1

AN APPRAISAL OF THE LIABILITIES OF A

COMPANY FOR THE ACTS OF ITS DIRECTORS

By

ESSIET ESTHER EPHRAIM

MATRIC NO: 07/40IA200

BEING AN ESSAY SUBMITTED TO THE FACULTY OF

LAW,UNIVERSITY OF ILORIN,ILORIN,NIGERIA, IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE

DEGREE OF BACHELOR OF LAW (LL.B. HONS.)IN COMMON LAW

APRIL, 2011

2

CERTIFICATION

This is to certify that this long essay: AN APPRASIAL OF THE LIABILITIES

OF A COMPANY FOR THE ACTS OF ITS DIRECTORS was written by

ESSIET ESTHER EPHRAIM. It has been read and approved as meeting part of

requirements for the award of Bachelor of Laws (LL.B Hons.) Degree in

common law in the Faculty of Law, University of Ilorin, Ilorin, Nigeria.

MR M.T. ADEKILEKUN DATE SIGNATURE

Supervisor ......................... .....

DR. MUHAMMED MUSTAPHA AKANBI DATE SIGNATURE

HOD of Host Dept.

Dept. of . ............... ...

PROF A. ZUBAIR DATE SIGNATURE

HOD of Graduating Dept.

Dept. of ................ . ......

DR. WAHAB O. EGBEWOLE DATE SIGNATURE

Dean, Faculty of Law

. .

DATE SIGNATURE

EXTERNAL EXAMINER ...

3

ABSTRACT

A company can be described as a legal entity or a body corporate, having perpetual

succession and also a common seal, as well as the ability to sue and be sued in its

own corporate name. Suffice to state, also that the company upon its incorporation

can acquire property in its corporation name. This corporate personality, gives the

company the status of a person; albeit artificial, having all the qualities of a normal

human being.

It should be noted, that a company is by virtue of the celebrated case of Salomon V.

Salomon & Co. (1897) A.C. 22, an entity separate from its members having the

capacity to own assets, properties, liabilities, right and obligations incidental to the

activities of the company done, giving it responsibilities for all its acts and not its

members and/or officers.

The effect of this, is that the members or officers of the company are not in any way

under any form of liability for acts done in course of discharging their duties but the

company (a legal person) bears all such liability; even though its activities are carried

out by human beings whose acts are of paramount importance to the company.

At this juncture, it would not be out of place to state with particular reference to this

project work that the acts of directors as officers of the company are also accruable to

the company. Be that as it may; the meaning and nature of a director is without a

universally acceptable definition, neither could it lend itself an easy definition and a

much easier understanding. However, directors can be defined as managers of the

company. They are not employed by the company and as such cannot be said to be

employees of the company, servants or members there to but they can be seen as

officers of the company, for the purpose inter alia of making the company vicariously

liable for their acts and omissions while engaged in the business of the company.

In essence, this project work has as its sole aim; the consideration of the liabilities of

a company for the acts of its agents, with particular reference and emphasis on the

director of a company and it shall also consider, the position of the law, as it relates to

the above issue of liability of a director with reference to a company.

4

TABLE OF CONTENTS

COVER PAGE.........I

CERTIFICATION PAGE..II

ABSTRACT...III

TABLE OF CONTENTS..IV

DEDICATION.....VII

ACKNOWLEDGEMENT....VIII

TABLE OF CASES.......XI

TABLE OF STATUTES........XIII

LIST OF ABBREVIATIONS...XIV

CHAPTER 1

GENERAL INTRODUCTION

1.0.0: INTRODUCTION........1

1.1.0: BACKGROUND TO THE STUDY3

1.2.0: OBJECTIVES OF STUDY..5

1.3.0: FOCUS OF STUDY.....6

1.4.0: SCOPE OF STUDY.6

1.5.0: METHODOLOGY...........................6

1.6.0: LITERATURE REVIEW...7

1.7.0: DEFINITION OF TERMS..8

5

1.8.0: CONCLUSION...........................14

CHAPTER 2

THE DIRECTORS OF A COMPANY

2.0.0: INTRODUCTION..15

2.1.0: TYPES OF DIRECTORS..16

2.2.0: APPOINTMENT OF DIRECTORS20

2.3.0: POWERS OF DIRECTORS.25

2.4.0: PROCEEDINGS OF DIRECTORS.29

2.5.0: CONCLUSION...32

CHAPTER 3

DUTIES AND RESPONSIBILITIES OF DIRECTORS

3.0.0: INTRODUCTION.33

3.1.0: DIRECTORS AS TRUSTEES AND AGENT OF THE COMPANY....34

3.2.0: DIRECTORS CONFLICT OF INTEREST.....39

3.3.0: DIRECTORS INTEREST IN CONTRACT40

3.4.0: DIRECTORS AND SECRET PROFIT42

3.5.0: FIDUCIARY RESPONSIBILITIES.....45

3.6.0: CONCLUSION...46

6

CHAPTER 4

LIABILITIES AND REMEDIES OF DIRECTORS

4.0.0: INTRODUCTION48

4.1.0: LIABILITIES OF THE COMPANY FOR THE ACT OF ITS OFFICERS

AND AGENTS...50

4.1.1.0: CRIMINAL LIABILITIES.52

4.1.2.0: CIVIL LIABILITIES.55

4.2.0: REMEDIES.56

4.2.1.0: RELIEF FROM LIABILITY.62

4.3.0: CONCLUSION..........................65

CHAPTER 5

GENERAL CONCLUSION

5.0.0: CONCLUSION..67

5.1.0: RECOMMENDATION68

BIBLIOGRAPHY.70

ARTICLES IN JOURNALS.....70

BOOKS...........70

7

DEDICATION

To God Almighty for his supremacy over my life for making all things possible and

bearable.

You give me a reason to strive, take all adoration and glory.

To my parents, Mr. & Mrs. Ephraim S. Essiet; wonders of my world you guys know

when to push or part. I really do love you both (equally).

To my brothers what could I have asked for? A Sister? You guys are my team.

8

ACKNOWLEDGEMENT

To my parents, Mr. & Mrs. Ephraim Samuel Essiet I owe you a lot. Thanks for being

there all through it all.

To my brothers, Eng Nsikak-abasi Essiet, Edidiong Essiet and Ime Essiet you are all I

have I love you guys!

To Pastor Victoria, mummy you are a gift and blessing to our lives. May God

replenish you.

To Dr. and Dr. Mrs Olarinoye, you folks are amazing. I pray God never lets you

down and may angels stay guard of the kids like you have been.

To Dr. M.M. Akanbi, wonderfully and brilliantly made thanks for sharing.

Am particularly grateful to my supervisor, Mr. M.T. Adekilekun for going through

my work and being supportive time after time. You are simply the best!

To Mr. Omipidan, Mr. Ijaiya, Mr. B.L. Ijaiya, Mr. Abdulkadir, Mr. Owoade for

being supportive and understanding. May God bless you all.

My deep appreciation also goes to my family, friends and all my classmates who have

one way or the other contributed to supporting me. May God never let you walk

alone.

9

TABLE OF CASES

GHANA

Regal Hastings Ltd v. Gulliver (1942)1 ALL E.R.378;(1967)2 A.C.134

NIGERIA

Adeniji v. The State (2001) 4 NWLR, 248

Alexander Ward & Co v. Samyang Navigation Co (1975) 1

Allen v. Hyatt (1914)30 TLR 444

Artra Industries Nigeria v. The Nigeria Bank for Commerce and Industry

(1998)56/57LRCN 3255

Atwool v. Merryweather (1867)L.R.5Eq 464;37 L.T.CH.35

Automatic Self-Cleaning Filter Syndicate Co. Ltd. v. Cunninghame (1906)2

Ch 34 or 22 T.L.R.378

Barlett v. Barclays Bank Trust Co. No.1 &2 (1980)2 WLR 430

Belmont Finance Corporation v. Williams Furniture Ltd (No2) (1980)1 ALL

ER 393

Bissel v. Michigan Southern RR (1942)ALL ER 378

Boston Deep Sea Fishing and Ice Company v. Ansell (1888)39 ChD 339

Briess v. Woolley (1954) AC 333;2WLR 832

Canadian Aero Service v. Omally (1973)40 DLR(3d)371

Charitable Corporation v. Sutton (1972)1 WLR 19 CA

Delta Steel (Nigeria) Ltd v. American Computer Technology Inc (1999) 4

10

NWLR (Pt. 597)53 at 66

Diab Nasr v. Berini Beirut Ryad (Nig)Bank Ltd (1967)NCLR 414;(1968)1

ALL NLR 274

Ejekam v. Devon Indusries Ltd (1998)1 NWLR(Pt.533)417

Engineer Vassil Vassilen v. Paas Ind. Ltd (2002) FWLR PT19 418CA

Ferguson v. Wilson (1866) L.R.2.CH.77

Firebanks Executors v. Humphreys (1885)13 QBD 54 CA

Foss v. Harbottle (1843)2 HARE 461

Graham v. Allis Chambers Manufacturing Co. (1963)41 Del ch.78

Grant v. United Kingdom Switch Back Railway (1888)40 Ch.D 135 5 TLR 92

Halcomm (Western Nig) Ltd &Ors v. Scavuzzo &another (1974)3 ALR

Comm.73;

