Professional Documents
Culture Documents
GENERAL INTRODUCTION
1.0 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 with a
Although one person can profitably carry on business alone, it is however not
incapacitated or dies. The threat to the continuity of even the most viable business
is not susceptible to the thousand of natural shocks that flesh is susceptible to. It
1
Paul Davies, Gower & Davies Principles of Modern Company Law 17 th ed. (Sweet & Maxwell, London, 2003)
1
Other forms of business organizations hinge extensively on the fact that a
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
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. 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.
It was held in the case of Vassilev V Pass Industry Nig. Ltd, and Other 2
“a
attach to the principal and principal alone, the liability is that of the company”. It
was also held in the subsequent paragraph of the same page; “when the principal
and agent are two different and distinct persons, the principal should be liable for
2
(2000) ALL FWLR (pt.19) 420. (Para 6.)
2
a contract which was specifically entered into by the agent for and on behalf of
the principal”.3
The same position was upheld in the recent case of Dansa Foods Nig. Ltd and
Anor V Isong4 “The company is distinct from his promoters or directors and a
contract in the name of the company or purporting to bind the company, it is the
The Companies and Allied Matters Act has commendable provisions on how
manage the affairs could be accountable. Furthermore, liability and penalty have
Nig. Ltd and Anor 5; “There is a clear distinction between a company and its
company, it becomes a body corporate and in the eyes of the law, a person distinct
5
(2006) ALL FWLR (pt.336) 391.
3
not be held liable for the loan granted in favour of the company except the
artificial legal entity, which is separate & distinct from its shareholders and
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 their
A company, being a corporate entity, can sue and be sued in its corporate name.
As a matter of law, it has separate existence and identity from the brains, minds,
draws a clear cleavage between the company as the artificial person and the
This is because a company, being an artificial person, can only act through its
human agents and officers. This position was adopted in Lennnard’s Carrying Co
approval by Aniagolu, J.S.C in Trenco (Nigeria) Ltd. v. African Real Estate Ltd7
6
(1915) A.C. 705
7
(1978) LRN 146 153
4
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
called an agent but who really is the directing mind and will of the corporation,
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
8
(1957) 1 QB 159
9
(1999) 4 NWLR (pt. 597) 53 at 66.
5
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”. The same
position was held in the recent case of Igwen & Co Ltd and Anor V. Igwebe10
It was held in the case of Zest News Ltd V. Waziri11 “A Ltd Liability Company is
a separate and distinct entity from its directors and or shareholders; it has a legal
personality separate and distinct from its directors. Accordingly, the property
rights and privileges of the company does not automatically inhere on its director
or shareholders”.
The objectives of this essay is to extensively discuss the duty and study the
position of the law as stated in the Companies and Allied Matters Acts, 2004 on
the powers and the proceedings of Directors and their personal liabilities. The
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 its duties. Furthermore, it is
also aimed 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?
10
(2010) ALL FWLR (pt. 540) 1291 at 1311
11
(2003) ALL FWRL (pt. 186) 663 (Para G-H)
6
1.3 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 in the instances
when the company will not be liable for such acts of its agents and officers.
The long essay will give account of the origin of company law, definition of a
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
1.5 METHODOLOGY
This write up, which has its motivation mostly from lectures derived from NOUN
textbook 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
would include lecture notes from facitators, journals and relevant law reports on
the subject matter and issues to be addressed in the course of completing the
project work.
7
1.6 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
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
Also, J. Olakunle Orojo12; 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
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
12
Orojo J. O, “Company Law & Practice in Nigeria” 5th Ed. (Interpak Books Pietermaritzburg 2008) page 271
8
himself liable, no difficulty arises, but he may be liable without express
where he contracts as a director but without using words that bind the company,
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 officer’s interest then the liability
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, Artificial person, Juristic person,
Therefore, in the case of Agro Allied Development Ltd V. Reefer and Anor15
13
[1892]2 Ch.452
14
Quoting with approval Pennington’s ‘Company law’ (7th Ed, Butterworths, London, 1995). Pg. 247
15
(2009) ALL FWLR (PT. 481) 862.
