facts before the court and in his application of law to those facts in holding that the presumption of regularity of the disputed Minutes in the minutes Book, Exhibit HR had not been displaced.
(7) The learned trial Judge erred in accepting the authenticity of the Balance Sheets of the 3rd Plaintiff Company by which the paid up share Capital were supposedly made by the 1st Plaintiff, as at 31/5/81.
(8) That the judgment is against the weight of evidence.
There is a cross-appeal by the plaintiffs. As far as the present appeal is concerned, I need not say anything more about the plaintiffs' appeal.
Pursuant to an application by the defendants, for leave to appeal against the Judgment of Odunowo, J., of 15/12/88 and for a stay of Execution of the judgment, parties by their counsel appeared before Odunowo, J., on 22/12/88. For reasons hereinafter appearing in this judgment, it is necessary to set down some of the record of proceedings of that day, which is:
Chief F.R.A. Williams: When we came here this morning, we felt that there were two major defects in this application. But we felt we can nevertheless usefully spend this morning in resolving the anxieties of my learned friend .....................
If you look at the judgment, I submit that there is nothing to stay as such. It would have been more realistic to ask for an Order that pending the determination of the appeal, the 1st & 2nd Plaintiffs shall be restrained from exercising the right attached to the shares which the court has declared to be owned by them. But your Lordship will have to balance any such application by a consideration of our own interest, having regard to the principle that a successful party should not be deprived from enjoying the fruits of judgment. Bearing those principles in mind and having regard to all the circumstances of this case, we respectfully submit that there are 2 alternatives open to this court. These alternatives are to last until the determination of the appeal. In the alternative, if your Lordship feels you want to hear fuller arguments, then they should rest until the determination of this motion on Notice or until further Order:
(1) That the 3rd plaintiff company be managed by a Board of receivers comprising: (i) Mr. Santilli who shall be responsible for the functions at present performed by the M.D. (ii) Mr. Davanzo who shall be responsible for the functions at present performed by the director technical. (iii) Prince Ademiluyi who shall be an adviser, without executive responsibilities, to the Board of Receivers. (iv) Three (3) nominees of the 1 St & 2nd Plaintiffs one of whom shall have executive responsibilities for the finances of the company: ...............
(2) The second condition is as follows: The business of the 3rd plaintiff company should be run by a board of receivers and managers comprising six (6) Persons as in proposal one. The Chairman of the Board shall be an independent person with experience in business or commercial accounting to be appointed by the court. Such Chairman not to have an original vote but shall have a casting vote. These suggestions, I assume (sic) the court from the bar, are my own suggestions and they have been made in a genuine effort to see that the subject matter of litigation is preserved without injustice to either side. We have won the case substantially in the sense that we have a majority vote ...........
Chief Benson: It will be very difficult for me to accept or refuse the offers. My Lord, I was briefed only yesterday in this matter and I am yet to have full consultations with my clients. My learned friend has made a number of remarks about their having a majority as a result of the judgment. Which judgment is being challenge on appeal. ....
One is bound to look at the offer, without commitment or prejudice to my clients, on the face of it. ....
Chief Williams: I will with respect withdraw my proposals because there is no reasonable response.
Chief Benson: .....
He makes his offer and if he withdraws it good luck.
The application was then adjourned till 2/2/89 for hearing.
Giving his ruling on the application on 1/3/89 the learned trial Judge Odunowo J. held as follows:
First: Just before the motion was moved, Chief Williams, S.A.N., conceded that the order directing the 3rd defendant to execute an instrument of transfer in respect of 51% or 102,000 shares which he holds on trust for the plaintiff could be stayed without prejudice to the operation of all the remaining declarations granted by the court, including the declaration as to the number of shares owned by the 1St and 2nd defendants in the company.
Second: Finally, as was pointed out by Eso, J.S.C., . . . a stay of execution is never to be used as a substitute for obtaining the judgment which the trial court has denied a party. . .' (See Okafo V Nnaife (1987) 4 N.W.L.R. (Pt. 64) at page 138). The conclusion I have reached after deep reflection does not persuade me that there is any equitable basis for the present application which must be and is hereby dismissed accordingly, subject to the concession granted by the plaintiffs in respect of declaration (4) above.