Irvine v. Union Bank of Australia(1877)2 App Cas 366;37 L.T. 176

Isle of Wight Railway Company v. Tahourdin (1883)25 Cd D 320

James v. Mid motors (1978)11&12 S.C.31

Joseph Asaboro Ltd v. Western Nigerian Finance Corporation (1974) NCLR

266

Kalu Onwuka v. Taymani (1965) LLR 62

Kurubo v. Zach-Motison (Nigeria)Ltd(1992)5NWLR(Pt.239)102 @ 115

Lenards Carrying Company Ltd. v. Asiatic Petroleum Co Ltd (1915) A.C.705

Lincoln Mills v. Gough VR 193

11

Longe v. First Bank of Nigeria Plc (2006)3 NWLR (Pt.976)228@ 261-262

Mandilas and Karaberis Ltd. v. Commissioner of police (1956)WNLR 147

Marquis v. Edmatie (1950)19 NLR 75 at 77

Mills v. Mills (1938)60 CLR 150

Milintock v.Campbell (1919)SC 960 @980

New Zealand Society v. Kuys (1973)WLR 1127

Okeowo v. Migliore (1979)11 SC 138

Pavlides v. Jensen (1956)Ch 565

Phibbs v. Boardman (1957)2AC 46

Perceival v. Wright (1902)2 CH 421:18 TLR 697

Piercy v. S.Mills Co Ltd (192o)Ch.77

R v. ICR Haulage Ltd (1944)KB 551

Re-Ambiose Lake Tin Co. (1880)11 CHD 390

Re-German Co. Expchipandale (1858)DL.G.M8C.19

Selangor United Rubber Estate v. Craddocks 3(1967)1 WLR 1555

Sheffield &South Yorkshire permanent building society v. Aizelewood (1889)2

AC 134n (H.L)

Smith v. Anderson (1880)15 ch D 247-275CA

Stephens v. T Pittas Ltd (1983)STC 376

Taiwo Okeowo &Ors v. Migliore &Ors (1979) 11 SC 138

12

Taupo totora Timber Co v Rowe (1977) All ER 123

Tika-tore press Ltd. v. Ajibade Abina(1973)1 ALL NLR Pt.1 Pg.401

The Marquis of Butes case Re-Cardiff Saving Bank (1892)2 CH 100

Transvaal land Co v. New Beligum (transvaal) Land and Development(1914)2

ch 488 CA

Trenco Co (Nigeria) Ltd v. African Real Estate Ltd (1978) 1 LRN 146

Vanni v. Niger Pak Ltd (1979) 4-6 CCHCJ. 148

Yalaju-Amaye v. AREC Ltd (1992)4 NWLR(PT.145)422 SC

UNITED KINGDOM

Aberdeen Railway Company v. BlaikeBros. (1854) IMACQ(H.L) 461

Bolton(Engineering)Co. Ltd. v. Graham and Sons (1957)1 QB 159

British Syphon Co. v. Home wood (1956)2 AER 897

Cook v. Deeks (1916)1 AC 554PC;114LT636

Directors of Public Prosecutions v. Kent & Sussex Contractors Ltd. (1944)

K.B.146

Elkington&Co v. Hurter (1892)2 CH 452

Lloyds v. Grace, Smith and Co (1912) AC 716 HL

Re City Equitable Fire Insurance Company (1925)Ch 407 @426;133L.T.520

Re El Sombrero Ltd, (1958)Ch.910

Re-Forest of Dean Coal Mining Company (1878)10 Ch 450

13

Re-Metropolitan Public carriage and Repository Co. (1873)9 Ch App. 1021

Reprinting, Telegraph & Construction company (1894)2 Ch 392

Royal British Bank v. Turquand (1856)6 E&B 327

Shaw (1935)2 K.B 113

Tesco Supermarket Ltd v. Nattrass (1971)2 ALL E.R.127

14

TABLE OF STATUTES

ENGLAND

English Companies Act 1948

NIGERIA

Companies and Allied Matters Act 1990

Companies and Allied Matters Act 2004

Nigerian Company Decree 1968

15

LIST OF ABBREVIATIONS

A.2d: Atlantic Report, Second Series

A.C: Appeal Cases

All ER: All England Reports

All NLR: All Nigerian Law Reports

A.L.R COMM: African Law Reports, Commercial

BEAV: Bevans English Rolls Court Report

Cap: Chapter

C.A: Court of Appeal

CH.A: Chancery Appeal Cases

Ch.D: Chancery Division

C.P.D: Law Reports, Common Pleas Division

D.L.R: Dominion Law Report

E&B: Ellis and Blackburns Q.B Reports(1852-8)

EQ: Equity

E.R: English Report

Ex. D: Exchequer Division

16

FWLR: Federation Weekly Law Reports

H.L: House of Lords

H&M: Hay and Marriot

HARE: Harris English Vice Chancellor Report

Ibid: In the same place, book or source

JCA: Justice of the Court of Appeal

JSC: Justice of the Supreme Court

K.B: Kings Bench

LFN: Laws of Federation of Nigeria

L.R: Law Reports of the House of Lords

L.L.R: Law Reports of the High Court of Lagos State

LT: Law Times

LQR: Law Quarterly Report

NMLR: Nigerian Monthly Law Report

NWLR: Nigerian Weekly Law Report

Ors: Others

P: Page

17

Para: Paragraph

P.C: Privy Council

Per: Through, According to

Q.B: Queen Bench

R.P.C: Ridgeways Parliament Cases

S.C: Selected judgments of the Supreme Court of Nigeria

SCR: South Caroline Report

T.L.R: Times Law Report

W.A.C.A: West African Court of Appeal

W.L.R: Weekly Law Report

W.R.N.L.R: Western Region of Nigeria Law Reports

V : Versus, Between

Vol.: Volume

18

CHAPTER ONE

GENERAL INTRODUCTION

1.0.0 INTRODUCTION

The need to keep pace with the realities of commerce and industry and comply with

the stipulations of the law may result in the carrying out of commercial activities or

business ventures by more than one person. This, when done in the main with a view

to profitability, which naturally results from the pulling together of resources; money

or moneys worth by investors, the creation of an entity, a vehicle called the company

is underscored.

Although one person can profitably carry on business alone, it is however not

guaranteed that the business would long continue especially if he becomes

incapacitated or dies1. The threat to the continuity of even the most viable business in

an economy as a result of death, inability to raise necessary funds, incapacity of mind

or other frailties of the sole proprietor recommend the incorporation of a company

which ensures ownership and participation in the management of the business by

more than one person for mention. The reasons for the preference of a company to

1 On the contrary, the death, incapacity etc. of a company does not bring the company to an end. This

is because it, among others, has perpetual succession.

19

other forms of business organizations hinge extensively on the fact that a company is

an artificial person recognized by law. It is within the limits of law detached from

those hinge extensively on the fact that a company is an artificial person recognized

by law. It has its duties, rights and obligations, which it attends to, through the

instrumentality of natural persons. To this end, the law recognizes any company

formed in accordance with the law of the land.

Furthermore, it is essential to note that when a Director acts as an agent on behalf of a

company, he is, like any other agent, not personally liable on the contract. This is an

application of the general principle of agency. On the whole a company can only be

liable for the acts of its Directors when he has duly acted on behalf of the company

even if the companys failure to carry-out the contract is due to the fault of the

Directors. The Directors may be liable personally where he contracts in such a way as

to assume liability

The Companies and Allied Matters Act has commendable provisions on how

accounts of the company are to be controlled as well as how Directors who manage

the affairs could be controlled. Furthermore, liability and penalty have become

enshrined statutorily as a means of checking erring directors and officers of a

company.