9
defines a Company or existing company to mean “a company formed and
worth to a common stock and employs it in some trade or business and who
Felix C. Amadi16 defines company as a business entity with clear objects made
enterprise.
16
Amadi F.C. ‘Fundamentals of Company Law & Practice in Nigeria’ 1st Ed. Port Harcourt: (Rodi Printing &
Publishing Company, Rivers State 2004)
17
Black’s Law Dictionary, 10th Edition page 393 (Bryan A. Garner)
10
Company according to L. C. B. Gowe18 implies an association of a number of
people for some common objectves 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.
The term director does not have a precise and accurate definition owing to
a director, it becomes therefore pertinent to examine this term under three heads,
broadly grouped thus by the courts, by statutes and the legal writers.
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
18
Gower ‘Principles Of Modern Company Law’ 6th Ed. (Sweet and Maxwell 2000) page 226
19
Oxford Dictionary of Law, 6th Edition (edited by Elizabeth A. Martin) page 314
20
Charlsworth and Cain ‘Company Law’ (Stevens and Sons)1972 10th ed. P.260
11
in some certain circumstances may be said to be in a position of quasi trustees and
Campbell21 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.
Director was further defined in the case of Longe V. First Bank of Nig. PL233 as
“those appointed by the company to direct and manage the business of the
company”.
21
[1919] S.C 960 at 980
22
Black’s Law Dictionary, 10th Ed. page557 (Bryan A. Garner)
23
(2010) ALL FWLR (pt. 252) 266
24
[1854] IMACQ 461 – 471 – 472 (SC)
12
On the other hand Orojo25 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
thus, the directors are a body to whom is delegated the duty of managing the
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
charged with the management of a company’s 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
25
Orojo J.O. ‘Nigerian Company Law & Practice’ p. 243
26
(1854) UKHL Macqueen 461
27
(1878) 10
28 th
9 London Sweet & Maxwell (2001)
13
“Director” as including “Any person occupying the position of the director by
Section 244(1)29 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 company”29. 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
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
privileged position within the companies, the reasons being that they have
29
Section 244(1) Company & Allied Matters Act 2004
30
Section 244(2) CAMA 2004
31
Oladeje Akani; Abuse of Power & Breach of Duty by Company‟s Directors, Nigeria Journal Of Contemporary
Law,Unilag.1975.Vol No. 1&2 Pg.1
14
1.8 CONTRIBUTION TO KNOWLEDGE
The project can contribute to enhance the awareness of right, liability and
It will also help to create checks and balances between the directors and the
The project will contribute to the knowledge on the general Company Law
rule which stated that it is only the company itself and not its Directors or
Shareholders that can contest a wrong done to the company or ratify an irregular
conduct. It will contribute to the knowledge on Section 300 of CAMA which state
Court of Law, are provided for in where the Directors are likely to derive a profit
or benefit, or have profited or benefited from the negligence or from their breach of
duty.
15
CHAPTER TWO
2.1 INTRODUCTION
human agents, these are the directors. They may be described as director
governors, governing or any other similar expression, and section 567 of the Act
A directors of a company registered under the Act are persons duly appointed by
corporation or company”34.
regulating his manner of appointment, his functions, powers and duties in order to
32
CAMA, Cap, C20, LFN, 2004, section 244(1
33
(1993)1 NWLR (pt. 272) 947
34
See also Longe v First Bank Nigeria PLC (2010) 6 NWLR (pt 1189) 1SC or (2010) ALL FWLR(pt252) 266
16
tradition, the Companies Allied Matters Act 1990 has introduced a great number
to human agents, these are the directors. Accordingly, every company must have
at least one Director and a Public company must have a minimum of two 35.
name he is called. Therefore, if any of the members of the managing body is called
their powers.
place under powers contained in the articles.36 It is the absent director that
appoints his alternate director but the appointment is approved by the resolution
of the general meeting. The alternate director ceases to hold office whenever the
“directors” under section 567, an “alternate” director will be within the definition.
36
Palmer ‘Company Law’ (3rd ed. Butterworths,London,1995)para.60-62
17
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
usually by service contract where in his schedules of roles and obligations are
stipulated.38
and he is not an employee. These are part-time directors who are not entitled to
Association.
