Liability of Shareholders for Debts Owed by the Company

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    Facts

    In 2009, the Respondent instituted an action at the High Court of Ghana and obtained judgement in the sum of US$1,043,682.00, being the cumulative indebtedness; interests as at 31/10/2008 in the sum of US$101,625.00; and ten percent interest from 31/10/2008 to 31/5/2009 in the sum of US$60,881.45.

    Further to the above judgement, the Respondent instituted an action before the High Court of Lagos State, seeking an order of court entering final judgement against the 1st to 3rd Appellant. The 1st to 3rd Appellant filed their pleadings and a Notice of Preliminary Objection, challenging the competence of the suit and alleging lack of jurisdiction of the trial court on the ground that the provisions of Section 8 of the Foreign Judgements (Reciprocal Enforcement) Act, 2004 and the Reciprocal Enforcement of Judgements Act (CAP 175) 1958 ousted the jurisdiction of the trial court to deal with the matter. The Appellants also alleged that the service of the Originating Processes on the 1st Appellant was not proper; that the 2nd and 3rd Appellants were not parties to the foreign judgement sought to be enforced; and that the issues before the court in the said suit were res judicata. After hearing arguments from parties, the trial court found that the service of the Originating Processes on the 1st Appellant through the 2nd Appellant was improper; nonetheless, the court dismissed the other grounds of the objection filed by the 1st to 3rd Appellant.

    The 4th Appellant also filed a Preliminary Objection against the competence of the suit, on the basis that the Respondent did not comply with the requirement of issuing a thirty-days Pre-action Notice in writing, which is a condition precedent to instituting an action at the trial court. The court upheld this objection of the 4th Appellant, and struck out its name as a party to the suit.

    Thereafter, the 1st to 3rd Appellant appealed the decision of the trial court dismissing their Preliminary Objection. The appellate court dismissed the appeal, and remitted the case to the High Court for re-assignment and trial before another Judge. The Summons for Judgement was thereby heard, and the court delivered its ruling entering final judgement against the 1st to 3rd Appellant.

    The 1st to 3rd Appellant, appealed the decision of the trial court. At the Court of Appeal, the Respondent filed a Notice of Preliminary Objection to the competence of the appeal of the 4th Appellant whose name had been struck out as a party before the trial court, and who did not seek and obtain the leave of court to appeal as an interested party.

    Issues for Determination

    The issues in the Preliminary Objection were:

    1. Whether the 4th Appellant’s appeal ought to be struck out and/or dismissed as incompetent.

    2. Whether the 4th Appellant can appeal the ruling/judgement as of right, when there is no order made against it in the decision, and merely because its name was inadvertently included on the face of the decision of the court.

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    In the main appeal, the court considered the following sole issue:

    Whether the court below was right when it held that the 2nd and 3rd Appellant are not distinct entities from the 1st Appellant, and that they are liable for the debts of the 1st Appellant, and whether the court below rightly arrived at the conclusion that on the preponderance of evidence before it, the Respondent’s case ought to succeed against the 1st to 3rd Appellant.

    Arguments

    Arguing the Preliminary Objection, counsel for the Respondent submitted that parties are ad idem on the fact that the 4th Appellant was struck out as a party before the lower court. He argued that the name of the 4th Appellant as seen in the decision was mere inadvertence of the court, which the court would have corrected if its attention had been drawn to same by the 4th Appellant. He submitted that the 4th Appellant had no standing to appeal the decision, without seeking leave of court to appeal as an interested party. Counsel argued further that the orders made by the trial court did not affect the 4th Appellant, to be conferred with the right to appeal as an interested party. On his part, counsel for the Appellants submitted that the first two issues of the Respondent, which were also the issues raised in the preliminary objection, were incompetent for a proliferation of issues. He argued that the appeal of the 4th Appellant is competent, because there is nothing to show that the name appeared on the decision by inadvertence of the court. Counsel posited that, in law, where the name of a party appears in a decision of court, that party remains a party to the suit.

    Regarding the issues in the main appeal, counsel for the Appellants submitted that in law, once a company is registered, it becomes a separate and distinct entity different from its directors, employees, shareholders and all other officers. Thus, the 1st Appellant is a separate entity from the 2nd and 3rd Appellant, though the 2nd Appellant is a shareholder in the 1st Appellant and the 3rd Appellant is a shareholder in the 2nd Appellant. He argued that shareholders cannot be held liable for the actions or debts of a company, save for the unpaid value of their shares. He referred to Section 37 of the Companies and Allied Matters Act (CAMA), 2004.