20

Therefore, this long essay will address the liabilities of a company for the acts of its

directors especially on issues relating to the Directors, in carrying out his duties and

responsibilities as a company Director.

1.1.0: BACKGROUND TO THE STUDY

A company, being a corporate entity, can sue and be sued in its corporate name. As a

matter of law, it has separate existence, identity from the brains, minds, and hands

operating it to commercial functionality. The law therefore draws a clear cleavage

between the company as the artificial person and the natural persons with life and

limb who can operate it.

This is because a company, being an artificial person, can only act through its human

agents and officers. This position was adopted in Lennnards Carrying Co v. Asiastic

Petroleum Co Ltd by Lord Viscount Haldane2 in a passage quoted with approval by

Aniagolu, J.S.C in Trenco (Nigeria) Ltd. v. African Real Estate Ltd3 where he said,

inter alia a corporation is an abstraction.it has no mind of its own any more than it

has a body of its own; its active and directing will must consequently be sought in

the person of somebody for some purpose may be called an agent but who really is

2 [1915]A.C.705

3 [1978]1L.R.N.146

21

the directing mind and will of the corporation, the very ego and center of the

personality of the corporation

In Bolton (engineering) Co Ltd v. Graham and sons4, Denning, LJ characterized the

position as follows

A company may in many ways be likened to a human body.it has a brain

and nerve center which controls what it does.it also has hands which hold

the tools and act in accordance with directions from the center. Some of the

people in the company are mere servants and agents who are nothing more

than hands to the work and cannot be said to represent the directing mind

and will of the company, and control what it does

in Delta Steel (Nigeria) Ltd v. American Computer Technology Inc,5Aderemi,JCA,

referring to acts imputed to the company, explained as follows In cases where the

law requires the personal acts or faults of an individual so as to make a legal fiction

like a company to be liable, the directors, the manager or the managing director are,

in the eyes of the law, the directing mind and the will of the company; they control

what the company does; the state of mind of this special class of employees is the

state of mind of the company.

4 [1957] 1 QB 159

5 [1999] 4 NWLR (Pt. 597)53 at 66.

22

Also clear distinctions between company as the artificial person and the natural

person are mentioned in the case of Adeniji v. The State6 and also in James v. Mid

motors7,

1.2.0 OBJECTIVES OF THE STUDY

The objectives of this essay is to extensively discuss the duty and study the position

of the law as stated in the Companies Allied Matters Acts,2004 on the powers and the

proceedings of Directors and their personal liabilities. The duties and responsibilities

of directors etc, would be discussed, with a view to letting the directors know the

extent to which the company can be liable.

This project work would also aim at ensuring that the company is liable for the acts of

its directors during the operation of carrying out duties. Furthermore, it is also aims at

ensuring the position of CAMA, 2004 as it relates to when the company would be

liable for the acts of its Director and why?

6 (2001) 4 NWLR 248

7 [1978]11and12 S.C.31

23

1.3.0: FOCUS OF THE STUDY

This long essay will focus very importantly on the liabilities of a company for the acts

of its officers and agents for acting on its behalf, and also instances when the

company will not be liable for such acts of its agents and officers.

1.4.0: SCOPE OF THE STUDY

The long essay will give account of the origin of company law, definition of a

company, types, formation and the sources of powers of a company. Reference will

also be made to the study of directors of a company, their types, appointment, powers,

proceedings as well as their liabilities. Not leaving out the main purpose of the study

which is the liabilities of a company on the acts of its directors (both civil and

criminal liabilities).

1.5.0: METHODOLOGY

This write up, which has its motivation mostly from lectures delivered by my lecturer

on company law as well as the personal interest of the writer, It will be based on

primary and secondary sources. The primary source will include the Companies And

Allied Matters Act Cap 20 LFN 2004.The secondary source which would include

24

lecture notes, journals and relevant law reports on the subject matter and issues to be

addressed in the course of completing the project work.

1.6.0: LITERATURE REVIEW

The essence and needfulness of the project work is to examine the liabilities of a

company for the acts of its directors. It should be noted that various views of various

authors such as E.O.Akanki, J.Olakunle Orojo, Robert.R.Pennington etc. will be

put into consideration amongst many others.

According to E.O.Akanki on Essays on Company Law, he is of the view that the

law regulating the liability of the company for the acts of the various organs of the

company and the agents and the officers of such company is divided into two

(a) The acts of the primary organ of the company i.e. The general meeting and the

board of directors which are regarded as the acts of the company itself, and

(b) Those acts of its agent and officers, duly authorized, in respect of which the

company is liable on the basis of respondent superior.

Also, J.Olakunle Orojo8; is of the view that when a director contracts as agent on

behalf of the company, like any other agent, he is not personally liable on the

8 Orojo J.O, Company Law & Practice in Nigeria 5

th Ed. (Interpak Books Pietermaritburg 2008)

25

contract. This is the application of the general principle of agency. So also under

those principles, the director may be personally liable where he contracts in such a

manner as to assume personal liability. Where the director expressly makes himself

liable, no difficulty arises, but he may be liable without express assumption of

liability as where he contracts in his own name without disclosing that he is acting for

a principal, in which case, he is personally liable to third parties on the contract as in

the case of Elkington and Co v. Hunter9.

Even where he contracts as a director but without using words that bind the company,

he will be personally liable.

Furthermore, Penningtons Company Law by Robert.R.Pennington10

is of the

view that the company will be liable for the acts of its agents and officers if their acts

are in utmost good faith i.e. in the benefit of the company and not in the officers

interest then the liability will be that of the companys.

1.7.0: DEFINITION OF TERMS

Considering the fact that the main focus of this essay is company law; it is trite at this

time to define the following viz. company, liability, director, act etc.

Pg 247

9 [1892]2 Ch.452

10 Quoting with approval Penningtons Company law (7th Ed,Butterworths,London,1995). Pg.247

26

The word Company is generally used to refer to a body or an association of persons

with distinct legal personality. Sometimes, however, it is used to refer to a body

without legal personality such as a partnership.

Therefore, Lord Justice James defines a Company as an association of persons

formed for a common object.

Lord Lindley in his own contribution defines a company as a voluntary association

or an organization of many persons who contribute money or moneys worth to a

common stock and employ it in some trade or business and who shares profit or loss

arising therefrom.

Felix C. Amadi11

defines company as a business entity with clear objects made up of

a body or association of persons who contribute to the capital of the business with a

view to, generally speaking, making profit or in rare cases, where they so choose,

pursuing only the promotion of the objects but in whichever case sharing in the loss

of the organization.

11 Amadi F.C. Fundamentals of Company Law &Practice in Nigeria 1

st Ed. (Rodi Printing &

Publishing Company, Rivers State 2004)

27

Learners Dictionary12

simply defines a company as A number of persons united for

business or commerce whose partners are not named in the title.

Blacks Law Dictionary further puts it as a Joint stock union or association of

persons for carrying on a commercial or industrial enterprise, a partners corporation,

association or company.

Company according to L.C.B.Gower13

implies an association of a number of people

for some common objects the number need not be more than two and the interest of

one need not be more than nominal as in the so called one man company.

Liability can be described according to the Osborns Concise Law Dictionary14

defines liability as subjection to a legal obligation; or the obligation itself. The person

who commits a wrong or breaks a contract or trust is said to be liable or responsible

for it. Liability is civil or criminal according to whether it is enforced by the civil or

criminal courts.

The term director does not have a precise and accurate definition owing to

complexities of legal definitions. However, owing to various definitions given to a

12

6th

Ed. Pg.226.(2000)

13 Gower Principles Of Modern Company Law 6

th Ed.

14 9

th London Sweet &Maxwell 2001

28

director, it becomes therefore pertinent to examine this term under three heads,

broadly grouped thus by the courts, by statutes and the legal writers.

CHARLSWORTH AND CAIN15

states that since a company has no physical but

only a legal existence, it becomes imperative to entrust the management of its affairs

to human instrument who are called directors, whose exact position in relation to

the company is rather hard to define. Furthermore, they asserted that directors are not

servants of the company, but that they are rather managers who in some certain

circumstances may be said to be in a position of quasi trustees and agent of the

company. To buttress this point Lord Johnstones dictum was cited in Milintock v.

Campbell16

where he stated that, the directors functions are in one vein those of an

agent and in another, those of a trustee but the former predominates over the latter.

Vincent Power and Smith17

hold the view that a director, as the name implies, is one

who directs. Although, they used short Oxford dictionary as basis of their definition

offered therein is a member of a board appointed to direct the affairs of a commercial

corporation.