The Companies and Allied Matters Act recognizes executive and non-executive
directors. For example, section 282(4) of the CAMA states that the same standard
of care in relation to the director’s duties to the company shall be required for
37
(2006)3 NWLR (Pt.967)228 at 261-262
38
N.C.S Ogbuanya, Essentials of Corporate Law Practice in Nigeria (Novena Publisher Ltd, Lagos Nigeria 2010) pg
32
18
4. Managing Director: The day-to-day management of the affairs of a company
involves a delegation of the powers of the directors, the latter cannot appoint one
provision in the article, the managing director will usually have a contract with
the company and therefore, the terms of his appointment will be governed by the
company, just like the executive director, he has a dual position as an employee
and alter ego of the company”. Lee v Lee Air farming company39 The board is
unless he is a director.
company was appointed as its managing director, it was held that the
39 (1961) AC 12 PC
40
(2010) ALL FWLR (pt252) 266
19
are accustomed to act,41 but the fact that persons in their professional capacities
give advice and director act on it will not be construed to bring such persons
case.
6. Life Director: A person may be appointed a director for life, in which case no
to be appointed for life or some indefinite period, the terms of the appointment
This to some extent is a matter for the articles and they may provide that a minor
(1) AGE
A person who has reached the age of seventy cannot be appointed director unless
41
Ibid section 245 (3)
42
Section 567 of CAMA Cap. C20, LFN 2004
43 CAMA, Cap, A20, LFN, 2004 section 262.
20
the company is a private and not the subsidiary of public company, or the articles
notice, stating his age, has been given44; the exceptions are such as to make this
section effective.
A director of a public liability company must disclose the fact of his age to the
members at the general meeting, and if he fails to make the disclosure, he will be
guilty of an offense and liable for a fine. A person may be appointed a director of
notice is required of such a director and the notices given to the company and by
the company to its member must state the age of the person to whom it relates.45
such disqualification, but merely specifying the grounds on which directors will
vacate office. Thus unless there are such express provisions, a person is not
(3) BANKRUPTCY
21
promotion, formation or management of a company without the leave of the
(4) DISQUALIFICATION
A director who has been disqualified from acting as a director under the
(c) A person disqualified under Section 253 (insolvent persons), Section 254;
where
(5)A person cannot be a Company’s Sole Director and its secretary at the same
46
Section 11 Company Directors Disqualification Act 1986
47
Section 294 of CAMA Cap. C20, 2004
22
2.3 APPOINTMENT OF DIRECTORS.
With regards to 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 48. The articles may
The Court of Appeal emphasized in the case of NIB Investment West Africa v
Omisore49, that unless the articles provide otherwise, by the provision of section
247 and 249 of the Act…”the appointment of directors is the business of the
general meeting or the board of directors, and not that of any individual member.
Furthermore, in the event of any casual vacancy arising out of death, resignation,
retirement or removal, the board is empowered to appoint new directors 50, but this
of increasing the number of directors is given to both the directors at the general
48
Ibid section 248 (2)
49
(2006) 4 NWLR (pt. 969) 172 at pg 199
50
Section 249 (1) CAMA 2004
51
Ibid sec 249(2)
23
meeting but it is only the latter that shall exercise the power generally or increase
The law states that the action of such a person acting as a company director
without being duly appointed shall not bind the company and he shall be
personally liable for such action; provided that where it is the company which
holds him out as director the company shall be bound by his acts52.
In Ejekam. V. Devon Industries Ltd53, 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;
(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
24
shareholding qualification shall be required54.
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 shares55. However, it has been
held that directors are not bound to take this qualification shares from the
company. The company cannot also allot them to him without his request.
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:
(2) A person who in the winding up process of a company was found guilty of
54
Section. 251(1) .CAMA 1990
55
Re-Metropolitan Public carriage and Repository Co. (1873)9 Ch App.102
25
2.4 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
The need to hold a meeting within six months 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). It is, however,
not necessary to give notice of a meeting to any director for the time being absent
from Nigeria, but if he has given an address in Nigeria, the notice should be sent
to such an address.