By an application dated 2nd March, 1989 the defendants applied to the Court of Appeal for the following reliefs:-
(1) An order of this Honourable Court staying further proceedings on the declarations as contained in the judgment of Hon. Justice T.A. Odunowo of the Federal High Court, Lagos;
(2) An order staying execution of the orders contained in the same judgment given on the 15th day of December 1988 pending the determination of the appeal lodged by the Defendants / Appellants / Applicants to this court;
(3) And for such further order or other orders as this Honourable Court may deem fit to make in the circumstances.
There was an objection by the counsel for the plaintiffs by way of a Notice of Preliminary Objection dated 20/3/89 to this application in the following terms:-
Notice of Preliminary Objection
TAKE NOTICE that at the hearing of the motion on Notice herein dated the 2nd day of March 1989, the above-named Plaintiffs intend to raise the following preliminary objections:-
(i) The prayer for 'staying further proceedings on the declarations as contained in the judgment' is not a relief known to the law.
(ii) No such prayer was ever moved in the court below and so it cannot be moved in this court.
(iii) The prayer for 'staying execution of the orders contained in the judgment' is incompetent and untenable as there is nothing left to stay. Dated this 20th day of March 1989.
Ruling on the preliminary objection on 27/4/89 the Court of Appeal, co ram Akpata, Babalakin and Kalgo JJ.C.A., as per the lead ruling of Akpata, J.C.A. in which the others concurred held as follows:-
I agree with Chief Williams that the application for an order staying further proceedings on the declarations as contained in the judgment of Hon Justice T.A. Odunowo of the Federal High Court, Lagos was not made in the court below. Besides, the nature of further proceedings is not clear....
No such special circumstances have been shown to exist.
The first prayer is therefore incompetent. It is struck out. The objection against the application for an order staying the execution of the orders contained in the judgment of Odunowo, J., delivered on 15th day of December, 1988 fails. It is dismissed.
The effect of this ruling is that what was left of the defendants' application of 2/3/89 was the second leg of the application namely an order staying execution of the orders contained in the judgment of Odunowo, J., of the Federal High Court, Lagos Division of 15/12/88 pending the determination of defendants' appeal against the judgment.
The application was then heard by the Court of Appeal differently constituted, coram Ademola, Akpata and Kalgo JJ.C.A.
The ruling on it was given on 30/5/89. In his lead ruling which is short, Ademola J.C.A. held as follows:-
At the end of this case in the court below. Odunowo, J., made the following declarations:
(1) The document described as Memorandum and Articles of Association of Albion Construction Company Limited dated 16/9/76 and admitted in evidence in this action as Exhibit A and to which the first and second plaintiffs were subscribers in the only true memorandum and Articles of Association of the third plaintiff company.
(2) The nominal share capital of the third plaintiff company is N200,000.00 divided into 200,000 shares of N 1.00 each and not 500,000 as alleged by the defendants.
(3) All the parties to this action are shareholders of the third plaintiff company: namely (i) Chief R.A. Okoya 50% or 100,000 shares; (2) Mrs. K. Okoya - 1% or 2,000 shares; (3) Mrs. S. Santilli - 20% or 40,000 shares; and (5) Prince D.A. Ademiluyi - 9% or 18,000 shares.
The applicants who were defendants in the court below have appealed here. They have also brought a motion for stay of execution upon the judgment of the court below. This ruling is in respect of the application for stay of execution.
Amidst the clashes of argument by counsel at the hearing of the application, the affidavit in support of the Motion and the counter-affidavit in opposition to the Motion, there is discernable in my opinion a desire on the part of the warring parties to make the company to which they all belong a going concern until the appeal is heard. This is an understandable desire in view of an outstanding contract of over 100 million Naira the Company still has to execute.
There can be no doubt that there are some arguable grounds in the appeal lodged by the appellants in respect of the apportionment of the share-holding in the company to the 1st and 2nd Respondents made by the learned trial Judge. Nevertheless, some measure of damage would result if some of the proposals contained in the judgment were to be implemented now.
Bearing these two factors in mind, it appears that some form of stay of execution of the judgment must take place. It is therefore very refreshing and commendable to see some form of proposal in the counter-affidavit of the respondent. During the course of argument before the Court, Chief Benson showed some accommodation to the proposal outlined by Chief Rotimi-Williams, learned counsel for the respondent in this matter.
There would, therefore, be a stay of execution on the following conditions:
(1) There would be a Board of Receivers and Managers for this Company pending the determination of the appeal.