15

Charlsworth and Cain Company Law 10th

ed. P.260

16 [1919] S.C 960 at 980

17 Henry C. Blacks Law Dictionary 5

th ed. 1979 p.414

29

Blackburn18

defined director as a person appointed, elected according to law.

Authorized to manage and direct the affairs of a corporation or company.

On the other hand Orojo defined directors simply as those who direct the affairs of

the company.

Almost all the case law definitions of director tends to say the same thing put in

different ways, but the following dicta embrace almost all the principles to be derived

from others:

Lord Cranworth L.C. in Aberdeen Railway Company v. Blaike Bros.19

stated thus, the

directors are a body to whom is delegated the duty of managing the general affairs of

the company. However, the most instructive definition of director is one offered by

Sir Jessel M.R. in Re Forest of Dean Coal Mining Company20

thus Directors have

sometimes been called trustees or commercial trustees and sometimes they have been

called managing partners. It does not matter what you call them so long as you

understand what their true position is, that they are commercial men managing a trade

for the benefit of themselves and all other shareholders of the company.

18

Orojo J.O. Nigerian Company Law & Practice p. 243

19 [1854] IMACQ 461-471-472(SC)

20 [1878]10 Ch.450

30

According to the Osborns Concise Law Dictionary21

, a director is a person charged

with the management of a companys money and property, and having fiduciary

position.

Statutory definition on the other hand tends to adopt the same approach in dealing

with the above questions Section 650 of the Act defines Director as including Any

person occupying the position of the director by whatever name called.

Section 244(1) provides that Directors of a company registered under the Act are

persons duly appointed by this company to direct and manage the business of the

company22

. Where a person is not duly appointed a director as such, his acts do not

bind the company. But where the company describes a person as a director, there is in

favor of any dealing with the company, a rebuttable presumption that all persons, who

are described as directors, whether as sales, executive or otherwise, have been duly

appointed23

A conglomeration of all the above definitions shows that the directors maintain quite

a unique and enviable position in the company and are to be regarded as the

framework within which the company stands. Company directors are in a privileged

21

9th

London Sweet & Maxwell (2001)

22 Section 244(1)Company & Allied Matters Act 2004

23 Section 244(2)CAMA 2004

31

position within the companies, the reasons being that they have numerous and wide

powers of management of the companies.24

1.8.0: CONCLUSION

The law recognizes that although a company is a living person, it has no natural body

or organs, thus, an artificial person. As an artificial person, a company can only act

through the instrumentality of human beings who constitute the organs, officers and

agents of the company. In Trenco (Nigeria) Ltd v. African Real Estate Ltd25

, The

Supreme Court recognized this position by observing a company, although having

a corporate personality is deemed to have human personality through its officers and

agents.

It is no doubt therefore, that for the company to carry out its activities, it needs a

living person to act on its behalf. The acts of such persons during the operation of

carry out its functions or duties, where liability comes to play such company would

be liable for the act as if he carried out the act himself. As long as the person i.e.

director can prove the act was done in the process of carry out his duty.

24

Oladeje Akani; Abuse of Power & Breach of Duty by Companys Directors, Nigeria Journal Of

Contemporary Law,Unilag.1975.Vol No. 1&2 Pg.1

25 [1978]1 LNR 146

32

CHAPTER TWO

THE DIRECTORS OF A COMPANY

2.0.0: INTRODUCTION

The company directors occupy a very unique and enviable position in a company and

are to be regarded as the framework within which the company stands. Many aspects

of the law are directed specifically at them and depend on them for effective

operation and actualization.

Their special role is stressed from the fact that they are the mind and the will, as well

as the limbs of the artificial entity called the company, as they are to attend to its day-

to-day governance. This position is evidenced in the case of Lenards Carrying Co. v.

Asiatic Petroleum Co Ltd26

.

In recognition of this position, companies legislation throughout history, have as a

matter of tradition, accorded special attention to the company Director, by regulating

his manner of appointment, his functions, powers and duties in order to achieve a

greater level of efficiency and effectiveness27

. In accordance with tradition, the

26

[1915]A.C.705

27 Sofowora M.O, Modern Nigeria Company Law (2

nd ed. Olakanmi & Co, Lagos 1997) p.179

33

Companies Allied Matters Act 1990 has introduced a great number of innovations in

this area.

A company as an abstract person cannot manage itself and it is not practicable for the

members in general meeting to do so. Accordingly, every company must have at least

one Director and a Public company must have a minimum of two28

.

The question of who a Director is is a question of function. It is provided that

Directors include any person occupying the position of a Director, by whatever

name he is called. Therefore, if any of the members of the managing body are called

Trustees or Governors, they are nonetheless Company Directors by virtue of their

powers.

2.1.0: TYPES OF DIRECTORS

1. Alternate Director: He is appointed by a director to sit on the board in his place

under powers contained in the articles.29

While the powers of an executive or

special director may be so limited as to take him out of the definition of directors

under section 567, an alternate director will be within the definition.

28

Section 18 CAMA 2004.

29 Palmer Company Law (3

rd ed. Butterworths,London,1995)para.60-62

34

2. Executive Directors: Officers holding service contracts of the company appointed

to the board in a two-tier system comprising executive and non-executive directors.

Executive directors are responsible for the day to day running of the company and

their powers are usually circumcised by the articles. See further Longe v. First bank

of Nigeria Plc30

3. Managing Director: The managing directors are appointed and removable by the

board31

. Yalaju-Amaye v. AREC Ltd.32

4. Shadow Directors: A person on whose direction and instruction the Directors are

accustomed to act33

. Whether a person is or is not a Shadow Director is a matter of

fact to be decided on the circumstance of each case. But some indications are:

(a) Being a signatory to the companys bank account.

(b) The ordering of persons concerned, and of goods and services for the company.

(c) The signing of contracts or letters in the capacity of Director.

(d) Attendance at meeting of the board.

30

(2006)3 NWLR (Pt.967)228 at 261-262

31 Section 64(b)

32 (1992)4 NWLR (Pt.145)422 SC

33 Section 245 of CAMA Cap C20 LFN 2004

35

(e) Possession of detailed information about the company.

PERSONS WHO CANNOT BE DIRECTORS

This to some extent is a matter for the articles and they may provide that a minor or

an alien shall not be appointed a director of a company. Certain persons cannot be

appointed as directors by virtue of the statutes:

(1) AGE

A person who has reached the age of 70 cannot be appointed director unless the

company is a private and not the subsidiary of public company, or the articles

otherwise provide, or he is appointed or approved by a resolution of which special

notice, stating his age, has been given34

; the exceptions are such as to make this

section effective.

A person who is first appointed a director of a company, other than a private company

which is not the subsidiary of a public company, after he has reached the age at which

the directors retire under the Act or the articles, must give notice of his age to the

company35

.

34

Section 293

35 Section 294

36

(2) ARTICLES OF ASSOCIATION

Further disqualification may be imposed by a companys article. It imposes no such

disqualification, but merely specifying the grounds on which directors will vacate

office. Thus unless there are such express provisions, a person is not disqualified

merely because he is minor or an alien.

(3) BANKRUPTCY

An undercharged bankrupt must not act as a director of, or be concerned in the

promotion, formation or management of a company without the leave of the court by

which he was adjudged bankrupt36

. Such a person may be liable if he acts whilst

disqualified.

(4) DISQUALIFICATION

A director who has been disqualified from acting as a director under the Company

Disqualification Act 1986 cannot be a director whilst so disqualified. The following

persons are disqualified from being directors:

(a) An infant, that is, a person under the age of 18years.

(b) A lunatic or a person of unsound mind.

36

Section 11 Company Directors Disqualification Act 1986

37

(c) A person disqualified under Section 253 (insolvent persons), Section 254

(fraudulent person), and Section 258 (vacation of office).

(d) A corporation other than its representatives appointed to the board for a given

period (Section257).

(5)A person cannot be a Companys Sole Director and its secretary at the same time

nor a Director and Auditor at the same time.37

2.2.0: APPOINTMENT OF DIRECTORS.

The appointment of directors is governed under the Act38

. Every company registered

on or after the commencement of this Act shall have at least two directors and every

company registered before that date shall before the expiration of six months from the

commencement of this Act have at least two directors.

The Act further provides that the number of the directors and the name of the first

directors shall be determined in writing by the subscribers of the memorandum of

association or a majority of them, or the directors may be named in the articles. But

37

Orojo J.O. Company Law and Practice in Nigeria p.30.

