Tuesday, June 03, 2014 10:40 PM / By Olumide K. Obayemi
In the aftermath of the Supreme Court’s decision in Agip (Nigeria) Ltd v Agip Petroli International (2010) 5 NWLR (Pt 1187) 348, Osaro Eghobamien, SAN had lamented that form prevailed over substance in the field of company law jurisprudence in Nigeria. Refreshing news arrived from the Court of Appeal, in Econet Wireless Nigeria Ltd v Econet Wirelss Ltd (2014) 7 NWLR (Pt 1405) 1, refused to allow strict interpretation of Section 90(1) of the Companies and Allied Matters Act Cap 20, Laws of the Federation of Nigeria, 2004 (CAMA). Instead, the court adopted interpretations of similar legislation from England, Malaysia and India to arrive at two (2) just and equitable conclusions:
(a) that consideration to be paid for acquisition of shares in a corporation does not have to be by cash alone, and such may be by assumption of corporate indebtedness by the allottee; and
(b) where there is a dispute surrounding striking off a shareholder’s name from the register of shares, only judicial intervention can resolve the issue.
Best recounted by Folabi Kuti, the earlier decision in Agip vs Agip, arose in the aftermath of General Olusegun Obasanjo’s 1978 Indigenization Decree, pursuant to which Nigerian citizens acquired 40% in Agip Petroleum, with the Italian parent company, Agip Petroli BV owning 60%. Later, Agip Petroli intended to sell its 60% shareholding to Unipetrol (now Oando). The Nigerian minorities objected and demanded the right of first refusal, i.e., that Nigerians ought to have the first bite at the 60% divestment before the offer to outsiders.
The minorities commenced a derivative action by writ of summons and, without filing an application to serve Agip Petroli outside Nigeria’s jurisdiction in Italy, were able to obtain an order to serve the court process in Italy. Relying on Rule 2(1) of the Companies Proceeding Rules of 1992, Agip Petroli and Unipetrol fought up to the Supreme Court where they were successful in defeating the derivative action based on the strict formal rule that the suit to obtain leave to file a derivative action ought to have been commenced by an originating summons. Second, the Nigerian Supreme Court also held that it was erroneous for the trial court to have granted an order for service of process outside jurisdiction when no application for leave was ever made to the court.
In sum, Eghobamien submitted:
It is not very often that our courts are presented with cases that lend themselves to critical pronouncements on substantive law as opposed to procedural law. In the few cases that deviate from this norm, the Justices of both the Court of Appeal and the Supreme Court appear to shy away from developing the jurisprudence necessary for the growth of law. This is particularly evident in the lack of substantive pronouncement in the well over 650 sections of the Companies and Allied Matters Act (CAMA), consequently leaving the growth of company law in an anachronistic state.
It was against this background that Econet vs. Econet is highly instructive. Therein, First Independent Network Ltd (FINL) and Econet Wireless International Limited (EWIL) signed a Memorandum of Understanding (MOU) under which they formed a consortium to bid for the Digital Mobil Licenses, in a joint venture with each holding 40%of the equity. FINL and EWIL obtained 40 million shares at $2 each. FINL paid its share, while a dispute over EWIL’s payment led to a lawsuit, in furtherance of which a settlement was reached between FINL’s nominee—Econet Wireless Nigeria (EWN) and EWIL.
Clause 6 of the Settlement between EWN and EWIL provided:
In consideration of the costs incurred by [EWIL] and the value of its contribution to establishment of the company, the Shareholders and Directors of [EWN] have offered to [EWIL]’s 5,000,000...with no further or other consideration or amounts due or required. [EWN] hereby acknowledges receipt of the sum of N5,000,000 representing the par value of the shares.
Clause 11 stated that
[EWIL] accepts the offer set out above and [EWN] shall arrange that the aforementioned 5,000,000 shares of [EWN] shall be allotted to [EWIL]’s nominee, Econet Wireless Limited, and credited as fully paid. The company secretary shall be instructed to file all necessary forms with the companies registry recording the above and to enter Econet Wireless Limited in the register of members and to issue to Econet Wireless Limited the necessary share certificates in respect of the allotted shares.