(a) The Board would be headed by Chief Folorunsho Oke Chartered Accountant of Messrs. Copper & Lybrand Ltd., Igbosere Road, Lagos who shall be Chairman.
(b) Messrs. Santilli and Davanzo, 1 St and 2nd appellants to carry on their respective duties as Managing Director and Technical Director respectively and shall be on the Board.
(c) Prince D.A. Ademiluyi shall be on the Board.
(d) Chief R. A. Okoya and Mrs. Okoya and Mr. S. O. A. Folami shall be on the Board. The said Mr. Folami a Chartered Accountant shall be in control of the finances of the Company pending this appeal. In the alternative, Chief & Mrs. Okoya should nominate two persons whose names shall be communicated to Registrar to serve as their nominees on the Board.
(2) The order asking the 3rd defendant now appellant, Prince Ademiluyi to execute instrument of transfer in respect of 51% or 102,000 shares which he holds in trust in favour of the 1st plaintiff now respondent is now stayed.
(a) The order restraining of the 1st, 2nd and 3rd defendant and other person or persons acting on their behalf or their direction or authority, restraining them from conducting the affairs of the Company and in particular from operating the account of the said Company in any bank whatsoever is hereby stayed.
(3) The order of interim injunction granted by this Court in respect of a bank account of the Company is hereby lifted.
(4) The Board of Receivers and Managers shall conduct the affairs of the company during the pendency of the appeal in the best possible manner having regard to the fact that their broad mandate is to make the Company a going concern until the determination of this appeal.
(5) The Board of Receivers and Managers shall hold meetings and direct and run the affairs of the Company in the best possible manner during the pendency of this appeal.
(6) The Chairman, Chief Folorunsho Oke is at liberty to seek the direction of the Court on any matter regarding the administration of the Company during the pendency of the appeal in this court.
The stay is granted accordingly on these conditions. There shall be no order as to cost.
Akpata, J. C. A., in his ruling said inter alia as follows:
A company and its majority members who have dragged minority members to court should not be heard to say to the defendants, "Foss v. Harbottle prevents you from appealing because we are in the majority. Even if you can appeal you cannot stop us from destroying the res before the appeal is heard.". The courts will not permit that theory. Sections 220 and 221 of the 1979 Constitution make it clear that an aggrieved person may appeal with leave of court in others (sic) from decisions of a High Court. Foss v. Harbottle does not possess the legal elasticity to have it stretched so as to deprive an aggrieved party the right of appeal conferred on him by the Constitution.
In effect, therefore, if an action is well constituted by meeting the requirements of Foss v. Harbott1e and it goes to trial, any of the parties aggrieved by the decision of the court may appeal whether or not they are minority members of the company. They are competent to apply that the judgment be stayed or suspended so that the res may not be destroyed. The dictum of Foss v. Harbott1e terminates with the determination of the action in the trial court.
By Order 1 Rule 20(8) of the Court of Appeal Rules 198 1, the Court shall have powers to make orders by way of appointment of a receiver or such other necessary orders for the protection of property or person pending the determination of an appeal to it even though no application for such an order was made in the court below.
I agree with my learned brother Ademola, J.C.A., that in the circumstances of this case it is desirable to appoint a body of receiver/manager from both sides for the protection of the company pending the determination of the appeal.
Kalgo, J.C.A., said in his ruling:-
I have before now read in draft form, the ruling just delivered. I agree with it. The most important consideration in this matter, in my view, is that the Company concerned, Albion Construction Limited, should be allowed to run as a going concern while all actions in court are going on. Both learned counsel in this application have conceded that this is very essential and are prepared to accept a compromise which would produce the desired result. In my view, the conditions for the set out (sic) in the ruling just delivered, would in the circumstances be just and fair to both parties pending the determination of the appeal.
It is against this ruling that the plaintiffs have now appealed with leave of the lower court on 16 grounds of appeal which I need not reproduce since all of them have been subsumed under one or other of the issues said in the briefs of arguments in this appeal to arise for determination.