38 Section 246 (1) CAMA

38

in the failure to do so, and where no other provision is made, they may be appointed

by the subscribers of the memorandum of Association.39

Subsequent directors are left to the members at the Annual General Meeting who

shall re-elect or reject directors and appoint new ones. In the event of all the directors

and shareholders dying, any of the personal representative shall be able to apply to

the court for an order to convene a meeting of all the person representative of the

shareholders entitled to attend and vote at a general meeting to appoint new director

to manage the company and if they fail to convene a meeting, the director, if any,

shall be able to do so.40

By Section 248(2) the articles may give power to some

particular persons to nominate a director.

Furthermore, in the event of any casual vacancy arising out of death, resignation,

retirement or removal, the board is empowered to appoint new directors, but this

however, is subject to the approval of the general meeting41

.A concurrent power of

increasing the number of directors is given to both the directors at the general meeting

39

Sec. 247, Sec 251 CAMA 2004

40 Sec. 248(1)&(2)Company Act 1990

41 Sec 249(1)&(2) CAMA 1990

39

but is only the latter that shall exercise the power generally or increase and determine

in what rotation they are to retire42

The principles of holding out, is made operative against the company by virtue of

section 244(3).43

Thus where a person not duly appointed acts or holds himself out as

a director of the company, he shall be guilty of an offence and upon conviction, is

liable to a fine or imprisonment or both and by section 25044

, he shall further be

personally liable for such action.

In the case of Joseph Asaboro Ltd v. Western Nigerian Finance Corporation,45

a

person brought an action in the name of the company believing that he was a director

of the company. Indeed, he was not validly appointed a director neither did he act on

the authority of the Board of Directors. The court of Appeal held that the action in the

companys name had not been brought by an organ of the company, and that there

was no plaintiff before the court, because where the Articles vest the management of

company affairs in directors, matters of corporate litigation are normally within the

exclusive preserve of the board.

42

Sec 249 CAMA 1990

43 Ibid

44 Ibid

45 (1974)NCLR 266

40

In Ejekam. V. Devon Industries Ltd46

, the burden of proving that one is a director of a

company was the issue. Here the learned counsel for the plaintiff submitted that the

burden of proving that a person who holds himself out as a director of a company

and acts on behalf of the company and has no such authority, is on the person who

challenges his authority to act as such director by proving that;

(a) He is a director

(b) Even if he is a director he has no authority to maintain the action in the first place.

Here, the court agreed with the learned counsel that the burden is on the director. To

be eligible for the appointment into the board, certain qualifications must be satisfied;

the most usual which is the share qualification may or may not be required by the

articles of association. And unless and until so fixed no shareholding qualification

shall be required47

.

The object of this provision is to ensure that the director has an interest in the success

of the company and will consequently devote their best endeavor in its service, if only

to preserve the value of their own shares48

. However, it has been held that directors

46

(1998)1 NWLR(Pt.533)417

47 S. 251(1)CAMA 1990

48 Re-Metropolitan Public carriage and Repository Co. (1873)9 Ch App.1021

41

are not bound to take this qualification shares from the company. The company

cannot also allot them to him without his request.49

The court is empowered to disqualify the following persons from taking part either

directly or indirectly in the management of the company for a period not exceeding

10years:

(1) A person convicted of an offence in connection with the promotion, formation or

management of a company.

(2) A person who in the winding up process of a company was found guilty of

fraudulent trading or while an officer of the company was found to be guilty of fraud

or breach of duty towards the company50

.

The essence of this disqualification is not only to ensure that men of integrity are

placed in the management of the affairs of the company but also to incapacitate

persons subject to it from being appointed as director as well as acting as such. And

so, any attempted appointment during the period is void. Insolvent persons are also

49

Re Printing, Telegraph & Construction Company(1894)2 Ch 392

50 Section 253 and 254 CAMA 2004

42

disqualified from managing the affairs of the company and shall be liable to a fine of

N500, 000 or a conviction on acting contrary to this section.51

No exact age limit is set by the Act for the directors though a person of 70years or

more has a duty to disclose (his age) this fact to the members at the general meeting,

failure to do this renders him liable to a fine N50052

. A person may be appointed a

director for life in which case no re-election is necessary but he is nevertheless

removable under section 262. If a director claims to be appointed for life or some

indefinite period, the terms of appointment must be clear and definite.

2.3.0:POWERS OF DIRECTORS

The power of the company as laid down in the memorandum of Association is

exercisable by the directors or the general meeting as the case maybe. Sec 63(3)

invariably entrusts the management of the company to the board of directors who

may exercise all such powers of the company as are noted by this Act, or of the

Articles required to be exercised by the members in general meeting, except as

otherwise provided in the companys articles. Sec 279(3) states a director shall act at

all times in what he believes to be the best interest of the company as a whole so as to

preserve its assets, further its business and promote the purpose for which it is formed

51

S. 253 CAMA 2004

52 S 252(1)&(2)CAMA 2004

43

and in such manner as a faithful, careful and ordinary skillful director would act in the

circumstance.

In the light of this provision, there is no doubt that the exercise of discretionary power

such as in this case falls within the management powers, which are by section 63(3)

of the CAMA conferred on the directors.

In Artra Industries Nigeria v. The Nigerian Bank for Commerce and Industry53

.The

issue is whether the defendant had absolute discretion to grant or refuse to grant

consent to the plaintiff to create a further mortgage or change on its assets. The court

held in the instant case, using S. 279(3) as a guide.In exercise of such powers, the

directors must adhere strictly to the statutory provision, which enjoins them to

consider the interest of the company as paramount.The necessary implication of such

entrustment is that directors have power to carry out on behalf of the company all the

power of the company expressly or impliedly granted by the memorandum of the

company, certain act which were initially defective carried out by the directors could

be rectified by the general meeting as in Grant v. United Kingdom Switch Back

Railways54

where it was provided that such act is neither fraudulent nor ultra vires for

the company55

. In Isle of Wight Railway v. Tahourdin56

the court refused an

53

(1998)56/57LRCN 3255

54 (1883)40 Ch.d 135 5 TLR 92

55 Cooks v. Deeks (1916)1 AC 554

44

application by the directors of a statutory company for an injunction to restrain the

holding of a general meeting. The purpose of which was to appoint a committee to

recognize the management of the company.

Under S. 223, where it is impracticable for any reason to call or conduct a meeting of

the company, the court may on its own motion, or on application of a director or a

person entitled to vote at such meeting, order a meeting to be called and conducted as

the court may direct. The court is empowered to give such ancillary or consequential

directors, including a direction that one member of the company present in person or

by proxy shall take a decision binding on the company. This was demonstrated in

Halcomm (Western Nigerian) Ltd and others v. Scavuzzo and another57

. But the

recently held view is that, there is division of power between the board and the

company, the general meeting cannot interfere so long as they are acting bona-fide

intra vires the provision of the Act.

In Automatic Self-Cleansing Filter Syndicate Co.Ltd. v. Cunninghame58

,Per Cozen

Hardy L.I The articles constituted a contract inter alia by which the members had

agreed to vest managerial power in the board which could not be curtailed in this

instance until an extra ordinary resolution has been passed to that effect as provided

56

(1883)25 Chd 320

57 (1974)(3)ALR Comm.73:Re E1 Sombrero Ltd,(1958)Ch.900

58 (1906)2 Ch 34;22 TLR 378

45

by the article or there was an alteration of the articles or a removal of the board. In

the same vein, Cree L.J in Shaw59

clearly stated that, if powers of management are

vested on directors, they and they alone can exercise these powers, and moreover,

what falls within the ambit of managerial power is a widely embracing one ranging

from litigations on behalf of the company to the payment of dividend as in Scot v.

Scot. The case law seem to suggest that what falls within exclusive preserve of

management is in-exhaustive, therefore the only way by which one can find out what

lies within the powers of management is by litigation.

On the other hand, the Act reserves to the general meeting, various powers such as

alteration of capital and all matter required to be effected by extra ordinary resolution.

With the authority of Alexander Ward and Co. v. Samyang Navigation Co60

.The

directors and no one else are responsible for the management of the company except

in the matter specifically allotted to the company in general meeting.

The directors may delegate some of their powers to a committee of directors or a

managing director or whom they may entrust any of the powers as in Sec.263 (5).

Apart from the termination of the powers of the directors by their removal or vacation

of office, their powers will cease by making a compulsory winding up order.