Director summons meeting of the directors at any time section 263(3). A written
notice of meeting must be given to every director fourteen days before the
meeting and if it’s not done the proceeds at the meeting will be void. In Longe v
First Bank Plc56 the Supreme Court held that further to section 266 of the
56
(2010) ALL FWLR (pt. 252) 266.
26
CAMA, the removal of a managing director of the Bank was unlawful because he
was not given notice of the Board meeting in which he was removed. That any
decision taken in the meeting was illegal and null and void.
The quorum is the number of directors “qualified to act as a board”. The quorum is
necessary for transaction of the business of the directors is (where there are not
more than six 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 Okeowo and others v. Migliore and others57, 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 company’s secretary, the application should be granted as it was
the board of directors and not the general meeting which could appoint a secretary.
57
(1979) LPELR 36 SC
27
Section 24158 states that every company shall:
(3) Where there are manager, all proceedings at the meetings of it managers, to
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
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
58
Section 241 (3) CAMA
59
Ibid section 263(8)
28
2.5 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 of a company are fiduciary agents and such power conferred on them
29
CHAPTHER THREE
3.1 INTRODUCTION
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 the principal and agent are two different persons, the principal should be
liable for a contract which was specifically entered into by the agent for and on
behalf of the disclosed principal. Vassilev V Pass Industry Nig. Ltd, and
Others60. 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.61 Like other agents, they incur no personal liability, Abosi J.C.A decided
in Oriebosi v Andy Sam Investment Co. Ltd62. “The law is that a company is in
company is in the eyes of the law, an agent of the company for which he acts and
the general rule of principal and agent would apply. Where a director enters into
60
(2000)ALL FWLR (pt 19) 420 (para 4).
61 (2004)CAMA, Cap. C20 LFN, Section 283(2)
62
(2014) LPELR 23607 (CA)
30
Section 65; Any act of a managing director while carrying on in usual way the
business of the company shall be treated as the act of the company itself and are
accountable for any secret profits made,63 but if they exceed their authority they
may become liable for breach of warranty, Afri Bank Nig. Ltd v Muslad
Enterprises Ltd and Anor64, and they will also be liable if they contract in their
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. Agency was defined in the
case of Port Harcourt Refining Company Ltd (PHRC) v Orkoro66 “Agent is used
to constitute the relationship which exists when one person has authority to or
for which he acts, and the general principle of the law of principal and agent
would apply. Thus, where a director enters into a contract in the name of the
purported company to bind the company, it is the company; the principal which is
63 1990 CAMA
64
(2007) LPELR 5126 (CA) (Pp19-20 paras B-A)
65
See Palmer‟s ‘Company Law’ para 62-02.See
66
(2012)ALL FWLR (pt 606) 468
31
liable on it, not the director.
It was held in the case of Oforkaja v Taraba State Government and Anor67 An
agent is not liable and cannot be sued or joined in a suit for the wrong of his
principal where the principal is disclosed. In such a case, only the disclosed
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 alter ego are ascribable to the principal; the
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 the act 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
specially appointed agent for the shareholders to negotiate a sale of the company
share. In such situations the shareholders are liable for their fraud.
Directors are trustees of the company’s money, properties and while acting within
67
(2004)ALL FWLR (pt 197) 987 para 11.
68
(2003)ALL FWLR (pt178)1041 para 1
32
his authority and the power of the company are regarded as agent of the
company69.
means that a director is precluded from obtaining for himself, either secretly or
without the informed approval of the company any property or business advantage
either belonging to the company or for which it has been negotiating, especially
company must not allow his own interest to conflict with his obligation to his
abuse of power and conflict of interest on the part of directors in several area of
private governance.
Court of Appeal held in the case of Wema Bank v Olotu & Anor71 that there was
a breach of duty and loyalty, which arose as the appellant rather than performing
some aspect of the contract on behalf of the respondent used his privilege position
and knowledge and usurped and appropriated the respondent’s contract by having
69
Section 283 , CAMA 2004
70
2015) LPELR 25589 (CA)Pp 157 paras D-A
71
(2015) LPELR 42157 (CA)Pp10-11 paras F-D
33
the contract awarded to itself.