    Regarding the issue of res judicata, counsel argued that the trial court, having held that the 2nd and 3rd Appellant are privies to the 1st Appellant, fell into a grave error of law when it proceeded to hold that the Respondent’s suit was not caught up by the principle of res judicata, given the earlier decision of court in Suit No. REJ/02/2010, which suit was dismissed by the court on the ground that the judgement cannot be enforced in Nigeria against persons who were not parties to the suit in Ghana. Counsel urged the court not to allow the Respondent to re-litigate the same issue and subject-matter against the same parties, as the Respondent could have appealed the decision of court instead of filing a new suit. In his reaction, counsel for the Respondent submitted that the suit was not barred by the principle of res judicata, as the issues between parties were not determined in the earlier suit. Counsel argued that the court rightly granted the reliefs against the 2nd and 3rd Appellant, as there was overwhelming documentary evidence of merger or acquisition of the 1st Appellant by the 2nd Appellant, inclusive of its assets and liabilities.

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    Court’s Judgement and Rationale

    Deciding the Preliminary Objection, the court held that a Respondent who neither files a Cross-appeal nor a Respondent’s Notice, cannot formulate issues outside the Grounds of Appeal as filed by the Appellant. In this case, issues one and two in the Respondent’s Brief, were said to have been distilled from Grounds one and two of the Notice and Grounds of Appeal. However, the issues do not arise from ground one and two of the Grounds of Appeal as alleged, or from any other ground. It follows therefore, that the issues are incompetent. The court thereby, struck out the issues. However, the appellate court held that, there is a saving grace for the two issues formulated by the Respondent, as same were adopted as the issues in the Preliminary Objection. Thus, the court decided to consider the issues alongside the Preliminary Objection.

    The appellate court observed that the name of the 4th Appellant, which had earlier been struck off the suit was contained in the ruling of the lower court, and that this was not an inadvertence of the trial court as some other paragraphs of the ruling showed references to the 4th Appellant, where the court held that the issue of res judicata was yet to be settled between the Respondent (as the Claimant) and the 4th Appellant.

    The appellate court held that, it was the duty of the Respondent to apply to the lower court for rectification of the error in the ruling. Having failed to so do, the error becomes one which can be corrected by an appeal, so that the 4th Appellant can be free from the ruling bearing its name. The 4th Appellant was a party on record to the ruling appealed against; hence, it has a right to appeal as of right to have its name struck off the record. Accordingly, the court struck out the name of the 4th Appellant from the ruling of the trial court.

    Deciding the main issue, the court relied on documentary evidence before it, showing that the 2nd Appellant acquired 100% of the 1st Appellant’s shares vide a Share Purchase Agreement dated 7/2/2007, to hold that what transpired in law was simply a shareholding agreement and not a merger or acquisition as argued by the Respondent. This does not translate to the 2nd Defendant becoming an agent or bearer of the liabilities of the 1st Defendant, beyond the value of its shareholding. The law does not permit a shareholder and/or directors of a limited liability company, as the 1st Appellant, to be held responsible for the company’s liabilities beyond the value of their shareholding in the 1st Appellant. Thus, so long as the 1st Appellant remains a legal entity in law, separate and distinct from the 2nd and 3rd Appellant, it remains responsible for its own liabilities – VIBELKO (NIG.) LTD v NDIC (2006) 12 NWLR (Pt. 994) 280 at 293-294. Further, the shareholding agreement relied on in this case was not registered with the Corporate Affairs Commission, in line with the provisions of CAMA, 2004. The only admissible form of such document is a certified true copy, but the Respondent failed to provide the document in an admissible form on the excuse that they are foreign companies. There is no exception under the Nigerian law, which allows the use of an unregistered Share Purchase Agreement in proof of purchase of shares in a company.

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    On the issue of the 2nd and 3rd Appellant being privies of the 1st Appellant, the court held that the onus was on the Respondent to prove that they are privies of the 1st Appellant, and therefore, bound in law to satisfy the judgement obtained against the 1st Appellant in Ghana. From the evidence before the court, there is no agency or privy relationship between the Appellants. It follows that, they cannot be bound by the judgement of the High Court of Ghana.

    Regarding the issue of res judicata, the court held that the refusal to register the judgement of the High Court of Ghana alone without more, cannot amount to the same issue in a fresh action seeking to prove the said judgement against the 1st Appellant. The first suit filed by the Respondent was for registration of foreign judgement, while the suit leading to this appeal, was for proof of the foreign judgement by means of Writ of Summons. Thus, the issue of res judicata was not made out against the 1st Appellant, while the issue does not arise at all in the case of the 2nd and 3rd Appellant who are strangers to the transaction between the 1st Appellant and the Respondent.

    Overall, the court upheld the decision of the lower court, which found the 1st Appellant liable for its debts to the Respondent, but adjudged as perverse, the part of the decision which held the 2nd and 3rd Appellant liable to pay the debts of the 1st Appellant.

    Appeal Succeeds in Part.

    Representation

    Seni Adio, SAN with Ijeoma Njemanze, Esq. for the Appellants.

    J.W. Dong Esq. for the Respondent.

    Reported by Optimum Publishers Limited, Publishers of the Nigerian Monthly Law Reports (NMLR)(An Affiliate of Babalakin & Co.)

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