59

(1935)2 KB 113

60 (1975)1

46

2.4.0:PROCEEDINGS OF DIRECTORS

Section 263(1) provides that The directors may meet together for the dispatch of

business, adjourn and otherwise regulate their meeting, as they think fit; provided that

the first meeting of the directors shall be held not later than 6months after the

incorporation of the company.

The need to hold a meeting within 6months of incorporation accords with the

provisions of section 33(4) that the directors must at their first meeting determine the

date to which their financial statements should be made up. Majority vote wins when

there is any question arising at any meeting but where there is equality of votes the

chairman has a second or casting vote section 263(3).

Director summons meeting of the directors at any time (section 263(3)).All notice of

meeting must be given to every director 14 days before the meeting and if its not

done the proceeds at the meeting will be void. In Kalu Onwuka v. Taymani61

-The

plaintiff sought a declaration that he was a member and director of the company. He

alleged that he was not notified of the meetings, the court found that he had not been

given notice and held that the purported meetings held were invalid and that the

decisions taken there were void and of no effect. Section 266(1) says, Every director

61

(1965)LLR 62

47

shall be entitled to receive notice of the directors meetings, unless he is disqualified

by any reason under the action from continuing with the office of directors.

The quorum is the number of directors qualified to act as a board. The quorum

necessary for transaction of the business of the directors is (where there are not more

than 6 directors and where there are more directors), one third. So that where three

directors attend the meeting requiring a quorum of two but two of them were

disqualified from voting, it was held that the decision of the board at the meeting was

void. If the board is unable to act because a quorum cannot be formed, the general

meeting may act in its place and if it is the committee that cannot meet because a

quorum cannot be formed the board may act in place of the committee (Section 265).

In Taiwo Okeowo and others v. Migliore and others, the Supreme Court interpreted

Article 80 table A and held that where the board of directors was unable to act the

general meeting could act in matters of management. In that case appellants

contended that since the application was for a court directed meeting under Sec.128

Companies Act 1968 to consider terminating the service of the companys secretary,

the application should be granted as it was the board of directors and not the general

meeting which could appoint a secretary. The court held that where the board was

unable to act, the general meeting could act in such a matter. In Ukpilla Cement

Factorys case, where the manager exercised the power of the board of Director to

remove the secretary, it was held that such exercise of power was valid.

48

Section 241 states that every company shall:

(1) Cause minutes of all proceedings of general meetings.

(2) All proceedings at meeting of its director and;

(c) Where there are manager, all proceedings at the meetings of it managers, to be

entered in books kept for that purpose.

If directors fail to keep minutes of their deliberations in board meetings, they cannot

complain of inference drawn from the records even if this differs from what they

allege to be right. Where minutes are duly made, until the contrary is proved the

meeting is deemed to be duly held and convened, and all decisions taken there are

deemed to be validly taken62

.

The directors may delegate any of their powers to committees consisting of such

member of their body as they think fit and any committee so formed, must in the

exercise of the powers to delegate, conform to any regulations that may be imposed

on it by the directors.

62

Section 241 (3) CAMA

49

2.5.0: CONCLUSION

Directors, being the managers of the company, are very important in the affairs of the

company and every limited company must have at least two company directors.

Though, the company is controlled at his instruction, he may be personally liable

where he contracts in such a way to assume personal liability. Directors of a company

are fiduciary agents and such power conferred on them cannot be exercised in order

to obtain some private advantages or for any purpose, foreign to the power.

Therefore, directors of a company have been safely referred to as quasi-trustee to the

company and not its members.

50

CHAPTHER THREE

DUTIES AND RESPONSIBILITIES OF DIRECTORS

3.0.0: INTRODUCTION

Directors for certain reasons may be described as an organ of a company as they are

in some circumstances agents of the company by whom its acts and the relation

between them is governed by the general principles of the law of agency. When they

are acting within the scope of their authority and on behalf of the company, they may

be regarded as agents of the company under Part III of the Act.63

Like other agents,

they incur no personal liability, and are accountable for any secret profits made,64

but

if they exceed their authority they may become liable for breach of warranty65

and

they will also be liable if they contract in their own names or otherwise assume

liability as agents.66

63

CAMA, Cap. C20,LFN, 2004, Section 283(2)

64 Allen v. Hyatt( 1914)30 TLR 444.

65 Firebanks Executors v. Humphreys (1885)13 QBD 54 CA.

66 See Palmers Company Law para 62-02.See also Trenco v. African Real Estate Ltd (1978)4 SC

9;Ferguson v. Wilson (1866)LR 2 Ch 77.

51

3.1.0: DIRECTORS AS TRUSTEES AND AGENT OF THE COMPANY

Directors have in most cases been described as trustees as well as agents of a

company. The association of directors with the term trustee could be traced back to

the period prior to 1844 when most joint stock companies were incorporated and

depended for their validity on a deed of settlement vesting the property of the

company on trustees. With incorporation of companies, the court out of tradition and

analogy extended it to them due firstly as a result of usage and the fact that the court

of equity always tend to apply the label trustee, to anyone in fiduciary position.67

Per

Jessel, Mr. in Reforest of Cola Mining Company68

observed;

it does not much matter what you call them so long as you can understand what their

true position is, which is that they are really commercial men managing a trading

concern for the benefit of themselves and all other shareholder in it.

According to Cook69

, directors were until the middle of the nineteenth century

trustees and managers of the join stock fund formed by way or deed of settlement.

Whatever may be the opinion of text writers and jurist, it appears that the better view

with regards to the position of directors vis a vis trustee is that described by Romer J.

67

Re-German Co Expdehipandale (1858)DC GM8C.19

68 (1878)10 Ch. 450

69 Cooks Corporation Trust and Company p.154

52

in Re city Equitable Fire Insurance Company70

when he said It is sometimes said

that directors are trustees. If this means no more than that directors in the

performance of their duties stand in fiduciary relationship to the company, the

statement are true enough. But if the statement is meant to be an indication by way of

analogy of what those duties are, it appears to me to be wholly misleading. I can see

but little resemblance between the duties of a director and those of a trustee. It is

indeed impossible to describe the duty of directors in general terms, whether by way

of analogy or otherwise.

The concept of a director as trustees arose, partly due to the need to impose certain

equitable obligation similar to those of a trustee, based mainly on the similarity of

fiduciary duties and obligation towards their beneficiary71

.Therefore, as trustee, the

directors have control of company property, to be applied only for the specific

purpose of the company or the settlement72

and in the interest of the company. A

director never enters into contract for himself, but he enters into contract for his

principal, the company. He cannot sue on such contract or be sued on them unless he

exceeds his authority73

.In Piercy v.S.Mills Co. Ltd.74

, the two directors of a company

70

(1925)Ch 425

71 Dr.O.Akanki- Abuse of Power &Breach Of Duty By Company Directors p. 43

72 Selangor United Rubber Estate Ltd v. Craddocks 3(1967)1 WLR 1555

73 Smith v. Anderson (1880)15 Ch. d. 247,275 CA

74 (1920)Ch.77

53

had under its article the power to issue new shares, though there was no need to issue

new shares, they did so to benefit themselves and some of their personal friend in

order to ensure voting control and to prevent the appointment of three more directors

which would have made these two directors a minority in the board. It was held that

the issue of new shares was void as it was not in the interest of the company

represented by the general body of shareholders but in their own personal interest.

Thus, whereas trustees are owners of trust property at law, directors are not trustees in

the full sense, there being significant differences. The legal title to a companys

property is, in general vested in the company not in its directors, and can only be dealt

with in the companys name and as businessmen managing a trading concern, may

take greater risk in the investment of companys fund than is proper for strict trustee

lacking express authorization from trust instrument75

.Lord Russel in Regal Hastings

Ltd v. Guillier again stated this position of trustee76

,thus: directors of limited

companies are the creatures of statute and occupy a position peculiar to themselves.

In some respect they resemble trustees, in other they do not. Directors are not exactly

trustee, if that meant that they are nothing more and nothing less

75

Sheffield& South Yorkshire Permanent Building Society V. Aizelewood (1889)2 AC 134n(H.L)

76 (1942)All ER 378.d 378

54

Therefore, directors of company have been safely referred to as quasi-trustees to the

company and not its member77

.