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 protect. “A director breaches his
duty of loyalty when he becomes self appointed agent representing the trust and
putting himself in the conflict of interest” Anyaorah and Ors v Anyaorah72.. The
underlying principle is that good faith must not only be done but must manifestly
be seen to be done
The general rule is that a director cannot make or be interested in a contract with
the company unless affirmed by it, but the rule may be modified by the articles
interest in accordance with section 277 The section provides that “it shall be the
72
(2001) FWLR (pt73) 178 at 203&204(CA)
73
CAMA, Cap. C20. LFN, 2004 section 277(1)
34
If he is interested in a proposed contract, the declaration must be made at the
meeting of the directors at which the question of entering into the contract was
first considered, and where the directors becomes interested after the contract is
made, the declaration must be made at the first meeting of the directors held after
of the full board of directors; disclosure to a sub-committee does not meet the
statutory requirement. It would make no difference that all board members knew
of the board.
It is sufficient for the purpose of the section if the director gives a general notice
made with the company or firm, provided the notice is given at a general meeting
of the directors, or that reasonably necessary steps are taken to ensure that it is
Failure to give notice of the director’s interest will make the contract voidable at
the instance of the company, but section 277 does not affect any rule of law
74
CAMA, Cap. C20. LFN, 2004 section 277(2)
75
Ibid 277(3)
35
restricting directors from having any interest in contract with the company.76
A director of company must not allow his own interest to conflict with his
The general rule is that a company director shall not in the course of the
secret profits.78 The fact that a company fails or is unwilling to use an opportunity
is not justifiable for the director making such a secret profit79. The golden rule is
that a director must not, without the consent of the company, make any profit out
of his position in the company beyond his ageed remuneration. The duty of a
director not to misuse information obtained from the company by virtue of his
company.80
If, in breach of his fiduciary duty to the company, a director enriches himself
unjustly, he cannot keep such enrichment. He must account for it and the company
76
Ibid 277(5)
77
(2015) LPELP 25589 Pp157 paras D-E
78
CAMA ,CAP C20 LFN, 2004, section280(2)
79
Ibid section 280 (4)
80
Ibid section 280 (5)
36
may bring an action for restitution to recover it. A director may, however, escape
Apart from the prohibition of secret profit, a director must not accept secret benefit
in the form of bribe, gift or a commission from any person or a share of the profit
of that person in respect of any transaction involving the company and that
person82. If a director receives such benefit, he must account for it and the
company may recover it from him83. The fact that the company benefited from the
transaction or that the benefit was accepted in good faith does not avail the
defaulting director84
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
company faced a cash shortage this would conflict with the interests of the
81
CAMA, CAP C20 LFN, 2004, section 280 (6)
82
Ibiid section 287 (1)
83
Ibid section 287 (2)
84
Ibid section 287 (4)
37
company. A director must also consider the interests of other stakeholders
director holds most of the shares, or act as the nominee of the major
3. A director must not use his position to make private profits at the company’s
If a director personally plans to enter into substantial deals with the company,
they must
38
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.
A director must at all time act in accordance with their statutory duties and
common law. Ngwuta J.C.A. decided in Iwok and Ors v Uni Uyo and Anor85
“that trustee and an agent owe fiduciary obligation to the beneficiary in the case
3.7 CONCLUSION
It can rightly be said, that the Act86 has provided under various sections the duties
and interest of directors and the conflicts in between. Also Section 27987 which
85
(2010) LPELR 4345(CA)
86
CAMA 2004
87
CAMA 2004
39
CHAPTER FOUR
4.1 INTRODUCTION
A company being an artificial person can only incur liability through organs,
In Ifeanyi Chukwu Osondu Co. Ltd v Sole Boneh Nig Ltd88 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 it…It is therefore the law that when the agent
or servant has committed an act, the company may rightly be said to have
committed the act since in law, the act of the agent or servant is the act of the
company.
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
88
(2002) ALL FWLR (pt. 27) pg. 2050 para 1.
40
of the company, and control what it does. The state of mind of the company and is
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 89
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.
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
89
CAMA 2004
41
(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
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
Where the act of the agent or officer as the case may be, is out of the scope of
42
be void.
section-
by a company as auditor it appears to the court hearing the case that the officer
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
43
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.