As a nominee of EWIL, Econet Wireless Limited (EWL) obtained the share certificates. Further, respective resolutions of the EWN’s Board of Directors and Extra-Ordinary Meeting of EWN’s members approved the issuance of shares to EWL (as EWIL’s nominees).
In December 2001, EWN sought to cancel EWL’s 5,000,000 shares. EWL disagreed and the instant lawsuit ensued.
Section 79 of CAMA prescribes how parties can become members of a corporation, i.e., by either subscribing to the memorandum of association at formation or by subscribing to the corporation after formation. Further, Section 91 (CAMA) states that a company’s register of shareholders is prima facie evidence of all maters inserted therein. Section 147 (CAMA) states that a share certificate is prima facie evidence of title of the member to the shares, in consonance with Section 168(1) of the Evidence Act, Cap E14, LFN 2004, which raises a presumption of regularity in favour of entry of a member’s name in the company’s register.
Rejecting an argument based on form and calling it “an absurd and unjustifiable result,” i.e., that Section 129 of CAMA requires cash as sole consideration for share acquisition and that a valuation of the consideration was needed, the Appellate Court per Honourable Abiru JCA, relying on precedents under the English Companies Act and on In re: Regent United Services Stores; Ex Parte Bentley (1879) 12 Ch.D. 850 and In re: Harmony and Montague Tin and Copper Mining Co. Ltd., Spargo’s Case (1873) LR 8 Ch.App.407, held that:
The evidence led before the lower court showed that 5,000,000 shares held by [EWL] were fully paid for by setting off the Naira equivalent of the sum of $1,000,000 owed by [EWN] to [EWIL] against the purchase of the shares....
On the decision of EWN to cancel EWL’s shares and so strike EWL’s name off the register of members, the Court held that where there is a dispute between the corporation and shareholder, only a court has the authority to rectify the register. In particular, Section 90(1) of CAMA provides that:
90. Power of court to rectify register
` (1) If‐
(a) the name of any person is, without sufficient cause, entered in
or omitted from the register of members of a company; or
(b)default is made or unnecessary delay takes place in entering on the register the fact of any person having ceased to be a member,
The person aggrieved, or any member of the company, or the
company, may apply to the court for rectification of the register.
In interpreting the above provisions, the Court held thus:
The provision is not new and it is not peculiar to Nigeria. It is a word for word replication of Section 162 of the Companies Act of Malaysia, 1965, and of Section 162 of Companies Act of India (now Section 59 of the 2013 Indian Companies Act) and it is the same as Section 125 of the 2006 Companies Act of England. The provision has been interpreted by the different courts in these countries. The consensus of views on the intendment of the provisions is that where the error sought to be rectified on the Register is not disputed and there is mutual consultation and an agreement between the company and the member concerned on the error, the company may rectify the Register without an application to court.
Continuing, the court held:
Where there is a dispute between the company and the member concerned on the alleged error on the register, the company cannot unilaterally rectify the register without first obtaining an order of the Court.
This decision of Honourable Abiru is in accord with the English Court in First National Insurance Company vs Greenfield (1926) 2 KB 260. Later, in P.V Damoodara Reddi vs. Indian National Agency, 2 MLJ 432, it was held that where a dispute exists, the unilateral removal by the company of the applicants’ names from the register of members is wholly illegal because the register of members is a public document and there was no provision in the Companies Act which permitted either the directors or the officers to make such alteration.
In Malaysia, Honourable Raja Azlanm CJ had similarly held in Central Securities (Holdings) Bhd vs Haron Mon Mohamed Zaid, (1979) 2 MLJ 244 at 250 thus:
Since the register of members is prima facie evidence of matters inserted therein...only the court can rectify it on proper application ... accordingly it is wrong on the part of United Holdings unilaterally to strike the plaintiffs’ name off the share register.
The court in Econet v Econet, appears to have assuaged the fears of corporate law stakeholders that form would always prevail over substance as was the case in Agip. Borrowing from similar common law jurisdictions helped to solve the legal quagmire. Whether this trend would continue can only be seen in the near future.
If the Nigerian government’s efforts towards attracting for capital and investment would bear tangible fruits, the judiciary must be proactive in their interpretation of Nigerian business regulations and codes.