Broadly speaking, the position of a director is somehow equated with that of an agent

and as such agent, they owe fiduciary duty of care to the company. Some judicial

authorities seem to deny the agent status to company director in the pronouncement

of Comstoch, L.J. In Bissel v. Michigain Southern RR78

, while the decision of Lord

Hardwick in Charitable Corporation v. Gutton79

and Lord Cain, L.J. in Ferguson v.

Wilson80

gives agent status to direct. In between these two extreme, the better view

seem to be by Peddixon, In Mills v. Mills81

Directors of a company are fiduciary

agent, and a power conferred upon them cannot be exercised in order to obtain some

private advantages or for any purpose foreign to the power

In Tika-tore press Ltd v. Ajibade Abina,82

following the death of the majority

shareholders, the directors allotted shares to themselves which enabled them to gain

control over the company by becoming its majority shareholders. The deceased

shareholders administrators sought a declaration that the allotment was ultra-vires,

77

Percieval V Wright (1902)2CH 421;18TLR 697

78 (1942)ALL ER 378

79 (1742)2 ATK 400 P.405

80 (1866)LR2CH 77

81 (1938)60 CLR 150

82 (1973)1 ALL NLR Pt1 Pg 401

55

void and of no effect. The Supreme Court held that the power to allot shares was a

fiduciary power which must be exercised bonafide, that although the directors acted

intra-vires in exercising their powers to issue shares. The allotment was in bad faith

and therefore in breach of their fiduciary duty and relying on Bamford v. Bamford, the

allotment was voidable and could be rectified by the members in general meeting.

Therefore, directors like other agent incur no personal liability on contract made by

them on behalf of the company, provided they act within the purview of their

authority. Moreover, directors being altered ego are ascribable to the principal; the

company is bound by a contract made by its director within their extensible authority

on behalf of the company. If however, director exceeds the power given to them but

still within the authority of the board, the board may rectify. And equally too, if the

board acts beyond the scope of its authority on act intra vires the holding a meeting

may be rectified by the company in a general meeting. Directors are not subject of

general rule of agency so that secret profit made by virtue of his office without the

consent of his principal is accountable. Director may be specially appointed agent for

the shareholders to negotiate a sale of the company share. In such situations the

shareholders are liable for their fraud.

56

In CAMA, S.28383

states that directors are trustees of the companys money,

properties and while acting within his authority and the power of the company are

regarded as agent of the company.

3.2.0: DIRECTORS CONFLICT OF INTEREST

Directors, once their appointment becomes effective, must display the upmost good

faith towards the company in their dealing with it or on its behalf as fiduciaries, they

must place themselves in a position in which their personal interest will not conflict

with their duties to the company. In Aberdeen Railway Co. v. Blackie Bros. A

company entered into a contract to purchase quantity of chairs from a partnership. A

director of the company was a member of the partnership to the company. It was held

that the company was entitled to avoid the contract and the director concerned in

breach of his fiduciary duty not to put himself in apposition where his personal

interest would conflict with his duty as a director. According to Sec 297 directors are

declared to be in a fiduciary relationship towards the company. The imposition of

fiduciary duty on directors is meant to prevent abuse of power and conflict of interest

on the part of directors in several area of private governance. For instance, transfer

and registration of share, in their contracts either with the company or on its behalf

with third parties, their dealing with physical assets or properties of the company and

83

CAMA

57

corporate opportunity and information in whatever form various principles have thus

been formulated and applied to prevent violation of directors fiduciary.Okeowo v.

Migliore84

also Tikatore press ltd v. Ajibade Abina85

This principle affect all person

who are subject to fiduciary duties that No one having such duty to discharge shall

be allowed to enter into engagement in which he has, or can have a personal interest

conflicting or which possibly may conflict with the interest of those whom he is

bound to protect86

.

The underlying principle is that good faith must not only be done but must manifestly

be seen to be done.

3.3.0: DIRECTORS INTEREST IN CONTRACT

As far as the common law courts are concerned, in general meeting the nature of any

interest, which he has in a contract, to which the company is or is to be a party even if

the term of the contract were perfectly fair. The principle in Transvaal land co v. New

Belgium (transaal )land and development87

does not apply to contract directly with

the directors only, but also to those in which they are in anyway interested, whether

because they benefit personally, however indirectly or because they are subject to a

84

(1979)11 SC.138

85 (1973)1 All NLR Pt.1 Pg.401

86 Per Lord Cramworth Le Aberedeen Railway Company v. Blaike (1954)IMACQ (H.L)461

87 (1914)2 CH 488 CA

58

conflicting rule. In the event of a director failing to disclose his interest, it appears

that contract will be voidable at the option of the company against any party thereto

who has notice of the breach of the duty and any profit made is recoverable by the

company. Core Brown88

has submitted that. When all that he has done is failure to

disclose his interest in a sale to the companys property which he acquired in his own

right from any duty to holding it on trust for the company, his profit on the resales is

not accountable, and the company only remedy is to rescind quickly before anything

happens to bar this right. The only protection for the director is to have the general

house rectify the contract. In Nigeria, Section 27789

of the Act imposed a duty on the

directors to disclose their meeting of the act attracts a fine N100 and nothing in this

section shall be taken to prejudice the operation of any rules of law restricting

directors of a company90

. Ademola J.(As he then was)following the case of Keech v.

Sandford said in Marquis v. Edmatie 91

A trustee or executor or other person standing in a fiduciary position is not allowed

to make a profit by the trust, either directly or indirectly. He is not allowed to put

himself in a position where his interest conflicts

88

Core Brown 43rd

Ed 1978 P.27 .16

89 CAMA 2004

90 See generally S.277,280 CAMA 2004

91 (1950)19 NLR 75 at 77

59

3.4.0: DIRECTORS AND SECRET PROFIT

The general rule is that a company director shall not in the course of the management

or in the utilization of the companys property, make any secret profit or achieve any

unnecessary benefit. Secret profits include any financial or other advantage, which

the fiduciary receive which is above his proper remuneration and is not sanctioned by

the beneficiary. Gift of money or collection of bribe also falls within the class of

secret profit. In Diab Nasr v. Berini Beirut-Ryad (Nig) Bank Ltd92

in the original suit

the plaintiff claimed that he was the owner of two plots of land in Lagos and had

entrusted the original deed of title to the respondent ban for safe keeping. This action

was for delivery of the original deed of lease. The bank counter claimed for

$40,719:19:4d as money paid to a contract or at instance of the plaintiff for the

purpose of erecting flats on the plaintiffs land. The bank claimed that the plaintiff,

who was one of its directors and deputy chairman of its board, had authorized its

manager to cause it to finance the construction and to charge all payments made to

the contractor to the account of one Emile Nasr (plaintiffs relative)who was not a

resident in Nigeria; and that the account in the name Emile Nasr was factiously

opened and operated by plaintiff to circumvent the provisions of the Banking Act

1938 and the Exchange control Act 1963.

92

(1967)NCLR 414,(1968)1 ALL NLR 274

60

Affirming the trial courts judgment the supreme court held that the plaintiff had

unjustly enriched himself at the expense of the bank and was liable to restitution that

a director is preclude from dealing on behalf of the company with himself and from

entering into transactions in which he has a personal interest which conflict with the

interest of the company to whom he is under a fiduciary duty to protect; that a

director may not negotiate a contract with the company which would put him in a

position to secretly profit at the expense of the company and that plaintiff was in

breach of the duties.

The case of Boston Deep Sea Fishing and Ice Company v. Ansell93

clearly illustrates

the courts attitude as regards making of secret profit by fiduciaries. In that case, the

defendant was a managing director of the plaintiff company. He placed orders for

supplies of good for and on behalf of the plaintiff with other companies from which

he received secret commissions. The court held that, he must account for the secret

profit and that his dismissal was justified. A fiduciary will not be permitted to retain

advantage obtained through the breach of duties even though the advantages are not

directly financial94

.

93

(1881)39CHD 339

94 British Syphon Co. v. Home wood (1956)2 AER 897

61

In Regal hasting ltd v. Gulliver95

, it was held that the directors were liable because

they had acquired the shares by reason and by reasons of the fact that they were

directors for Regals and in the course of their execution of that office. Similarly in

Phibbs v. Boardman96

, the court held that as long as the director obtain information,

knowledge or opportunity to gain an advantage either directly or indirectly for

himself or a third party, he will be liable to account for any profit arising from such

use and this position was reaffirmed in Canadian aero service v.Omally97

where the

defendant was held liable for the misuse of corporate opportunity. A director is not

under any duty to account where the company with the full fact before it consent

expressly to the act as seen in the case New Zealand society v. Kuys98

.In this case,

company secretary made use of an opportunity, which came to him by virtue of his

official capacity. He was held not to be liable to account as he had done so with the

full knowledge and consent of the company.