Section 65 now provides that a company may be criminally liable for the acts of
its members in general meeting, the board of directors, or the managing director
in the case of Agbebaku v State90, As was decided by Onyekachi Aja Otisi JCA;
it was held that the principle enunciated there in is that a corporation which can
only have knowledge and form an intent through its human agents, will be liable
in the circumstances are such that the knowledge and intention of the agent must
The directors and managing directors or officers of the company represents the
90
(2015) LPELR 25763 (CA) Pp 19-22 para A
44
directing mind and will of the company, if proof of mens rea as necessary
ingredient; the Court stated that the company or corporation houses can no longer
claim immunity from criminal prosecution on ground that they are incapable of
possessing the necessary mens rea for the commission of criminal offences. By
way of principle of attribution, the criminal body corporate, that is the person or
group of persons in control of the affairs of the company and at the helm of it
affairs, can be attributed to the company and the company can be prosecuted. This
means attributing the will of the individuals on to the company to attract criminal
liability of the corporate body. “It is true that a corporation can only have
knowledge and form an intention through its human agents and be criminally
liable for the acts of its agents. However there is exception to that, in FDB
Financial services ltd v Adesoza91;it was well stated that directors, officers and
employee of a company can be held criminally liable for any criminal act that
the corporation’s interest. Then directors officers and employee must answer for
any personal wrong done and cannot be shielded by the corporate entity. The
court will then occasion demands lift the veil of incorporation to identify wrong
doers. 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
91
(2002)8 NWLR (pt668)170 at 173 Pp24 para c-f
45
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”.
LIABILITY IN CONTRACT.
Corporation Act 124 slates that once a company is registered, it is granted the legal
capacity and power of an individual, which includes, quite naturally, the ability to
Aka’ahs JCA opined in Afri Bank Nig. Ltd v Muslad Enterprises Ltd and Anor92;
it was the second respondent who accepted the terms and condition of the facilities
granted to the first respondent on exhibit P1. It is a well known principle of law
that a limited liability company is an entity different and distinct entity from its
managing director or human agents who act for it. So even though the second
respondent was the sole signatory to the acts of the first respondent, and he was a
moving spirit behind the activities of the first respondent, he cannot without more,
loan.
92
(2007)LPELR 5126 (CA) (Pp19-20 paras B-A)
46
Obaseki-Adejumo JCA stated in Daily Times v Sky Bank Nig Ltd93 Loans may be
purpose of the company or to enable him to perform his duties properly. Also
where the ordinary business of the company includes the lending of money or
In the second case, the loan or guarantee must first be approved by the company in
next general meeting, the loan must be repaid or the guarantee discharged within
I am therefore not hesitant to conclude that the provision of section 270 of CAMA
does not Ipso facto render any guarantee executed without complying with the
provision, illegal and unenforceable but merely renders the director themselves
who authorizes it liable to the company for losses arising therefore. In other words,
the loan/guarantee shall not be affected by the reason of failure to obtain prior
93
(2017) LPELR-43539 (CA).
47
4.1.2 CIVIL LIABILITIES
The principle of vicarious liability of a company for the act of its staff while acting
in the course of their employment has also been well articulated by legal
established that the acts complained about were firstly committed by the officers of
the company, secondly, that such acts were carried out on the course of the
Ltd v Soleh Boneh Nig. Ltd.94 state that the principle of law is that a master is
liable for any wrong even if it is a criminal offence or a tortuous act committed by
his servant while acting in the course of his employment. It was also stated that;
The Corporation aggregate may be liable to be sued for any tort provided that;
individual
b. The person by whom the tort is actually committed is acting within the scope
of his authority and in the course of his employment as agent of the corporation.
c. The act complained of is not one which the corporation would not in any
94
(2002) ALL FWLR (pt27) pg 250 para 1
48
Karibi-Whyte JSC in his contribution in Agbanelo v Union Bank of Nig. Ltd95
stated; The liability of the master is dependent on the plaintiff being able to
establish the servant’s liability for the tort and also that the servant was not only
the master’s servant but that he also acted in the course of his employment has
been said that any director who personally commits a fraud or any other tort in the
course of his duties is liable to the injured party. This is on the principle of that
whoever commits a wrong is liable for it himself, and nonetheless so that he was
by the same rules as those which determine the liability of any other private
individual.