According to the brief of arguments for the plaintiffs, the appellants, the issue arising for determination in this appeal are as follows:-
(i) Whether a defendant who has filed an appeal against purely declaratory orders made against him is entitled to apply for 'stay of execution' of those orders pending the hearing and determination of the appeal;
(ii) Whether the Court of Appeal had jurisdiction to make the orders contained in its decision dated 30.5.89 having regard to the rule in Foss v. Harbottle and, in particular the rule that the court ought not to interfere in matters relating to the internal management of the affairs of a corporation or association save at the instance of the corporation itself or at the instance of a majority of its members.
(iii) Whether it was proper for the court below to make the appointment of receivers and managers-
(a) in the absence of a specific application in that behalf by either party;
(b) without fixing the amount of security which the persons so appointed ought to give;
(c) without inviting the parties to address it on the desirability of marking the appointments, including the suitability of the appointees.
According to the brief of arguments for the defendants, it is said that the issues arising for determination in this appeal are as follows:-
(I) Whether or not items 4 and 5 of the pronouncements of Odunowo, J., are declaration or orders.
(2) If the said items 4 and 5 are orders, could order for Stay of Execution be made pending appeal thereupon?
(3) If the said items 4 and 5 could be stayed, has the Court of Appeal discretion to make such order of stay on condition?
(4) Do the circumstances of this matter fall within principles enunciated in rule in Foss v. Harbottle (1843) 2 Hare 461?
(5) If item 4 is an order that could be stayed, will such Stay affect the declaration stated in item 3 or not, particularly the shareholdings of the plaintiffs i.e.
(1) Chief R. A. Okoya 50% or 100,000 shares
(2) Mrs. K. Okoya 1% or 2,000 Shares?
(6) If item 4 is also an order/injunction, that could be stayed, will such stay not also affect the declaration stated in item 1 which relates to whether or not Exhibit A is the proper Memo and Articles of Association?
(7) Was the appointment of receivers and managers by the Court of Appeal a reasonable and judicious exercise of its discretion to impose conditions?
I must pause here to comment on some of the issues said by the defendant to arise for determination in this appeal, that is, issues 1, 2, 3, 5, and 6 above.
The orders in question i.e. orders 4 & 5, for ease of reference are as follows:-
(4) The third defendant is hereby directed to execute an instrument of transfer in respect of 51% or 102,000 shares, which he holds on trust, in favour of the first plaintiff.
(5) The first, second and the third defendants and/or any other person or persons acting with or on their direction or authority are hereby restrained from conducting the affairs of the third plaintiff company and in particular from operating the account of the said company in any bank whatsoever on the basis of any Memorandum and Articles of Association other than that mentioned in paragraph (1) above.
As regards order 4 we have to remind ourselves that the order which is undoubtedly an executory order capable of enforcement and of being stayed, as I will show presently in this judgment, has been stayed in the ruling of Odunowo, J., of 1/3/89 on an application to him by the defendants for a stay of execution of his judgment to which I have earlier on in this judgment referred. So a stay of execution of that order could no longer be a live issue in the court below in a fresh application to it by the defendants for a stay of execution of the judgments of Odunowo, J., pending the determination of the defendants appeal against it. The same thing goes for an appeal to this court against the decision of the Court of Appeal on the defendants' fresh application in that court for a stay of execution.
As regards order 5, a perusal of the grounds of appeal of the defendants against the judgment of Odunowo, J., which have reproduced earlier on in this judgment shows that nowhere therein is any complaint made about this order. It is to be noted that the restrictive order which Odunowo J made is tired to the first declaratory judgment, namely:-
(1) The document described as Memorandum and Articles of Association of Albion Construction Company Limited dated 16/9/76 and admitted in evidence in this action as Exhibit A and to which the first and second plaintiffs were subscribers is the only true Memorandum and Articles of Association of the third plaintiff company.
It is equally noteworthy that the defendants in their grounds of appeal no complained about this order either. If there had been a complaint about Order 1, one might have said, inferentially of course, that the defendants are thereby complaining about order 5 to which order 1 is tied. For purposes of completeness I should mention the reliefs the defendants were seeking in their appeal in the lower court. They were as follows:-
To set aside the judgment and orders of the Federal High Court relating to the Shareholding of the 1st and 2nd Plaintiffs and the 3rd defendant in the 3rd Plaintiff and to substitute it with the following:-
(a) A declaration that the 1st and 2nd Plaintiffs are not members of the 3rd Plaintiff and do not hold 51% of the Shares of the 3rd Plaintiff.
(b) A declaration that the 3rd Defendant is entitled to and holds 21% the a