From the above established principles and statutory provisions, it is crystal clear that

a director who gains by means of corporate assets, information, opportunity or

knowledge is believed to have made a secret profit and therefore accountable to such

profit.

95

Supra

96 (1957)2 AC 46

97 (1973)40 DLR 3 (d) 371

98 (1973)WLR 1 127

62

3.5.0: FIDUCIARY RESPONSIBILITIES

As a director, you must act in good faith in the interests of the company as a whole.

1. The company is a separate legal entity from its directors, shareholders and

employees. The best interests of the company are not always the same as the best

interests of the shareholders. For example, it might be in the interests of the

shareholders of the company to declare a large dividend. But if the company faced a

cash shortage this would conflict with the interests of the company. A director must

also consider the interests of other stakeholders such as creditors and employees.

2. A director must give equal consideration to all shareholders. Even if a director

holds most of the shares, or act as the nominee of the major shareholders, a director

must consider the interests of shareholders as a whole. In practice, it is very difficult

for minority shareholder to have a significant say in decisions made by holders of the

majority of the shares.

3. A director must not use his position to make private profits at the companys

expense. If a director is found to have secretly profited from a contract he won

because he is a director of the company, he might be forced to hand it over to the

company.

63

4. A director is legally obliged to declare any potential conflict of interest. For

example, if a director has interests in another company with which his company is

planning to do business. A director should not vote on such a deal. If he does, his vote

should be disregarded.

5. If a director personally plans to enter into substantial deals with the company, they

must be approved by the shareholders in a general meeting. For example, if a director

wants to sell property to or buy property from the company.

6. A director must declare any dealings in the shares, within five days. This obligation

extends to shares held by his spouse and any children under 18.

3.6.0: CONCLUSION

It can rightly be said, that the Act99

has provided under various sections the duties and

interest of directors and the conflicts in between. Also Section 279100

which has taken

care to cover the fiduciary relationship. For instance in Briess v. Woolley101

The

director of company X was authorized to sell the shares of the company to Y at the

general meeting of the company. The director made fraudulent misrepresentations in

the course of his acting as such agent which was not known to the shareholders. In an

99

CAMA 2004

100 CAMA 2004

101 (1954)AC 333;2WLR 832

64

action against the shareholders for fraudulent misrepresentation. The court held that

the shareholders are liable in damages because the director is liable not as a director

per se, but as an agent of the shareholders for the purpose of disposing their shares.

Therefore where the director acts on, and for the benefit of the company he is not

liable, and he is also expected to act in good faith, and his interest not conflicting with

that of the company or contradicting with the agreement of the company.

65

CHAPTER FOUR

LIABILITIES AND REMEDIES OF DIRECTORS

4.0.0: INTRODUCTION

A company being an artificial person can only incur liability through organs, agents

and officers. The position was explained by Viscount Haldane L.C. in Lennards

Carrying Company Ltd. v. Asiastic Petroleum Co Ltd102

in a passage quoted by

Aniagolu J.S.C. in Trenco (Nigeria) Ltd v. African Real Estate Ltd103

, as follows:

My Lords, a corporation is an abstraction. It has no mind of its own, any more than it has a body of its own; its acting and

directing will consequently be sought in the person of

somebody who for some purpose may be called an agent, but who

is really the directing mind and will of the corporation, the very

ego and center of personality of corporation

More recently,in Kurubo v. Zach-Motison(Nigeria)Ltd104

Tobi,JCA observed as

follows In view of the fact that an artificial person or company vested with legal or

juristic personality lacks the natural or physical capacity to function as a human

being, those who work in it do all things for and on behalf of itIt is therefore the

law and the tradition for the human beings authorized to negotiate agreement for and

on behalf of the company. Where an agreement is so executed by a person in

102

(1915) A.C.705

103 (1978)1 L.R.N.146,153

104 (1992)5NWLR(Pt.239)102@115

66

authority, the company is liable or deemed to be liable for the act or acts of the

person.

But where an agreement is made by person A with person B of X Company Ltd when

the latter does not act on behalf of the company or so represent itself, the parties will

be deemed to contract personally.

This organic theory or doctrine of the alter ego of the company was reemphasized by

the striking analogy of Denning L.J in Bolton (Engineering) Co Ltd v. Graham &

Sons105

. He said

A company may in many ways be likened to a human body. It has a brain and nerve

center which controls what it does. It also has hands which hold the tools and act in

accordance with directions from Centre. Some of the people in the company are

merely servants and agents who are nothing more than hands to do the work and

cannot be said to represent the will of the company. Others are the directors and

managers who represent the directing minds and will of the company, and control

what it does. The state of mind of the company and is treated by law as such

It is on this basis that a company is at common law, generally liable in crime, tort and

contract like an individual. This is now made statutory, for Section 65 of CAMA

105

(1957)1 Q.B.159

67

provides that any act of the members in general meeting, the board of directors or of

the managing directors while carrying on in the usual way the business of the

company, shall be treated as an act of the company itself and the company shall be

criminally and civilly liable therefore, to the same extent as if it was a natural person.

4.1.0: LIABILITIES OF THE COMPANY FOR THE ACTS OF ITS

OFFICERS AND AGENTS.

With regards to the acts of officers and agents of the company, Section 66 specifies

the circumstances in which the company will be liable either directly or vicariously.

Section 66 of the 1990 Decree expressly provides that the acts of an agent or officer

should not be deemed to be the acts of the company unless in the following

circumstances: he ought

(a)Where expressly or impliedly authorized by the company, or

(b)The officer or agent has been held out by the company as having such authority

unless such a third party had actual knowledge that the officer or agent lacks

authority, or by virtue of his position and relation to the company, he ought to know

of lack of such authority or the irregularity.

68

Section 66(3) preserves the common law rule by providing that nothing in Section 66

shall derogate from vicarious liability of the company for the acts of its servant within

the scope of their employment106

.

Where the act of the agent or officer as the case may be, is out of the scope of

authority such act has been ratified.

PROVISIONS EXEMPTING OFFICERS AND AGENT FROM LIABILITY

Section 67(1) provides that

Any provision, whether contained in the articles of a company or in any

contract with a company or otherwise, for exempting the officer of the

company or any person (whether an officer of the company or not)

employed by the company as auditor from, or indemnifying him against,

any liability which by virtue of any rule of law, would otherwise attach to

him in respect of any negligence, default, or breach of trust of which he

may be guilty in relation to the company, shall be void.

(2)Notwithstanding the provisions of subsection (1) of this section-

(a)A person shall not be deprived of any exemption or a right to be

indemnified in respect of anything done or omitted to be done by him while

any such provision as mentioned in that subsection was in force; and

(b)A company may, in pursuance of any such provision as mentioned in

subsection (1) of this section, indemnify any such officer or auditor against

any liability incurred by him in defending any proceedings, whether civil or

criminal in which judgment is given in his favor or in which he is acquitted

or in connection with any application under section 641 of this Act in or in

which relief is granted to him by the court.

106

Lloyds v. Grace, Smith & Co (1912)AC 716 HL

69

The section provides that in any proceeding for negligence, default or breach of duty

or breach of trust against an officer of the company or a person employed by a

company as auditor it appears to the court hearing the case that the officer or person is

or may be liable in respect of the negligence, default or breach of duty or breach of

trust, but that he had acted honestly and reasonably and that, having regard to all the

circumstances of the case, he ought fairly to be excused for the negligence, breach of

duty or breach of trust, that court may relieve him, either wholly or partly, from his

liability on such terms as court may deem fit.

The rationale for the above provision (section 67) is to protect the company in

appropriate circumstances and at the same time protect the officer or auditor where

such officer has acted honestly and reasonably and ought in the circumstances to be

protected.

4.1.1.0: CRIMINIAL LIABILITIES

The modern general principle of criminal liability of companies was fully established

at common Law only in 1944 in the case of Directors of Public Prosecutions v. Kent

& Sussex Contractors Ltd. 107

where it was held that

107

(1944)K.B.146

70

It is true that a corporation can only have knowledge and form an intention through

its human agents, but circumstances may be such that the body corporate, if the

responsible agent of a company, acting within the scope of its authority, puts forward

on its behalf a document which he knows to be false and by which he intends to

deceive, I apprehend, that his knowledge and intention must be imputed to the

company.

This case was soon followed by R v. IC