Alade v Alice Nig. Ltd and Anor,96 The defendant company raised a loan from the
plaintiff to be used in trading, however, the loan amount was instead used to offset
the company’s prior indebtedness. The Supreme Court found all directors of the
company liable in accordance 290 0f the CAMA for applying a loan for a purpose
49
4.2 REMEDIES
At common law, a shareholder did not have the right to bring an action for a
wrong against a company. It was stated that a shareholder cannot bring an action
wrong is one that can be ratified by the majority, known as the majority rule.
Under the exception to the rule in Foss v. Harbottle97, a shareholder can sue to
the company shall where irregularity has been committed in the course of a
The company is the proper and only plaintiff or defendant in an action for a wrong
done to it or done by it through its accredited employee. In First Bank Nig. PLC
v Aboko;99 In the instant case the second defendant was not answerable
personally for any wrong he might have committed in the course of discharging
his former duties. He was not a party to the action and his name was accordingly
struck out.
Eko JSC decide in Total E & P Nigeria Ltd v Emmanuel & ors100; It is the
97
(1843)2 Hare 461
98
CAMA 2004
99
(2006) ALL FWLR (pt301) 1897
100
(2014) LPELR 22679(CA)
50
was also decided in Usuah v G.O.C. Nigeria Ltd101, where the party sued is
G.O.C. Nigeria Ltd, it was held that the said party cannot by process of
amendment be substituted with G.O.C. Nigeria Ltd. Total E &P Nigeria Ltd
It was decided in the case of Odutola Holdings Ltd and Anor V Ladejobi and
Anor102 that a director of a company can authorize that action be taken to protect
the business of the company. In the instant case, there was no evidence that the
article of association of the appellant has provisions which prevents the board of
The term breach does not include a failure to observe a duty of good faith and
loyalty, care and skill, but also an act utlra vires the powers conferred upon the
directors or ultra vires the board as a whole or the company itself. Equally, if the
company is in liquidation, the liquidator will in general meeting have the conduct
of the action in the company’s name though if the breach of duty falls within
Section 310103 of the Act, he or the official receiver, or any creditor or contributor
etc. may instead be able to invoke the simpler procedure of a summons in the
liquidation.
101
(2012)3WRN 123
102
ALL FWLR 2006 (pt322) 1397
103
Sec 311 CAMA
51
A right of petition under this provision is available to members who has been
of a company. The application shall be made to the Court, the ground being
INJUNCTION(S) OR DECLARATION(S)
further breach or where a breach is threatened but has not yet occurred. The
court and the corporate board with respect to the boards proper function.
Moreover, the prospect of being sued is itself a substantial deterrent for many
corporate executives or being enjoined for failure to perform ones duty. The court
can use its injunctive power in imaginative way such as to improve the
52
In Agip Nig. Ltd v Agip Petroleum International and ors104; A derivative action
on behalf of the company against a third party. Often the third party is an insider of
the corporation such as the directors or executive officers. Under the traditional
corporation against suit. The second basic requirements at common law for a
1. That the alleged wrong or breach of duty s one that is capable of being
2. That the alleged wrong doers are in control of the company, so that the
Therefore, suits for equitable relief can motivate director to act prudently and in
the best interest of the company. According to Prof. Gower, this remedy appears
to be the most satisfactory course, provided the action is taken within a reasonable
time.
1. Amount to a fraud on the minority and the wrong doers are in control of the
company.
53
company breach of duty etc. that cannot be ratified by ordinary resolution..
event
DAMAGES OR COMPENSATION
At common law, damages are for breach of duty of care, whereas compensation is
It is unlawful for a company to make to any director of the company any payment
with his retirement from office unless particulars, with respect to the proposed
payment and the amount, have been disclosed to members and the proposal is
connection with his retirement from office, the payment will be lawful unless
particulars of the proposal and the amount have been disclosed to members of the
contravention of this provision, the amount received by him in trust for the
company.107
105
Ibid. Section 271.
106
Ibid. Section 272(1).
107
CAMA, Cap. C20,LFN, 2004,Section 272(2)
54
REVISION OF CONTRACT IN WHICH THE DIRECTOR IS
INTERESTED
Where there has been an arrangement, which derogates from the rules regarding
instance of the company, provided restitution in integrum is possible and the right
A director who makes secret profit out of the performance of his duty will be
“It is quite clear that if an agent uses property with which he has been entrusted
by his principal so as to make profit for himself out of it without his principals
the use of his principal, then again if he turns it to his own use so as to make
108
Ibid. Section 273(1)
55
knowledge is the property of his principal just as much as an invention is
…‟.The company may claim an account of any profit made by director whether
or not he rescinds the contract, if the profit arises out of the contract with the
company.
A director must make commercial decisions. These decisions often involve some
form of commercial risk and are sometimes made on the basis of limited
information.
It would be unjust to hold director personally liable for a breach of duty regardless
of the situation; Section 1318109 provides some protection for company officers
negligence, default or breach but that the person has acted honestly and that,
having regard to all circumstances of the case, including those connected with
the person’s appointment, the person ought fairly to be excused for the
negligence, or default or breach, the court may relief the person either wholly or
109
Corporation Act 2001
56
partly from liability on such terms as the court thinks fit.
The purpose of the corporations Act and its predecessor was for permitting the
and regulate the rights of members inter se, the right between and creditors of
corporation.
In As long as there is full disclosure to the general meeting and ratified by the
breaches of duty if he acted on the orders of the company and within its powers.
Vassilev V Pass Industry Nig. Ltd, and Others110.The plaintiff now respondents
filed a suit before the Plateau State High Court, claiming against the defendants
jointly to severally for a certain sum of money per-day, as per the agreement
executed by both parties, in 16th July, 1992.The case was heard without the
defendants attending court and judgment was entered against the defendants
The second defendant, who was the managing director of the first defendant, filed
an appeal challenging the judgment in the basis that the claim against the
defendants was jointly and severally and thereby occasioned a serious miscarriage
110
(2002) ALL FWLR (pt 19) 418 CA
57
of justice. A breach of duty bearing directly upon the personal right of individual
or not relieved from the liability, the directors are more vulnerable now in the
management of the affair of the company than at any time before. Hence prudent
4.3 CONCLUSION
In conclusion, despite the fact that a company is a juristic person who act through
its agents and officers; who though are immune from liabilities, may be liable for
Finally no doubt, a closer look at the Act shows that, directors are neither liable
for not attending board meeting nor as a corollary for failing to prevent their
wrongdoing138.Therefore the company remains liable for the acts of its directors
who are acting specifically under the instructions and benefits of the company
58
CHAPTER FIVE
5.1 CONCLUSION
never meant to be sacrosanct to the extent that it could be used to protect crime,
been carefully contrived by dishonest insiders. The challenge posed to the law
by persons who deliberately use the corporate personality concept for dishonest
This is not to say however, that in every case where a company is involved in
crime, the agents and officers are responsible. The advantage of incorporations
has been put to dubious use by insiders to the disadvantage of the company.
However, in recent times officers and agents of a company for whose act the
company will be held liable are equally held liable with the company as
59
principal offenders111
officers while acting in their capacity as such will not go unpunished and the
Thus, the imposition of liability on the company gives all those acting as the
Moreover, it will make them be on their guard since such convictions of the
5.2 RECOMMENDATION
An attempt has been made to examine the officers and agents of a company: their
Allied Matters Act 2004.The Act even though was made for the protection of the
officers also gave room for instances where these right can be boycotted that is,
Be that as it may, there is the need for companies in Nigeria to employ committed
officers and agents who seek to uphold the course of the company at all times and
111
See Section 7 Criminal Code
60
not people who run after their own selfish interest or means of defrauding the
company.
The area of the law in Nigeria need further development as to curb the rate at
which fraud is being perpetrated by the officers and agents of the company who
be employed.
61
BIBLIOGRAPHY
Akanki, E. O. (1992). Essays on Company Law. Lagos: University of Lagos Press
Charlsworth, J. & Cain, E. C. (1972). Company Law. (10 th Ed.), London: Stevens
and Sons.
Paul, D. & Gower, D. (2003). Principles of Modern Company Law (17th Ed.),
London: Sweet & Maxwell, London.
63